Welcome to the Q3 presentation for NRC Group. After this presentation, we will host a question and answer session. If you are online, please send your questions in the chat. With more than 30 years of experience, I'm honored and excited to address you today as the new CEO of NRC Group. I came from Svevia, from the position as president and CEO. Svevia is a Swedish company specialized in infrastructure, with a revenue around NOK 12 billion and 2,200 employees. As we now plan the track for the new strategy period from 2024 to 2028, I'm confident that the future for NRC Group looks promising. I'm also confident that we have great opportunities ahead of us. With a solid foundation built after 4 years of transformation, we are now well positioned to capitalize on the strong market we operate within.
NRC Group is a robust company. The governments in Norway, Sweden, and Finland develop long-term national transport plans. There is a broad consensus to build and upgrade critical infrastructure going forward. NRC Group has today a record high tender pipeline. There is an increase in this quarter for around NOK 40 billion compared to the last quarter. The demand for build and upgrade critical infrastructure will remain high, not only to safeguard and maintain what is already built, but also new construction to meet the future demands for harbors, water reservoir, and sustainable energy supply, and so on. Our markets are driven by population growth, urbanization, and high demand for build and upgrade critical infrastructure, and not least, increased requirement for efficient low-carbon transport systems. Access to these systems will become increasingly important, and that is perfect for us. This is what we do.
We have a strong, sustainable profile. As you already knew, we recently received Dark Green shading in our Green Finance Framework . Norway has delivered impressive profitability in eight consecutive quarters and has been on a positive margin trajectory the last two years. A margin about 5% in this quarter is strong. Focus now is to grow our order books and win more major contracts going forward. In Finland, we have achieved strong profitability levels in Finland over the years. The expectation now is that profitability will reduce to lower yet sustainable level in the medium term. We now dedicate efforts to analyze the Finnish operations in order to streamline and make the operations more cost-effective. We have a unique position in Finland, so I'm confident that the profitability in Finland will be market leading again in long term.
In Sweden, the turnaround in Sweden is well on track. Now, slightly above 1% in the quarter. Our measures to improve profitability clearly yielding results. So Sweden are navigating in the right direction now and forward. Here you can see a record high tender pipeline for the next nine months. There is an increase in this quarter for around NOK 14 billion and NOK 16 billion compared to the same period last year. There is an increase in all three countries going forward, and again, high demand for build and upgrade critical infrastructure in Nordic. In Finland, the tender pipeline in Finland doubled compared to the last period, the last quarter, sorry, supported by new light rail contracts. We have won 6 of 6 contracts that we have participated, and 3 new light rail contracts coming up for tender.
The revenue impact will be from 2025 and onwards. On health and safety side, we are not satisfied with the results. We have none serious injuries in the quarter, but two minor accident in total. The positive trend with sickness absence continue in this quarter. We were rate of 3.7%. This is on a good level compared to the industry peers. Now, with this, I hand it over to our CFO, Ole. Please.
Thank you, Anders. Looking at the P&L for the Q3, financially, we had a good quarter. However, it is below the same quarter last year.
... Our revenue is down 7% and came in at NOK 1.8 billion. On a like-for-like currency, the revenue growth, the negative revenue growth is 13% due to lower volumes in Finland and Sweden. Our operational result, or EBIT, is down NOK 11 million and came in at NOK 80 million in the quarter, which gave an EBIT margin of 4.3%. Net financial items increased from -NOK 14 million to -NOK 18 million, and the reason for this is that the increased NIBOR also increases our cost on our lease portfolio as well as our term loan. After the end of the quarter, we completed the refinancing of both our bank and our bond loan, and we come back to more details on this later in the presentation.
As a sum, our net profit improved from NOK 46 million to NOK 49 million, and this gave an earnings per share in the quarter of 67 øre. Moving to the different countries, starting with Norway. The positive profitability trend in Norway continued in Q3, and the Norwegian organization has succeeded very well in the operational restructuring over the last few years, which is very impressive. The EBIT margin came in at 5.5%, which is an improvement from 4.9% in the same quarter last year. And this is driven by strong result in both our civil business and our rail business. Our demolition and recycling business kept delivered weaker result due to very challenging markets, while our transportation company, Gunnar Knutsen, continued to deliver very solid result in the Q3.
Order intake in the quarter was NOK 273 million, and the backlog in Norway is below where we want it to be. After the end of the quarter, we announced a new significant civil contract in Norway, worth more than NOK 300 million, which supports backlog from early 2024 and onwards. However, winning new big project in Norway remains a high priority. Moving to Sweden. In Sweden, we are gaining momentum from the changes we initiated in the first half of 2023. The most important action here included a significant reduction of overhead, increasing the tender prices, as well as improving the project controlling. In addition to this, we also decided to discontinue the civil business in the Karlstad region.
In August, we also signed a final agreement with the management in Karlstad, where they acquire this business unit, and the benefits for NRC Group are several fold. Most importantly, we secure a new home for our employees in that region, and secondly, is that we have significantly reduced our operational risk connected with discontinuing this business unit. And the accounting effects of this, this sale is included in the Q3 numbers. As you can see, the operational result or EBIT is positive, NOK 5 million from breakeven last year, and this is because we have somewhat better result in our maintenance division. Order intake in the quarter was only NOK 170 million, but we have a good backlog for Q4 in Sweden.
After the quarter end, we also announced a significant contract in our rail division in Piteå, in Sweden, worth more than NOK 400 million, and with that, we also have a good backlog for 2024 in Sweden. Moving to Finland. In Finland, on the like-for-like currency basis, the activity is down 12% compared to the same quarter last year. In addition, our operational result is also down NOK 26 million and came in at NOK 49 million in the quarter. As previously announced, we had to do a significant write-down in one rail project in Q1 this year, and this has continued to impact the result in that division and for Finland for the remainder of 2023. This project is coming to completion in the first half of 2024.
We have not been good enough to secure new high-margin business in Finland in 2023, nor adapting our cost base to the current project portfolio. In addition, we have noted the negative trend in profitability, and we have therefore started to analyze the operation in order to streamline and make the operation more cost efficient. Having said that, and to put it in perspective, the margins in Finland is still in line with peers, and we are not worried about the outlook in the Finnish operation. Order intake in the quarter is in par with what we had in the same quarter last year, but as in Norway, winning new large project remains a high priority also in Finland. As Anders mentioned earlier, the good thing is that the tender pipeline in Finland is very strong, particularly in the light rail area.
In September, we announced the win of a new light rail project in Tampere with alliance partners, and this project has a value of more than NOK 3 billion. The project is now in the design phase, and if it's decided to go into a production phase or construction phase in 2024, NRC Group will get a significant proportion of the total value of this project, with delivery from 2025 to 2028. Since this project is not decided to go into construction yet, it's not part of the backlog. Moving to the backlog. The order intake in the quarter was NOK 773 million, which is below where we expected. This gave a book-to-bill ratio of 0.7, measured over the last 12 months, as you can see in the graph to the left.
With lower order intake, we also have a lower backlog at NOK 6.6 billion, which is down 23% compared to the same quarter last year. The good news here is that we have a very strong tender pipeline in both Norway and Finland, and we have plenty of tender activity ongoing to fill up the backlog from 2024 and 2025. In addition, the two mentioned projects I talked about in Norway and Sweden, and the light rail project is obviously not in the backlog for Q3. The graph to the right, you can see the backlog for delivery in Q4 this year, and compared to last year, it is down 7%.
With the reported year-to-date sales we have and this backlog, we continue to believe that we will have a slight decrease in revenue in 2023 compared to 2022. A few comment on the balance sheet. Total balance came in at NOK 5.6 billion, which is down from NOK 5.8 billion at the same quarter last year. And our net interest bearing debt is, as you can see to the right, relatively flat compared to where we were last year at NOK 992 million. And the net interest bearing debt, excluding leases, is NOK 504 million, as is mentioned under the graph. Our equity ratio stands firm at 44%. Moving to the cash flow. Cash flow from operation in the quarter was NOK 12 million, which is below NOK 96 million, which we had one year ago.
Even though our operational cash flow is below last year, due to a very strong operational cash flow in the first half of the year, the year-to-date cash flow in 2023 is on par with what we had in 2022. Net working capital increased to a higher level in Q3, and we do have a lot of focus to reduce the working capital in the company. However, we were not able to keep it at a low level, which we saw in 2022 and the beginning of 2023 when we entered Q3 this year. Moving to the right, you can see that the cash flow from investment activities or CapEx was only NOK 7 million, and the cash flow from financing activities was -NOK 80 million, which is at the normal level.
This gave us total cash at the end of the year at 300, sorry, end of the quarter of NOK 346 million. After the end of the quarter, we completed our refinancing of both our bank and our bond loan. We refinanced our NOK 600 million bond loan with a NOK 400 million green bond at NIBOR plus 440 basis point. In addition, we increased our overdraft facility from NOK 200 million to NOK 400 million, and lastly, we extended the maturity of the term loan from 2024 to 2027. In the graph to the left, you can see that we have continuously reduced our gross interest bearing debt over the last few years, and based on the refinancing, we will reduce it furthermore from NOK 1.3 billion to NOK 1.1 billion.
On the liquidity side, we will have approximately NOK 150 million in cash and an undrawn credit facility of NOK 400 million, which means that we will have available liquidity of NOK 550 million by the end of Q3. NRC Group have significant volatility in our liquidity, both intra-month and over the year. This is because we build up quite a lot of working capital during summer, which we build down during the winter period. This new refinancing and new capital structure is much better fit with our business model. Now, we can draw on our overdraft facility when we require the liquidity, instead of sitting with excess cash on the balance sheet all year round.
The benefit with this is that we will have a lower interest cost in the group, all else equal. With that.
Thank you, Ole. So to summarize the Q3, with a solid foundation built after 4 years of transformation, we are now well positioned to capitalize on the strong market we operate within. NRC Group is a robust company. In the quarter, we had an EBIT of NOK 80 million, with a slight decrease in revenue. The demand for built and upgrade critical infrastructure will remain high. Our markets are driven by populations growth, urbanization, and again, high demand for build and upgrade critical infrastructure. And increased requirements for efficient, low carbon transport systems. And this is good. This is what we do. NRC Group has per day, a record high tender pipeline. It's an increase in this quarter for around NOK 40 billion. Our order backlog is solid, but of course, we need to win more major contracts going forward.
Norway has delivered impressive profitability in eight consecutive quarters. A margin above 5% in this quarter is strong. Focus now is to grow our order book and win more major contracts going forward. Finland, we have achieved strong profitability levels in Finland over the years. Expectation now is that the profitability will reduce to lower, yet sustainable level in medium term. We now dedicate efforts to analyze the Finnish operation in order to streamline and make the operations more cost effective. We have a unique position in Finland. I'm confident that the profitability will be market leading again in the long term. The turnaround in Sweden is well on track. Our measures to improve profitability clearly yielding results, now slightly about 1% in the quarter. Sweden are navigating right direction now.
For 2023, we expect a slight decrease in revenue and the EBIT margin in line with, with 2022. Next year, during the Q2, we will host a Capital Markets Update to share our new strategy period from 2024 to 2028, how we create the leading company in Nordics for specialized infrastructure. I'm excited to take on this journey with NRC Group, combining our business model with a unique position, and deliver specialized, sustainable infrastructure. I'm confident that we will succeed with our ambitions. Thank you. Now we will open up for questions.
Let's start with one online question before.
Yeah, sure. Let's go. Yeah.
Anders, your early take on the situation in Finland?
I mentioned I'm not worried about Finland. We have achieved strong profitability levels over the years, but we now dedicate our efforts to analyze and streamline the operations. But, in long term, we will be market leading again.
Simen?
Yeah, Anders, you haven't b een with the new company, this company, that long, but can you just give us a general interpretation of what you see as the strengths and the weaknesses, and the room for improvements based on your historical performance, and just your ear ly impression of the company a bit more in detail?
Good questions. I don't comment on the past, but I think the future for this company looks promising. We have a great opportunity ahead of us. Norway margin about 5% in this quarter is strong. The markets, the demand for building accurate critical infrastructure will remain high. As to Sweden markets in Sweden, so the turnaround plan in Sweden, I think, is well on track, slightly above 1% in the quarter indicates that. And of course, we are a great team.
Oh, yeah. Also, on the guidance with a slight decrease in revenues for next year, how much is that? Is that including FX or excluding FX? Is it a NOK guidance or is it,
It's NOK guidance, yeah.
Go for it.
Going back to Finland, the result has declined for, I think, eight or nine consecutive quarters. For 2024, do you foresee a profitability level, in absolute terms, on the same level as today, or do you foresee that it is going to increase again?
I think we will come back with more details on the Capital Markets Update in the first half, so we need to wait a little bit. But,
Directionally.
So, we have commented on this some, somewhere. So some of the go back in 2021, we had quite a lot of sales of machinery, which we always have, but we don't have any meaningful at the moment, the last 12 months. So that's a little bit taking off some of the peak on this graph. In addition, we have two project in Finland, in rail, which we are struggling with. One, which is we've done the write-down, the other one is not really yielding that much margin, and this also impacts result for 2023 and starting of 2024. And lastly, we have had a couple of very good light rail projects, which still are good, but there's not so much in volume when we enter 2024.
The new contract comes into effect in 2025, the new contracts we are bidding on now, we involve. So I think we don't guide per country, but we also have to be realistic in the medium term. But we are very comfortable about our pipeline and what we're doing there, and so we don't see this as a huge problem.
If I should,
We will not comment on 2024.
If I should try to interpret, what you're saying is that, it will continue to fall a little bit.
That's not what we're saying, but, you can interpret it.
That's my interpretation. But, moving to Sweden, it's obviously a turn in the performance... but really, it's no turnaround. You still have negative results.
It's right about 1% in the quarter.
Yeah.
Yeah, but-
That's correct. But I just want to comment on this, because we have-- last quarter, we showed a pro forma graph, but, because we have obviously discontinued the civil business, and without the civil business, we are running at around breakeven now over the last twelve months. So it's a turnaround when you break even. That's what we're claiming, and we think we have a lot of momentum going into 2024 also.
Yeah. But, I have another definition. If you have a turnaround, you are actually earning a reasonable profit. So, to achieve that, what are you doing to further or what are the changes you have implemented or planning to implement to achieve a reasonable profitability? Obviously, you are on the right track, but there is still room to improve, I would assume, and I would hope.
Yeah. That's great. No, but I, I have commented on it earlier.
Yeah.
So the first we did was to cut the overhead quite dramatically in 2023 in Sweden. And then-
You still have fuller effect.
We still have gradually fuller effects. Yeah.
Yeah.
And then the second is that we increased the tender prices, and that takes effect to... You know, it takes time to get full effect.
Yeah.
The last thing we did was to implement better project control, and that we did in Q2, beginning of Q3 this year. On the project controlling side, obviously, what it gives you is a better maneuvering and tool when you start reporting on the project to a better project controlling, not only basically understanding the result, but also be able to adjust early in the project. You can get more profitability out of this, so this is a gradual process.
Yes, I would like to just address the lower guidance on the margin a little bit further. Could you break down, you have kind of done it a little bit already, but which segments are performing better than what you expected at year-end 2022, and also during the first half of the year? And what segments are below? And for the segments that are below, could you give an operational answer where you say, "Is there one or two projects? Are there a weaker underlying margin in the whole backlog?" Could you just address a little bit that situation?
Are you talking about the group or?
Yes, first of segments.
I think it goes a little bit by saying that we in Finland, obviously we expected more in Finland, and that's what we're saying. And we have had, going back to especially two projects in rail, one particular project, which is reducing our profitability level in Finland compared to where we... What we expected one year ago, you can say. Sweden is moving on track, I would say.
Yeah.
This is basically what we targeted when we started the restructuring in Q1 and Q2. And Finland also, I mean, they're delivering, sorry, Norway is delivering a good result, so about-
margin about 5% is from-
Norway and Sweden, approximately-
Yeah
... at what you expected one year ago?
Yeah, I would say so. Mm-hmm.
Also, if I could, could you address the working capital situation a little bit as well?
You know, we have quite significant volatility, and you know, sometimes we get these situations where payment doesn't come in the day, the last day, and you know, we have NOK 70 million invoices, one invoice of NOK 70 million. You know, this just happened in, on a weekend this time, and we didn't really manage it very well, and it was kind of a one-time, we think it's a one-time situation, and we just have to see during the winter if we can do better.
Does that mean that we should expect a similar positive working capital in Q4?
No, we believe not this, but it's a little bit hard to track from quarter to quarter. There is quite high volatility on this.
There's a question from the mid seat.
Yeah.
Yes, looking ahead, in terms of contracts, in Finland, you're focusing on the light rail, and in Norway, it's significant contracts. What type of contracts are you targeting in Sweden?
Yeah, I can start, right? Yeah. So in Sweden, we have pretty good backlog, and in 2022, the volume was just too big. The organization couldn't really handle it. In 2023, it's been more better, and we are a little bit more capable to handle the volumes at the moment. I think it's generally good market in rail in Sweden, but not the huge uptick, which we have seen in Norway and Finland. So I think it's more like a normal market than we expect to continue to grow and take market share there, but at a more steady pace, you can say.
Okay, thanks. And also, just, you mentioned some challenges in demolition and recycling in Norway.
Yeah.
Can you say something about what those challenges are?
Well, the market, first and foremost, in demolition, is not great. If you're an entrepreneur, you know that, and this is one, the only segment we are a little bit exposed to this market, the weak market. It's a small business for us, and then we haven't been good in operations to adapt to the current situation, so we are working to improve it.
Thank you.
The question is from me. The large contract in Norway now was a hospital.
Yeah
... and not anything with rail. Is this any new direction for the company? What's the groundwork, what's the basics for this? Because it's a completely different segment than when you have seen-
... you operate in before.
No, I think it's a new strategy, yes, but let me do my homework and come back to you in next year, Q2, with a Capital Markets Update , but the project fits. It's right. Yeah, our civil business in general in Norway supports rail. They're not only a rail. We are very good at harbors, among others, and we do most of the big harbors in Norway. They are specialized in this, and they are good at supporting the rail infrastructure. But it's not enough. Even you have a big civil company or a construction company, it's not enough market to only do rail, you need to adapt to other markets, and this was a good fit for us.
We already do the demolition in this hospital with the kept, so it was a very good synergies with the business we already have there. That's the reason.
My second question is, you're comfortable, you say you're comfortable with this Finnish market, but seeing in the Finnish budgets, there's a lot of cost and delays, both in road and rail, and the competitive landscape is definitely one of the most challenging one in perhaps in all of Europe, in Finland, in terms of the delays they put into civil. How comfortable are you? Is it expectations that the alliance projects will come 2025 because they're not included in the 2024 budget? Or what is your view and comfort level? What is this based on? Is it just that because they don't have any, they have delayed everything, as I see, inside of the budget.
I'm only here, so it'll be a short time. This time I hand over the questions to Ole.
Okay.
Welcome back. Well, it's a, it's a good question. So we don't see that kind of delay in the rail infrastructure, which you are talking about. The second is that this light rail comes on top, and it has not really been any new light rail concept for some time, but now we had one in 2023, which we won, and there will come three more in 2024, which we are bidding for, most likely.
Are they municipality-based or government-based?
They are mostly municipality. It's a split, but in the decision makers, it's usually municipalities in the end, if they decide to go into construction phase.
Okay.
They are also supported by government budget.
But, yeah, because the government is bringing so much down.
Yeah.
So, and your view is because of the government bringing things down, municipalities are still doing stuff?
We haven't seen anything of this, this impacting rail. Actually, we have seen it in, not in Finland, but in some other, in Sweden, on the roadside, but nothing on the rail side any earlier. In Norway, earlier, Bane NOR went out and say, "The time for these double tracks, new double tracks are maybe over, but we will use more money or to upgrade the lines we already have." And for us, that's perfect, because if you build a new line, 20% of that is rail infrastructure and 80% is civil. But if you upgrade the line, 100% is in sweet spot for us. So we... Bane NOR is worried that there's not enough, specialized players within rail in Norway going forward.
Thank you.
Question from, from the web here. What's the plan for making Finland look great again?
We now dedicate our efforts to analyze the Finnish operation, of course, to do the operations more cost-effective. Yeah. Any more comments, Ole? No, I think Anders has been there for one month. Let him do his homework, and we will come back later on. This business has done really good for decades, and this is not something with the organization itself. This is just related to a couple of contracts and a little bit less light rail business at the moment, since we are in between the old contracts and the new contracts.
The Finnish contracts, you said you had one was running towards the first half of next year.
Yeah.
The other one, which you're struggling a bit, like, also again-
We're not struggling, but it doesn't have that kind of, high margins, I would rather say.
How long, how long duration is this one?
It's in somewhere in 2024. I need to come back to you on that, but probably it's a little bit later in 2024. I don't have the details now.
One more question here related to Finland. I think that's the last one here. What do you mean about lower, yet sustainable level in Finland?
Again, I've only been here for a very short time, so this time I had a little over the details for the Q3 for Ole. Ole- Yeah, and I, going a bit the circle on the same question. I think that, you know, what we're saying, if you look at the margin in Finland, we're delivering over 6% margin. This is not a bad quarter. But, you know, historically, we have exceptional margin in this, in this, business unit, and, now we're saying it's going to be more on a normalized level and in line with peers, in the medium term. Longer term, we are not really worried, but that's just what we see now.
Any questions here? There are no questions from here either. Then we can finish up.
Thank you. Thank you, all. See you again.
Thank you.