Multiconsult ASA (MULTI) Earnings Call Transcript & Summary

Hello, and welcome to this presentation of Multiconsult Group second quarter results and also my first quarter presentation as a new CEO in Multiconsult. I will do this together with my CFO, Ove Haupberg, and I will start with some introduction from my side. First, sharing my first impression as a new CEO. Having now spent 2.5 months, I have been warmly welcomed by the staff, and I really see engaged and highly skilled people. So it's really exciting to learn about our organization and how we are well positioned within a lot of areas. I'm impressed by our ability to collaborate both internally and also with our partners and clients and also how we are able to deliver large and complex projects to our clients in a good way. I've noticed we have a very good order backlog. We have a healthy sales pipeline, and we have a lot of framework agreements. So good on the market side. One of the things I was curious about when I entered this new role was how we are positioned within digital and AI. Of course, this will be crucial in the coming years, how our strategy and competencies within this area. I have to say I'm positively surprised by how the organization has built up competency. We have structured our data. We have started to apply AI, both internally but also in customer projects. And we are well positioned to have discussions with our clients and partners on how to apply AI in projects in the future. Building on this strong foundation, my ambition is that we shall be the preferred consulting company for our clients, and we shall drive growth and profitability to meet our targets. Moving to the highlights for the second quarter. We had good sales across all business areas and with Energy & Industry and Defence as the key drivers. We had a revenue growth of 7.8% with an organic growth of 0.7% and an EBITA of NOK 108.2 million, giving a margin of 7.8% compared to 4.8% last year, with the comparison being affected by 2-day calendar effects and the Sotra Link project court decision. We will go through the numbers more in detail later. Our billing ratio is not on a satisfactory level, but we are taking measures to adjust capacity to get to the right level, and we have strengthened cost control across all units. As in previous quarter, the market outlook remains stable, and we have a healthy pipeline of opportunities. The sales in the quarter was good with increased sales year-on-year. We continue to experience a trend where frame agreements are seen as a preferred contract model for our clients. And in this quarter alone, we secured 3 framework agreements -- new framework agreements with the Norwegian Defence Estates Agency, having now in total 26 framework agreements with the Nordic estates defence agencies. And this is not reported in our backlog nor in the order intake until the call-off is made. A couple of sales worth mentioning this quarter is the Multiconsult Norway frame agreement and initial call-off with Chemring Nobel Techne project and also the Helsingborg Hospital. Both of these awards is a recognition of our experience and competencies and references within this area. We have also entered into frame agreements with Ørland and Rygge airbases. As communicated during previous quarters, our goal is to improve our EBITA in line with our 10% target. We are not there yet, and we are aligning the organization to the market, improving our processes and strengthening cost control. This is an area where me and my management team will focus strongly together with the organization. Some example that have effect during the second quarter is a reduction in number of employees from Multiconsult Norge, with 35 employees from quarter 1 to quarter 2 and also our other OpEx being down NOK 6 million from second quarter last year, even given our revenue has increased 7.8%. Moving to our people and organization. We have a 3.1% growth in employees year-on-year, but it's worth mentioning is that this is coming from our acquisitions. From spring 2028, we will co-locate to our new office campus in Skøyen, where we will have A-Lab, LINK and Multiconsult together in a cost-effective and very attractive campus close to our current headquarters. We continue to win awards for our great contributions to customer projects. And this quarter, we won award for Eslöv distillery transformation and Førde Upper Secondary School. We also arranged a competition for selecting the Norway's best urban development project. And we received almost 900 proposals for this. And the winner was Drammen municipality, and it was awarded during last week in Arendalsuka. Then I hand it over to you to go through the numbers in more detail.

Thank you, Karsten. Good morning. We will start this section with a repetition for most of you, but this is Multiconsult and for you that haven't heard it before, a brief introduction. So we operate in 3 segments, that is Norway with Multiconsult Norge. We have the 4 ViaNova companies, Site Partner, Multiconsult U.K. We have Architecture with LINK in Norway, Sweden and Denmark and A-Lab in Norway. And we also have international and that is Iterio, our Swedish engineering operation and also Multiconsult in Poland. With 4 business areas, that is Building & Property, Mobility & Transportation, we have Energy & Industry and then Water & Environment. And at the end of 2025, our customer base was 44% private and 56% in the public sector. And we have more than 4,000 highly skilled employees that deliver more than 15,500 projects going on every year. And after the turnaround in 2019, we have consistently delivered high EBITA year-on-year, and the growth has been more than 10% going back to early 2000s from 2002. And our target, as Karsten mentioned, is to have 10% annual EBITA. Then please be prepared for the most busy slide today. We will go through the second quarter in some detail. And EBITA for the quarter, as Karsten has mentioned, NOK 102.8 million with a margin of 7.1% and adjusted margin of 6.1%, including the Sotra Link effect. And as you see on the table top right, there is a positive development in most figures this quarter. You see the green numbers. The bridge down right illustrates the change from Q2 2025, and we go through that starting from left. So the reported EBITA last year, NOK 67.4 million, and we had legal costs and write-downs on the Sotra Link project last year, NOK 4.7 million, and adjusted EBITA came in at NOK 72.2 million. The growth in net operating revenues, 7.8% that is explained by increased capacity, so growth in permanent employees, 3.2% and the number of FTEs has grown 2.9%. And we also have improved billing rates that is part of the other revenue effect. The positive calendar, highly visible, NOK 49.7 million, 2 more working days compared to last year and the negative effect in billing ratio is 1.3 percentage points. Organic growth, also, as mentioned by Karsten, 0.7%, but an M&A activity then mostly from ViaNova, 3.6% and adding up to an underlying growth of 4.3%. But caused by the improvement measures implemented, other operating expenses is slightly below the level for Q2 '25, adjusted for settlement of legal costs from Sotra Link project. And in these cost lines, we have included NOK 5.2 million in order to achieve the long-term improvement. And this is then besides internal hours and inefficiencies in this number. Employee benefits increased by NOK 85 million, 7.6%, and that is a cost increase on 4% per FTE that is in line with ordinary salary adjustments. And then to the right, this brings us to the EBITA of NOK 93.3 million for the quarter and the margin effect on Sotra NOK 14.9 million gives the solid number of NOK 108.2 million. So we made it through the whole bridge. So a short reminder on the Sotra Link effect that we have sent messages on during this quarter. The payment received April 30 from Sotra Link Construction has reduced trade receivables by NOK 80.8 million, including VAT, improved net operating revenues with NOK 3.6 million in internal process costs and reduced other operating expenses by NOK 12 million due to legal expenses and improved financial income with -- sorry, NOK 26.4 million. So this quarter, a small cost of NOK 0.7 million, but total on earnings before tax, NOK 41.3 million for this quarter. And besides, there's a positive upside in these numbers. So the court ruling March '26 this year also ordered Sotra Link Construction to pay us NOK 84.2 million in damages plus statutory default interest and another NOK 15.7 million in legal and internal costs. And these amounts are appealed and subject to court decision scheduled May '27. And then you have full control on the Sotra effects. So earnings per share quarter, NOK 3.23, an increase from last year that it was NOK 1.45. Okay. First half this year. EBITA, NOK 268.8 million, a margin of 8.6% and adjusted margin on 8.1%. And the bridge, again, illustrate the change from last year, and we explained most of this for Q2, but some few comments on this. Last year, the write-downs on Sotra Link project, NOK 13.8 million, and growth is explained by the increased capacity, improved billing rates and a positive calendar and a small negative effect on billing ratio of 0.8%. Organic growth, 2.6% and M&A is 3.8%. And also caused by these improvement measures, other operating expenses also for the first half demonstrates improvement from first half last year of NOK 6 million besides the Sotra Link effect. And also one-off costs to make these improvements, NOK 9.3 million for the first half. And of course, there will be internal inefficiencies on top of that. Employee benefit, 4.2% per FTE, again, in line with ordinary salary adjustments and earnings per share has increased to NOK 7.22 compared to NOK 6.32 last year. And for those of you that follow us closely, we also confirm that the net project write-downs landed well below 1% this first [ half ] also. Then going through the numbers per quarter and the second quarter is in dark blue. And as you know, this is highly characterized by the number of available working days. So you see illustrated top left, the growth in net operating revenue, 7.8%. The rolling 12 is 5.8. Top right, the change in billing ratio, minus 1.3% and top -- sorry, down right, also the change in permanent fixed employees by 3.1%, an increase primarily related to the acquisition of ViaNova in December last year. This is partly offset by these improvement measures. So in combination, illustrated then to the left down, we have other revenue effects, changes in employee benefit and other operating expenses and an EBITA of 7.1%. You also see the different colors illustrate onetime effect per quarter this year and last year on write-down on Sotra Link and this onetime settlement from a client in '24 and also the reinforced share ownership program in '23. Okay. Then we have some comments per segment, and we start with Norway. And as I introduced, we have the earlier region Oslo and Region Norway here, including Multiconsult Norge, the 4 ViaNova companies, Site Partner, Lifetec and Multiconsult U.K. In this segment, we see strong growth in net operating revenues, 12.8%, caused by increased capacity from crucially ViaNova, higher billing rates and a positive calendar NOK 41.4 million. Profitability has increased, supported by the Sotra Link effects, NOK 15 million. Improvement measures are ongoing, adjusting the capacity to the market with a reduction in number of employees by 35 this quarter. The improvements are also affecting the organization structure, and there is strong cost control positively influencing other operating expenses. The one-off effects are estimated to be NOK 2 million in this quarter. Also in this segment, we confirm our strong market position, especially within Defence and Industry, demonstrated in the order backlog and complemented by framework agreements, but we see delayed project starts putting pressure on the billing ratio. Moving to Architecture and the 4 companies within our Architecture segment are well positioned for the emerging market trends. Corrected for the negative currency effect of NOK 4.7 million, net operating revenues are in line with Q2 last year. Improvement measures have been implemented, causing the number of FTEs to be reduced by 28 since last year and the effects of the improvement measures will increase in the second half this year. There are 9 FTEs temporary layoffs at the end of second quarter. The billing ratio also demonstrates an improvement from the full year figures last year, and improvement is 1.9 percentage points since Q1 this year. Reported EBITA includes one-off effects of NOK 1.6 million, and the calendar effect is positive by NOK 7 million. Then our last segment, International, Multiconsult Polska and Iterio, our Swedish Engineering business. We see the Swedish community development and infrastructure market entering a period of gradual recovery, although we expect growth to vary across sectors. The medium-term infrastructure outlook for the Polish market is strong, but we see short-term recovery to be constrained by award timing and public sector acceptance cycles. Primarily caused by negative currency effect of NOK 8.2 million, net operating revenue see a decrease on NOK 6.3 million this segment. And the EBITA numbers are also affected by lower billing ratios caused by the market conditions and portfolio mixture. And then what you have been waiting for, the financial position. Starting to the left, the positive cash, NOK 37 million at the beginning of the year. Then we have positive cash from operations, NOK 253 million, also positive IFRS effect, NOK 108 million. And then we have a change in net working capital. This is due to seasonal fluctuations, but we continue to have high focus on invoicing on this. We have used NOK 34 million in investments. Major part of that is in our new HR platform. And we also have increased our financing by NOK 170 million, and that is mainly due to payment of dividend of NOK 138 million. So then in combination again with IFRS effects, we end this quarter with a positive cash of NOK 31 million. Also illustrated to the right, the financial position is still strong. Net debt interest-bearing debt, NOK 788 million. The gearing ratio is 1.91, that is well within our financial targets. We should normally be between 1 and 2. And in situations like this, where we have M&A activity, we could be up to 3. Then the last page from me, the free cash flow. In the dark blue bar, we see cash flow from operating activities that is positive NOK 136 million. And cash used for investments is NOK 19 million is in the green line. Net positive effect is NOK 117 million. So then that gives us the free cash flow over the last 12 months, positive NOK 388 million, as you see on top. Then Karsten, I hand it back to you.

Thank you. Looking at the split between the markets and our business areas, we see the same trends as during the last quarters that we have a slightly decline in building and properties, but that is more than compensated by an increase in mobility and Transportation and also Energy and Industry. When it comes to our strategy, I have spent some time gaining insight into our -- how we can achieve growth in our selected growth areas, and I also went more into our detailed plans on how to execute on our strategy. My reflection so far is that our targeted growth is the right one in the right areas as we are targeting the key market drivers mentioned here in the second bullet point. And these are also the markets where we have strong competencies and experience and also many reference projects. We have a unique position in defence-related projects, and we will continue to pursue opportunities inside and outside of Norway. With a close collaboration between NATO countries, similar type of projects are now being invested in, in several countries, for instance, submarines and their submarine bases. So to sum up the second quarter, we had good sales across business areas, including new more frame agreements, which is not showing in the order intake in our backlog. We are on course and following plans and implementing measures for driving our profitability to a higher level. The market outlook -- the market overall looks and remains stable with defence, infrastructure, energy and industry continue to support demand. We have a healthy pipeline, a strong market position and many framework agreements, especially within defense. So here is our financial calendar next, delivering our Q3 results on 3rd of November. And then we open up for questions.

And my name is Simen Mortensen from DNB Carnegie. Thank you for a good presentation. I have a few questions. You're new to this company, but over the last year, you have been communicating that price pressure or the price growth hasn't been at par with cost pressure. And in this quarter, there's a lot of variations. We look at the calendar adjusted revenues being up 0.7% year-on-year. While at the same time, we have employment cost going up 4%, clearly showing that this is continuing to pressure margins. It seems to be accelerating or decelerating the revenue growth. It was higher in the beginning of the year and it's now even lower. How long do you see this trend going on? And what steps and measurements do you think you can do in the near term and a bit in the longer term to compensate for that kind of margin pressure situation, which has occurred? And also in that light, how do you look at the order backlog being down 13.5% year-on-year?

Can I start? So we see the same situation. As you saw also in the presentation, we have a price increase that is higher than 0.7. So we are getting closer to a more healthy situation when it comes to the -- sorry, the differences between increase in the cost of FTEs and our margins. But you are right. So that's why we put pressure on costs that you see a decline in. So in relative terms, we are more than 8% more effective on operating costs than we were at the same period last year. And also, we need to see what we do on the billing ratios and also demonstrated that we have reduced the number of employees, both in the segment Norway and especially in Architecture. So we need to continue to work on those issues also going forward. But we are aware of the situation that are facing us, and it's always the struggle to have the best possible margins. But we also are well positioned. We are a company with the best employees, the best situation. So basically also we're able to win contracts based on our competence in this going forward. So -- but we will continue to work with this.

And the order backlog situation?

Well, we see the order backlog to be healthy. You saw the sales increase this quarter. And also that also commented in the last quarter, since the framework agreements are now relatively higher than the previous years, comparable, we think we at least could have NOK 1 billion added to the sales of the order backlog in comparable terms. So basically, we're not worried by that. And also in Architecture, our order backlog has increased compared to the last quarter. So we are not worried about the order backlog.

You also mentioned that you're moving to a new headquarter and stated also this will save some costs. Can you quantify the level and expected impact of that?

We will move in '28. And what we do then is actually that we move out of the other premises that we have in Oslo and centralize that and we need to come back with the numbers on that.

Bengt Jonassen from ABG. I just wanted to touch upon the framework agreements because we have seen that going up in the last couple of years. And as I said, it's a preferred way of, say, entering new contracts. question that I don't have the answer to is, is this positive for you? Or is it negative? Basically, your clients are just securing capacity and you are sitting on the sidelines waiting for these call-offs to happen. And when they don't happen, you end up with a lower billing ratio that you probably planned for.

True. But this is also an opportunity moving into -- we can regret that, but defence is a high-growth area at the moment. And for us to have the ability to win these framework agreements due to our capabilities and also the knowledge that we have in this sector is -- we need to see this as a positive thing. And also that we are able to win part of that with quite good margins. So in general, I would say, positive. But of course, you can't then report it as part of your sales. And that makes questions come like the one we heard from Simen.

But what about the timing of call-offs? Do you have any visibility here at all? Or is it just wait and see?

It's a combination on that, that we have some visibility on some contracts and others is decided on levels above basically our customers. It's a political situation in that.