Afry Ab

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.

Yes, we will now open up for questions. And if you do have a question, please use raise hand function in Teams. And we will start with Fredrik Letell from Handelsbanken. Please go ahead, Fredrik.

Thank you for taking my question. I would like to zoom in a little bit more on process industries. One of the learnings you had from the province with infra a couple of years back was that you didn't react early or quick enough on the slowness that you experienced in the infra division. This time around you have been very proactively talking about the slow tendencies and process already from early winter last year. Is there a difficulty in acting earlier in sort of facing your FTE base to the slowness that you experience? Or is it that you have seen potential new contracts on the horizon, so you didn't want to scale back your organization in anticipation of new contracts? Or is it anything that you can sort of give more color? Would be nice. Thank you.

Yeah, I think it's a relevant question, though I think there is a bit of difference in how infra and process industry, because of course, when you look on the margin in the third quarter, which is it's one of our weaker quarters still on seven percent so so i think in general our positioning process industry is very strong we have seen the order stock going down but of course i would say that in the last quarters it's been pretty clear for us that the the uptick will take a bit longer and then we have reacted so i would not say and of course then it's a balance act for us to to really act but also make sure that we are offensive on those product that is available. And when you look on the FTE reduction that we have done in process industry, it's quite a lot if you look back a year ago. so you could always say we should have gone faster though i think one of the challenges of course is that those projects that we have had in processing this have been you know quite profitable giving us the stable high ebitda margin so we are losing also from the fact that those profitable products is not in in our pipeline longer but so i i would not say that we have reacted too slow uh because of course right now and it is a long answer we are also very aggressive in those available products around uh so so that's my view on it uh it's a bit different situation to to infra because again then when we are now on the low level we deliver seven percent in the third quarter while uh we have different levels in the other divisions so

Yeah, absolutely. I appreciate that. So a follow up, how difficult is it to move temporarily your skilled personnel in process to maybe energy or any of the other divisions? Is it training needed or can you move them as capacity for others?

Yeah, first of all, it's a good question also. We have more and more product that goes across divisions. We have products where both infra energy and process industry are involved. So more and more of the products that we are bringing in, the sizeable one, it's not only one division. So we need competencies for more divisions. But then we are doing what you are saying. So we are finding ways to use competence or resources from one division to support, for example, energy. Then, of course, we will always have an expertise installed in every division. That is really what drives value to our clients. So part of it, we can move and we are doing our utmost to be flexible. But part of it is for sure deep expertise in nuclear pulp and paper processes. And them, of course, are not so easy to swing between the divisions. But to a larger extent, we are doing our utmost to scale into those segments where we see strong demands.

All right. Thank you very much.

I get back into the line. Thank you, Fredrik. We are now welcoming Adela Dacian from Jefferies.

Thank you, Adela here. Just following up on the questions in the process industries, especially pulp and paper, I mean, we can follow what some of the larger customers within the segment are saying, and it doesn't seem like there are any limelights in terms of CapEx expansionary efforts, at least not in the near term. Are you seeing any geographic differences between your customers here, specifically in the Nordics or the US or the rest of the Americas? Yeah, and what is really the underlying, is it just that in the recent years it's been kind of like an oversupply in the expansionary projects that's driving the weakness now?

Also a good question and of course if it's one segment that we really know is pulp and paper with a strong legacy into that and we follow as probably you do the pulp price developments the demand versus the installed capacity and you're right over the last quarters there have been less of larger scale greenfield capex product though I would say that And then you asked about regions. I would say South America is, of course, continue to be interesting because one thing is for sure, when you look on quite a few of these larger player into that segment, they still generate quite healthy cash flow. So even though margin have gone down, driven from higher raw material and also a bit price pressure on, for example, the pulp then. So I would say South America and Brazil is one interesting segment, but we are very close to our clients and we know pretty well what is in the pipeline and right now it's weak but we are making sure that when the upturn comes that we are first in line into those products that will that will come down the road did we think that your your margin profile with customers in in the legacy nordic markets is higher than in the americas I think from the general, we have pretty stable, good margin across the different markets that we operate in, in the pulp and paper segment.

I wouldn't say that there's a material difference on that perspective. To a large extent, this is a global market in that sense, even though it's a bit different nuances in different parts of the world.

Okay, thanks. And then maybe also on the real estate segment, still continues to be sluggish, but here at least we have the macroeconomic indicators that are positive. How long has it historically taken you to see orders pick up within that segment? Is there a material lag that we should be aware of just based on historical periods? Thanks.

I would say it is a bit different. If you take the comparison to the pulp and paper and everything that we do in relation to capex investments, the time lag is clearly much longer than it is in the real estate segment, for instance. I mean, of course, if there's a big change in in demand, then we need to be ready with the capacity. But besides that, we're talking more one, two quarters, until we get effect of a pickup in demand in relation to real estate. But whereas on the pulp and paper side, for instance, or on the CapEx product side, it's more, you know, six to 12 months until it actually ramps up from from a market change in the market situation.

All right. That makes sense. I'll get back into things. Thank you.

Thank you. We're now moving on to Tom Guinchard from Pareto.

You said you were quite aggressive on the existing projects in pulp and paper. Can we expect any declines in prices on that end, or how is that dynamic working out?

We have not seen any price, basically erosion into that segment. So we will continue. So I think we are, the position we have in pulp and paper is clearly based on being the leading engineering partner since, you know, 3040 years into that segment. So price has not been kind of where we have seen the challenge. And we will stick to that moving forward as well.

And just to add to that, it's pretty clear if you follow our price development and you follow our FTE development, we are not willing to compete with price in that sense. We are quite focused on maintaining a good and improving margin.

Thanks. And just on group level, the order intake momentum here at the end of Q3, can you comment on any differences compared to last year and the beginning of the quarter?

The order intake in that sense, I mean, we have, from a general perspective, the trend continues on the order intake side. I think what sticks out if you also look on the order backlog is that we see in the specific quarter, we see a bit of a kind of pickup related to industrial and digital solutions. That is a bit of a standout from a reporting perspective. That is, in that sense, related to specific strong segments within the industrial and digital solutions markets and not really representative in the specific quarter of the development of the market as such. But in general, the trends that we have seen on order intake, they continue in Q3 as we have seen the last few quarters.

All right, thanks. I'll get back in line.

Thank you. Thank you, Tom. We're now moving on to Johan Sundén from Carnegie. Question from Johan. If not, we will move forward to Ebba Björklid at the DNB.

Yes, good morning and thank you for taking my questions. I have three questions to start off in terms of the utilization decline. You said that it was accounted fully by the decline in process industries. So did the utilization rate improve year over year? when adjusting for the effects in process industries?

No, the utilization rate adjusted for process industries would be flat compared to last year.

Perfect, thank you. And are you able to give any more granularity in terms of developments, for example, within infrastructure?

In terms of utilization, development in infrastructure and industrial and digital solution was marginally higher than last year, whereas energy division still somewhat lower than last year, as we have seen in the last couple of quarters.

But and then to add on that for infrastructure, I think we are we are quite happy with the progress we are doing on the overall improvement program in all or all different perspective into infrastructure. So for sure. When we look on new order intake, for example, we have, I would say, a much more rigorous view on what kind of margin are we bringing a new product in. And we are step by step then finalizing products where we had some margin challenges. And some of them actually goes back to the pandemic year. So I think besides the utilization, I think we step by step continue to be rigorous in the execution infrastructure. We will stick to that plan also moving forward.

Thank you. And just on energy, I know in prior quarters there have been timing effects and you build in the order book and that has been the reason for lower utilization, but was that also the case in this quarter?

The timing effects that we have talked about the last few quarters were related to order book and in that sense order intake development of that. We don't have a clear timing effect to report for this quarter. It's a fair and representative of the development in the energy division. in relation to utilization for energy. It's not as much related to timing effects. It is more related to how is our capacity oriented in relation to the projects that we are executing and to what level do we actually use sub-consultants, for instance, to cover the different aspects. So that's more of a project mix rationale in relation to the specific project portfolio that we're executing.

Great, thank you for that answer. And then two quick questions on infrastructure. So first of all, would you say that you are on track according to plan to reach the margin target that you have for the division?

I would say that the execution we are doing now and the progress is according to plan. Then, of course, we continue to face a bit challenging market in the real estate. So when that will swing back, we will also get some tailwind from development in that. But as kind of an execution program, we are delivering that according to our plans that we put in place last fall. Yes.

Great. And just follow up on exactly what you mentioned. So adjusting them for the weakness within real estate, are you able to give any indication of the magnitude of what the weakness within the real estate segment had on the overall performance for the division in the quarter?

That is a tricky question. I would say so that the most clear effect that we saw of the weakness in the real estate from a divisional performance perspective was seen mid last year when we clearly were not in balance in terms of capacity and demand. Besides that, that you saw specifically in some quarters, it's really difficult to give a good perspective of the market effect to the performance of the division.

Thank you very much. That was all for me.

Thank you, Ebba. We are now welcoming Johan Dahl from Danske Bank.

Yeah, thanks so much. Good morning, everyone. Just please let me know if these questions have been answered. I'll take another transcript, but I arrived a bit late. But first, just on IDS, you claim, I mean, it's fairly stable revenues. You claim that capacity utilization is up, still results a bit, you know, doesn't change much compared to last year. Is there anything going on under the hood in IDS, such as customer mix changes, price pressure, et cetera, that sort of could... explain that sort of earnings performance and secondly also if you can address you know all the talks that's going on about northern sweden big capex projects and transformation are you making any sort of contingency plans and how does that affect your strategic decision making what we are all hearing right now uh about uh you know uh wind power um sea based uh you've got all these other projects that are put in the plug thanks

Two good questions, starting with the first one in IDS. IDS is clearly a portfolio of different segments. And as we mentioned, we have some segments doing well. We mentioned defense being rather small for us, but we are scaling that. We had food and life science where we have had a bit of struggles due to some projects not being perfect. That is progressing. automotive being stable and good. And then we have weak segments like the consultants or service we have had to telecom and IT as an example. So I would say clearly we're looking on the portfolio and moving forward, this will be for us to address the weak performance areas and find a way to scale up in the areas where we have a strong position and strong demand. I think that is what Martin and we are faced with, a bit mixed bag in ideas that we step by step will address moving forward to bring ideas also to a profitability level that they should be on.

And to your second question, clearly in the product portfolio that we have on IDS, of course there are links also to northern Sweden and the transition projects there. And of course, what we are seeing is a bit, you know, it's a bit change in nervousness in those respective segments. And that is, of course, also affecting the opportunity that we see for industrial solution to actually drive their, you know, drive and improve performance and not for the better necessarily. Thereby, you know, we are more flattish on the development rather than, really being able to pick up on the good segments that are still there.

But yes, maybe final on Nordensvinna, Johan. I mean, we have not built up capacity per se based on those plans that we saw with all these different capex investment that was planned. We have been building capacity when we have received the orders and so on. So from that perspective, we are not sitting in a position where we will take kind of hits due to that some of them not happening on the time plan. Though, of course, in a kind of growth structure in general, longer term, of course, when you see that some of these projects are questioned, that of course will affect us and others. But it's not that we have been scaling up capacity based on early plans. And so we are tight with our clients. And right now, I don't see that we are in any way exposed in a negative way on any of those clients, even though some of them have a rocky ride. So I feel quite comfortable with the position we have to issue those clients up in the northern part of Sweden. And the fact that we have not taken any risk on our side ahead of realizing the plans.

Thanks a lot for that.

Thank you. Thank you, Johan. Then we will try to invite again Johan Sundén from Carnegie. Please go ahead.

Can you hear me now? Yes. Excellent. Thank you. I think a few questions more on the process industry side. First on the SSAB project that you showed in the slide deck. Please, can you please clarify, is that included into your order book as an end of Q3? Or the press release of that came in Q4? Yes. How big is that project?

It's a significant project for us, for sure. But we are not disclosing the number. But it's, I mean, we know it's a big project for SSAB up in Luleå. So for us, it's a significant project. and when will you start delivering on that project well i mean you all know and probably you follow ssab they have some more gates to pass they have an environmental and so on so it's it's the client who actually sets the the the kind of when when that will be planned so we then you you need to follow ssab's communication even more we know that we are selected as a partner to them when that project will kick off and it's a very good product for us it fits perfectly into our to our competence area and you know it goes into process industry it's not pulp and paper it's the mining metal which is really one of the segments that we are doing our utmost to grow market shares in because mining and metals compared to pulp and paper globally is a huge segment so it's a very good order for us but when it will kick off that's uh that's when the client decides that it's time to kick it off up off up in lulu but it's a it's a fantastic project and and for ssab of course with their ambition to decarbonize steel production up in lulu and another project specific question and it's related to as popularly in brazil valmet disclosed a

one billion euro apartment order from Arruco in Brazil a couple of weeks ago. Has the engineering partner for that project been decided upon yet or is that to be decided and when can that be announced?

All of that. I mean, we are, as we say, we have a very strong history in Brazil. We have a quite big install engineering base. Of course, we are involved with all the clients discussions and we will communicate and the product wins accordingly.

But it hasn't been decided upon, so you haven't lost it or missed it?

No, I think we are in dialogue with all the clients in in in Brazil. So we will get back to that one when time is right.

And is it possible to quantify how big of a product that can be for any engineering firm that could win that?

No, again, it's, you know, as you know, there are different engineering models between clients as well done. So the size and all of that we'll need to get back to when when timing is right.

I have one final question and that's about the leadership changes that was announced during the quarter. When should we expect a successor being named? Have you any intel in the process?

No, clearly, I mean, the communication that was done in September that I will leave latest 31st of March, and that the board have started up the succession is still valid. So there is no more news to my focus is to continue to liver and my view is 31st of March. And then I guess information will come and information is ready. So there is no more, more than what was said in September.

Thank you for your answer. Thank you.

Thank you, one. Then we're moving on for a follow up from Tom Gwynshard from Pareto.

I was just wondering about the Finnish market, if you could give us some color on the face there and what's going on, if you've seen any changes in the sentiment there?

Did you say Finnish market? Yeah, well, as you know, the Finnish market, it's not only one market. I mean, we are active in infrastructure, real estate, one segment in Finland. And here we are seeing the same trend as we have seen. It's quite weak. And then we had other segments and pulp and paper we talked about as well being weak. And then there are other segments that we see some interest in progress. So everything I would say related to to defense and nato and infrastructure is interesting and and but the two strongest position we have in finland is really real estate and uh pulp and paper they're weak and then transport infrastructure i would say same pattern in finland as we see in sweden basically stable the bond. We have some really interesting rail project in Finland. So again, it's the same kind of mix we see in Finland as we see, for example, in Sweden, some strong segment, but a couple of segments being weak.

All right, thanks.

Thank you. Thank you, Tom. Let's now see if there are any more questions before we close for today. does not look like.

So over to you, Jonas and Bo. All right. But then we just want to thank all of you for participating in this call, and we will wish you a continued nice Friday and a nice weekend coming up and looking forward to see you soon again. Thank you for listening in. Thank you. Bye bye.