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Afry Ab
10/25/2024
Dear all, a warm welcome to this webcast where we will present the quarter three report for AFRI. My name is Jonas Gustavsson, CEO of AFRI, and I will start with some summarizing slide, and then I will, as always, invite Bo Sandström, our CFO, to take you through the financials. So let's start and then, of course, we will have time for questions in the end. Let's start with the first slide. As the headline says, we are able to improve profitability while the market that we operate in is quite mixed in the quarter. The growth was basically flat. We had four divisions with underlying positive growth, while process industry faces a quite challenging market and we saw negative growth in process industry, but flat, ending up at six billion on sales. As we said, the market is mixed. I'll get back to that on the next slide. We have some really strong segments like energy, but also segments that we really face some headwind like process industry. The order stock is stable on 20 million. Bo has a slide on that. We see strong growth in the pipeline in energy, while process industry again faces a bit more challenging market. When you look on profitability in the current mixed market, we were still quite satisfied to see that we were able to improve profitability for the group. EBITDA ended up then at 6.1% compared to 5.4%. We had a positive calendar effect, though we were getting a bit fewer hours out of the calendar effect than we had in our models. Also because of the vacation period, Bo will take you through that as well. And the driver really for the improvement came from energy division and infrastructure division, where the ongoing work continued to deliver according to plan. So I would say from an operational point of view, the infrastructure division work continues according to plan. And we are very happy with that. And we will continue to drive that program forward as well. What is a bit challenging for us now is the process industry. And we continue to adjust capacity into the current market climate in process industry. And then, of course, we have other areas where we still face a bit more challenging market, like we have mentioned in the report, demand for IT and telecom consultants into that sector have been weak in the quarter. Real estate continues for us on low levels, while, as we said before, energy is very strong. So in energy, it's all about accelerating. And in other segments, it's more about maneuvering into a bit more challenging market in the quarter. But with that said, the report is quite stable on the group level. And as we said, the market then started with the industrial sector. There are for sure a bit increased uncertainty in industry as a sector. We have really stable demand in like food and life science automotive, as mentioning a few, while process industry for sure driven from pulp and paper segment is weaker than a year ago. And we have seen that also in the order stock development that goes down in process industry. Energy segment is quite easy because it's very strong. Also, when you look on the sub segment, we really have strong demand in all markets that we operate in, and we are bringing home some really good orders. And of course, as a group, We are doing everything we can to use that strong momentum in energy and scale and accelerate into the energy segment. Infrastructure, I will say two sides. Public transport infrastructure, stable, while real estate, you could also say stable, but stable on low level. So that is summarizing the mixed market in the quarter. and then if we look on the divisions then into these three clusters starting on process industry and that that has been compared to a year ago the most challenging development you can see it here also on the growth number we actually have a negative growth of minus 8.5 percent and ebitda on seven percent i mean from an absolute level it's not so bad but of course if you compare to where we are coming from that is a negative delta Energy doing well. So here we see continued good growth and also stable margin. And management consulting, I would say in general stable. We have a bit lower demand also in the bio industry sector, but from management consulting, it's more, I would say in between the quarter, it's stable in that division. Infrastructure continue to deliver on the margin improvement. We are not on the level that we have as an ambition, but we are really pleased to see the step by step improvement on profitability. And we will continue, of course, to execute on that program that we started up last fall. and then finally industry and digital and here again when you go into the sub segments we see a bit mixed we see strong demand or stable demand in areas like defense stable automotive food and life science while for example demand for it consultants and telecom has been weaker so a bit mixed bag into industry and digital solution So all over, I would say that we are pleased with the fact that we have improvement on the profitability, though the current market has not been strong enough to have even better improvement. But we will continue to maneuver in the weaker segment and try to accelerate in the stronger segment. We are bringing home really interesting orders. Of course, we were very pleased that we have been selected as the main partner to SSAB's investment up in Luleå to decarbonize the steel industry. It's a super, super good project for us, and we are very proud to be a partner to SSAB. The second one here is a pump storage solution to Australia. This is a niche into energy where we actually can say that we are world leading in that technology. And Australia is an interesting market, but that technology has been for a while to be interesting in a lot of different markets to basically install a battery solution into hydro plants. So that's a really interesting product. And the final one, a product in Germany, when we will be involved in the connection of an offshore wind park into the land in Germany. So three very interesting projects, and this is just a selection of a lot of cool projects that we brought in in the quarter. With that, I will invite Bo to take you through the finances.
Thank you, Jonas. I will cover the main financials for Q3 24. Quarter three showed net sales of 6.0 billion and EBITDA of 365 million. On a rolling 12 months, we remain at 27 billion on net sales while increasing to above 2.1 billion on EBITDA, approximately 100 million above last year. In this quarter, the comparison to last year was affected by small positive calendar effects. From a calendar perspective, in the rolling 12 comparison to Q3 23, we now have a comparable base of hours. Total growth shifted back to negative 1% in Q3 as we saw in Q1. Negative FX effects is the largest growth adjustment item in the quarter. Adjustment organic growth is reported at plus 0.1%, supported by continued positive pricing of approximately 4.5%, marginally higher than we saw in Q2. We continue to report negative volume in several divisions and on a free total, given the mixed market and the capacity adjustments that have been done following that during the last year. In Q3, we again report only marginal adjusted organic growth, a level that we have carried since the beginning of this year. Growth is driven primarily by the energy division, stable at close to double digit organic growth. Process industries report negative 8.5% adjusted organic growth, sequentially down from last quarter. The order stock remain at 20 billion, 3% lower than last year, same as we saw in Q2. FX impact on the order stock is close to 2% negative on the year-over-year comparison. The energy division continue to report the largest increase to last year and remain well above 5 billion. whereas the decline year over year for process industries continues and amount to 1.1 billion. EBITDA came in at 365 million and the EBITDA margin was at 6.1%, as in last three quarters on the positive side of last year calendar adjusted. Calendar effects support EBITDA margin with approximately 0.5% to last year, somewhat less than anticipated given fewer actual weighted available hours. Divisions infrastructure and energy continue to support the margin development of the group, while process industries is again reporting a higher than group average margin, but with a clear decline compared to last year. With a positive timing effect in management consulting last quarter, we see a somewhat lower margin in this quarter. Utilization remains lower than last year, driven fully by the decline in process industries. Infrastructure and industrial and digital solutions is slightly higher than last year on utilization, while energy remained somewhat below last year. We report no items affecting comparability and we have no material project write downs or redundancy costs in the quarter, although smaller effects are carried in the divisional results. The divisional EBITDA margin trends are quite stable in Q3. This page shows our calendar adjusted year over year development on EBITDA margin by division during the first three quarters of the year. In general, also as seen on AFRI Total, sequential changes during 2024 are quite small. Infrastructure, starting from the left, remain two percentage points better than last year, driven by the improvement program. Industrial and digital solutions with the most mixed market situation remain in line with last year. Energy is steady in positive territory around plus one percentage point. While process industries coming from high EBITDA margin levels continue in the negative two to four percentage point range, but not weakening further in Q3 to what we saw in Q2. Management consulting, the smallest division in size, shows the largest swings primarily due to timing effects. Cashflow from operating activities somewhat weaker than last year in a seasonally weak quarter. On aggregate last 12 months, we continue to generate a healthy cashflow and working capital development and cashflow generation continue to be a focus area for us. Available liquidity, financial net debt and net debt to EBTA remained at Q2 levels. And facing the seasonally strongest quarter in terms of cash flow, we maintain expectation to deliver during the remainder of the year, except for any M&A activities. And with that, I leave back to you, Jonas.
Thank you, Bo. So then we just have a summarizing slide. Moving forward, of course, we will continue, as we have talked about for quite some time, the infrastructure improvement program. We see a steady improvement, but we are still not on the level that we have in our plans. So that is a strong focus for us, being 40% of the group, and also the fact that we are facing a market in transport infrastructure that is stable. And that gives us opportunity to be actually aggressive on bringing in product with stable margin into that. And then at the same time, real estate being a bit more challenging. But we have maneuvered into that for quite some time now. So infrastructure is one part. The second one, of course, there are strong areas. We talked about energy. So we are doing our utmost to scale in different sub-segment in the energy, also using competences as much as we can from other divisions to win energy projects. And of course, in the other portfolio, like in industry and digital, the defense is very interesting for us. We have stable demand in food and life sciences. So there are some strong areas that we continue to focus on. But then the third one, of course, is to maneuver when we have weaker demand. Process industry, for sure, driven from lower demand in pulp and paper. It's a quite big change compared to a year ago with less capex products. So our focus is to sell more on operational service, to move into other segments like the order that we were getting to SSAB in mining and metals is very interesting for us. So quite a lot of different activities driven from strong growth and strong demand. At the same time, we have segments where we really see weaker demand, like in pulp and paper. So each division and even business area have their own plans, meeting maybe a strong market, but also some areas we need to maneuver into a weaker market. So that's the plans moving forward. So no real dramatic in that. And with that, I will invite Bo back on stage and we will open up for any questions.
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