Afry Ab

Dear all, a warm welcome to this quarter three presentation from AFRI. My name is Jonas Gustavsson, CEO at AFRI, and I will always start off with some summarizing slides and then it will be followed by Bo Sandström, our CFO, who will take you through the financials and then we will have a Q&A. So let's start up with a summarizing slide as we have in the headline. For us, it's been a quarter with strong growth, but also a challenging quarter. Sales came in at six billion and we see the market is mixed. We have sectors doing very well and strong, like energy sector, and then we have some more volatility and mixed in other segments. I will get back to that on the next slide. Growth was strong in the quarter and we have a solid order stock. However, we can now see that sequentially both the order stock growth and sales growth are a bit lower. And again, Bo will show you some graphs on that. The result was lower than we hoped for. And of course, this is not a level that we want to be or we expect us to be. And the result was impacted by, first of all, we have a negative calendar effect and we have seen some volatility in the segment. I mean, we knew that the real estate segment was weak, but what we noted in the quarter was increased volatility in some industrial sectors. And that impacted the utilization that also then impacted the result. However, in three of our divisions, process industry, energy and management consulting, which are our international global divisions that are in the middle of the green transition, they continue to deliver solid growth and also very good results. We had weak performance in infrastructure in industrial and digital solution and AFREX. I'll get back to that because you have also seen that we today then published some information that we are expanding the improvement program related to infrastructure. We have in the quarter changed two of our divisional heads, and I'm very happy and pleased about that. And we'll get back to that also. And as I said, we have also extended the improvement program in infrastructure, and we have also in the quarter restructured AFREX. So that's the summarizing slide and just moving over to the market and starting with the industrial sector. And this is where we see some more mixed between segments. So in general, there is a solid underlying demand driven from the whole green transition. So when you look on some of the process industrial related segments continue to be strong. Even though, as we said before, some of the bigger capex projects, for example, in pulp and paper segment, we have some delays in the decision. And what we noted in some of the segments also in the more Swedish related industrial business, we saw project or smaller assignments that was postponed that also impacted utilization in the quarter. So that was maybe a change from quarter three that we saw this bit more mixed in the industrial segment. On the other hand, we see segments like automotive or defense continue to be very solid. Energy, I will just say that it continues to be very strong, of course, driven from all the investment into the energy segment. And in the infrastructure, the real estate segment continues to be very weak for us, and we are quite exposed to that in Sweden and Finland. So quite a big portion of the real program that we're expanding is also to adjust even more on the capacity side. However, public's investment in infrastructure railroad continue to be on a stable level, so a bit more mixed on the market. Looking at divisions again, Bo will get a bit more in the details, but you could easily see here that we have three divisions continuing to deliver solid and good result and good growth. Process industries, energy and managed consulting together roughly a bit more than 40% of AFRI. all these three divisions are you know really global divisions and they are in the middle of the green transition continue even in the calendar week quarter to deliver good margin and solid growth then infrastructure for sure that's one area that we are not pleased or happy of course and we have seen that for a longer time so now we are expanding the program in infrastructure and we have a new divisional head robert larson who is now driving that in a very good way and we are expanding it. I'll get back to that. A4X, well we took a decision in the third quarter to actually dismantle the division and those business units in A4X have now been integrated in other divisions and by doing that we have also taken some 45 full-time employees down and further activities will be done during the fourth quarter. So what was maybe a bit for us then was that industrial and digital solution, they had this effect where some of the smaller assignments in the quarter were postponed and that led to a bit lower utilization in the quarter affecting the result of industrial and digital solutions. There's a lot of activities to bring that back, so a lot of good plans under the new division that had Martin Öhman. But that's the summary. Three divisions doing very well, and we have three divisions then not doing as good, and here we have plans to work on that. Well, we are bringing in good projects. These are three examples. We have a tram project in Tammerfors in Finland. As one, we have a wind power project in the Baltics, and we are also in a future mill in Metse Tissue in Mariestad in Sweden. Of course, as Bo will say, the order stock remains stable and solid, and we are bringing in a lot of new good projects into Eifri. Just highlighting what we already communicated, that we have two new divisional heads. I'm very pleased that Robert Larsson then, who has been with us for some five years with a long experience in AB before he joined us and he has done a lot of good things in the industrial and digital solution, has now taken over infrastructure with a very clear mandate to execute and drive the improvement program. You know, we are pleased that the program is now expanded and this is both to handle capacity, but also to improve profitability. And Martin Öhman is now taking over, has taken over industrial and digital solution. He has also a very, very good background and been with us for a few years. So both these two division heads have joined new positions and again, very pleased to have them in their new roles. Finally, before I give it to Bo, just a summary of the improvement program that we delivered in the quarter. We have then extended the improvement program in infrastructure and we have restructured AFIX. So in infrastructure, we are now, a lot of actions of course, but we are now adjusting full-time positions with some 300. We are 150 in the fourth quarter and then another 150 planned for the beginning of 2024. These are partly to adjust capacity due to the weaker market and partly also to do structural improvement to improve profitability. The estimated restructuring cost for the first leg of that in quarter four will be 50 million. And we are on top of that in the program, two very important things, strengthening, improving our commercial management and resource planning. So basically ensuring that the volume product that we are bringing into AFRI have the profitability level. So we are steering the structure around that in a new way and Robert and the team is working heavily with that including of course that we have a good balance on the resource planning. And then we have intensified our portfolio review across infrastructure at AFRI. At A4X, we have decided then in the quarter to dismantle the divisions. So those business units that was in A4X have now been integrated in Norway, Finland and Sweden. And when we did that, we did some restructuring, taking out some 45 employees, full-time employees to reduce cost and increase efficiency. That was one of 16 million in the third quarter. And further activities will be done in the fourth quarter to tune that business, bringing it up to profitability there it should be. So we are pleased on expanding this program. And again, Robert is taking on that with high pace in the infrastructure division. With that, I will invite Bo Sandström, our CFO, to take you through the financial numbers. Give it to you, Bo. Thank you, Jonas.

So I will cover the main financials for Q3. And Q3 is, as you are aware, is our seasonally weakest quarter and also the quarter with the lowest volumes. In a sense, due to vacations. Looking at sales for the quarter, it was, as Jonas said, it was 6.1 billion, some 750 million higher than last year, corresponding then to a total growth of approximately 14%. On a rolling 12-month perspective, we have now surpassed 26.5 billion. And with a 14% total growth, we report 9% adjusted organic growth in the quarter. Growth was driven by high demand across most of our segments, supported by price increases in the quarter of approximately 5.5%. We see growth of 8% on the order stock in the quarter, which remains high at 20 billion. In terms of growth over the last number of quarters, looking then at adjusted organic growth, growth remains at a high level in the quarter, as you could see, at 9%. But sequentially, adjusted organic growth is now clearly fading from the peak levels that we saw in the beginning of the year, Q1 being the most imminent quarter. and it's actually now below 10% for the first time since beginning of 2022. Order stock growth year over year increased 8%, where approximately half relate to FX effects. Sequentially, sequential trend show a similar pattern, as you can see on the net sales development, where order stock growth was 14% last two quarters, and then, as I said, 8% this quarter. EBITDA came in at 326 million, which is 15% lower than last year. EBITDA margin ended at 5.4%, a decline from 7.3% in the corresponding quarter last year. The decline in utilization and the negative calendar effect, which is estimated at one percentage point, Again, more than explains the difference to last year. Despite the more cautious approach to recruitment, with attrition still coming down and pockets of quickly changing market conditions, most imminent in some industrial segments in the quarter, utilization was again affected and overall lower than last year. On EBITDA rolling 12 months, we remain above 2 billion, and the negative movement last two quarters is mainly related to calendar effects. Year to date and compared to previous years, we maintain a clear upwards trend from the 1.7 billion level in 2021. We report one negative project one-off in the quarter of close to 20 million Swedish, which is affecting year-over-year comparisons in the infrastructure division. Finally, this was the last quarter reporting A3X as a division, and cost for that restructuring was reported as IIC in the quarter. Effect of the restructuring can be expected immediately in the receiving divisions. And we estimate payback of the restructuring in approximately two quarters. Looking at development by division, we still see positive adjusted organic growth in all divisions, although sequentially as for A3 in total, sequentially it's also coming down in all divisions. Only the management consulting division now remain above 10% in adjusted organic growth for the quarter. Margin development, as Jonas said, very mixed in the quarter. Process industries, energy and management consulting continue to deliver strong results. Noteworthy, both energy and process industry managed to increase their respective EBITDA margin despite a negative calendar effect in the quarter. Industrial and digital solutions was the division most clearly impacted by lower utilization for parts of the business in the quarter, and that in combination with the calendar effects accounts for the margin dilution compared to last year. Infrastructure margin was down 3.2 percentage points compared to last year, still affected by the weak real estate market. And additionally, as said before, besides the calendar effect, we have a negative one of item related to a finalized project affecting the quarter. A free X margin was as in Q2 significantly pressured by low utilization. So some words on operating cash flow, financial net debt and available liquidity. Cash flow from operating activities was again stronger than last year. In the quarter, we did increase working capital, but in line with growth. Financial net debt decreased somewhat sequentially and available liquidity remains strong currently at 3.8 billion. Finally then, an update on financial targets on a rolling 12-month perspective. Growth is at the end of Q3 at 18%, marginally starting to come down, but well above the 10% target. EBITDA margin rolling 12 is affected by the negative calendar effect in the quarter and is now at 7.6%. The margin adjusted for calendar effects year to date is estimated at 7.9% in line with full year of 2022. and improving the margin remain our key focus area for this and upcoming years. Finally, leverage increased marginally in the quarter sequentially to 2.7 times despite the lower net debt. Calendar effects on the EBITDA is then the driver to the sequential increase. Typically, net of any acquisitions, Q4 is historically a strong cash flow quarter and we expected the leverage until end of the year. With that, I leave back to you, Jonas.

Thank you, Bo. I will just make one summary slide before Bo is back for the Q&A. Looking ahead now, you could box our priorities into three areas for sure. to now execute and drive the whole extended improvement program and infrastructure is one of our priorities. We have been working with infrastructure, as you know, for quite some time. But I will say now with the new leadership with Robert and the extended program and the activities we are building up, we are spending a lot of time in doing that. So that's one. Second one is, of course, to continue to take the opportunities we have in those part of the business that is doing well. As Bo said, and I also said before, three of our divisions are doing very well. Energy, process industry and infrastructure. And we have also focus in the industrial part in Sweden that we see good demand like automotive and defense. And we will of course grab all the opportunities we have there. But the third one I would say is also for the whole companies to continue to build up further resilience and flexibility because what we have noted is that the market in sub-pocket sub-segment could be and has been a bit more volatile. So for us to be a bit ahead of that, to be able to adjust is key for us moving forward. because in general, we believe there is strong underlying demand driven from the green transition in some segment, but we also expect some segments like real estate continue to be weaker and we need quickly to adjust to that. So these are the three areas of priorities in general for us moving forward. So with that said, I will invite Bo back here and we can open up for Q&As.