12 February 2020, NRC Group published its fourth quarter 2019 results. Below you will find a summary and highlights from the report.
Key figures Q4 2019
Key figures 2019
Comments on fourth quarter 2019 results:
Fourth quarter negatively affected by project margin adjustments - measures initiated to restore profitability
Fourth quarter revenue was NOK 1,663 million, an increase of 71% from NOK 971 million reported for the same period of 2018, mainly driven by the acquisition of VR Track. The organic growth was -6% in fourth quarter and +2% for 2019.
Group EBITA* was NOK -69 million in the quarter as a result of net project margin adjustments of NOK -110 million. The margin adjustments are mainly related to Rail and Civil Construction contracts in Sweden and Rail Construction in Norway, where the costs have become higher than anticipated. This reflects that the processes and competence on tender selection and calculation, risk assessment and execution processes have not been satisfactory in these units. The projects were all tendered before changes in the management team in Sweden and in Rail Construction in Norway, which was implemented in the second half of 2019.
“We are obviously not satisfied with the results and project write-downs reflecting weak performance in Sweden and in some of the rail construction projects in Norway. We have already started a turnaround process to restore profitability, with targeted measures to strengthen project management capabilities, project selection and tendering processes and the project execution model,” said Henning Olsen the CEO of NRC Group.
Several measures have been initiated and implemented to restore profitability, including strengthening the processes and competence in tender selection, risk assessment and execution. Furthermore, an overhead cost reduction programme for 2020 targeting savings of NOK 55 million has been initiated.
For 2020, non-performing projects including the above projects will represent approximately NOK 400 million of revenue which is expected to yield zero margin. Most of the projects are scheduled to be completed by the end of 2020.
Full year 2019 revenue was NOK 6,193, an increase of 95% from 2018, and in line with previously communicated expectations. Full year revenue-growth reflected acquisitions and strong organic growth in Finland and Norway, partly offset by reduced activity in Sweden. Organic growth for 2019 was +2%. Group EBITA* was NOK -26 million, a decrease from NOK 29 million in 2018. The Norwegian operation has a revenue of NOK 583 million in fourth quarter compared to NOK 630 million in the fourth quarter of 2018. The organic growth was -7% in the quarter but +16% for the full year. Continued strong margins in Civil construction and Environment, was offset by net project adjustments in Rail construction, amounting to approximately NOK -50 million, which reduced the EBITA* margin to 3.9%.
The Group operating profit (EBIT) for the quarter amounted to NOK -85 million compared to NOK -59 million in 2018. In addition to certain projects with margin adjustments as described above, EBIT includes M&A expenses (other income and expenses) of NOK 37 million and amortisations of NOK 17 million. The M&A expenses relate to subsequent adjustment of contingent considerations in the business combination of NSS recognised in profit or loss.
Strong order intake and year-end backlog
Fourth-quarter order intake was NOK 1,926 million. Announced contracts amounted to NOK 1,396 million and unannounced order intake was NOK 529 million.
In Norway, new orders included the NOK 793 million rail services contract for Nykirke and Barkåker on Vestfoldbanen and a NOK 175 million award for ground and railway technical works, on the railway connection between Drammen and Gulskogen. Both contracts are part of the Intercity development programme and were bid and won under the new tender selection and -execution model implemented in Rail Construction Norway.
In Finland, NRC Group was awarded an EUR 20.3 million signal system renewal contract on the Tampere-Seinäjoki railway section. In Sweden, The Swedish Transport Administration (Trafikverket) exercised a two-year option for railway maintenance Västra Götaland Väst region worth SEK 130 million.
Full-year 2019 order intake was NOK 7,913 million and the year-end backlog amounted to NOK 7,151 million, a more than doubling compared to prior year. Approximately 44% and 24% of the backlog is estimated for production in 2020 and 2021, respectively.
Strategy update and long-term ambitions
In the fourth quarter, NRC Group completed a strategy update following a period of strong organic and M&A driven growth, including the acquisition of VR Track Oy in January 2019. After achieving the ambition of being the leading Nordic player within rail infrastructure, the focus has been turned to harvesting the benefit of this. The main priorities are to restore profitability through operational improvements, capitalize on the leading Nordic position and strong markets through profitable organic growth, and utilising Nordic capabilities to expand into complementary services.
The implementation of the improvement processes started in the second half of 2019. In 2020, the main priority is to complete the execution of the improvement programs. This will be the platform to increase profitability and continued profitable growth from 2021 and onwards.
NRC Group has established clear strategic priorities to restore profitability and drive growth with a 2024 ambition of NOK 10 billion of revenue and a 7% EBITA margin. (Please see separate statement issued today with more details on long-term ambitions and ongoing improvement program.)
For 2020, NRC Group will prioritise implementation of the updated strategy, focusing on improvement measures to restore the profitability in the Group. The market outlook is positive, however focus will be to build a solid platform to be positioned for further profitable growth from 2021 and onwards. NRC Group expects revenue for the year to be in line with 2019.
*Before other income and expenses (M&A expenses)
Q4 and CMU presentation
NRC Group will tomorrow present the quarterly results followed by a Capital Markets Update (CMU) from 08:30 to 12:00 CET at Felix Conference Centre, Bryggetorget 3, Oslo, Norway. Group management will provide an in-depth overview of the strategic development, ambitions and outlook after completion of the strategy process. The event includes presentations by CEO Henning Olsen, CFO Dag Fladby and country managers Harri Lukkarinen (MD Finland) and Robert Röder (MD Sweden).
The presentation will be held in local language with supporting material in English.
The fourth quarter 2019 result report and result presentation can be found attached and will be made available on the company's homepage: www.nrcgroup.com. The CMU presentation will be distributed in a separate stock exchange release and made available on the company homepage.
For further information, please contact Dag Fladby, Chief Financial Officer, NRC Group ASA on tel: +47 90 89 19 35.
+47 91 74 15 92henning.olsen[at]nrcgroup.com