NRC Group ASA - Second Quarter and First Half 2020 Results
STOCKHOLM, Aug. 19, 2020 /PRNewswire/ -- Today, 19 August 2020, NRC Group has released its financial results for the second quarter and first half of 2020. The presentation is available on the following webcast link:
A Q&A session will be held at 11.00 AM (CET), and participants can ask questions via the moderator.Participants dial-in numbers:
SE: +46 (0)8-5065-3942
FI: +358 (0)9-7479-0404
UK: +44 (0)330-336-9411
Below you will find highlights and a summary from the report.
- NOK 1.66 billion (NOK 1.55 billion in Q2 2019)
- NOK 27 million (NOK 51 million in Q2 2019)
- Impacted by cost related to overcapacity in Finland
- Order intake of NOK 1.3 billion
- Order backlog of NOK 7.5 billion
- Cash flow from operations of NOK 31 million
- Cash position of NOK 691 million
REVISED FINANCIAL TARGETS
- EBITA margin 2020 between 1.5% - 2.0%
- EBITA margin 2021 up towards 4.0%
- Long term ambition in 2024 maintained
* Before other income and expenses (M&A expenses)
Comments on second quarter and first half 2020 results
Second-quarter revenue was NOK 1,661 million compared to NOK 1,551 million reported for the same period of 2019. The revenue increase was 7% in the quarter due to positive currency effects. Group EBITA* was NOK 27 million compared to NOK 51 million for the same period last year. The EBITA* margin was 1.6% (3.3%), which includes increased production overhead in Finland as a result of overcapacity of personnel and lower utilisation of machines. The EBITA* margin in the quarter was also affected by execution of zero margin projects following project margin adjustments in the fourth quarter of 2019.
Implementation of improvement measures aimed to professionalise the organisation and strengthening the tendering process, risk assessment and project execution continues. The NOK 55 million overhead cost reduction in Norway and Sweden is on track. Overcapacity in Finland has however led to higher production overhead than expected. During the second half of 2020, additional measures will be implemented in Finland to improve profitability and to achieve a more flexible cost base.
Revenue for the first six months of 2020 was NOK 2,915 million compared to NOK 2,681 in the first half of 2019, an increase of 9%. EBITA* amounted to NOK -27 million compared with NOK -3 million in first half of 2019.
Revenue in Norway was NOK 476 million compared to NOK 545 million in the second quarter of 2019. The organic growth was -13%. In Civil construction the activity level was lower compared with same quarter last year, mainly due to lower win rate in tenders in 2020. The activity level in Rail was as expected. EBITA* was NOK 27 million, compared to NOK 43 million in the same period of 2019. Civil construction continued to deliver good margins even if some of the projects were negatively affected by Covid-19. Environment deliver strong margins, but somewhat lower than last year. The improvement program in Rail progressed according to plan.
Revenue from the Swedish operation amounted to NOK 487 million for the quarter compared to NOK 411 million in the same period of 2019. The organic growth was 5%. EBITA* was NOK -13 million compared to NOK -24 million in 2019. The EBITA* was affected by execution of zero margin projects following project margin adjustments in 2019. The improvement program in Sweden is on track.
Finland had revenue of NOK 700 million, compared to NOK 601 million in the second quarter of 2019. The organic growth was 3% in the quarter driven by light rail projects. The EBITA* was NOK 19 million in the quarter compared to NOK 45 million in the same period of 2019. Revenues and profitability were affected by the completion of the maintenance area 1 contract by the end of March 2020. In addition, EBITA was lower than expected as a result of increased production overhead, including lower utilisation of machines due to lower activity in core Rail construction. This has impacted the results negatively in Maintenance and in core rail operations. The core rail construction activity has been lower than expected due to fewer tenders in the market. Additional measures, which is estimated to include layoff of approximately 60-80 FTEs, will be implemented in the second half of 2020 to reduce costs and increase the flexibility of the cost structure going forward. The measures are expected to have full effect from second quarter of 2021.
Group operating profit (EBIT) for the quarter was NOK 12 million compared to NOK 30 million last year. EBIT for the second quarter included NOK 2 million of other income compared to M&A expenses of NOK 4 million in the same period of 2019. Net financial items amounted to NOK -18 million for the quarter, compared to NOK -19 million for the same period last year. The group has a 20% interest in a joint venture sharing risks and rewards of two larger projects with Astaldi and Gülemark in connection with the Station Haga in Gothenburg. The projects are complex with substantial risk, hence net income from the project has been reported at zero.
The order backlog amounted to NOK 7,526 million at 30 June. Second-quarter order intake was NOK 1,307 million, split on announced contracts of NOK 554 million and unannounced order intake of NOK 753 million, partly offset by NOK 168 million of negative currency adjustments due to NOK strengthening vs. SEK and EUR in the quarter.
In Norway, new orders included an appointed contract of NOK 199 million by Bane NOR, for preparatory works for the new ERTMS signalling system on Bergensbanen, Flåmsbanen and Randsfjordbanen.
In Sweden, NRC Group was appointed a contract of SEK 65 million for track, electro and signal/telecom work on the railway connection between Lund and Arlöv, and a SEK 69 million contract for building a new station at Lustån, located on the railway connection between Avesta and Hedemora. New orders in Finland included a three- year maintenance contract in Northern Finland valued at approximately EUR 16.1 million.
Tendering activity remains high in Norway and Sweden, while activity in Finland has been lower than expected. The company has identified a total adressable tender pipeline of approximately NOK 19 billion for the next nine months. This compares to an approximately NOK 18 billion tender pipeline three months ago.
The Norwegian market remains active with several ongoing tenders. In June, the Parliament approved the revised national budget which included approximately net NOK 550 million of extra allocations to existing investment projects in 2020 in addition a previously approved NOK 200 million increase to maintenance and renewal spending. There is broad political support for improving the national railway system with NOK 27 billion allocated to the railway sector in 2020, up close to 5% from the revised 2019 budget.
In Sweden, tendering activity remains strong with several ongoing tenders, but at fierce price competition. The Swedish national budget forecasts SEK 13.6 billion in new investments for 2020, up 30% from 2019, and maintenance investments, including renewal and reinvestments, of SEK 10.2 billion, an increase of 1%. In 2021, new investments, upgrades and maintenance spending are expected to grow by 19% in total. The sum of planned spending for the three coming years is estimated to exceed the average annual level for the NTP plan period.
In Finland, the expectation in the beginning of the year was that the addressable market would grow to EUR 0.89 billion in 2020. The main drivers for the growth was expected to be by light rail projects and an expected increase in renewal and reinvestment activities, based on Governmental decisions from 2019. NRC is already taking part in the ongoing light rail projects in the market. Tender activity and updated tender pipeline so far this year, does not reflect a market growth in line with expectations at the start of the year, for 2020. In June, The Central Government of Finland announced a supplementary budget for rail investments for the MAL (land, housing and transport) agreement 2020 - 2031 for the Helsinki area. The MAL agreement represents a total of EUR 1 billion for investments in infrastructure, whilst the supplementary budget estimates EUR 500- 600 million in rail investments from 2021 and onwards. This supports the long-term market growth expectations as previously communicated.
In February, 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 create the groundwork 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 the first quarter, NRC Group immediately implemented new guidelines and policies to handle Covid-19 outbreaks to safeguard the health and safety of its employees and to maintain business operations.
NRC Group continues to monitor the development of the pandemic and its potential impact on the industry and the company's business. The main risks are related potential operational impact if outbreaks intensify and restrictions are resumed. NRC Group will follow up with immediate actions if relevant and needed. Operations also 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. Most tender processes are progressing as normal. Covid-19 has had limited negative financial effect as per end of June.
Part 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.
NRC Group continues 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. For 2020, the Group expects an EBITA margin between 1.5% and 2.0%. This compares to a previous margin target exceeding 2.8% for the year. The adjustment is related to higher production overhead due to overcapacity in Finland, and lower revenue in Civil Norway leading to lower results.
For 2021, the Group targets an EBITA margin up towards 4% based on existing order book and tender pipeline. The ambition level for 2024 is unchanged.
The second quarter and first half 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:
Chief Financial Officer
NRC Group ASA
This information is subject of the disclosure requirements pursuant to section 5-12 of the Norwegian Securities Trading Act.
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The following files are available for download:
NRC Group ASA Q2 2020 Result presentation
NRC Group ASA Q2 2020 Result report