Sweco AB (publ)

The green transition is happening all around us, driven by sustainability trends and customer and investor demand, fueled by global goals and geopolitical uncertainty. And we're at the heart of it. you'll find us deep in the energy transition, supporting the electrification of society and industry. Our wind, solar, hydrogen and energy storage expertise is leading the essential shift from fossil fuels. And as Europe's most sought-after consultant in systems, grids, transmission and distribution, our vision aligns with major energy investment. you'll find us powering the transport transition, embracing electric vehicles, improving public transport, modernising travel infrastructure. Our experience right across this field is critical for creating the transport systems of tomorrow. And as Europe's leading rail consultant, we're part of the journey to double its high-speed network by 2030. You'll find us shaping the industrial transition, where huge efforts and investment are committed to decarbonising entire industries. As trusted advisor to some of Europe's most ambitious projects, we're influencing net-zero innovation in carbon capture, circularity, energy supply and game-changing battery technologies. And we're at the core of the urban transition. being engineers and architects with expertise as deep as it is broad we understand the urban development question in full and respond with world-class planning design and construction underpinned by circularity resilience and nature-based solutions Each of our 22,000 consultants are driving the green transition with the flexibility to adapt and the stability to stay focused. It's how we make a difference in everything we do. And it's how we transform society together.

Good morning, everyone, and thank you for joining us for this presentation of Sweco's Q1 report. With me this morning, I have Sweco CEO Åsa Bergman and CFO Olof Stolnacke. They will take us through the results of this first quarter, and afterwards, of course, we will open up for questions. But now I leave the floor to Åsa Bergman. Please, Åsa.

Welcome everyone to Sweco's Q1 presentation. Before we present the first quarter of 2024, let me give you a quick overview of Sweco. Sweco is Europe's leading architecture and engineering consultancy with operations in eight geographical business areas across 15 markets in Europe. We are a well-diversified business operating across three different segments with good balance between public and private clients. The foundation for Sweco's long-term success is our mix of competencies spread across 22,000 experts. Our focus on organic and acquired growth as well as our efficient and decentralized operational model. With a strong financial track record and financial position, we are focused on continuing our growth journey and build on Sweco's success. With this introduction, let's move over to the Q1 highlights. In summary, Q1 was a good quarter for Sweco. We continue to capture growth opportunities driven by the green transition in the industry, energy, transportation and urban areas. Net sales increased by 8% in the quarter, of which 4% is organic growth, and EBITDA improved by 16%, adjusted for the significant calendar effect. These improvements are mainly driven by good demand, higher average fees and an increased number of FTEs. Even though the actions that we are taking to improve efficiency are starting to have effect, the billing ratio continues to have a negative impact. We are taking further actions to improve the billing ratio, and I will get back to this later in this presentation. With this summary, let us dive into more details in the first quarter. As mentioned, we have had a positive start of the year with performance improvements across most business areas. Six out of eight business areas reported positive organic growth and improved EBITDA compared to last year. Belgium, Denmark and Sweden delivered strong growth and positive EBITDA development and double-digit margins. And Germany, Central Europe continues to improve their performance. These improvements are mainly driven by a continued positive momentum in pricing and good demand linked to the green transition, as well as from growth segments such as pharma, defense and data centers. In the quarter, there is a significant calendar effect due to the early Easter holidays, corresponding to a negative year-on-year impact on 195 million SEC. Olof will get back to this in more details later in this presentation. We are starting to see effects from the measures taken in Finland and the UK, but the billing ratio remains a challenge for us. Improving efficiency and billing ratio is a top priority and I would also like to give you an update on our ongoing measures. The billing ratio is a key component in improving our margins going forward, and we are taking several actions. In Finland, the actions taken in Q4 2023 and Q1 2024 are starting to have effect. Further actions have been taken in April to adapt staffing, mainly in the buildings and industry segments, and this is to meet the current market situation. The repositioning of our UK business shows positive progress with a substantially improved result compared to Q4 2023. As part of this turnaround, Sweco UK is making further redundancies during the first half of 2024. Sweco Sweden is also making staffing adjustments during the first half of 2024 affecting approximately 140 employees. We are also currently conducting a review across all our business areas to further streamline our operations, including making sure we have the optimal team size and staffing. These actions for improved efficiency are starting to show effect, but taking sufficient measures will be a gradual process. Looking then at the overall market situation. The demand for services related to the green transition continues to be good, while parts of the building segments remain weaker. Demand in water, energy and most industry segments remains strong overall, powered by the demand connected to Europe's green transition, although we see weaker demand in traditional industry services. Transport infrastructure remains good in most markets, driven by large needs to update Europe's transport infrastructure. In the building segments, the demand for public buildings remains stable, while the demand in residential and commercial real estate continues to be weak, with variations across markets and sub-segments. With that, I will hand over to Olof to walk you through the numbers. Please, Olof.

Thank you, Åsa, and good morning, everyone. We continue again with the summary of the quarter. We had net sales of 7.7 billion in the quarter with 4% calendar adjusted organic growth, 6% from M&A, and the FX effect now being neutral. EBITDA was 793 million. Excluding the significant negative calendar effect, we are roughly 140 million or 16% up, margin at 10.3%, and the decline in margins is entirely explained by the calendar. Leverage remains stable at 1.1%, despite some negative cash flow impact from the quarter ending on Easter weekend. On net sales, we see organic growth in six out of our eight BAs. Netherlands is more or less flat and UK, as could be expected, down against what was still a strong quarter last year. Denmark, Belgium and Sweden continues to show solid growth. Germany and Central Europe once again has the highest growth in a quarter. They have a good momentum in the business, but it is also supported by positive project adjustments. Across the board, the growth drivers have been primarily continued price increases, but also FTE growth. We maintain recruitment and personnel turnover has continued to decline in the quarter. More vacation and lower billing ratio contributed negatively to the growth. On the EBITDA side, as said, we see a 16% increase adjusted for calendar. We are happy with that development, especially since we are up against an all-time high quarter last year. With the negative calendar impact, we only see margin improvement in Finland and Germany and Central Europe. But Sweden, Denmark and Belgium deliver double digit margins. Finland is close to 10% and Germany and Central Europe deliver 7.9% in another strong quarter. Norway has the biggest calendar effect with six less working days in the quarter, primarily due to the Easter week. UK, back to profitability after three quarters of losses, despite taking additional restructuring costs. Looking then at the EBITDA bridge by business area, overall, higher average fees continue to be a positive driver, together with the FTE growth and the contributions from acquisitions, while higher personnel expenses and lower billing ratio had a negative impact. Looking at the BAs, six out of eight deliver increased EBITDA and Norway is in line with last year. Belgium and especially Denmark maintains the good profitability trajectory. Sweden improves on a strong Q1 last year. Germany and Central Europe has another very strong quarter. Again, the result includes positive project adjustments, so one should not expect this kind of improvement every quarter. In Finland, the improvement is partly driven by a one-off salary payment in Q1 last year, but it's also an effect of the actions we are taking. To continue to drive improvements, Finland is utilizing the temporary layoffs that we talked about in Q4, and have also concluded reductions of an additional 40 FTE in April. UK, down versus last year, but we are, as said, pleased to see them in positive territory, a sign that actions taken are having effect. We are taking further restructuring actions, adding another 100 FTE reduction to the 100 FTE redundancies in 2023. And finally, the calendar effect, 15 less working hours, which corresponds to a negative 195 million in net sales and EBITDA impact. And then quickly on the financial position, net debt is in line with Q4 and Q1 last year, despite the negative impact of around 300 million on cash flow from the quarter ending with the Easter weekend. Leverage is at 1.1, well below our target, and we remain financially strong with available liquid assets of around 3.8 billion. And with the large calendar effect in Q1, we thought it would be a good idea to remind everyone of this year's calendar. The Easter effect will, of course, be reversed in Q2. We also have a positive Q3 and a small but still positive total for the year. And this is the first time since 2020 we have that. And with our increased size, one hour of calendar now corresponds to 13 million SEC in net sales and EBITDA impact. And with that, back to you, Åsa.

Thank you, Olof. The green transition and its impact on energy, transportation, industrial and urban development continues to be core drivers for Sweco. This is evident by the projects won in the quarter, all of which highlight Sweco's multidisciplinary role in enabling these transitions. In the Netherlands, Sweco won a 100 million euro contract to support the energy operator Chassoni to develop new energy infrastructure for transportation of hydrogen, CO2, renewable gas and heat. In Germany, Sweco will support the city of Bremen to expand their public transportation. In Norway, we will provide architectural design to support the sustainable uplift of an urban area in Oslo. And in Belgium, Sweco has been commissioned to design an open access rail terminal in Sebriges port. Today, I am proud to announce that Sweco will be helping rebuild Ukraine. by providing expertise in projects to secure drinking water and modernized wastewater treatment in two communities. Specialists from Sweco will provide expertise in wastewater treatment, water engineering, hydrology and environmental impact assessment in two projects financed by Swedfund. Sweco has been supporting Ukraine in projects rebuilding the country since 2022. For example, we are securing a drinking water supply for 220,000 residents in the city of Kremenchuk. And we are also supporting by building homes in six cities in western Ukraine. Let me now conclude by presenting our key priorities and focus areas going forward. We remain focused on capturing business opportunities in the market by further strengthening our market position and tapping into attractive growth segments. Continued FTE growth and M&As are two important pillars and prioritized areas. We are also accelerating our efficiency measures to improve our margins, including both an organisational review as well as specific measures in Finland, UK and Sweden to meet the market demand. All in all, Sweco remains well positioned to continue our journey of profitable growth and we are committed to capture growth opportunities while driving efficiency improvements. Thank you.

Thank you, Åsa and Olof. And now it's the time for us to open up for questions. So please, operator, if you could give our audience and ourselves the instructions.

Thank you, dear participants. If you would like to ask a question, please press star 11 on your telephone keypad and wait for your name to be announced. To withdraw a question, please press star 11 again. Alternatively, you can submit your questions via the webcast. Please stand by, we'll compile the Q&A roster. This will take a few moments. And now we're going to take our first question on the line. And the question comes in the line of Dan Johansson from SEB. Your line is open, please ask a question.

Thank you so much. Good morning, Oss and Olof, and congrats to a strong start to the year here. Thank you.

Good morning.

Thank you. I think I have three or four questions here, so I'll take them one by one, if that's fine. So, perhaps starting a bit on the 4% organic growth here, I'm just wondering how much is from pricing here, and also you're thinking about pricing for the full year with the inflation coming down. Do you find it more difficult to raise prices, or is it still an ambition to have a good pricing level during this year? I think that's my first one, so thank you.

I think you can say that sort of all the organic growth comes from pricing, meaning that the other factors, which in this case is FTE growth, its billing ratio, and it is higher absence from more vacation related to Easter. So I think it's fair to say that the full net effect comes from pricing and then the other ones are zero. And as we've said before, increasing prices remains one of our biggest challenges given the relatively high salary inflation even if that is coming down this year so but it's it's a good start to the year to summarize it and we we aim to continue to increase prices okay sounds good a more specific question perhaps on Denmark it's been looking quite strong now for for a while especially on margins how

How much is the performance of Denmark sort of an effect of, I guess, Nova Nordic investment bonanza? Or are the other factors also driving your Danish operations? It's much broader than just some pharma boosts right now. Thank you.

Forma is one of the units in the Danish business. So it's rather the latter linked to your question that we have been able to implement the Sveco model. We have been able to broaden our client and project portfolio. We have been operationally strong and we combine that with the M&As that we did last year. So you see the kind of, perfect mix of what we would like to see from a business area. So, I mean, as you say, it's a strong combination, both of organic acquired and expansion of the margin. So, that's good.

Thank you. And maybe a final one, if I may. Perhaps on the last part you mentioned also on the efficiency improvement initiatives, I carry you clearly you're not satisfied with the billing ratio and you're doing further adjustment of staff here. Have you already taken the costs related to that or is that something we should expect now during the course of the next few quarters or is it possible to say if it's material or it's just sort of ordinary business? How do you view those adjustments that you will do there going forward? Thank you.

The costs are actually stated in the report. I understand that you haven't had time to read through it all yet, but we are taking 13 million in Q1, Sweden and UK, and we will take around 45 million in Q2 related to Sweden and Finland.

Okay, that was super clear. That was a miss from my side there. I think that was all from my side now, so I'll jump back into the queue. Thank you so much.

Thank you. Thank you. Now we're going to take our next question. And the question comes from Johan Dahl from Danske Bank. Your line is open, please ask a question.

Yes, thank you. Good morning, everyone. Can you say anything also on order intake, how that compares to sales, possibly the order book, how that's developed in the first quarter?

Good morning, Johan. Yeah, it's stable and orders received is on good level. So it continues in the right direction.

I have to add what I always say, and it's that the order book improves as percent of net sales, not only in absolute terms. So it's supportive of further growth.

Gotcha. And following on to that, given how orders have developed, I'm just curious to understand the actions you took late last year. I would have thought that they were really aimed at getting that billing ratio to trough and bottom out, and still it doesn't seem that it happened in Q1. I'm just interested to hear, you know, is it just some sort of delay effect from those actions taken last year, or what has disappointed in Q1 in the operations for that sort of troughing of the billing ratio not to occur?

Should I start or you? First of all, some of the actions that we're taking is really linked to that we have pockets in the business where we don't have work enough, meaning that the order backlog is weakened. That's mainly in the UK linked to the private building sector and infrastructure sector, meaning that you actually see in this quarter that we are moving in the UK, for example, in the right direction when it comes to their performance. It's the same with Finland. We reported that in the buildings and in the industry sector in Finland, we needed to take actions and we continue with that during this quarter. but related to your question is that yes we take actions and we we can see things happening in the organization and in the result but we can't see it yet in the billing ratio so this is like you know a gradual um improvement and we expect that to come in the quarters ahead

And I would add to that, it's always a balance for us between sort of taking actions to improve billing ratio and not becoming too short term. So we have to balance all the time demand and our own capacity. And UK, we're taking quite significant further action, which is we took significant action last year as well, but we continue that to ensure the turnaround. Finland some additions now in q2 and then Sweden where we have taken smaller actions before but are now taking a bit of a bigger one but it is it is important for us to balance capacity and demand understood just finally also you talked about this ongoing organizational review

to streamline operation? What does that comprise? Just to understand what you're actually doing there.

I mean, we are looking through the organization that we have to make sure that we have the right team size, that we don't have too much admin staff to really bring us back to efficiency. There has been lots of changes in the market and lots of new requirements on the market that we have of course adapted to but also those you know this game of both uh pushing ahead and growing but also be able to shrinking in some segments also creates sometimes um that you don't operate in the optimal way and that is what we now are going to securing thank you very much thanks thank you now we're going to take our next question

And the next question comes line of Raymond Keff from Nordea. Your line is open. Please ask your question.

Hi, good morning, Åsa and Olof. A couple of questions from me. First one, just regarding the UK redundancy provision there of 7 million. Does that encompass all the redundancy adjustments planned for H1? Just checking.

Yes, it does. It might be some minor addition, but nothing significant. And the reason for it being so relatively low compared to numbers is that part of it is people leaving the organization voluntarily. So that's part of the number there.

Great and a similar question also regarding the size of the positive project adjustments in SWECO Germany. Could you help us understand what was non-recurring here?

Well, I mean, it is part of sort of normal project accounting, but it has been on the positive side. So it's probably sort of in the 5 to 10 million range that could be seen as possibly one-off or at least sort of adding to the total margin.

That's very helpful. And just one final one. When you sort of look at the order backlog, could you provide some color in terms of which geographies have grown their backlogs the most in the quarter and how the volume and price mix looks like in the order backlog?

We don't, I mean, we don't want to provide any more detail or we are not providing any more detail on the order book, but it's as said, it continues to grow also as percent of LTM net sales.

Okay, thank you very much.

Thank you. Thank you. Thank you. Dear participants, as a reminder, if you wish to ask a question over the phone, please press star 11 on the telephone keypad. Alternatively, you're more welcome to submit your questions via the webcast. And now we're going to take our next question. And it comes from the line of Johan Sonden from Carnegie. Your line is open. Please ask your question.

Thank you for taking my question. Good morning, Åsa and Olof. A few questions from my side as well. The first one is a little bit more on the market, the more early cyclical part of your business, such as architects. Have you seen any kind of trend shift there already, given the better kind of interest rate environment that is gradually coming into expectation from most market participants?

The market in the building, the residential sector and commercial real estate is still on the weak side. So we don't have seen any shifts or changes in our order backlog or our orders received in those areas. So that is yet to come and that is yet to see. And

although it hasn't really impacted ordering tape, but the kind of client discussions, has there been any kind of trend shift recently, or is it more of the same over the last, say, two years?

It's more of the same, I have to say. It's more experience-wise that we always want to search for the light, so to say, when we expect the market to change. But when we see shifts in our portfolio or in our clients' behavior, we will report that. But we don't see that yet.

Fine. And then... Another question on the M&A activity. How would you judge the M&A pipeline? I've seen a few of your peers have been a little bit more active on the continent of Europe recently. How do you view the German business? Will they soon be able to start making acquisitions again or where are we in the process there?

I mean, we have said before and it's the same focus that we have to have a clear M&A agenda in each country. And that means that we are focusing to really prioritize and have dialogues and working with the pipeline in all our business areas. With the stabilization and the good performance that we now see in Germany, we are more positive and we are starting to looking for potential companies on the German market. But again, it's really about making sure that we select the right ones and that we get the opportunity to

to buy them so so um when it happens it depends on when when we get the opportunity so to say that sounds promising and i also had some questions on the billing ratio and it seems like more optimistic to turn in the trend now than you were say three months ago or six months ago um Is it naive to expect this to happen already before the summer? Will the building ratio turning be something for H2? Or how should we view your comments before?

Yeah, I think what you should see is that we are now, with the actions we took in Q3 and Q4, and now in the first half of this year, we have taken more significant actions than probably, I would say, I haven't been around for that long, but probably than ever before in SWECO activities. With the actions we have taken, we also talked about the organizational review in the other BAs. We are definitely taking a lot of action here. But, I mean, we don't want to comment on sort of giving any forecasts, but we are definitely taking actions which should have effect on the billing ratio.

That's clear.

thanks a lot olaf and also i get back in line thank you thank you dear participant just a reminder if you wish to ask a question over the phone or to follow up please press star 1 1 on your telephone keypad The speaker for the questions on the phone, I would now like to hand over the conference to the management team for any for any written questions.

Thank you. And as I understand it, and as I can see, there are no further questions. So with that, I want to thank you all for joining us this morning. And also a short reminder for you to stay tuned when we release our next Q report on the 16th of July. So late vacation for us. Have a nice day, everyone. Thank you.

Thank you.

And we're at the heart of it. You'll find us deep in the energy transition, supporting the electrification of society and industry. Our wind, solar, hydrogen and energy storage expertise is leading the essential shift from fossil fuels. And as Europe's most sought after consultant in systems, grids, transmission and distribution, our vision aligns with major energy investment. you'll find us powering the transport transition, embracing electric vehicles, improving public transport, modernising travel infrastructure. Our experience right across this field is critical for creating the transport systems of tomorrow. And as Europe's leading rail consultant, we're part of the journey to double its high-speed network by 2030. You'll find us shaping the industrial transition, where huge efforts and investment are committed to decarbonising entire industries. As trusted advisor to some of Europe's most ambitious projects, we're influencing net-zero innovation in carbon capture, circularity, energy supply and game-changing battery technologies. And we're at the core of the urban transition. Being engineers and architects with expertise as deep as it is broad, we understand the urban development question in full and respond with world-class planning, design and construction underpinned by circularity, resilience and nature-based solutions. Each of our 22,000 consultants are driving the green transition with the flexibility to adapt and the stability to stay focused. It's how we make a difference in everything we do. And it's how we transform society together.