Solid organic and acquisition growth in 2022, margins in Q4 adversely affected by early winter weather – continued excellent operating cash flow
October-December 2022
• Total operating revenue amounted to NOK 719.5 million (588.9), an increase of 22.2%. Currency-adjusted organic growth was 5.1%.
• Revenue from customer contracts amounted to NOK 712.6 million (583.6), an increase of 22.1%.
• EBIT amounted to NOK 35.3 million (75.6).
• The quarter was charged with non-recurring items amounting to NOK 25.8 million (–0.8).
• Adjusted EBITA amounted to NOK 71.0 million (82.0).
• Profit for the period was NOK 13.3 million (50.7).
• Cash flow from operating activities totaled NOK 143.3 million (140.2).
• Basic/Diluted earnings per share amounted to NOK 0.07 (0.36).
January-December 2022
• Total operating revenue amounted to NOK 2,466.5 million (2,025.2), an increase of 21.8%. Currency-adjusted organic growth was 8.9%.
• Revenue from customer contracts amounted to NOK 2,445.3 million (2,006.3) an increase of 21.9%.
• EBIT amounted to NOK 211.7 million (193.5).
• The period was charged with non-recurring items amounting to NOK 32.5 million (30.8).
• Adjusted EBITA amounted to NOK 278.6 million (257.7).
• Profit for the period was NOK 139.5 million (86.0).
• Cash flow from operating activities totaled NOK 343.3 million (337.4).
• Basic/Diluted earnings per share amounted to NOK 0.76 (0.81).
Significant events during the January-December 2022 period
• Norva24 acquired the German company Zimmerbeutel, a leading provider of underground infrastructure maintenance (UIM) services in the Rhein/Ruhr area.
• Norva24 Group acquired the Swedish company IRG Rörinspektion. The acquisition is strategically important for Norva24’s efforts to develop new technological solutions within sensor technology and digital monitoring in addition to regular UIM services.
• Norva24 strengthened its market position in Jutland Denmark through the acquisition of Thornvig Jensen – a company that has been operating for more than 100 years.
• Norva24 strengthened its position within pipe relining in the Swedish market through the acquisition of Stockholm Relining.
• Norva24 acquired Jutzy Haustechnik und Service. The acquisition strengthened Norva24’s market leading position in UIM in Germany and makes Norva24 the clear UIM leader in the greater Berlin area.
• Norva24 acquired CKS Express Baumanagement GmbH and CKS Rohr Express e.K. (CKS), further strengthening Norva24’s market leading position in UIM in the Greater Berlin area.
Significant events after the reporting period
• Norva24 acquired NRC Gravco in Oslo adding NOK 90 million in revenues and further consolidating Norva24’s position in the Greater Oslo and surrounding area.
• To strengthen Norva24’s Group Management Team and prepare for further expansion, as per 1 February 2023, Stein Yndestad assumes the position as Group Chief Corporate Development Officer, reporting to the Group CEO and Dean Zuzic assumed the position as Group CFO
• CEO of Sweden Håkan Wessel decided to step down in April 2023. Norva24 have appointed Mikael Smedborn as new CEO of Sweden and he will assume his position from April 1, 2023.
• Henrik Damgaard has accepted a new job as CEO for a company in another non-competing industry, and he has therefore decided to step down as Group CEO in July 2023. The board has started the process of finding the new CEO of Norva24.
Solid organic and acquired growth – continued excellent operating cash flow
As we reflect on Norva24’s first year as a listed company, we proudly look back at a year with strong revenue growth of 22%, driven by a currency adjusted organic growth of 9%, with positive currency adjusted organic growth in all countries, combined with a continued strong acquisitive growth. Norva24 is well on track to achieve the financial target of NOK 4.5 billion in revenue by 2025.
In Q4 2022, Norva24 achieved a strong total revenue growth of 22%, supported by currency-adjusted organic growth of 5%. Although our business model is resilient in environments of weaker economic activity and higher inflation levels, the market activity is seasonal, and the winter weather conditions can impact the business from time to time. The potential effect from the winter weather is normally most prominent in Q1 but can also occur in Q4. In Q4 2022 we have seen early winter conditions in Scandinavia, putting pressure on margins and particularly affecting our largest market Norway. In the first half of Q1 2023 we have, however, seen winter weather conditions in line with the last couple of years.
We continue to adjust the prices to compensate for the increased fuel prices, which are up 30% in Q4 2022 compared with Q4 2021, but it should be noted that some contracts were not fully compensated in Q4 as many of our public contracts have annual indexed adjustments as per January 1, 2023, with price increases of around 10%.
Adjusted EBITA in Q4 2022 amounted to NOK 71 million, adversely affected by early winter weather effects and some lag in the compensation for higher energy prices on certain public contracts. Adjusted EBITA-margin was 10% during the quarter. There has also been a higher sick leave level in Norva24 in line with the rest of society in 2022, affecting the margins due to lower production and higher production cost due to more use of overtime. We remain confident that Norva24’s business model is resilient in this weaker economic environment as well as inflation resistant, although the seasonal weather effects, higher energy prices and a lag in the price compensation on parts of the public customer contracts impacts the groups profitability in Q4.
It is encouraging to see that the cash flow from operations covers the acquisitions both in Q4 and the full year of 2022. Cash flow from operating activities of NOK 143m, representing a cash conversion rate of 104% (Net Cash flow from Operating activities/Adj. EBITDA) in Q4.
We are comfortable with our healthy financial position, excellent cash flow and leverage, proforma, below 2.0x LTM adjusted EBITDA at year-end. This is providing us with significant headroom to financial covenants in the financing facility. Net debt excluding all IFRS16 lease liabilities amounted to NOK 340 million. We currently have NOK 611 million available in the credit facility to enable continued strong M&A pace going forward.
The six acquisitions we closed in 2022 add annual revenue of NOK 350 million (NOK 440m including the recent acquisition of Gravco in early January 2023). Combined with the strong organic growth, Norva24 is well on track to achieve the financial target of NOK 4.5 billion in revenue by 2025. In 2022, we welcomed six new companies to the Norva24 group; IRG and Stockholm Relining in Sweden, Thornvig Jensen in Denmark as well as Zimmerbeutel, Jutzy and CKS Berlin in Germany.
The M&A activity in 2023 had a promising start, as Norva24 in January 2023 completed the acquisition of Gravco in Norway, a company with a long history and strong brand which strengthens Norva24 in the greater Oslo area and surroundings. Gravco had revenues of NOK 90 million in 2022 and high margins. We will continue to act in a prudent and orderly way in accordance with our acquisition strategy, with diligent assessment and integration of candidates, to ensure continued strong organic development.
In Q4, all segments delivered positive currency adjusted organic growth. Sweden and Denmark showed the strongest currency adjusted organic growth with 8% and 12% respectively. In Germany the currency adjusted organic growth was 4% and in Norway the organic growth was 2,3% in Q4.
As seen in the first nine months of the year, Sweden showed good organic growth in Q4 2022. Total revenue growth in Sweden was also very strong at 24% in Q4 and adjusted EBITA margin increased 1.7 p.p. to 12%.
The improvements in the Danish operations seen in previous quarters paused a little in Q4 due to higher level of short-term sick leave and lower margins in the acquired companies as well as winter weather. Adjusted EBITA margin improved however by 5 percentage points for 2022 compared with 2021, confirming again that Denmark is on the right track.
Currency adjusted organic growth in Germany was 4%, on the back of very strong currency adjusted organic growth of 27% in Q4 2021 (Implying strong comparable figures). Germany posted however, a healthy Q4 adjusted EBITA margin of 16% down from 18% in Q4 last year, the reduction is due to the dilutive effect from acquisitions made in 2022.
Our vision remains clear: We want to be the market leader in underground infrastructure maintenance in Europe. We will continue to strengthen our position through both acquisitions and organic growth to fully live up to our promise to our customers: “We always help!”
Our business is resilient to the macro environment since our services are mission-critical with market growth driven by factors such as an ageing underground infrastructure, increased regulation, and a higher frequency of extreme weather events due to climate change. Our services are critical to the functioning of society and there is a need for them regardless of any economic cycles and inflationary environments.
We have a clear, proven, and consistent acquisition strategy, with 41 acquisitions completed since Norva24 was established. We operate in the European UIM market, with a total addressable market of NOK 140 billion, and have a clear number one position in Northern Europe, a market worth NOK 36 billion During February 2023 we made some organizational changes where Dean Zuzic assumed his position as Group CFO and Stein Yndestad assumed the position as Chief Corporate Development Officer. Stein will as part of his role work on accelerating M&A and on expansion into the next markets for Norva24.
Expansion into new markets will be done with over the next few years and as stated earlier, the target markets are the adjesent countries to current operations. The markets on the long list are, Finland, Austria, Switzerland, Belgium, Netherlands, UK and Ireland.
Maintenance of underground infrastructure is a key factor for a sustainable future. We are currently preparing our 2022 Annual Report where we expect to provide more data on our sustainability metrics. We remain focused on our core business and work continually to further develop Norva24’s sustainability initiatives to safeguard the UN Global Sustainable Development Goals for clean water, sanitation, and clean energy to further consolidate our position as the leading player in the industry.
Henrik Damgaard
Chief Executive Officer
“We proudly look back at a year with strong revenue growth of 22%, driven by a currency adjusted organic growth of 9%, with positive currency adjusted organic growth in all countries, -combined with a continued strong -acquisitive growth. Norva24 is well on track to achieve the financial target of NOK 4.5 billion in revenue by 2025.”
Shareholders, investors, analysts and journalists are welcome to attend the company’s presentation in Stockholm or webcast with teleconference at 09.30 (CET).
Henrik Damgaard, CEO, Dean Zuzic CFO, Stein Yndestad, Chief Corporate Development Officer, and Sture Stölen, Head of IR, will present the report. The presentation will be held in English.
Date: February 24, 2023
Webcast with teleconference at 09.30 (CET)
To participate in the conference, please go to link or dial in on the telephone numbers below
If you want to be present physically please be present at Carnegie Regeringsgatan 56 Stockholm latest by 09.15 (CET).
Webcast:
https://financialhearings.com/event/45832
Teleconference:
Dial-in number
Teleconference:
Dial-in number SWE: +46-8-5051-6386 UK: +44-20-319-84884 US: +1-412-317-6300 , Pin code: 5897003#
For further information contact:
Sture Stölen, Head of IR
Tel: +46 723 68 65 07
E-mail: sture.stolen@norva24.com