This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

Afry Ab
7/16/2024
Dear all, a warm welcome to AFRI's webcast for the second quarter. My name is Jonas Gustafsson, CEO at AFRI, and I will start to introduce a couple of summarizing slides and then I will introduce Bo Sandström on stage, our CFO, who will take you through a bit more on the financials. But again, a warm welcome to this webcast. Starting with a summary. For us, it was a stable quarter where we also were able to improve profitability. As you know, that has been really our main focus over the last quarter. So we were happy with that. And again, we saw stability in the quarter. If you look on the top line, we had a total growth of 4.7 billion, 4.7%, sorry, and adjusted organic of 2.2%, ending up at close to 7.2 billion in sales. The market was mixed. I have a slide, the next slide, I will go through that a bit in detail. We saw some really strong segments and then we saw a couple of segments with some more challenges for us, but a bit mixed. The order stock is stable around 20 billion, some movement between the divisions, but there's a total stability throughout the quarter on the order stock. Moving down to EBITDA, we ended up at 572 million compared to 421 last year, equal to 8% compared to 6.1, so a clear improvement. We had a strong calendar effect supporting us, but also adjusting for the calendar effect, we saw an improvement of approximately half a percent unit. The main driver in the quarter was infrastructure division, where we see the ongoing improvement program continue to deliver results as we hope. So good performance from infrastructure and also stability in a couple of other divisions. So moving ahead for us, of course, to continue the infrastructure program will be one of our focus. We know that in pulp and paper within process industry, we have had and have a bit more challenging market. So we are doing capacity adjustments. And then in general, we will be flexible in adjusting both when we see growth opportunities like we see in energy segment, but also adjusting when we see some headwinds like we do in pulp and paper. But again, summarizing the quarter stability with improved profitability. Then moving over to the market. So the market in general was a bit mixed, starting with the industrial side. We have seen really strong demand. If you look on automotive, of course, driven from the electrification and digitalization, where we have a strong position in the Nordic, we saw strong demands. Defense sector is another strong segment for us, and we also saw strong demand in that one. however in pulp and paper specifically we have we have a lack of larger capex products at the moment and also telecom and it has in the quarter been a bit weaker energy sector easy to say general very strong and of course here we have also an international global position so also sub segments within energy have basically been strong crossover so that that is and will be a strong segment for a3 also moving forward And then on infrastructure, there's a stable demand of public transport infrastructure, while the real estate segment continue to be quite weak. But here we are in general in much better balance now compared to a year ago. So a bit mixed market, but some really, really strong market segment as well. If you look on the divisional overview, when we start on what we call cluster one, which is the process industry, energy and management consulting, what you can see here is that process industry in the quarter had negative growth, close to 6%, which is reflecting actually pulp and paper segment that is coming from really high levels. We have to remember that over the last year, we have been growing that division roughly 17% year on year. So here we have a bit more challenging market on the pulp and paper side. So the margin were just about 9%, lower than last year, but still I would say on the healthy levels, but for sure market is a bit more challenging. We are doing capacity adjustment in that segment. I would say energy and management consulting division continues to be stable and good, and we will work hard to take all opportunities ahead. Infrastructure, here we really saw some good improvement compared to last year. And the program that we did put in place after summer last year continues to deliver the result that we expect from them. And we will continue to work with the infrastructure improvement program. And finally, IDS, I would say it was a stable quarter in IDS. We have some really strong segment, some segments like IT and telecom that has been a bit weaker. But stable performance, but of course, the level of margin in industry and digital is not where we want it to be. So we will continue to be focused also on that division to improve our margin. Just highlighting three projects that we did win during the quarter. One in Norway, where we have been awarded to be the advisor to NRK, the public service company in Norway, for the new head office. And here we are working with project management as well as architecture work. So a good project for us in Norway. second one and this goes into pump storage and this is the vattenfall and we have then been awarded to be a technical analyst for for a pump storage in sweden to to a power station yutkan in sweden and this is really an interesting segment since pump storage actually works like a battery in the hydro segment so these kind of projects we see in the nordic but all over the world And here AFRI have a leading position in pump storage. So a really cool and interesting project. And finally, we have also been awarded to be a partner to the food tech company CERIL for a new production facility in Sweden. So three great examples of projects that we have been able to win throughout the quarter, also in three different divisions. With that, I will invite Bo on stage to take you through the financials.
Thank you, Jonas. I will, as usual, cover the main financials for Q2 2024. Starting with the overview, Q2 showed net sales of 7.2 billion and EBITDA of 572 million. Also in this quarter, the comparison to last year was heavily affected by calendar effects, this time positively. On a rolling 12 months basis, we remain on 27 billion on net sales, while we are increasing to 2.1 billion on EBITDA. The same level as we were 12 months ago. Noteworthy is that in the 12-month comparison that I just did, we have now negative 15 hours in the comparison, corresponding to approximately negative 160 million in rolling 12 EBITDA. Total growth shifted to positive 5% in Q2 from being negative in Q1. Adjusted organic growth is reported at 2.2%, supported by continued positive pricing of 4%, which is exactly the same level as we saw in Q1. We continue to report negative volume given the mixed market and the capacity adjustment that has been done following that during the last three quarters. With Q2, we broke the sequential trend of declining organic growth that we have carried since the peak in the beginning of 2023. The increase is largely driven by the energy division with an uplift from 1.3% to 8.8% on adjusted organic growth since last quarter. Process industries report negative 6% adjusted organic growth, being the only division sequentially declining in growth. Order stock reported at 20 billion, which is then 3% lower than last year and 2% lower than last quarter. FX impact on the order stock is now negative for the first time in many quarters, and that corresponds to close to 3% on the year-over-year comparison, so almost the full amount on the year-over-year decline. The energy division continued to report the largest increase to last year and remain well above 5 billion in order stock, whereas the decline year-over-year for process industries amount to 1 billion. EBITDA for the quarter came in at 572 million and the EBITDA margin was at 8.0%. As in last quarters, well in line with last year, also calendar adjusted. On a divisional level, the calendar effect is the main driver on year-over-year EBITDA margin development, but the calendar effect is quite different by division also in this quarter. Division infrastructure is close to two percentage points ahead of adjusted last year with the largest relative calendar effect. And the adjusted EBITDA improvement from infra matches the adjusted EBITDA improvement for the group as a whole. Divisions Energy and IDS, with much smaller calendar effects, are slightly ahead and in line with last year respectively on margin. Process Industries maintains a good margin, but a somewhat increased decline on adjusted EBITDA margin sequentially, now right above 3 percentage points. The result from the energy division and positive contributions from management consulting and group common costs compensate in the quarter for the relative decline in process industries. Utilization remain lower than last year and the vast driver of the negative 0.8 percentage point decline again relate to process industries. Infrastructure is above last year, IDS is in line and energy is somewhat below last year on utilization. We have no material project write downs in the quarter and we report no items affecting comparability. Let's look a bit on movements related to the underlying margin. This shows our reported EBITDA margins for Q1 and Q2 this year and last year, as well as last year's margin adjusted to this year's calendar. Clearly, with larger calendar swings, as in Q1 and Q2, direct calendar effects are the primary driver of the quarterly EBITDA margin movement. Adjusted for that, we see that the underlying margin is improving somewhat, and in Q2 increasingly driven by infrastructure. In general, available hours, as you can see in the graph, works quite well to, on a quarterly level, predict the calendar impact. However, if the change in available hours coincides with vacation periods, the effects will to a large extent be absorbed. This is mainly a question for the third quarter in the year where we have longer vacation periods. Cash flow from operating activities was somewhat weaker than last year, but on aggregate last 12 months, we continue to generate a healthy cash flow. Nonetheless, working capital development and cash flow generation continue to be a focus area for us as it has been over the last year. Available liquidity normalized at 3.8 billion at the end of the quarter as we have finalized refinancing activities in parallel with distributing dividends. Financial net debt increased to 5.5 billion, but we are at a lower level than we were a year ago. Given the positive effect on EBITDA, we maintained leverage at 2.6 times in the quarter, despite the dividend payout corresponding to approximately 0.3 times. In general, except for any M&A activities, we are expecting to deleverage during the last quarters of the year.
And with that, I leave back to you, Jonas. Thank you, Bo. So just before, we will invite you for a Q&A. Just to summarize, and this is actually the same slide we had in the last quarter. So there are three areas that we will continue to focus on. Number one is, of course, to continue the good work that we're doing in infrastructure with the whole infrastructure improvement program. We are not done. We have done steps throughout the last quarters, but that work will continue also in coming quarters. Secondly, there are for sure areas where we see some strong demand, where we are also well positioned, mentioning NRS1. So take the opportunities to grow in those segments where we see strong demand. And the third one is, of course, to be flexible and agile to adjust. So right now, for example, we see a bit weaker in pulp and paper segment and we are adjusting to that. But at the same time, we are also looking into other segments. But these are basically the three ones to be fast and adjusting when we see demand dropping and equally fast and adjusting when we see growth opportunities. And always, as we have said, keeping a strong focus on improving profitability and to bring stability in the journey ahead. So that's basically the overall focus for A3 also moving forward. With that, I will invite Bon Stage again and we will open up for Q&As.
You're reading a preview of the AFXXF Q2 2024 earnings call.
Free account.