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Afry Ab
2/2/2024
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Dear all, a warm welcome to this webcast where we will present the year end report and the quarter four report for AFRI. My name is Jonas Gustafsson, CEO at AFRI, and I will also be joined from Bo Sandström, our CFO, who will make part of the presentation. So again, thank you so much for joining and we will jump right into the presentation, starting with a summary of the fourth quarter. So if you look and start with the top line, as you have seen, we had good growth in the quarter. We deliver continued good growth of a total 8%, where the adjusted organic was 6% or 5.9%. And in general, I will come to a market slide later on. In general, we see a good demand for the A3 services across all regions. Of course, very strong in energy, a bit more mixed in industry and the real estate segment as one continue to be weak, but more or less as we saw in the third quarter. The order stock is solid on just about 19 billion, so we have a good and strong order stock. When we look at the result, it was a solid result, stable result and very positive also. We had a good cash flow in the quarter. So EBITDA just below 600 million and the EBITDA margin was 8.4%. And if we would adjust for the calendar effect, we were well in line with last year's margin. And again, strong cash flow. Bo will touch on that later on. And that enabled us also to further improve our financial position. You saw also in the report that the board of directors proposed a dividend of 550 per share. And I think one of the big highlights in the report in the fourth quarter is that we really see effect from the improvement program we have started up in infrastructure. As we all know, we were not in balance in the third quarter and also the second quarter when we saw the drop in the real estate segment. And we now start to see the effect from the improvement program and infrastructure, which is very positive for us. We have more to do, but we really see effects in the fourth quarter. And of course, moving forward for us, it's really, really focused on utilization and being flexible for any market condition we have. But in general, it was a solid and positive quarter and for A3, a step in the right direction, I would say. Again, then looking on the market, as I said, industrial sector, there is a bit of variation between segments. We have really strong segments like automotive and defense industry as one. Pulp and paper, we have seen, as we saw in the third quarter also, that when it comes to larger capex projects, there is some uncertainty in deciding for those. And we have also seen in areas like telecom and IT a bit lower demand, and that has affected also industry and digital solution in the quarter. But we also, as I said, really have some strong segment. And of course, the energy segment really strong. I would say across all regions and sectors, subsectors, we see a demand. And this is, of course, where A3 is very well positioned. So that's very positive for us. And I would also say that in the infrastructure, the real estate segment continues to be weak, while public investment continue to be on a stable level. So a bit mixed, but all over, I would say that there is a lot of demand for the expertise that we have at Eifri, of course, driven from this big industrial and energy transition that we see in society. When we look on each division, and Bo will cover it a bit more, you have seen that we have clustered the division basically in three. We have three divisions that we are clustering in the first one. This is the division Process Industry, Energy and Management Consulting. All these three divisions have a global footprint and they are basically driven from the big industrial transformation in Process Industry and Energy. And here it's very good to see that all the three divisions continue to deliver an EBITDA margin above 10%. Of course, starting with process industry close to 12%, very strong quarter and also good growth. So I would say there's strong performance. We have seen that the order stock in process industry is slightly down year on year, but still remaining on high levels. energy another very strong quarter 11.5 percent strong good growth and i would say that here we have a really really good demand and when you look on the order stock on energy it's all about timing effects the demand is very strong across already as i said and then management consulting strong growth the margin in that business was slightly lower The major reason for that was that we took two of the former A4X divisions in Finland and integrated in in A4X and that restructuring is ongoing which is explaining part of their a bit drop on the margin but the underlying business is very strong and of course when you look on A3 now being positioned globally with all our expertise in bioindustry and energy, there is a very good and healthy demand for our expertise also in that area. So I would say this is really the stronghold and we continue to deliver good results in those three divisions. Then infrastructure, and of course you know that we have been working a lot to improve the profitability. And it was good for us to see that the infrastructure in the quarter took a step in the right direction, improving the margin compared to last year. And of course, with the calendar effect, it was even stronger. And this is really an effect of the improvement program that we have launched in infrastructure. As you all know, we were not in balance when it came to the demand, especially in the real estate segment. So right now we are executing on the restructuring and the turnaround program as we communicated. So when you look on the... We have reduced the employees with roughly 200 in the quarter in those relevant segments and regions. And this is actually according to the plan. And 110 of those we had to lay off and the rest we could manage with other activities. So we are still not where we want to be, but this was really a good step in the right direction for the infrastructure division. And then finally, industry and digital solution. This was a weak margin compared to last year. One large explanation is that we had to take a larger write-down in one project. That explains quite a lot of the delta compared to last year on the margin. But we also saw low utilization in areas like IT and telecom. So for sure, moving forward, there is a lot of focus now to bring utilization up in industry and digital solutions. So that's what we have seen on the division. So all over, as I said, a positive step in the right direction for AFRI. I want to highlight three projects. One is the sustainable craft paper production in Beckham, Sweden. This is a typical product that we see more and more of. So it's not a new capex product. It's not a greenfield investment, but it is where we help to improve efficiency and also reduce emissions. And these are example of products that we see more and more of. We have also received a product in Czech Republic. where we will do the design construction of a new concert hall, but also a lot of planning around transportation. And it's really a cool project where we will be a big part of the center part of Prague. And it's a really nice project for AFRI and the infrastructure division. Finally, two frame contracts in Norway that we also see more and more of, where we will support to develop the power grids in Norway. One project I want to highlight that we don't have on this slide that we also press released last week is that we have also taken a project to BI Systems Hägglunds, 300 million, where we will support them in modernizing their CV90 platform. And we will set up an office of around 100 employees. engineers. And this is really a fantastic step for AFRI into the defense sector. And this is thanks to our strong vehicle knowledge that we have at AFRI, including software. So this goes into industry and digital solutions, so a great project and also into a very, very interesting segment, defense industry. Then just look on 2023. We ended up at 27 billion. And of course, looking back six years, seven years, we were at 12 billion. So if you look on the growth journey, it has been a really fantastic journey. We delivered total 15% growth in 2023 and 17% in 2022. So really strong. EBITDA 2023 was 2 billion. EBITDA margin 7.5. If you adjust for calendar effect between the year, it would be more close to 8. But still, we all know that the EBITDA margin is something that we are working very hard to improve moving forward. So that's really, as we have said, focus into 2024. And again, we did a lot of activities this year, the whole restructuring program in infra that starts to yield effect, but also the A4X division restructuring. So a lot of things ongoing. And as I said, we have strengthened our position globally. And before I leave over to Bo to talk through the financial, We have yearly these rankings coming out and it's really, really great to see that A3 in a lot of sub-segments are ranked top 1 to 10 globally among engineering firms. Of course, number one, we have been in pulp and paper, but also in other sub-segments like steel, mining, chemicals, food and beverage. and in energy, co-engineering, operational maintenance, hydro, transmission distribution. We are on a global competition level, one of the top one or up to top 10 companies. And this is really, really good for moving forward since there's a lot of activity driven from the industrial transformation. With that, I will invite Bo to talk through the financials for the quarter a bit more. And I will flip the slide for you here, Bo. The stage is yours.
Thank you, Jonas. So I will cover the main financials for Q4 and I will touch upon the full year 2023 during my presentation. So starting with sales, quarter four was the first quarter where we surpassed 7 billion in sales. Total net sales in the quarter, 7.1 billion, some 500 million above Q4 last year. And on a rolling 12-month perspective, now at 27 billion, as Jonas said. We report 8% total growth and 6% adjusted organic growth, down from 9% last quarter. Growth was driven by high demand across most of our segments, supported by price increases this quarter of circa 5%. The order stock is at 19 billion, in line with last year, but sequentially lower. Looking at EBITDA development, EBITDA came in at 596 million, 3% higher than last year, despite the negative calendar effect. The EBITDA margin was at 8.4%, well in line with the last year calendar adjusted. Utilization, lower than last year, approximately 0.8 percentage points, but the difference in the quarter was less than we've seen throughout the entire year. For the full year, we report EBITDA above 2 billion for the first time with calendar driven movements on rolling 12 months throughout the year. Compared to full year 2022, we have improved EBITDA with approximately 150 million. We report one negative project write down in the quarter of close to 30 million affecting year-over-year comparisons for the industrial and digital solutions divisions. As reported in conjunction with the Q3 report, we report material restructuring costs in the quarter, totaling 55 million SEK. We see partial effect of these savings already in the quarter. The restructuring costs relate primarily to the improvement program ongoing in division infrastructure. We executed planned redundancies during the quarter and in the 47 million related to infrastructure restructuring. There are also some costs related to lease premises as we continue to step by step optimize our lease footprint. With Q4, we also complete the A3X restructuring and report some related restructuring costs. Development by division. We still see rather strong adjusted organic growth in four divisions. Only industrial and digital solution have a negative growth, partly driven by the project write-down mentioned, and to some extent also affected by the restructuring efforts by former A3X units. The growth in the management consulting division remain well above 10%. On the margin side, margin development was mixed in the quarter. Process Industries, Energy and Management Consulting continued to deliver strong results. And again, both Energy and Process Industries managed to increase their respective EBITDA margin despite a negative calendar effect. Management Consulting was affected by a software write down in the quarter, negligible for AFRI Group, but explaining more than a percentage point in the division of margin. Infrastructure margin reported 8.4% in Q4, a clear improvement to last year despite the negative calendar. Following two week quarters, the division has improved utilization levels and has delivered quite consistently throughout the quarter. Finally, on the back of Q3, industrial and digital solution again showed pressured utilization for parts of the business in the quarter. That, in combination with calendar effect and the project write-down, more than accounts for the margin dilution compared to last year. The division worked intensively to regain performance on utilization. Cash flow from operating activities was clearly stronger than last year. In the quarter, we managed to reduce working capital, supporting the already seasonally strong quarter. As a consequence, financial net debt decreased below 5 billion and liquidity increased sequentially to 4.2 billion. And finally, a full year update on the financial targets. Growth for the full year end at 15%, somewhat lower than last year, but still well above the 10% target. EBITDA margin ended at 7.5%. The full year margin adjusted for calendar effects is estimated at 8.0%, which is in line with the full year 2022. Improving the margin remain our key focus areas going into 2024. Leverage decreased sequentially to 2.4 times, driven by the strong quarterly cash flow. Sunday leverage was expected, but we are happy to close the year below the financial target. The board proposed an unchanged dividend of 5.5 Swedish krona per share, corresponding to approximately 0.3 times on leverage in Q2. And with that, I leave back to you, Jonas. Thank you, Bo.
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