Good morning and welcome to Norconsult's first quarter presentation. My name is Egil Hogna, and I'm the CEO of the company. After today's presentation, you will be able to ask questions. We will take them orally here in the audience, and if you are following us by webcast, you can ask those questions in the chat, and then they will be read aloud here in Oslo. After my presentation, our CFO, Dag Fladby, will continue with the financial results. We are happy to be able to present another quarter characterized by growth and underlying stable profitability. We will talk a bit about the highlights of the quarter, give you some representative examples of new projects we have won and worked on during the quarter, and then we will continue with the finances and finally the outlook.
For those of you who are not very familiar with Norconsult, I would like to start by repeating some key facts. Norconsult is Norway's largest and one of the leading design and engineering companies in the Nordics. We have 6,300 employees and approximately 140 offices. We take pride in being local with a strong network of state-of-the-art knowledge. More than half of our revenues come from the public sector, and we have six reporting segments: the Norwegian head office, the regions, Sweden, Denmark, Renewable Energy, and last but not least, Technogarden and Digital. Our three main markets are buildings and architecture, infrastructure, and energy and industry. The first quarter has been a quarter characterized by growth and underlying stable profitability. It is important to note that in our industry, the calendar and where the holidays are placed every year matters a lot for our revenues.
The reason is that we charge by the hour or based on the number of working days during the quarter. When the number of working days change, then our revenues will vary while our costs remain the same because they are mainly based on monthly salaries and rents. Due to the fact that Easter in the first quarter this year, while it was in the second quarter last year, it means that compared to last year, we had revenues of NOK 178 million less this year simply due to the calendar effect linked to the Easter holiday. In absolute terms, our net revenues were approximately constant at NOK 2.36 billion. However, when you adjust for the calendar effects, you can add NOK 178 million on top, giving us 6% organic growth adjusted for these calendar effects.
When you look at our bottom line, our result, which we measure as adjusted EBITDA, we have exactly the same effect. So while we delivered a bottom line of NOK 227 million, when you add the NOK 178 million on top, you get to NOK 405 million, which is actually an increase compared to last year. So that's the underlying effect. And when we then look at underlying margins, they were approximately constant at 16%. The picture shows one of the winners of our Norconsult Awards ceremony this year. This is a new building at the Technical University of Denmark winning a DGNB Gold certification and the DGNB Diamond Award for its environmental performance. In terms of markets, we have seen a slightly more positive sentiment in the market for buildings and architecture.
The private part of this market was last year characterized by higher inflation and in particular, higher interest rates, which led to a number of customers postponing projects and reduced activity. We have seen that this has changed somewhat during the first quarter, meaning that we have both had an increased activity level and in particular, an increased order book relating to this market segment compared to the previous quarter. However, the main factor which has supported Norconsult's stable performance also in this market is the fact that the demand for public buildings has been quite stable throughout both last year and this first quarter. The same is the case for the infrastructure market, which has been stable both when it comes to roads, railways, and also water infrastructure, which is a growing and important part of the infrastructure market.
Energy and industry has a strong market very much characterized by the green transition driving a demand for more Renewable Energy and electrification of existing industry. Here we see a good balance between industry and energy projects. The first quarter is from an organizational point of view, a quarter where we do a lot of planning for the year and planning for an update of our strategy. We had quite a good celebration of the International Women's Day, and we also have a good collaboration with the BI Norwegian Business School on multicultural leadership and partnering. We celebrated our Norconsult Awards where we recognized outstanding achievements across our company, and we had a management summit where we started our work on, as I mentioned, updating our strategy. In terms of the number of employees, it was stable during the first quarter, which is quite normal.
This is the quarter where we typically have the least recruitment as most graduates finish their studies after the summer. In the first quarter, we completed two acquisitions, both of them in Norway. SQM is a small Norwegian project development consultancy specializing in private building projects. We acquired a majority of the company, and they were consolidated from the end of January. The second company is called Concreto. It's a planning and analysis company specializing in buildings and infrastructure. Both of these two companies work in what we call the early phase of building projects. We believe that there are synergies from this activity and our core engineering activity because being an important player and partner in the early phase of these projects tends to also support demand from the more labor-intensive later parts of building projects.
Now I'd like to show you some examples of new projects which we have gotten during the quarter. Let me start with a school in Oslo. This is a fairly large school at Økern. Like we see for almost all new substantial building projects, the main focus is the energy efficiency and the environmental performance of these projects. That is becoming quite a specialty for Norconsult, and we get significant work associated with this. We believe that these kinds of projects will grow in the future, partly because of the new Energy Performance of Buildings Directive in the EU, which is driving demand both in the EU and in Norway, both for certification of buildings measuring the energy performance and for doing the upgrades which are necessary. So this is driving both the rehabilitation market and new build markets, and this is an example of the latter.
Another important type of project is the Renewable Energy project. This is a project we have for Statkraft, the Norwegian state power company, which is investing heavily to upgrade their power plants in Norway. So here we are designing and engineering a new dam in Vinje. A final typical example is the upgrading of a stretch and a crossing of National Road 4 close to where I like to do some skiing during the winter. This is a project which is medium-sized. We see in the infrastructure now that the number of very large projects is going down somewhat while there is a strong emphasis on upgrading the national and local roads in order to get a good standard with a good combination of environmental safety and speed performance.
Finally, I'd like to talk a bit with you about how we work with the digital transition and the sustainability transition in the market. These two transitions are maybe the most important change which is going on in our market. We believe that the main impact we will see on our industry and on Norconsult is the combination of these, which we call the Twin Transition. The combination of the digital transition and the sustainability transition. Because we see that when you combine these, you can drive sustainability performance in very often quite a cost-effective way. We have put here on this slide what we call the sweet spot when technology and sustainability complement each other.
They do that when you are able to optimize building projects and rehabilitation of buildings and infrastructure in a new way in order to reach both a better productivity, energy efficiency, and ultimately the profitability. In Norconsult, artificial intelligence is the most important catalyst for this transition. In Norconsult, we have, let's say, two main categories of artificial intelligence. One is the type which we have worked with for quite some time, which is machine learning and optimization. The other one is generative artificial intelligence. Today in Norconsult, a lot of people are doing programming. I dare say that virtually no one is not using AI in order to increase the productivity of their programming in order to avoid the more, let's say, boring programming tasks.
That is already well established, but we see a number of an increasing number of projects linked to using AI as a way of delivering both better productivity, better creativity, and entirely new solutions to our customers. Let me go quickly through these six examples. GeoTolk is a system which we have developed to interpret measurements by sensors in combination with drilling samples in geological surveys to interpret and to predict what kind of soil and ground conditions you have. So this is a tool to make it easier and more cost-efficient to find out what is hidden underneath the ground. GeoRaptor is a program or system in order to optimize infrastructure planning where a number of different input sources are used in order to optimize both the cost of infrastructure, the environmental performance, and the consequences for nature.
A third project which we are doing, which Norconsult Digital is doing together with Siemens, is optimizing the charging of electrical ferries. This is quite a complex optimization because you need to take into account both fluctuating power prices. You need to take into account the battery lifetime. You need to take into account different traffic and different weather. So all of these external factors are measured, put into an optimization, and then it is a self-learning system based on the actual performance of the ferries and the batteries in order to find the best possible charging method. POSI-RED is a system and a way of minimizing post-operative infections in connection with surgery. In particular, for orthopedic surgery, post-operative infections are a big challenge and a threat to patients' health.
By using stereo cameras in a surgery room, an operation room, we are able to monitor airflow in the room in combination with people movements and ventilation. We are then modeling to find what are the best ways of doing the ventilation. It's linked to our HVAC knowledge, heat, ventilation, and air conditioning, and how to model the room and how to optimally move for the people doing the surgery in order to minimize the risk of airflow carrying bacteria and viruses to infect wounds. Fifth project, behavioral analysis in city environment.
Here, the combination of simply a camera and artificial intelligence following the actual movement of people, predicting accident risks, and also predicting the rental opportunity of space on sidewalks, for example, in connection with cafés to find out what is the optimal combination of risk and where to put a café in order to have the right combination of cost and revenue from the rental of this space. And last but not least, generative artificial intelligence in architecture is a way for our architects to quickly come up with sketches and concepts which they can show to customers, enabling them to have an accelerated early phase of the projects. So with those examples, I'd like to give the word to Dag Fladby, who will talk more about the finances.
Thank you, Egil.
As Egil pointed out in the beginning, the first quarter is significantly affected by five less working days compared with the same quarter last year. The calculated effect of that is NOK 178 million in minus, affecting both revenue and EBITDA. Our net revenue in the quarter ended at NOK 2.36 billion, which is the same as the same quarter last year. The underlying organic growth was 6%, driven by increased FTEs, increased average billing rates, and partly mitigated by lower billing ratio. Our billing ratio at the end of the quarter was 72.1%, down from 74%. That is mainly due to a weak building and architecture market affecting the Norway Region the most. We also have a lower billing ratio in Sweden, which I will come back to later in the presentation. Our EBITDA ended at NOK 227 million, down from NOK 381 million.
The underlying profitability ended at 15.9%, more or less stable compared to the same quarter last year. Pre-tax profit or profit after tax, NOK 103 million, obviously affected by the calendar effect, but also the one-offs we have with the employee share program for 2023, which was the gift shares, which the company gave out to our employees, 2,575 shares with a vesting period of one year. So that is a quarterly effect of the provision of the cost, NOK 77 million. As shown in our first quarter result, our business is significantly affected by seasonality. This picture here shows that I will not go through the drivers behind the seasonality effects, but I would like to now highlight the negative effect we have this quarter with five less working days.
We'll almost have the opposite positive effects in quarter two with 4 more calendar days or working days, affecting positively approximately NOK 140 million on revenue and EBITDA. With focus on quarter two, I would also like to highlight that quarter two billing ratio was very strong. Now, a few words on our segments. We start with Norway Head Office, which continues with solid organic growth and also improved underlying profitability. Our net revenue ended at NOK 716 million, more or less stable compared with last year, but adjusted for the calendar effect, we have an organic growth of 9%. The growth is driven by more employees, 6%, increased billing rates, and also slightly improved billing ratio. And part of the improvement in billing ratio is due to the measures we took in quarter three and quarter four last year with some demanding in our architectural business.
The EBITDA ended at NOK 84 million, down from NOK 133 million. The underlying profitability ended at 19.9%, an improvement from last year from 18.4%. The improvement is mainly due to the revenue increase. Moving then to Norway Region. Norway Region is the segment for us is the most exposed to the weak private building and architecture market. Hence, we have seen some declining organic growth the last quarters. This quarter, we are at a slower pace of 3% organic growth. Taken into the calendar effect and also the decreased billing ratio, our EBITDA was affected negatively, ended at NOK 56 million versus NOK 140 million the same quarter last year, and also a reduced profitability to 16.6%. The order intake in building and architecture market this quarter has been on an okay level. However, it will take some time before that materializes into billable hours. To Sweden.
Sweden continues with solid organic growth of 11%, mainly driven by the substantial senior recruitment we did second half last year, but also increased average billing rates. The billing ratio has been weaker than earlier, mainly due to some units in the building and architecture business, which have a lower billing ratio this quarter. Net revenue at NOK 394 million, which is an 11% increase, and the EBITDA of NOK 37 million, down from NOK 61 million. The profitability is declining somewhat compared with the underlying profitability is declining somewhat compared with earlier periods. And the main reason for that is the effect we have from the senior recruitment, as it takes longer time to have them up to normal speed on billing ratio. That is an estimated effect of around NOK 7 million. And we also have a slightly lower billing ratio in our building and architecture unit.
In addition to that, there are some lower activity in the geotechnical services. Denmark continues to grow from acquisitions. We have negative organic growth in this quarter as well. However, it's a positive development this quarter. We see some positive signs of improvement in the architecture business. So EBITDA ended at NOK 13 million. That is a decline from NOK 20 million last year. However, it's a calendar effect there of NOK 8 million. And the profitability, the underlying profitability of 11.3% is more or less on the same level. I would like also to point out that the EBITDA includes IFRS provision related to leaver penalty and earnouts from our M&As. So that is approximately NOK 4 million. It's a non-cash item. And that will repeat in the next coming seven quarters. Renewable Energy continues strong organic growth, 17%, driven by increased FTEs, increased average billing rates, and also improved billing ratio.
Adjusted EBITDA, NOK 36 million, more or less the same level as last year, but taking into account the negative calendar effect, we have an underlying EBITDA margin of 24.4%, which is strong. The improvement is mainly due to the hydropower unit, but we also have solid performance in wind and solar unit as well. And then finally, Technogarden and Digital, total gross revenue increased with 6% while net revenue decreased by 4%. And that is mainly due to more use of subconsultants in Technogarden. Digital is more or less stable in terms of net revenue. And when it comes to profitability and adjusted the EBITDA, we have EBITDA of NOK 11 million this quarter, down from NOK 13 million the same quarter last year. And the profitability is slightly declining. The profitability in Digital is not according to our expectations.
We will take further measures to improve the profitability in the coming periods. Moving into the cash flow. Cash flow is depending on seasonal variations. Cash flow from operation this quarter ended at NOK 184 million, down from NOK 259 million the same quarter last year. That is, the NOK 184 million is impacted by both calendar effects, but also bank holidays. As we reported in quarter four, we had postponed payments into first quarter of around NOK 70 million as due date ended in a banking holiday. However, the due date at the end of March was actually also a banking holiday in the Easter. The net effect was slightly negative for the cash flow from operation in this quarter. In addition to that, we have renegotiated a large software application contract, which has a negative cash flow effect in this quarter of around NOK 40 million.
Taking these two items into account, the cash conversion is more or less at the same level as comparable quarters. Our cash position, including investment in investment-grade bonds, is NOK 999 million at the end of the quarter. End of quarter one last year was around NOK 1.4 billion. The main reason for the decline is the extraordinary dividend we paid out in quarter four of around NOK 600 million. A few words on our balance sheet. We have a strong financial position. Our cash position, including market securities, is NOK 999 million at the end of the quarter. We don't have any interest-bearing debt except for IFRS 16. So our leverage ratio is negative with -1.45. The difference with 1.45 and 1.72 in the same quarter is mainly the payout for the extraordinary dividend over nearly NOK 600 million.
Yesterday, the annual general meeting approved to pay out 1.20 per share. So it's ex-dividend today. And the dividend will be around NOK 340 million and will be paid out on or about 24th of May. And finally, from my side, it's also it has been a very good order in order intake momentum in this quarter. So we are happy that our order book has increased from NOK 6.2 billion to NOK 6.6 billion end of end of March. So with that, Egil, I leave the word to you to go through our outlook.
Thank you, Dag. So the outlook going forward is maybe a little bit boring. We say it's stable. It has roughly been stable also this this quarter. The most important change which we have seen and which we expect to continue is signs of improvement in the market for buildings and architecture.
In the quarter which has passed, what we have seen is that our billing ratio in this area is still affected in a negative way by the total demand. But what we have seen is that the architects are getting a bit more work. We've also seen that the order book is increasing in this area. And the way the cycle works is that typically you get orders, the architects get more work, and then finally the engineers get more work. So that is the development which we expect. And this is, of course, also linked to the interest rate expectations going forward, where the expectations now is that the peak has been reached and that it is a matter of time before there will be some reduction in the interest rates. In infrastructure, we see a stable demand.
We see a higher proportion of small to medium-sized projects, a bit less of the very large projects we have seen. But this is an expected development and not really something which is either positive or negative for Norconsult. And then the activity remains strong together with the outlook for energy and industry. And with the increase in order book of approximately NOK 400 million to a total of NOK 6.6 billion, we continue to expect a stable outlook, as I mentioned. So with that, we open up for questions and answers. And I think we will start with the audience here in Oslo, and then we move to those following us via the web. So, Martine.
Great. Thank you. Martine from Nordea. I was just wondering about the development for the additional Swedish personnel. How do you see that in the next quarter?
When do you think that you will see some sort of normalization in the billing ratio there?
I think we will see normalization in quarter three. So I guess it's fair to say that quarter two will be more or less the same level as quarter one, maybe slightly improvement.
Great. Thank you.
Petter Billing, SEB. I was wondering about the framework agreements. You mentioned one new framework agreement in Sweden. So if you could just remind us your total portfolio with regards to framework agreements and if there's any other changes in that portfolio other than the one in Sweden through the quarter.
Yeah. I can maybe start. First of all, the framework agreements, we don't include in our order book, of course, only when we get assignments signed. We have very many framework agreements. So one or two or ten additional or less doesn't really matter.
So it's very many framework agreements.
To make it a little bit more complicated, sometimes our customers decide to go outside of the framework agreement if they believe that is more appropriate. So this can be a little bit random sometimes. So yeah.
Hans-Erik Jacobsen, Nordea. Can you comment on how the increased defense budgets is likely to impact your business over the next few years?
We think the increase in defense budgets is going to positively impact our business. We have an ongoing dialogue with customers in this area. We work with both the big public and also private companies in this area. And clearly, there will be a significant level of investment both in Norway and Sweden linked to this going forward. In what is called Langtidsplanen in Norway, we know that the total frame of investments is going up.
It will affect both the demand for buildings and for infrastructure and also industry. So this is one of the significant impacts in the years to come.
Hi. Jenny Pihlzon, Carnegie. We were wondering, given your improved outlook in the buildings and architecture segment, when do you expect this to materialize in more growth in regions Norway?
It's a good question. We see, as I mentioned, that the architects are getting busier, which is good. But there is always a time lag in this market so that we are now seeing some of the engineers having a bit less to do linked to what we saw last year when the architects were having less utilization. So we will have to sort of work ourselves through this dip. But the good news is that we are now seeing that it's ticking upwards again.
But I would expect that this is something which will continue to characterize the situation in the second quarter, for example, with somewhat less work for our engineers working in the building area while the architects will have a pickup. The overall positive sign is, of course, the increase in the order book, which we believe is maybe what should be paid attention to.
Can I just have one follow-up?
Sure.
We were just evaluating EBITDA on a group level, and we just noticed that in the other account, there was a pretty big improvement year-over-year. I think it was about negative 20 last year and then negative 10 this year. So we were just wondering if you could give some color as to what is in that post and why it has improved so much.
Yeah.
If you look at the total overhead cost for the full group, the consolidated, of course, we pay a lot of attention to the cost development. We have some scale effects due to revenue improvement and also increased FTEs. For example, we move our new people into existing offices, etc. So we have still room for that. When we look at the group level as such, that is basically a mixture because this year, we allocate the cost more frequently than we did last year. So the costs are we try to move as much cost as possible into the segments. And I'm finding also the group cost could fluctuate between the quarters and that the other cost element is also including earnouts, etc. So it's a mixture.
I think I will also like to add that keep in mind that the first half is then we don't have the salary increases included. If you remember that in Sweden, in Denmark, we have salary increases from 1st of April. In Sweden is 1st of May. And in Norway, the salary increases is with effect from 1st of July. So you need to keep in mind that the cost for personnel will increase.
Magnus Rasmussen, SEB. Can you speak a bit about costs because I think that's sort of at least relative to our numbers. And I think also consensus, there is a beat today, especially in Renewable Energy. It seems like your cost per FTE is actually decreasing year-over-year, which we were probably expecting some cost inflation.
Yeah. We don't report cost on segments, but the improvement in Renewable Energy is basically improved billing rates.
As I mentioned, the cost development is we have some synergies related to scaling because we can utilize our scale effects. It is also partly delayed from the salary increases, as I mentioned, and is also sees through variations. The Renewable Energy could also be affected slightly or in the total by earnouts, etc. But the result this quarter is not any earnouts.
Thank you.
Yes. Bengt, maybe. Yeah.
Bengt Jonassen, ABG. Just two probably very simple questions. I see that number of employees was around 3,200 five, six years ago. Now it's 6,300. Where do you see yourself in five years? That's one thing. And the second thing, do you see any change from your public clients wanting to do more in-house?
Let me try to answer that. Where we will be five years from now is, of course, very difficult to say.
We have high ambitions in the company. We believe that we will grow. We have stated to the market that our ambition is to grow more than the market. We have not put a particular percentage to it because it's always a bit hard to predict the market. We expect growth this year. But exactly how big it will be both this year and five years from now remains to be seen. We have a solid balance sheet, meaning that we have flexibility. We have also stated that we expect to continue to mostly grow organically. Historically, it's been two-thirds organic, one-third through acquisitions. And over the cycle, we expect that proportion to remain constant. We are very pleased with the expansion we have seen into the rest of the Nordic countries.
We expect to continue to take our business model to other geographies when the time is right. So when you talk about five years, then I'm comfortable to lift the vision a little bit. Then you had a second question.
Yes. That's with respect to public clients wanting to do more in-house, if that is something that you see in your markets.
Let me answer that by talking a little bit about our business model. Our business and our industry has grown over time because we, as design and engineering companies, have been able to have a better utilization of the workforce compared to what both private and public clients have been able to have historically because we have many different projects. Every year, we have more than 30,000. That enables us to have a stable, high utilization of the workforce.
That has fueled the growth of our activity. We do not have, I would argue, particularly high margins, but it is an efficient way for society of using designers and engineers to do the engineering and design work which we do. We believe that both our private and public customers understand this. So the short answer to your question is no, that we do not see a change in the trend here because the costs typically increase when you try to in-house an engineering department, which, as part of, for example, a municipality or a construction company, will have very fluctuating demand and utilization. So.
Any questions on the chat, Elin?
Yes. We have.
Maybe the microphone.
Microphone.
No, I have one here. Oh, you have. We have Johannes Sundell from Carnegie. Are there any risks related to the project delays within the infrastructure segment?
There is always risk associated with everything. But when we have experienced some delays of large projects, we have seen those projects being replaced with an increased number of smaller projects. So this is linked to what I said earlier, where we see a change in the infrastructure from the very large projects to a larger number of smaller projects replacing them. So we have been disappointed to see some large projects being postponed. But at the same time, we have been happy to see several smaller projects coming instead of that. And I showed one project example in my presentation of that.
Thank you. And then also, can you provide any comments on how the M&A pipeline is looking?
Yeah. We continuously look at M&A targets. So it's no change in the pipeline, I will say.
We have rejected some M&As due to high risk and to a high expectation on price. But we continuously look at targets.
Great. Thank you. Then we also have another question from Johannes Sundell. And it's, "Will there be any restructuring costs for the Technogarden Digital in Q2 or Q3?"
I think it's fair to say that we need to also look at the employment in digital. But it's not decided anything yet.
Great. Then we also have a question from Simen Mortensen from DNB. The report mentions efforts to improve the underlying profitability and maintain efficiency. Could you elaborate on the specific measures being taken to enhance profitability, particularly in context of the building and architecture market?
Maybe I could start on that. We are constantly looking at our cost level.
We look proactively at how the market is developing, both the market from a customer perspective and the market from a labor perspective. We try to be the most attractive employer in our industry. But at the same time, we work on spending our money in the best possible way. So we are looking into how we can optimize our expenses linked to rent, for example, what we spend on in terms of other activities. But it is a fine balance. The optimal for Norconsult is definitely not to have the lowest possible cost. It is to find the level of cost which generates the best working environment and ultimately the best revenues and profitability for the company. We try to be very proactive in terms of how we manage that.
Thank you. That concludes the questions from the web.
Okay.
Are there any more questions from the audience? That does not seem to be the case. Then I would like to thank you all for attending today and look forward to seeing you again after our second quarter. Thank you.
Thank you.