NRC Group - Second quarter and first half 2019 results

Today, 20 August 2019, NRC Group has released its financial results for the second quarter and first half of 2019.

The company will present the results at 11.00 AM (CET) at Hotel Continental in Oslo. The presentation will be held by Henning Olsen and Dag Fladby.

If you want to attend the presentation, please register by email to: ca@dnb.no.

Below you will find a summary and highlights from the report.

Key events

-       Appointed to EUR 220 million alliance contract by City of Espoo and City of Helsinki, the largest-ever Group contract to date

-       Agreement for sale of the design division for EUR 42.5 million was signed subsequent to the quarter

Key figures Q2 2019

-       Revenues of NOK 1,654 million vs NOK 827 million in Q2 2018 

-       Total EBITDA* of NOK 117 million vs NOK 65 million in Q2 2018

-       Strong order intake in the quarter, amounting to NOK 3,372 million

-       All time high order backlog of NOK 7,937 million

Key figures first half 2019

-       Revenues of NOK 2,880 million vs NOK 1,355 million during first half 2018

-       Total EBITDA* of NOK 124 million vs NOK 67 million during first half 2018

* Before other income and expenses (M&A expenses)

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Comments on second quarter 2019 results:

All-time high order intake

Second quarter revenue was NOK 1,654 million, an increase of 100%, doubling from the NOK 827 million reported for the same period of 2018 mainly due to growth from the acquired companies. Group EBITDA* was NOK 117 million and the EBITDA margin was 7.1%. Severance pay due to changes in management, amounted to NOK 14 million in the quarter.

Revenue for the first six months of 2019 was NOK 2,880 million, an increase of 112.5% from the first half of 2018. EBITDA* amounted to NOK 124 million (NOK 67 million).

The Norwegian operation reported continued growth and good profitability in the second quarter of 2019. Revenue was NOK 545 million compared to NOK 335 million in second quarter of 2018. The organic growth was 18%. EBITDA* margin was 11.8%.

As expected, revenue and profitability in Sweden are still impacted by the market decline from the second half of 2018 and a low order backlog at the start of 2019. Revenue from the Swedish operation amounted to NOK 411 million for the quarter compared to NOK 498 million in the second quarter of 2018. The organic growth was -32%. EBITDA* margin was -3.0% including costs related to severance pay due to changes in management of NOK 5 million. It has been challenging to adjust the costs in line with the significant revenue drop and costs in some of the projects have been somewhat higher than expected. Robert Röder has been appointed managing director of NRC Group Sweden, bringing with him extensive experience from the railway entrepreneur market, most recently as managing director of Strukton in Sweden. He will start his position 1st of September.

Tender and award activities in Sweden have increased to date in 2019 with a positive impact on NRC Group’s order intake. However, as previously communicated, there will be a lag before new orders come to execution and impact revenue and margin.

Finland had revenue of NOK 601 million and an EBITDA* margin of 10.6%. An organic growth of 13% was driven by good production on the Tampere Light Rail alliance project. NRC Group has been involved in all railway related alliance projects executed in Finland to date and the Group’s market position was reaffirmed in the second quarter with the award of the Jokeri Light Rail alliance contract.

Design, which includes the Finnish and Swedish design business, had a revenue of NOK 112 million and an EBITDA* margin of 15.7%.

Second-quarter order intake was NOK 3,372 million. Announced contracts amounted to NOK 2,650 million and unannounced order intake was NOK 722 million. The order backlog for own production was NOK 7,937 million at the end of June. Approximately 33% of the backlog is estimated for production in 2019.

New orders included the Jokeri Light Rail alliance contract, which is the largest contract awarded to the Group to date, valued at EUR 220 million. Track construction started in June and the project is scheduled for completion in June 2024. Among other contracts awarded in the second quarter was a SEK 103 million contract for rehabilitation of Gothenburg Central Station and Almedal driftsplats in Sweden and a NOK 123 million contract for track renewal on Nordlandsbanen in Norway.

The Norwegian market was active with several contract awards and ongoing tenders for larger projects covering several special competencies. This is in line with the Group’s strategic positioning in recent years. There is broad political support for improving the national railway system and more than NOK 26 billion is allocated to the railway sector in 2019, up 12% from 2018. The May revised national budget included an additional NOK 250 million for maintenance in the Oslo area in 2019 and NOK 101 million to new investments. Planned investment, maintenance and renewal spending is below the average level of the 2018-29 National Transport Plan (NTP) for a second consecutive year while the maintenance backlog is increasing. These factors indicate continued growth in railway infrastructure investments and activity in Norway.

In Sweden, tendering and award activity rebounded in the first half of 2019. The development reflects the planned growth in spending in the NTP for 2019-2030 approved in June last year. The national budget for 2019 shows SEK 11.4 billion in new investments, up 26% from 2018, and maintenance investments of SEK 9.3 billion, an increase of 6%. In 2020, the investments are expected to grow with approximately 30% compared with 2019. Consequently, the tendering activity is expected to increase in second half with several interesting projects to come out in the market.

The Finnish market also remains firm with forecasts of increased investments in 2019. In addition, the new Finnish Government proposed a supplementary appropriation of EUR 110 million in the revised budget for 2019 to defined projects. Finland is preparing a transition from a four-year transport infrastructure planning horizon to a 12-year planning cycle, similar to Sweden and Norway. The first national transport plan for the period 2020-2031 is under development to ensure the long-term competitiveness of Finland’s transport system and regional viability and accessibility, and is expected to be completed in spring 2020.The plan preparations are based on the policies outlined in the government programme on state funding, that includes an increase of EUR 300 million to the basic transport infrastructure from 2020 onwards.

NRC Group’s business model revolves around sustainability. As population and cities grow, efficient transportation systems with a low carbon footprint are becoming increasingly important across the world. Building such systems is our core business. NRC Group contributes to the construction and maintenance of transport related infrastructure, including rail-based systems, harbours and roads, which all are critical components for modern and developing sustainable societies. Our competence and capabilities cover all phases of the projects. Since we take a holistic view in the planning and execution of the work, our projects are sustainable and create value in both economic and environment terms.

Subsequent to the quarter, on 12 August, an agreement was signed for sale of NRC Group Finland’s design division, including subsidiaries Nordic Infrapro AB in Sweden and NRC Arcus Oy in Finland (the operating segment Design), to Sweco for an enterprise value of EUR 42.5 million on a cash and debt free basis with normalised working capital. The transaction will be paid in cash in full and the expected closing is 1 November 2019. The net proceeds from the transaction will be used to repay parts of NRC Group’s bank debt. The net gain to be recognised is estimated to be approximately EUR 9 million and will be reported as part of discontinued operations at closing. The divestment is a strategic step to focus on NRC Group's core business, and releases resources to drive growth in other business areas. Limited synergies exist between Design and other operating segments and for certain projects involvement in design have negative synergies as it can limit access to the construction phase for the same projects.

* Before other income and expenses (M&A expenses)

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The second quarter 2019 result report and result presentation can be found attached and will be made 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.

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