NRC Group — Investor Presentation 2020

Aug 19, 2020

Q2 2020 Result presentation NRC Group

CEO – Henning Olsen and CFO – Dag Fladby

Disclaimer

• This draft presentation (hereinafter referred to as the "Presentation") has been prepared exclusively for information purposes and does not constitute an offer to sell or the solicitation of an offer to buy any financial instruments.
• This Presentation includes and is based on, among other things, forward-looking information and statements. Such forward-looking information and statements are based on current expectations, estimates and projections. Such forward-looking information and statements reflect current views with respect to future events and are subject to risks, uncertainties and assumptions. We cannot give any assurance as to the correctness of such information and statements.
• Several factors could cause the actual results, performance or achievements of the companies mentioned herein to be materially different from any future results, performance or achievements that may be expressed or implied by statements and information in this Presentation, including, among others, risks or uncertainties associated with the company's business, segment, development, growth management, financing, market acceptance and relations with customers, and, more generally, general economic and business conditions, changes in domestic and foreign laws and regulations, taxes, changes in competition and pricing environments, fluctuations in currency exchange rates and interest rates and other factors. Should one or more of these risks or uncertainties materialise, or should underlying assumption prove incorrect, actual results may vary materially from those described in this document. We do not intend, and do not assume any obligation, to update or correct the information included in this Presentation.
• There may have been changes in matters which affect the companies herein subsequent to the date of this Presentation. Neither the issue nor delivery of this Presentation shall under any circumstance create any implication that the information contained herein is correct as of any time subsequent to the date hereof or that the affairs of the company/companies have not since changed, and we do not intend, and do not assume any obligation, to update or correct any information included in this Presentation.
• This Presentation is subject to Norwegian law, and any dispute arising in respect of this Presentation is subject to the exclusive jurisdiction of Norwegian courts with Oslo City Court AS exclusive venue.

Highlights Q2 2020

Revenue	•	NOK 1.7 billion	Revenue NOK million		EBITA* NOK million		NOK million	Order backlog**
EBITA*	• •	NOK 27 million Impacted by cost related to overcapacity in Finland					7 632	7 526
Financial targets revised	• • •	2020: EBITA 1.5% - 2.0%. Revenues 2020 at same level as last year 2021: EBITA up towards 4.0% Long-term ambitions for 2024 maintained	1 551	1 661
Orders	• •	Order intake of NOK 1.3 billion Order backlog of NOK 7.5 billion			51	27
Liquidity	• •	Cash flow from operations of NOK 31 million Cash position of NOK 691 million	Q2 2019	Q2 2020	Q2 2019	Q2 2020	Q2 2019	Q2 2020

Operations and business during Covid-19

Main priorities	• Keep employees safe and minimize impact on operations • Compliant with public restrictions and recommendations • Monitor potential effects on the industry and NRC Group's business
Operations	• Limited impact on project execution to date • Most tender processes progressing as normal • Maintenance and upgrade activities considered critical infrastructure
Risk management	• Maintaining robust financial position • National public transport agencies represent ~95% of backlog • Outbreaks may impact productivity, project execution and value chain • Dependent on customers announcing and awarding tenders as scheduled

Health and safety first

*LTI-1: Injuries resulting in absence at least one full day per million man-hours (incl subcontractors)

**LTI-2: lost time injuries in total per million man-hours, also including injuries that require medical treatment and alternative work (incl subcontractors)

Figures YTD per 30 June 2020 compared with YTD June 2019

Q2 key figures – profit & loss

• Revenue in Q2 20 of NOK 1,661 million
• EBITA* in Q2 20 of NOK 27 million
  • Lower EBITA margin due to costs related to overcapacity in Finland
  • Partly execution of zero margin projects following project adjustments in Q4 19
  • Limited effects from Covid-19
• Depreciations of NOK 54 million
• Net financial items: NOK -18 million

	Q2	Q2	YTD	YTD	FY
(Amounts in NOK million)	2020	2019	2020	2019	2019
Revenue	1 661	1 551	2 915	2 681	6 193
Operating expenses	1 580	1 448	2 835	2 580	5 927
EBITDA*	81	103	80	101	267
Other income and expenses (M&A expenses)	2	-4	-6	-52	-91
EBITDA	83	100	75	49	176
Depreciation	54	52	108	104	212
EBITA*	27	51	-27	-3	55
EBITA	28	47	-33	-55	-36
Amortisation	16	17	31	35	70
Operating profit/loss (EBIT)	12	30	-64	-90	-105
Net financial items	-18	-19	-41	-36	-73
Profit/loss before tax (EBT)	-6	11	-105	-126	-178

Q2 2020 key figures – balance sheet

• Continued weak NOK vs EUR and SEK affecting the balance sheet
• Goodwill and other intangible assets: NOK 2,989 million
• Cash: NOK 691 million
• Interest-bearing debt including leasing: NOK 1,859 million
  • Operating lease: NOK 158 million
• Net debt incl. total leasing: NOK 1,168 million
• Equity ratio: 44.5%

(Amounts in NOK million)
ASSETS	30.06.2020	30.06.2019	31.12.2019
Intangible assets	2 989	2 960	2 799
Right-of-use assets	578	564	522
Total other non-current assets	319	303	301
Cash and cash equivalents	691	226	154
Other current assets	1 566	1 776	1 648
Total assets	6 143	5 830	5 423
EQUITY AND LIABILITIES
Total equity	2 732	1 967	2 033
Long-term financial lease liabilities	273	204	214
Long-term operating lease liabilities	105	199	125
Other non-current interest-bearing liabilities	1 138	936	1 161
Other non-current liabilities	64	78	34
Short-term financial lease liabilities	130	104	123
Short-term operating lease liabilities	53	58	63
Other interest-bearing current liabilities	159	757	101
Other current liabilities	1 488	1 527	1 569
Total equity and liabilities	6 143	5 830	5 423

Q2 2020 key figures – cash flow

			Q2	Q2	YTD	YTD	FY
		(Amounts in NOK million)	2020	2019	2020	2019	2019
•	Cash flow from operating activities of NOK 31 million
		Profit/loss before tax	-6	11	-105	-126	-178
•	Net cash from investments of NOK -30 million
		Net cash flow from operating activities	31	11	87	-21	71
•	Net cash flow from financing activities of NOK -108 million	Net cash flow from investing activities	-30	-106	-38	-1 359	-931
		Net cash flow from financing activities	-108	-119	502	1 221	628
•	Settlement of purchase price of NOK 92 million for NSS and
	Gunnar Knutsen in July	Net change in cash and cash equivalents	-108	-214	551	-160	-232
		Cash and cash equivalents at the end of the period	691	226	691	226	154

Robust financial position as per 30 June

• Cash position of NOK 691 million
• NIBD of NOK 1,168 million
• Undrawn Revolver Credit Facility of NOK 200 million

Operational review

Improvement programs on track in Sweden and Rail Norway, additional measures to optimize capacity in Finland

	Sweden	Rail Norway	Finland
People	• New Country Manager and project directors • Strengthen project management skills through internal training and recruiting	• New management team and proven resources in place • Strengthen project management skills through internal trainings and closer integration with Civil	• Strengthen project management skills through internal training and recruiting • New management group in Maintenance
Tender process	• Improve tender process • Pricing discipline key to regain profitability	• Improve tender selection, risk assessment and pricing • Recruit proven calculation resources on complex Rail construction projects	• Group-wide processes on tender process and risk assessment
Execution	• Project- and contract management, cost control and risk management • Extract operational synergies between Rail construction and Maintenance • Joint machine operations with Norway	• Project and contract management, cost control and risk management • Resource planning and sub-contractor strategy • Joint machine operations with Sweden • Cooperation with Civil on complex projects	• Risk assessment to be implemented on new projects • Reorganize machine operations and optimize capacity • Capacity adjustments Maintenance

Execution of cost reduction in Norway and Sweden is going according to plan

NRC Finland – Lower results due to overcapacity

NRC Finland – Delay in tenders to the market in 2020

NRC Finland – Still slow release of new tenders

EUR 0.16 billion tender pipeline² EUR million value, # of tenders, next 9 months

• Tender pipeline slightly increased from Q1 20. Pipeline for 2020 remains at same level
• New orders in Q2
  • EUR 16.1 million Maintenance contract with extension option

NRC Sweden – Improvements according to plan

-75 -65

* Before other income and expenses (M&A expenses) 16

NRC Sweden – Continued growth in tender pipeline

Rail investments and maintenance spending¹

SEK billion, CAGR 2019-24

SEK 10 billion tender pipeline²

(SEK million value, # of tenders, next 9 months)

• Improved tendering activity

• Rail construction and Civil works pipeline SEK 5.6 billion (SEK 4.7 billion in Q1 20)
• Maintenance pipeline at SEK 4.5 billion (SEK 4.3 billion in Q1 20)
• Several contracts of SEK 100-300 million in pipeline
• New orders in Q2
  • SEK 65 million track, electro, signal/telecom contract
  • SEK 69 million track, electro, signal/ telecom and groundwork contract

NRC Norway - Lower activity

NRC Norway - Strong tender pipeline

Rail investments and maintenance spending¹

NOK billion, CAGR 2019-24

0,0

5,0

10, 0

15, 0

20, 0

25, 0

30, 0

35, 0

NOK 7.5 billion tender pipeline²

(NOK million value, # of tenders, next 9 months)

• Tender pipeline is still strong
• New orders in Q2
  • NOK 199 million electro ground contract for ERTMS preparations
  • NOK 39 million electro and groundwork contract
• Additional NOK 200 million maintenance spend and NOK 550 million of investments for 2020 approved by Parliament

Sharp focus on ethics and compliance

Fair Play Bygg Agreement

• NRC Group Norway signed 'Fair Play Bygg' agreement
• Proactively work to prevent work-related crime
• Promote a business environment where companies compete on equal terms

Together with other major partners, we are committed to proactively influence our industry being even more transparent and compliant with regulations and guidelines. We want to go the extra mile.

Managing Director Norway Hans Olav Storkås

Order book and market

Orderbook and order intake Q2 2020

• Order book NOK 7,526 million
  • f/x: ~ NOK -168 million
• Order intake of NOK 1.3 billion

Q2 20

• Announced orders NOK 554 million
• Unannounced orders NOK 753 million

* Non-performing projects make up 5 % of total order book as at 30 June of which ~ NOK 190 million is scheduled for 2020 execution. Zero margin contribution expected to completion.

Orderbook indicates moderate growth in 2021

Order book execution by country NOK million

Book-to-bill ratio Period order intake/revenue

NRC Group positioned in large and growing market with substantial short-term pipeline

Strong political support for sustainable investments

9% annual growth expected in rail investments and maintenance spending

1) Norway: Revised national budget 2020, National Railway Directorate NTP filings. Maintenance figures include Bane NOR operations and renewal. Excluding tram and metro 2) Sweden: National budget 2020, Swedish Transport Administration estimates for 2023-24; Maintenance is shown excluding renewal/Reinvestments. Excluding tram and metro 3) Finland: Finnish Transportation Agency, NRC Group estimates

Summary

CEO and CFO

Summary and outlook

Improvement programs	•	On track in Sweden and Rail Norway
Additional measures Finland	•	Reduce cost and increase flexibility in cost base
Financial targets revised	• • •	2020: EBITA 1.5% - 2.0%. Revenues 2020 at same level as last year 2021: EBITA up towards 4.0% Long-term ambitions for 2024 maintained
Outlook	• •	Solid tender pipeline in Norway and Sweden Continued strong outlook for investments in sustainable infrastructure

Segments – key figures quarterly development

Norway operations (NOK million)		FY 2017	FY 2018	FY 2019	Reported Q1 2018	Reported Q2 2018	Reported Q3 2018	Reported	Reported**	Reported** Q2 2019	ReportedReported***		Reported	Reported
	FY 2016							Q4 2018	Q1 2019		Q3 2019	Q4 2019	Q1 2020	Q2 2020
Total revenue	604	771	1 598	2 281	212	335	421	630	470	545	683	583	407	476
EBITDA*	13	43	136	186	-1	26	46	65	14	65	75	32	7	50
EBITA*	2	21	96	97	-7	19	36	48	-5	43	52	8	-14	27
EBIT*	-2	5	75	70	-13	16	33	39	-13	35	45	2	-18	23
Sweden operations (NOK million)	FY 2016	FY 2017	FY 2018	FY 2019	Q1 2018	Q2 2018	Q3 2018	Q4 2018	Q1 2019	Q2 2019	Q3 2019	Q4 2019	Q1 2020	Q2 2020
Total revenue	1 371	1 613	1 591	1 539	316	498	433	344	299	411	460	370	311	487
EBITDA*	173	221	27	-77	9	46	32	-60	-7	-13	14	-71	-15	0
EBITA*	160	198	-8	-125	2	38	23	-71	-20	-24	2	-83	-27	-13
EBIT*	136	179	-16	-125	1	37	17	-71	-20	-24	2	-83	-28	-14
Finland operations (NOK million)	FY 2016	FY 2017	FY 2018	FY 2019	Q1 2018	Q2 2018	Q3 2018	Q4 2018	Q1 2019	Q2 2019	Q3 2019	Q4 2019	Q1 2020	Q2 2020
Total revenue				2 388					361	601	712	713	540	700
EBITDA*				191					4	64	70	53	16	37
EBITA*				116					-13	45	55	29	-3	19
EBIT*				75					-24	35	45	19	-14	7
Total group segment accounts	FY 2016	FY 2017	FY 2018	FY 2019	Q1 2018	Q2 2018	Q3 2018	Q4 2018	Q1 2019	Q2 2019	Q3 2019	Q4 2019	Q1 2020	Q2 2020
Total revenue	1 975	2 373	3 176	6 193	528	827	851	971	1 130	1 551	1 850	1 663	1 254	1 661
EBITDA*	152	236	132	267	2	66	71	-7	-3	103	153	13	-1	81
EBITA*	128	190	57	55	-12	51	54	-36	-54	51	105	-47	-54	27
EBIT*	99	156	29	-15	-18	48	44	-44	-72	34	87	-63	-69	11

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

**Design operations reclassified as discontinued operations

***Restated due to deviation from Q4 to full-year 2019 report related to the final settlement of a dispute from 2015