Today, 10 November 2020, NRC Group has released its financial results for the third quarter of 2020.
The result presentation is available on the following webcast link:
A Q&A session will be held at 10.00 AM (CET), and investors, analysts and journalists are welcome to participate.
Participants dial-in numbers:
Below you will find highlights and a summary from the report.
* Before other income and expenses (M&A expenses)
Comments on third quarter 2020 results
Third quarter revenue was NOK 1,956 million compared to NOK 1,850 million reported for the same period of 2019. The revenue growth was 6% in the quarter due to positive currency effects. Group EBITA* was NOK 88 million compared to NOK 105 million for the same period last year. The EBITA* margin was 4.5%.
Revenue in Norway was NOK 541 million compared to NOK 683 million in the third quarter of 2019. The organic growth was -21%. The negative growth is mainly explained by lower activity in Civil construction due to lower win rate in tenders this year. EBITA* was NOK 16 million, compared to NOK 52 million in the same period of 2019. EBITA* margin was 3.0%, down from 7.6% in the third quarter last year. Lower revenue in Civil construction reduced the overall margin. In addition, the EBITA margin in parts of the Environmental division was lower than expected.
Revenue from the Swedish operation amounted to NOK 583 million for the quarter compared to NOK 460 million in the same period of 2019. The organic growth was 13% mainly driven by Rail construction. Several of the zero margin projects, following the project adjustments in Q4 2019, are in the final completion stage. Due to higher than expected production costs, additional write-downs of NOK -35 million are made in the quarter. Lower overhead costs and positive development in other projects off-set parts of the write-downs. EBITA* was NOK -7 million compared to NOK 2 million in 2019. The EBITA* margin in the third quarter was -1.2%.
Finland had revenue of NOK 831 million compared to NOK 712 million in the third quarter of 2019. The organic growth was 8% in the quarter mainly driven by high activity in the light rail projects. The EBITA* was NOK 84 million compared to NOK 55 million in the same period of 2019. EBITA* margin was 10.1% in the quarter, an increase from 7.8% last year, mainly explained by improved margins in the light rail projects. In the second quarter, the profitability was negatively affected by too high production overhead due to overcapacity as the activity level was lower than expected. Measures to reduce costs and to increase flexibility in the cost base are being implemented and are expected to have full effect from the second quarter of 2021.
Group operating profit (EBIT) for the quarter was NOK 70 million compared to NOK 80 million last year. EBIT for the third quarter of 2020 includes M&A expenses (other income and expenses) of NOK 5 million. Net financial items amounted to NOK 23 million for the quarter, compared to NOK 17 million for the same period last year. The net finance expense increased due to higher interest rates and currency effects. The Group has a 20% interest in a joint venture sharing risks and rewards of two larger projects with Astaldi and Gülermak in connection with the Station Haga in Gothenburg. The projects are complex with substantial risk, hence net income from the associated company has been reported at zero.
The order backlog amounted to NOK 6,835 million at 30 September. Third-quarter order intake was NOK 1,193 million, split on announced contracts of NOK 341 million and unannounced order intake of NOK 852 million.
In Norway, new orders included appointed contracts of NOK 35 million by Statnett, for ground and construction work in Skien and of NOK 39 million, for ground and construction work at Sjursøya in Oslo. New orders in Finland included a maintenance contract in Central Finland valued at EUR 25 million. The work commences in February 2021 and is scheduled for completion in November 2025, with an additional two-year option period.
Tendering activity is high in Norway and Sweden. The Group has identified an addressable tender pipeline of approximately NOK 16 billion for the next nine months. This compares to a NOK 19 billion tender pipeline three months ago. The tender pipeline in Finland improved with approximately NOK 1 billion compared to the tender pipeline three months ago. In Sweden, the tender pipeline for maintenance is reduced by NOK 2.5 billion as Storstockholms Lokaltrafik (SL) has decided to postpone tenders due to the financial impact of Covid-19. The tender pipeline in rail construction is still strong. In Norway, the tender pipeline has declined with NOK 1.5 billion compared to three months ago, mainly due to reduction of larger rail construction tenders, but still a solid tender pipeline.
In October, the Norwegian parliament proposed a total budget for 2021 of NOK 26.5 billion, up close to 20% from revised budget for 2020, including an increase of NOK 4.6 billion to rail investment projects and a NOK 500 million increase to maintenance and renewal spending. The increase in investment projects is mainly targeted towards InterCity projects already awarded. The maintenance backlog is expected to increase further to NOK 23 billion at the end of 2021 as renewal and maintenance spending of NOK 3.5 billion yearly are required to offset actual wear on existing infrastructure. These factors indicate continued growth in railway infrastructure investments and activity in Norway. Start-up of several new larger infrastructure projects around the greater Oslo-area are expected to support continued high activity in the civil- and environment market.
The Swedish national budget proposed SEK 30.4 billion for rail investments and maintenance spending for 2021, with a SEK 2.9 billion increase allocated to investment projects. Most of the increase is targeted to already on-going projects. The government has also proposed a yearly increase in maintenance spending of SEK 500 million to keep up with the maintenance backlog.
Central Government in Finland announced in October a proposal for national budget in line with NRC Group’s expectations. Rail investments and maintenance spending are at the same level next year as for 2020. Two years of a high investment level indicates a strong outlook. Light rail investments are expected to be at same level in 2021 as this year, mainly related to on-going projects. NRC Group is involved in all larger light rail projects under construction in Finland.
In February 2020, NRC Group presented its strategy update to position NRC Group as a Nordic leader in sustainable infrastructure. NRC Group has established a clear strategic roadmap with the ambition of NOK 10 billion in revenues and 7% EBITA margin in 2024. This implies a return to the 2016-2017 average margins, with the main uplift to come from internal improvements. Several measures have been implemented to restore profitability and to create the foundation for continued organic growth and expansion with complementary services.
The revenue ambition reflects an extensive group-wide process built on expected annual growth of 9% for the Nordic rail services market, organic growth and expansion opportunities in complementary services, and bolt-on M&As in existing segments and services. The Group is positioned to benefit from large and growing infrastructure markets that are supported by strong macro trends such as sustainability, population growth and urbanisation, and political consensus for increased investments in Norway, Sweden and Finland.
Update on Covid-19
In this quarter, NRC Group continued a sharp focus on adopting guidelines and policies to prevent and handle COVID-19 outbreaks. The Group monitors the development of the pandemic and its potential impact on the industry and on business continuity. The main risks are related to potential operational impact if outbreaks intensify and restrictions are resumed. A global rising rate of coronavirus infection leads to higher uncertainty. Governmental restrictions and recommendations are intensified in Norway, Sweden and Finland, as the numbers of affected are at highest levels since March. Restrictions related to workforce mobility has been implemented and will lead to higher cost for the impacted projects.
Operations depend on that customers, predominantly the public transport agencies and the municipalities in Norway, Sweden and Finland, continue to announce and award tenders as scheduled to enable efficient planning and execution of projects during 2020 and 2021. Due to the financial impact Covid-19 has for SL in Stockholm, tenders for maintenance and upgrades are on hold.
NRC Group’s main priority is to keep employees safe while maintaining operations. The Group communicate regularly and transparently to equip teams for virtual working and safe project execution. The Group complies with restrictions and guidelines from relevant authorities and follow up with immediate actions when relevant and needed.
Parts of NRC Group’s activities are related to maintenance and upgrades of existing railway infrastructure. These operations are defined as critical to the society, and the company will prioritise these activities in case of situations where certain resources become scarce. NRC Group is well positioned to ensure business continuity.
The Covid-19 pandemic has had limited operational impact for NRC Group to date. Still, if outbreaks intensify and additional restrictions are implemented by the governments, it will impact the Group’s day-to-day operations leading to higher production cost and slow progress in affected projects.
NRC Group maintains focus on implementation of the updated strategy and improvement measures to restore profitability. The long-term ambitions stand firm based on a positive market outlook.
NRC Group expects revenue for the full year 2020 to be in line with 2019. The Group revised the financial targets in second quarter to an EBITA margin of 1.5-2.0% for 2020. Due to additional write- downs in third quarter, it is most likely that the EBITA margin will be in the lower end of this range. For 2021, the Group targets an EBITA margin up towards 4% based on existing order book and tender pipeline.
The third quarter 2020 result report and result presentation can be found attached and will be available on the company’s homepage: www.nrcgroup.com.
For further information, please contact Dag Fladby, Chief Financial Officer, NRC Group ASA on tel: +47 90 89 19 35.
This information is subject of the disclosure requirements pursuant to section 5-12 of the Norwegian Securities Trading Act.
+47 91 74 15 92henning.olsen[at]nrcgroup.com