Sweco AB (publ)

Good morning and welcome everyone to this presentation of Sweco's Q1 report that we released earlier this morning. With me today I of course have Sweco's President and CEO Åsa Bergman together with our CFO Olof Stolnake. They will present the results of the first quarter and after that we will open up for questions. But with no further delay, please Åsa.

Welcome everyone to Sweco's Q1 presentation. Before we present the first quarter of the year, 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 a good balance of private and public 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 me start the presentation of Q1. We began the year with a solid quarter with continued growth and improved margins. Net sales exceeded 8 billion CET and we delivered a stable organic growth rate of 4%. EBITDA increased by 10% and the EBITDA margin increased to 11.2%. We sustained our positive operational trend with higher average fees, improved billing ratio and positive effects from cost control measures. Altogether, this shows a solid start of the year. Let us now dive into more details in the first quarter. In this quarter, six out of eight business areas reported EBITDA improvements and seven out of eight reported positive organic growth. We have managed to successfully navigate a mixed market with a solid organic growth rate in the quarter. Our new project wins are reflected in a stable order backlog and a good order inflow in the quarter. As I mentioned, we sustained our positive operational trend and the EBITDA improvement was supported by higher pricing, higher billing ratio and lower operational expenses. In the quarter, Sweden, Finland and Norway initiated further efficiency measures, and we will remain committed to higher operational efficiency and to adapt to the market development going forward. Let's move over to the market overview. The demand for Sweco services generally remained in line with previous quarters, with some variations between segments and markets. Demand remained good in the infrastructure, water, environment and energy segment, as well as in security and defence. The general weak demand continued in residential and commercial real estate, as well as within traditional industry services. As you know, the general market uncertainty increased in light of political events and threats of political trade conflicts. From Sverko's perspective, this has not materialized in any substantial effects on demand. But we are, of course, monitoring the development closely and are prepared to take actions when and where needed. With that, I will hand over to Olof to walk you through the numbers. Please, Olof.

Thank you, Åsa. And good morning, everyone. This is a quarter very much in line with Q4. Net sales is at 8.1 billion SEC with 4% calendar adjusted organic growth, 1% from M&A and no FX impact. EBITDA is 900 million SEC, excluding the positive calendar effect. We are 81 million or 10% up and the margin is at 11.2%. Leverage is down significantly from last year at 0.5%. Looking at net sales, we see organic growth in seven out of eight BAs. Netherlands has the strongest growth driven by increased average fees, but also FTE growth. Finland continues to show negative growth and the Finnish market remains challenging. All other BAs grow between two and 5% in markets that remain mixed in terms of demand. The growth drivers continue to be average fee increases and higher billing ratio. On the EBITDA side, we see a 10% increase. We are up against a relatively strong Q1 last year and still managed to grow EBITDA more than top line. Sweden, Norway, Denmark, Belgium and the Netherlands delivered double digit margins. UK delivers 7% in another quarter of significant improvement. Finland and Germany and Central Europe are more or less in line with last year. Looking then at the EBITDA bridge by business area, again, higher average fees continue to be a positive driver, together with higher billing ratio, while higher personnel expenses, including restructuring costs, had a negative impact. Looking at the BAs, six out of eight deliver increased EBITDA. Netherlands, Belgium, and Denmark all delivered significant EBITDA improvements. UK also improved significantly, but again, this was versus a relatively weak quarter last year. Sweden, Finland and Norway have a slightly weaker first quarter and are also the markets where we get the least help from market demand and where we are also initiating actions. Sweden has taken 20 million SEK of restructuring costs related to a reduction of 50 employees. Finland also taking action with a 40 FTE reduction and 13 million SEK of restructuring costs that will impact Q2. Norway are also executing layoffs, primarily temporary in Q2. And Germany and Central Europe then finally is, as you can see, in line with last year. The calendar effect from two more working hours corresponded to a positive 27 million SEC in net sales and EBITDA impact. Looking at the financial position, net debt at 1.6 billion is significantly down versus Q1 last year, driven by an improved working capital position and also by lower M&A outflows. Leverage is at 0.5, also significantly down versus last year and well below our target. We remain financially very strong with available liquid assets of 4.8 billion. Finally, as usual, a reminder of the calendar effects for 2025. In Q2, we get the negative impact from Easter moving between quarters. And the biggest impact is, as always, in Norway. And the total for the year, as you know, is back to negative with one working day less. And with that, back to you, Åsa.

Thank you, Olof. The projects won this quarter reflect our broad and diverse expertise across several growth segments. In Denmark, Sweco was selected as the key partner by Danish distribution system operators Serious Radius and Nexel to expand the electricity grid in eastern Denmark. The contract will support Denmark's climate goals by facilitating grid expansion and is valued to approximately 580 million SEK over five years. Sweco was also commissioned to provide project and planning management services for Swedish metal and mining company Boliden in the replacement of one of the Rönnskär smelters oil-fire boilers with two electric steam boilers. This is part of Boliden's effort to transition to fossil-free copper production. In the Baltics, Sweco was selected as part of a project alliance to design and construct section one of the Estonia Rail Baltica, an EU-funded high-speed rail link connecting two Baltic states, connecting the Baltic states with the rest of Europe. This major project includes 230 kilometers of new European railway track with completion expected by 2030. Finally, Sverko has been chosen as the project manager for the new Oslo Spectrum Arena in Norway. This project aims to establish Oslo as the leading event capital in the Nordics. The project has ambition environmental goals, including extensive reuse of building materials. Now I will conclude with our key priorities and focus areas going forward. Again, the first quarter of 2025 was solid for Sweco. We continued to execute on priorities communicated over the past quarters, delivering solid growth and improved margins. The quarter demonstrated the strength of Sweco's well-diversified business and operating model as we continued to successfully navigate in a mixed market. Going forward, we will remain focused on operational efficiency and long-term margin improvements. I see many promising opportunities for Sweco and we will continue to strengthen our position in growing areas such as energy, security, defence and digitalisation. Even the recent events in the world, we are of course following the market development and we are staying close to our clients to be able to act on opportunities and mitigate potential challenges. As communicated before, Our aim for this year is also to increase the pace in acquisitions. It is one of Sweco's key value drivers, and we have a strong pipeline across several markets and segments. Altogether, Q1 marked a good start to the year for Sweco. Thank you.

Thank you, Åsa and Olof. Now we will open up for questions. It will be possible for you to ask them either through the phone line or through the chat function. So please, operator, if you could give us the details.

Thank you. To ask a question, please press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. If you wish to ask a question via the webcast, please type it into the box and click submit. We will now take our first phone question from the line of Dan Johansen from SEB. Please ask your question, Dan.

Yes, good morning, Åsa and Ola. Thanks for taking my questions. I think I have two questions here. Maybe I'll start with the first one on the demand situation. It seems to be quite stable order backlog growing in line with sales but looking at net recruitment it's close to zero and you're doing some capacity capacity further capacity adjustments here in q2 it seems is it fair to say that you don't expect any major improvement from these levels and are you more cautious now compared to yeah maybe yeah at the end of the last year if you could give some color on that thank you

I would say that the market is, as I said, more or less in line with previous quarters. And as we have done, we always try to take actions on areas where we don't see as big demand as in others. So we continue to monitor in segments where there is less demand and we are focusing on really growing in other segments. But as you see, the order backlog is strengthening in the quarter and we see also orders received on a good level. But with that said, of course, uncertainty ahead, but we don't see any major impact in our business in this quarter related to that. So this is more focusing on the efficiency measures and making sure that we continue to create efficiency and that we are well positioned.

Yeah, makes sense. But just following up a bit on that, what part of the business is impacted? Is it still the buildings side and architecture part of your business that you're doing a capacity adjustment or is there somewhere else?

No, I think there are some nuances in that, but it's still the, as you say, residential, commercial and parts of industry. But as we said now in the presentation as well, there is also nuance that the Nordic markets excluding Denmark are sort of a little bit softer on demand than the other markets.

Okay, understood. Maybe one more question, if I may. I can't refrain from asking a bit on the M&A pipeline you're highlighting as maybe better compared to last year. Of course, your balance is super strong, net activity declined quite a bit in Q1 year over year. How are you thinking about capital allocation here? I understand it's difficult to predict the timing of larger deals, of course, but shouldn't we expect a couple of more small to medium-sized deals, perhaps A few more than what you've done in this quarter, for example.

If we recall, what happened last year was that 2024 was a kind of slower market when it comes to transactions. And as I said, we are working with lots of different potentials in the different countries. So we have an M&A pipe in all our business areas. But even if we are financially strong, we would still select and buy companies that we really see brings value into Sweco's portfolio, meaning that when we get the opportunity to buy the companies that we want to buy, we will. But there is lots of things going on, but I cannot promise when and at what pace this will happen.

No, I'm not pushing you on that either. It's better to do good deals than doing many deals, of course. But yeah, I think that was all from my side now. So I'll jump back into line. Thank you for answering my question. Thank you, Don.

Thank you. Our next question comes from Raymond Kerr from Nordea. Please ask your question, Raymond.

Hi, good morning. A couple of questions from me also. Starting off with maybe just sort of understanding your organic growth of 4%. How much was price against volume, if you could divulge that?

No, I mean, if you look at the FTE growth is close to zero. So it's fair to say what I've been saying, I think for some quarters now, it's around 3% from price and 1% from billing ratio in the growth.

Great. And regarding sort of the layoffs, you mentioned 20 million here in Q1 for Sweden, 13 million in Q2 for Finland. Were the costs related to layoffs in Finland and Norway here in Q1 significant? And if so, how much were they?

There was nothing in Q1 in Finland and Norway. There will be, as you said, 13 million on Finland in Q2. Norway's smaller numbers and mostly temporary layoffs, so no significant cost for that.

Got it. And then a question on the start of the year. A peer of yours talked about sort of seeing a slow start of the year, especially the first two weeks. Did you also notice this or was this anything that impacted you to an extent that you would emphasize that?

I mean, January is always a startup month after Christmas and New Year's, but I would say no sort of significant change versus previous years.

Got it. And a final one on Germany. You had better utilization. You wrote sales were circa 50 million higher. Calendar had a negative just 1 million impact. I'm trying to understand how the margins did not improve as much as, yeah, did not improve more.

Now, last year in Q1, when we reported, we talked about positive project adjustments in Germany, and they had an impact of maybe somewhere sort of 5 to 10 million on the result then. So I think that's one of the explanations. The other is just that you will see some fluctuations between quarters, but otherwise I would say a solid quarter in Germany.

Perfect. Thanks so much for answering my questions. I'll get back in line.

Thank you. Thank you. Our next question comes from the line of Fredrik Lethal from Henders Banken. Please ask your question, Fredrik.

Thank you very much. Hi to you both. Before I ask my question, I would like to say thank you, Olof, for your time. I think this is the last conference call you will be part of. Good performance and good backup to us analysts as well. Thank you for all the time. My questions... Yeah.

I just have to say, Fredrik, that I will be around for the Q2 report as well, so you won't get rid of me yet. Okay.

Good then. All right. Can we go back to maybe Finland? I would like to ask a little bit more. It remains weak. Has it turned weaker? Or is it just you that are doing the nitty-gritties on a weekly basis? Or where are we in the Finnish market?

I would say that the market has been weak for quite a while. As you know, we took actions in 2024 and also in 2023 in Finland, and that is linked to residential, commercial real estate and parts of the industry segments. Of course, to maneuver a market like that, it's about making sure that we focus on sales and getting new contracts into the portfolio, but at the same time, take actions in areas when needed. So when the market not turning in the right direction, meaning strengthening in those areas, I mean, we need to take more action. So all in all, I think we are maneuvering the market in Finland in a really good way due to that it is weaker. We are winning good contracts, but we also need to mitigate in some specific areas, which we continue to do.

Okay. And could I also have a question on prices and salaries? You've been sort of, you've had a tailwind from good price adjustments. How much more can you do in that, what you see in front of you in terms of pricing? And then also, if you could sort of add in the aspect of salary increases and how we should gorge that 425. Thank you.

First of all, I think it's important to say that this is an ongoing theme for us to make sure that we focus on how we price ourselves and that we make selections on the market, meaning that we select and deselect projects depending on making sure that we scrape profitable and that we can increase our prices and that will continue of course because it's it's such an important driver for us it's also about how we execute the project so we make sure that we don't get project write downs um and that we really get paid for all the work that we are doing so those elements is is part of our model and we will continue to focus on that but more on the details

yeah i think and if you look at q1 we still have a positive balance between price and salary increases which is important on on the total of the group and our aim is just to continue that and i mean we've been talking about it and i think we've also been executing on it for a number of quarters and years now so we will we will just continue on the track we are on all right perfect thank you very much thank you thank you frederick

Thank you. Our next question comes from the line of Johan Lundvist from Carnegie. Please go ahead, Johan.

Good morning, Åsa and Olof. A couple of questions from myself as well. Good morning. I think I'll stick to where Fredrik started on salary and pricing, and especially looking at the Swedish business where there's been some turbulence beginning of April with regards to the current union agreement. Can you give some color what the final outcome resulted in and how that will impact the Swedish business for firstly Q2 in 2025 and then maybe if there would be possible to compensate for that salary inflation for the full year of 2025?

I mean, the outcome is that there is an agreement in place on reasonable levels, I would like to say, and then there will be local negotiations regarding shortening of the time. But that is something that we will handle locally. And with that said, the levels we're talking about is something that, you know, we make sure in Sverker that we have market-based salaries and there we are starting the negotiations right now i don't see much so much of a risk in this um of course but but we have local um negotiations regarding this this um parts in in the in the agreement I don't see any reasons to why we shouldn't be able to mitigate this salary inflation with the market prices going forward. It's the same environment that we operate in that we have done the last years.

Looking at the quarter, such margins in Sweden was down, also excluding for the restructuring cost in Sweden. Step down, compare what we saw during the last fall. Do you still think it would be possible to achieve a margin uptick in Sweden in 2025, given the kind of backdrop and the market situation?

Well, as you know, we don't give forecasts, and talking about the margin for 2025 would be a forecast, but I think the fact that we are taking action in Sweden shows that we are committed to continue to do what is needed to improve the margins, and that goes for Sweden as for any market.

I hear you. Thanks for that one. Second, third question is on the margin level in Denmark, 16% in this quarter, very high level. Just curious to hear how sustainable that margin level are and what has been the kind of main drivers from, say, 14 to 16. For a consulting business, it seems like a very high level level.

I mean, Denmark have really implemented this VK model. They have a very broad and strong portfolio with clients and also with projects. And they are really focusing on what I talked about before, that maneuvering the market and select and deselect projects, but also executing the projects in a good way. So the combination of organic growth and acquired growth that they have been able to execute and also how they operationally drive their business. Good cost control, efficiency measures taken, but also focusing on growth in parallel with expanding their margins is the recipe for success. I don't think, as I said before, that there is a kind of limit in any market. I think it's more about how you maneuver the market. And of course, you need some tailwind in parts as well in this mix. But when you have the recipe, you have the recipe for delivering the result.

And I think to add to that, you will always have quarterly fluctuations. I think it's important to sort of look at the LTM margin trend over time. And there, Denmark has been consistent. It might not be 16% in every quarter, of course, but they have been consistent on the LTM margins. I think that's important to look at.

You haven't increased the use of offshoring in the Danish business. recently, or to a greater extent than New Early has done. It's just following the Sweco model that are the factors here.

Yeah, on that note, cross border collaboration and sourcing in Sweco is part of the recipe. So it's more about what kind of projects you have in your portfolio and what the potential is for cross border collaboration and sourcing. So that is also part of the mix.

Yeah, but it's nothing specific for Q1. Denmark has been among the best market when it comes to utilize sourcing, but there is nothing sort of one-off in Q1.

Excellent. And my final question are on Germany and the kind of news flow seen during Q1 with regards to increased infrastructure spending. Have you... seen any indications yet of better order intake due to that? Or is that to come in the fall or where in the process are those projects?

I think it's still too early to see them. There is always a time lag between sort of the bigger investment programs and actual projects coming out. So probably later in the year, as you say. Excellent. Thanks a lot. I'll get back in line. Thank you, Yuan.

Thank you. Thank you. As a reminder, to ask a question, please press Start 1&1 on your telephone. If you wish to ask a question via the webcast, please type it in the box and click Submit. We will now take our next question from a line of Tom Gitter from Beretto Securities. Please ask your question, Tom.

Thank you. I was just wondering, in Sweden you comment on the water sector facing some financial challenges from the municipalities. Can you just give us some more insights into that? Is it isolated to the water segment or is it more broad-based?

It's, I mean, the big investments for the municipalities that we are looking at are the, in terms of our sector, is the water infrastructure, which is underinvested, as you know. And we are seeing not maybe sort of a decline there, but we see a bit of slowdown in investment decision due to the economy of the municipalities.

Alright, but it's quite isolated to that sort of sub-segment. It's not broad-based for the municipalities in general.

No.

Alright, thank you.

Thank you. There are currently no further questions. I'll now turn the conference back to the room.

Thank you so much. And there are no further questions from me or the chat either. So with that, I want to thank you for joining us this morning and also to remind you that we release our Q2 report, Olof's last report on July the 16th. Again, thanks for joining us and have a nice day.