Multiconsult ASA (MULTI) Earnings Call Transcript & Summary

Good morning, and welcome to this presentation of the figures for Multiconsult second quarter of 2023. My name is Grethe Bergly, CEO. And with me today, I also have our CFO, Ove Haupberg, who will, after me, go through some of the figures in more detail. The second quarter, you can see the key figures here. And it's a strong quarter, and you can see both the figures for the quarter and the figures for the half year. And as you can see, it's a good development, both when it comes to revenue, billing ratio and order intake. The EBIT comes in at NOK 55.6 million, and it's a result that has -- where 1 calendar day has quite a significant effect. It's a good quarter, strong organic growth and good results. The organic revenue growth is 10.9%. We've seen a solid operational performance in most of the segments that we have. We -- in the quarter, we have also acquired A-lab, which is a well-reputated -- an architectural curve with a very good reputation based in Oslo, operating within the private market. And I'll give you some more details into this company later on. We've confirmed our strong position when it comes to being a preferred employer, which, of course, is an important issue for recruiting the future employees for Multiconsult. And we also, in this quarter, have a record high backlog. Looking more detail into markets and sales. Some of the projects that we have acquired in this second quarter is 2 hospitals, 1 in Sweden and 1 in Denmark, again, showing that we have a very strong position when it comes to hospital and -- both new build and rehabilitation. We've also won a PPP project for the road authorities, E10. It's a road in the far north of Norway. It's NOK 11 billion. And it's a major project and a huge importance for the local and the development of business in the North region of Norway. We won 1 important project when it comes to flood protection. Norway has had a terrible torrential rains in the last few weeks. We've seen huge damages. And this is an area that we have talked about earlier as well. The flood protection is something that we think is a growing market. And again, we have a strong position. We are placed in all of Norway and prepared to take our part in the prevention of the damages that are caused by flooding. We also had the second phase of our big hydropower project in Tanzania. And there are some ongoing projects that we have talked about earlier, and they are still ongoing. So all in all, all-time high diversed order backlog, stable market, although we see there is a continuous cooling down of the housing market and the estate market. Also, in this quarter, we had a cancellation of 1 hospital project in Sweden. Talking about people and organizations, we are now 3,585 employees. And as we explained last quarter, we will also now start reporting on full-time equivalents, slightly lower. And the main reason for this is that A-lab are employees, but they are not in the books when it comes to the hours. Also, as I said previously, we continue to have a strong position as a preferred employer. So in the organization is the acquisition of A-lab, of course, a major step for us, an important acquisition for [ persisting ] hours, both in the private market in Oslo but also within the architectural business. We have had 110 of our employees through a management program and we also, this summer, had 119 students in our Norwegian business. When it comes to excellence, A-lab is part of the winning team on a huge urban development in Oslo. It's the largest ongoing development in Norway at the moment. And it's an area where the aim is to create 100,000 working positions and where eventually about 80,000 people will be living. So very, very exciting and very good to have a position here. On the other side, on development, we are part of -- we've been part of an innovation project where we are now seeing that we have developed a technology where you have a more climate-friendly way of stabilizing the brand when it comes to [ quickly ]. Again, within the circular economy with sustainability, very important development. Short about A-lab. A-lab is an architectural firm with 132 employees. It was funded -- founded in 2000, has a revenue of NOK 178 million and the main office and the main operations are in the Oslo area. Strong position in the private market. This is part of the strategy where we've seen that LINK and Multiconsult together have wanted to strengthen the position within the private market. They have good customer relations, very highly recognized architects, and we see that this can we are part of the development of positioning us in the early phases of project and within planning and urbanization. And they came also in with a solid backlog. And the strategic rationale for this acquisition is that we are seeing the development of working closer together, the engineering and the architects. And we believe that providing the growth and the synergies in several areas, we -- the value proposition that we can take to our clients is increased. And with that, Ove, I hand it over to you.

Many thanks, Gretha. My name is Ove Haupberg. I'm the CFO in Multiconsult, and we will go through further details on the second quarter and the first half of 2023. Starting with the second quarter. We see net operating revenue at NOK 1.154 billion. That is increase of 10% from the same quarter last year. The organic growth, a bit stronger, 10.9%, we have the effect of 1 less calendar day that we need to deduct of 2.1% and M&A activity on last year on 1.2%. The main drivers behind this growth is a high number of employees, 336, as Grethe mentioned, [ our ordering ] 248 FTEs. And we also have higher billing rates. This is illustrated in the orange graphs underneath the table. The billing ratio also an increase of 0.2 percentage points from last year to 72.1%. And the billing ratio has increased in all segments with the exception of International, which we'll come back to later. The EBITDA in the quarter, NOK 55.6 million. That is a reduction of NOK 19.1 million from last year. But in this, the value of 1 less calendar day is higher, it's NOK 22.4 million. The margin on EBITDA, 4.8%, a reduction from last year with 2.3 percentage points. But as is illustrated in the Q2 report, we would have then 6.6% on comparable numbers. The order intake also very strong, an increase of 28.5% since last year to this quarter of NOK 1.572 billion, and we have the majority of effect caused by the project our Yggdrasil and the road up north with all the bridges and tunnels in E10. The OpEx ratio also under control, an increase from last year on 0.3 percentage points to 17.2%. The cost effect is caused by some higher office rents consultancy and IT. But with the correction of the calendar day, we have the same percentage as last year, 16.9%. Then the first half. The net operating revenue is even stronger, 12.2% from last year. And in this, the organic growth 11.6%. You need to add then the M&A activity proforma at the end of last year of 1.3%. That is Roar Jørgensen, and then some small correction on the calendar day -- days, but that is the effect of the value per day. Same number of days, but the value has increased year-by-year. Again, the growth is primarily driven by the number of employees, an increase of 191 FTEs and higher rates. The billing ratio is 71.5%, a small production from last year, and that was commented in the first quarter, and that is due to some delayed project start-ups in LINK Denmark and Multiconsult Polska. EBITA, NOK 272 million for first half, 11.5% improved from last year -- sorry, in the margins, we have a small reduction, 0.2 percentage points. And the prime driver for that is the increase of employee benefit expenses per employee, but that is also included the effect of increased employers' tax. Then the order intake, NOK 4.146 billion, increase on 54.1% from last year. And on top of that, again, this quarter, the best order backlog in Multiconsult history. On behalf of the other OpEx ratio has been reduced of 1.3% since last year, but the underlying cost increase on office expenses, including electricity insurance and consultancy and IT is also shown in the graph here with NOK 36 million, but again, a better ratio. So the reported profit, NOK 194.1 million, increase on NOK 14.7 million from last year or 8.2% and then earnings per share NOK 7.07, increased from last year on 7.9%. We are very pleased with that number as well. Then some development over time. And we see the quarters. Second quarter illustrated with orange color starting from second quarter 2020. Top left, operating revenue increased by 10% year-over-year and also the rolling 12 months has also been continued to increase in this quarter. The number of calendar days available has a huge effect on both sales and results between the quarter. But from last year, increased billing ratio increased a number of employees, positive effect, but 1 less calendar effect makes this reduction then from 7.1% to 4.8% this year. And this is then the 14th quarter in a row with good quarters from Multiconsult since the turnaround performed in 2019. Then the results per segment. Starting to the left with Oslo and remind you that the segment, Energy, is now included in this segment and the next segment region, Norway and all comparable numbers are revert. And also from last quarter, we have -- second quarter compared with second quarter last year. Oslo. A good increase of net operating revenue, 8.8%, that is NOK 36.6 million. We have a higher number of employees and a very good increase in billing ratio in this segment. And the 1 calendar day less has an effect of NOK 8.8 million. And also a reminder that the larger projects as part of this region. Then moving to the right to Region Norway. This region also includes the M&A activity, Roar Jørgensen, performed last year. That also has an effect on the increase in net operating revenue, an increase of 11.5%. So the drivers, more employees and also the improvement in the billing ratio and the calendar effect, NOK 8.6 million year-over-year. Then something new from us. With effect from this quarter, our new segment, Arkitektur, that includes both A-lab and LINK. This quarter, we see the P&L effect only from LINK, but for next quarter, we will also include A-lab in this. We see in report A-lab on -- in the balance sheet, in the order backlog and also the number of employees. So then LINK. A solid growth in net operating revenue with 5% is caused by the increase in the billing ratio, but also a small increase in number of employees and also the billing rates. The calendar effect in this segment is negative by NOK 3.5 million. Small comments per country. LINK Sweden continue with this significant improvement compared to last year. Solid results from Norway with a positive effect of the improvement program launched at the end of last year. LINK Denmark is still facing a challenging market and also demanding results. In that, the improvement program continues. The sales are good. The order backlog is also improving. And as shown by Grethe, we have won this new hospital project, Viborg. And then last but not least, the segment, International, an increase on net operating revenue by 20% year-over-year. We have some currency effect in this, that is NOK 8.6 million, but improved revenue from Multiconsult Polska is the main driver. And we have now the start of 1 large project that was delayed from end of last year to the end of first quarter. In this, the billing ratios are still affected by high building activity in this market. We see some weaker results from material, but good activity and increased billing rates, but we have some reduction in the billing rates. So year-over-year, a small increase in -- sorry, a small decrease in the EBITDA and the EBITDA margin. And the calendar effect is negative by NOK 1.6 million, but a positive currency effect of NOK 0.7 million. And I guess you can do the math on that. Then our financial position. As to the left, this is then the cash flow starting at end -- starting at the beginning of the year, NOK 150 million. Then we have created cash on the operation, NOK 280 million. That is the second graph here. The change in working capital is negative, but that is a seasonal effect and an improvement from last year and also an improvement with a 13% growth in net sales. So we are very pleased with the effect on that. Cash flow for investment that includes the 70% purchase of A-lab and also refurbishment on -- of our main office that will save us costs going forward. In financing, we see the share buyback that is done due to the share purchase program, but we also have a net effect on dividend paid out NOK 247 million, but it's financed on using our facilities, loan facilities. So basically, we end at a negative cash, NOK 97 million, but to the down right, still are very controlled on the debt ratio. So we see a billing ratio of 0.76, which is well in line with our policy. So we have increased capacity still in our financials. Then the last on this, the free cash flow. On new graph from this quarter, we see the positive effect on operating activities, NOK 85 million. Effect of investment, especially then in purchase of A-lab negative with 140 -- sorry, NOK 132 million, but [ in rolling ] fell close to NOK 400 million in free cash flow from Multiconsult before the correction of the financing activity and the dividend. So with that, Grethe, I hand it back to you.

The next figure shows us the revenue within the business areas. And as you can see, there's been a positive development within all 4 areas. And just reinstating the fact that there has been a high activity in Multiconsult in the last quarter. In particular, please notice the increase in Energy & Industry. This is a development that we have talked about previously and that we are seeing now it's being strengthened as the demand for solutions here is high. This quarter, we will give you a more deep dive into Mobility & Transportation that we have been doing in the last few quarters. It's 1 of the -- it's the second largest business area. And as you can see, there's been a good development in sales and also that we are in this business area, we are building order backlog. And 1 of the areas that we work is within bridges. And bridge design is in some ways 1 of the most demanding and challenging when it comes to engineering. And this is an example of 1 of the most challenging bridges that is being built in Norway at the moment. It's 5 kilometers long. And we've been involved in both the planning and the design of this bridge. And it's a bridge that's demanded a high degree of technological development and where we're seeing that the skills and the partnerships that we have from the oil and gas and offshore industry is now being adapted onto more onshore plants, although it's -- of course, it's still on the field. Another area that we're seeing a development now is the use of new materials in bridges. In a lot of ways, infrastructure is lagging behind when it comes to using new materials, but we are seeing now an increase in development of using new composites. And the recent driver for this is when you succeed, you get lighter structures, you get structures that require less maintenance. And we're also seeing that we can develop solutions where you could recycle. So it's all in line with the development we see in general when it comes to sustainability in the society. We are also involved with rehabilitation projects. And we are -- of course, we have a lot of bridges in Norway. Just this E10 project is actually going to have 22 bridges. So it gives you a feel for the size of it. And there are more modern bridges, but also the ability to rehabilitate in a sustainable way, bridges that's been standing for hundreds of years. And again, it's a particular skill that we have that is making us able to help our clients in restoring and maintaining these kind of bridges. We're also involved with inspection. And we're seeing quite a large development here, use of new technology, use of drones, use of sensor technology. And we have a leading position, and we've had frame agreements with the road authorities for a number of years. And then going to the outlook. We are seeing that it is still a good market, but we are taking the uncertainty up a bit. We're seeing there is more uncertainty compared to previous quarters. We see that our pipeline is still strong, but we expect somewhat a reduction when it comes to investment level. But I'd like to remind you all that we come from a record high investment level in Norway so that we're seeing, it's now flattening out. So there is still quite good opportunities, but the increase that we've been seeing for a number of years is not going to happen. We expect in the next 12 months. There is also increased uncertainty when it comes to housing and real estate market. Multiconsult is to a limited degree exposed to this with the exception of parts of our architecture business. We -- on the other hand, we expect to benefit from the increase in demand when it comes to sustainable solution, both with respect to energy sources, renewable energy sources but also efficiency when it comes in buildings. So overall, supported by our diverse portfolio, which is, of course, a risk-releasing item and the record high order backlog, we are well positioned going forward. And just to finish off here are the dates for our next -- for our financial calendar. And with that, I will just finish off my presentation and we open up for questions.

Yes. Simen Mortensen from DNB Markets. In your outlook, you are generally 1 of an increased competition and pressure on margins as well as fewer opportunities. Can you quantify, if possible give a range? And how has this been historical?

It's almost impossible to give a range. But when competition increases, we see that there is a pressure on our rates. So far, in the last few quarters, Multiconsult has had an order backlog that has given us the opportunity to be more selective for the jobs that we go for. We are still in that position, but there might be locally that we will experience this competition. Historically, it's been like that for as long as I've worked. When the market goes down, competition goes up and there's always somebody who needs a job. So -- but I think we are also -- we are able to meet that competition.

Øystein Kværner, Taiga Fund Management. Can you comment on what kind of impact the termination of Växjö Hospital in Sweden have on the turnaround in LINK Sweden.

Yes. I think for this quarter, the effect has been quite limited because we also won a large -- another large hospital, the psychiatry hospital in Malmö. But in the longer term, we still need more jobs in Sweden so that if we don't get new jobs in, it will, of course, affect it. But at the moment, we were quite fortunate that we won another new project.

Bengt Jonassen, ABG Sundal Collier. A-lab pro forma figures in the report is somewhat higher than what we have seen historically, the figures -- in the figures. Can you give some flavor on the reason for this change?

Yes. That is due to a change in reporting principles. So they have changed from NGAAP to IFRS. So that it makes this change in -- where we take -- coming in the company.

And then last question is from [indiscernible]. Regarding the acquisition of A-lab and then the increased commitment you would say, to the private marketing architecture. Can you comment a little bit more on that.

It's been -- Oslo has been the area where we are -- we've seen an opportunity to strengthen our position within the private market. And with the acquisition of A-lab, we are on our way to take a much stronger position within the private market.

Thank you. This concludes all the questions.

Glad to hear. Okay. Then we'd just say thank you for listening, and have a nice day.

Thank you.