Afry AB

STO:AFRY

Earnings Call Transcript 2019-Q1

[Jonas Gustavsson, President & CEO]

Thank you very much, and good afternoon, everybody, and welcome to this webcast. I'm sitting here in Stockholm Solna together with Stefan Johansson, our CFO. And we will, as our normal, always tangle through the quarter report we are presenting here today. So again, welcome.The agenda today, we will talk about overall performance. We will talk about the combined growth. Obviously, it's a special quarter for us since it's the first quarter where we have Pöyry included at least 1 month out of the 3, which makes the quarter a bit special. A few words about the market and some highlights, financials, obviously, and Stefan will take you through them. Fourthly, about each division and also a summary afterwards. And we will try to do that as quick and fast as possible, and then have time for questions, if needed, afterwards.So if you summarize the quarter, I would say it's been a stable performance, and the integration is in line with the plan. We are happy, if you start with the organic growth, that we are delivering our organic growth of 8%. I think it's a very strong sign that, including a quite large integration, we are keeping a very good focus on serving our clients. And I will say that we are not losing at all momentum towards the customer. It's in the opposite, actually. I think the 2 companies, ÅF and Pöyry, joined together has[Audio Gap]to end the autumn on selling our services and solutions to our clients. So that's very good. I would also say that we are delivering a solid profit level. You could see that part of the Pöyry business have actually delivered a very strong performance. What we have seen on some part of the work business, we'll get back on that, is that we have a bit slower start in some areas in the beginning of the year. And that affected a bit the margin development. But it's a solid start, and we can see it's an overall good demand. However, there are a few segments that we can see signs of a bit slower demand. And one of them that we highlighted is actually automotive. But all over, it's a good and stable quarter if you look on ÅF Pöyry. And then, just to highlight the whole acquisition and the process related[Audio Gap]that acquisition is complete[Audio Gap]expect quite fast. We have also made 2 successful Rights Issues, and Stefan will get back on how is the balance sheet looking after this. [Audio Gap] This is going according to plan. I would even say that it was even a bit faster. So I'm very pleased with the way that we are able to integrate ÅF and Pöyry together. I think to analyze we have done on the 2 companies[Audio Gap]happy with. We have a strong plan on delivering the SEK 180 million annual run rate savings and costs that we have presumpted in conjunction with the acquisition of Pöyry. And we are following that very thoroughly, and we are now after quarter 1 on SEK 25 million. And I feel very confident that we will be up on the run rate closer to the SEK 180 million by end of this year, as we have communicated. So, also, that is progressing according to plan. And on top of that, strong organic growth and stable earnings. So of course, there are always challenging areas, but all over, it is a very strong and solid quarter.The group as it looks now is that we have close to 17,000 employees. We have presented this before that we have a very balanced portfolio. And we are a strong Nordic player. So 75% of the sales and revenue is in the Nordic, but we have also expanded now the geographical footprint with a better balanced portfolio, strong European platforms, but also strong operation in those regions that is valid for us than, for example, in Southeast Asia serving the end of the business. So also here, I think the setup of the new company is very interesting.We have 50 countries where we are present. Of course, there's a few elsewhere where we are very big, like in Infrastructure. We know the core countries. And then we have a portfolio then that is expanding towards more and more projects. We have still a strong service delivery in the bottom, but I think the way we are able to handle projects is one of the success factors moving forward.The customer base, obviously, jointly together, is very strong. So this is the 10 large customers as we have joined together in the group. So some of them we have been working with on different sites before. Coming together, we are becoming even stronger now. So we are serving a lot of important good clients.Looking on the market, overall, I would say that it's still a favorable market across the majority of the work project sectors. And I think the reason is also that many of our clients are affected from disruptive trends, where they need to take in new competence. For example, into 5G, if it's electrification or if it's the utilization. So the need for competence is very high at the client side. We also know there's an underlying need in general, especially in the Nordic, but also in Europe, for Infrastructure solutions. So I think we have a very strong position.On top of that, the fact that we are now the world's leading player in process industry is extremely interesting. I mean, who else have been strong on that in Sweden? And Pöyry, obviously, have gained a world-leading position in processing industry. And jointly together, we are one of the key players. So that's interesting.On top of that, jointly together now, we have a very strong portfolio towards energy business. And here we see a lot of transitions. Obviously, Europe and the Nordic, it moves towards the, I would say, different kind of business models including renewables and the smart grids, et cetera. At the same time, we have a very strong operational platform now to serving new build energy projects in, for example, Southeast Asia. And the area that we have highlighted, where we can see a flattening out on the signs, is automotive segment. And the overall portfolio we have acquired a strong position and -- to automotive. But here we can see that we have seen some signs in the quarter. But all over, it is still a favorable market.Of course, the project portfolio is filling up, and we are constantly booking a lot of new projects. And here's a few examples that we have been taking during the quarter, both in Infrastructure and also in the energy business and other areas. And I will say, based on the market situation, that our project pipeline has continued to be very strong in all those segments. So I think I'm pleased, also very pleased with the position that we are getting jointly together. So all of that looks good. And then moving over to look a bit on the growth side, on the sales side, and I will leave it to Stefan to comment that a bit.

[Stefan Johansson, Executive Officer]

Thank you, Jonas. Good afternoon, everybody. As Jonas mentioned, we have a strong underlying market in general, except from certain areas. And that also reflects the top line increasing by SEK 1 billion to SEK 4.4 billion, of course, driven by -- mainly by the acquisition, but an underlying growth of 8%. And if you recall last year, we were struggling with the growth, more or less flat in the first quarter, but now we are picking up and show we're reporting a very good number in terms of growth. And we are very happy about that. And we see it's not one single segment that are driving the growth. We see good demand and growth in all divisions and countries. But of course, especially within the Infrastructure, and especially within the building technology within Infrastructure, we are coming back to that. So conclusion, it's a generally good demand and good underlying market in which we are growing in.If we look at the bottom line, we also increased the profit up to SEK 390 million, of course, driven by -- mainly by the acquisition of Pöyry. So the former ÅF Group or the -- especially in Infrastructure in the industry had a slow start of the year, as Jonas mentioned, with a lower utilization rate than we expected. So the start of the year was a little bit of a disappointment. On the other hand, we see Pöyry's Energy Division and Process Industries division performing very well, I shouldn't say ahead of our plan, but very, very -- very good and stable profit performance in that unit. So we're very happy about that.We took one-off items of SEK 63 million in the quarter, whereas SEK 44 million was related to transaction costs and SEK 19 million was related to integration costs. In total, we expect integration costs to amount to roughly SEK 180 million, the same as our target for cost synergies. We have also together a kind of, I shouldn't say pro forma, but a combined quarter sales for the group as if the Pöyry Group was consolidated as per January 1, 2019 and comparing that with the same numbers Q1 2018. If you look at the details, you can see that Pöyry is increasing the profit from SEK 91 million to SEK 126 million in the quarter, up 38%. And we also can notice for the whole group a growth rate of 14% in total, whereas 9% is organic growth. So both units are growing at the moment in a good market.The balance sheet has, of course, been a concern for you guys and for us over a period of time, but now we can conclude that we have made 2 Rights Issues, 1 direct issue and 1 Rights Issue in a successive way. We start -- if you look at the graph, we started the year by net debt of SEK 3.5 billion and the key ratio was 2.5% net debt-to-EBITDA. And then if you go forward, we made the acquisition, the balance of the acquisition in the first quarter. We started to buy shares of the market in Q4 already. And we also concluded the direct issue of SEK 1.2 million during the quarter, which means that we ended up the quarter with a net debt of SEK 7.1 billion, excluding the IFRS 16 leasing effect of SEK 2.7 billion. That means that we ended the quarter with a key ratio of 3.7%. And in that number, I've included 12-month EBITA from Pöyry because the reported number is over 5%. But this is the most relevant number when you look at the balance sheet exposure. Then we also tried to make a kind of pro forma balance sheet as if the share issue and the dividend have been made during the quarter. And when having made those, we end up in a net debt position of roughly SEK 5 billion with a net debt ratio of 2.6%. And if I should give you some kind of guidance going forward, I assume that the ratio will be rather stable during 2019 because we will have a good cash flow generation, as always. But we also have earn-out payments, and we also have to have cash outlays related to the integration costs during the second half year. So I expect the ratio to be around 2.5% to 3% ending this year, which is slightly better than I have indicated to you before. So we feel that the balance sheet has strengthened. And during the end of the year, I think we can start doing some smaller acquisitions again to go back to our kind of way of doing business and adding value to the shareholders. Thank you.

[Jonas Gustavsson, President & CEO]

Thank you, Stefan, and I think Stefan is right on that, that you all know that the model we have been using for many years to drive organic growth, on top of that finding those good companies that are a good fit, collab, bolt-on acquisitions. And with this development on the balance sheet, we will be up and back to that model by end of the year. And I think that there's a lot of interesting possibilities that we could look at that would support the new company in a good way. And we are all at the start of that process. So I think that is something that we are looking for.

[Stefan Johansson, Executive Officer]

And we had a very nice pipeline when we acquired Pöyry. But of course, due to the operational exposure and to the balance sheet exposure, we stopped all the investments. But now we can start looking at those again.

[Jonas Gustavsson, President & CEO]

Yes. Now so I think another perspective on that is that the integration of Pöyry is progressing very well. So I think we will also be ready, purely operational by second half of the year to take on the smaller companies again.So with all that said, the new division Infrastructure, as you already know it, we presented that very early. And I think that has been a success factor that we have been very clear on how to organize and setup the new company. And here you see the 5 divisions. Then you also see the split, starting from left, with the Infrastructure. And then we have a strong and big Industrial and Digital Solutions Division. And then 2, I would say, segment-related divisions, Process Industries and Energy, and also the Management Consulting business. And if you look on each of these divisions, then starting with Infrastructure, we have talked a lot about that. We have a bit of a slower start in the beginning of the year, affected the EBITDA margins. The market as such is very favorable. We can see that some areas maybe on the architect side or maybe a sector in general in Sweden due to -- made the private housing slowdown. But we still see the Infrastructure market be very strong, especially the building technology, where we have a very strong position. One highlight is, of course, that we are growing our business very strongly. So looking forward, I think that we have a very strong position in the core count because we have the biggest operation, which is now Sweden, Norway, Denmark since before, of course, now adding Finland. Jointly together, we are very strong in Switzerland. And then we have some interesting businesses now both in Germany and also in Austria. So I think the Infrastructure Division is a very strong and interesting business that we will continue now to drive performance in.Moving over to Industrial and Digital Solutions. This is a combined division of 2 divisions we have separately in the former ÅF. And you can see here that we have the same effect also here that this division, we had some challenges last year to get up to growth. We are very pleased on the fact that we now have 5% organic growth. On the flip side, we also here have a bit of a slower start in the beginning of the year in the service-related business. And also, of course, this division then have this automotive exposure. And here we have seen some signs that decisions in that segment are delayed. And that is something that we are monitoring very closely then. So you saw last year delivered 9.3% in EBITA margin, and we lost a bit on the margin side there due to this slower ramp-up in the beginning of the year.In general, the industrial market is still favorable. And coming back to the fact that disruptive trend continues to drive demand for -- in the high competency and digitalization, automation and electrification, as mentioned earlier. Process Industries, Stefan mentioned that it is, of course, I would say, we're proud to have the super strong position. And that's where basically the heart of Pöyry is. And then so -- and on top of that, we will also have a long tradition in Process Industries. And you can see on the numbers that we are combining 2 very strong units, ending up to an 11.5% unit in EBITA margin, which is -- I think is very strong. So both areas had an operational improvement compared to last year. And we see again, with the strong demand in not only pulp and paper, but mining and metals in the Nordics, and we also see the whole trend, disruptive trends to bio economy and so on will fuel growth in that segment. So I'm very pleased on the fact that we are one of the world leading companies in this segment. And that's what I really like with us, that in a few of those segments, where we have been strong on each side, together, we are becoming one of the world's leading player in that segment. And that's, of course, very interesting for us. So we are looking forward to continue to drive that business.The next leg then, next segment division we have is Energy. And you all know that ÅF had some challenges, especially on the, I would say, International end of the business, where we have been under-critical and small-scale. We have also not have the business model supporting that. While on the Pöyry side, over years developing an integrated local business, actually, that actually enables Pöyry to take on Southeast Asia project and drive good margins. So you can see here that the ÅF improved from low numbers, 3.9% up to 5.5%. Pöyry has a development up to 7.8%. There's still a lot of hard work in that division. The progress is very good, and I'm very pleased how those guys have taken on the challenge. And I think we will expect and continue to drive margin improvement in that division. There's a growth opportunity in general. We see that many countries and regions also in Europe now have some big challenging questions ahead of them, not least in Sweden, how to take on the fact that we need to have sustainable power energy ratio and also to support electrification. There's a nuclear dismantling decisions made. We need to get less and less dependent on the coal plants, et cetera, et cetera. So the fact that Energy is of strategic importance business as many countries will also support our business. And still there's a lot on new build hydro plants in, for example, Southeast Asia that we are also supporting. So I'm also very positive in what we can joint do together in the Energy business.And then finally then the Management Consulting, which is the business that Pöyry have had since many, many years, focusing on 2 very clear segments: on one hand, Processing Industries; and the other hand, Energy. Of course, having here access to key clients all over the world in strategic kind of advisory service is very interesting for us and, on top of that, having some interesting business model in pricing for costing, et cetera, et cetera. So all of that combined in ÅF Pöyry to be accounted now with close to 17,000 experts in some of the most relevant segments, strong Nordic platform and, on top of that, a very strong and clear international footprint. And it would be fantastic to see what we can jointly do together. And we will, of course, continue then, yes this immersion. Employee branding has been one of the success factors, if you ask locals who work on this case. Being a company that actually delivers sustainable solutions with the latest technology, we have been able to attract the best talents, for example, by engineers. And I think combining 2 strong brands making us even more relevant will enable us even to take off the fight in that segment even more moving forward. So that will be very good.And if you look on the strategic direction for the new company, I think it will not be different towards the direction we have. That's ÅF or Pöyry sector. Because when we look on our combined thinking, it fits very well together. And this we knew, when we have the management discussions and the bidding process that we are looking on the world on the challenges in very similar ways. So we will continue to drive growth to take leading positions in Nordic, in our core countries and in the relevant segments. We will continue even with a higher pace to drive value creation and expand our business model to deliver higher value. We share the passion on moving towards combined solutions for the Energy sector and using digitalization as one tool of that. Of course, now being 17,000 spread out business, we will need to operate our business in an even more professional way. The scale enables us to do that. For example, in all on the functional side, we have now reached a scale that we can take the step to become even more professional. And that's also interesting. Finally, people then. As being a high competent people living from having the best talents, we need them to attract the best talents. And again, by enabling international carriers by being more exposed to the latest technology and project, we will also be able to attract the best people. And this will continue to make our company even more relevant moving forward. But the strategy direction and execution continues as it did before.One important part has been synergies. And as you all know that in the kind of business case of acquiring Pöyry, we have committed to deliver SEK 180 million run rate savings, with the large part executed by end of this year. And I will say that we are progressing according to plan also here. But to close quarter 1, we are on SEK 25 million, and we have a very rigorous way of following cost synergies. I can assure you that it takes some strong criterias to fit into that books to be calculated as a cost synergy. And obviously, we will see not a linear curve that there's a bit an exponential curve that we are following since some decisions are done right now that we will see the sector, for example, in quarter 3. But we are following the plan and we have good belief that we will be close to the SEK 180 million by end of this year. And this, in general, administration costs, operating structure efficiencies, they are part of the information systems and also, for example, on the facility side. And we are also delayering using scales on sales and management levers. So also that is progressing in a good way. And at the same time, we are now step-by-step getting the front end together and getting the divisions together, meaning that they're really getting the arms more and more into what kind of joint top line synergies can we find. And we all see the evidence that we can take on strong bigger project, more complicated challenge for our clients that is falling to the book's revenues. And we have invited to our Capital Markets Day in end of this month where you will also see more and more evidence on where is the divisional strategy heading down now. And I'm also very pleased with the way that we are driving that business moving forward.During the quarter, we also clarified or we actually communicated our new financial targets since the group is new. It happened to be that we are sticking to the same targets that we have in the former ÅF Group, which is by saying an ambition. And we are saying that we will have a 10% annual growth, and that will be a split between bolt-on acquisition and organic growth. And of course, not being a SEK 20 billion company that's a -- it's an ambitious target because that means that we should add a couple of billion every year. But as Stefan said, organic growth, we are having a good pace in quarter 1. On top of that, by end of the year, we will be able to take on the bolt-on acquisitions as we have had before as a successful model.The EBITA margin, 10%. We have that also in the former ÅF. And now we have some 1.5% units roughly to welcome. And that's also a challenge, but we will work hard to get there. And there are some -- a lot of improvement actions in each division. The next steps, in relation to EBITDA, will remain 2.5, as we had before. And we'll see after immersion that we are in rolling 12 months getting close to that in the second half year. And then we have also clarified the dividend policy. That will also remain, that we will have 50% of the consolidated profits after tax that will be given back to the shareholders. And so that will be the dividend policy.So with all of that said, I'm very pleased. There are other things that can be better. Don't for a second believe that -- we have a lot of energy to drive improvement in the whole area. But at the same time, I have to say that we have now created, with ÅF Pöyry, a very strong platform to drive continued long-term value creation for our clients, for our shareholders and also for our employees, where we will have tremendous opportunities to take on the most interesting projects that actually is needed to transform the society.So the summary, solid and good start to 2019 with organic growth. As a highlight, we have a stable profit and also margin, we would say. And there's a continued good demand. We could see automotive is one area where we have some concerns, but in general good. And the integration with ÅF and Pöyry is going as good as we expected, which is actually based on the fact that we share a lot of the values, the history and the way -- and the view on the future.So I think with all that said, I will leave it to you, [ Kathryn ]. Thank you very much.

[Unknown Executive]

Yes. Thank you, Jonas. And operator, we are now ready for questions.

[Operator]

[Operator Instructions] The first question comes from the line of Ola Soedermark from Kepler.

[Ola Soedermark, Equity Research Analyst]

I have a question on the Infrastructure Division. You mentioned that it was a slow start of the year. But despite that, it seems that the numbers are not too bad and actually a little bit better than I had expected. Can you put some more color on the development during the quarter?

[Jonas Gustavsson, President & CEO]

Yes. I can start, and maybe Stefan will fill in. What we have had, and I think we can see that in the numbers is that we have been very geared up to drive growth. And it's valid for Infrastructure as well as for the Industry Division. I'm very pleased with that number. But the sector that was -- that starting up the year, we have especially related to the service part of our business where we have smaller projects or more service-related business, we had -- some of our consultant were not out on real kind of tasks initially or in the year. So we had a bit low utilization in beginning of the year that affected the margin in that division. That's the overall reason for not delivering a margin improvement following the top line improvement.

[Ola Soedermark, Equity Research Analyst]

Okay. But you ended the quarter on a strong note, I assume?

[Jonas Gustavsson, President & CEO]

We could see an improvement during the quarter than -- and I think as we said, I mean, in general, the market is favorable. We could see, for example, that if you look on the architect side, we have noted that in Sweden that it's been even public to some architects you can see that. And I think in effect from the private housing going down that you could see hourly rates going down. Now fairly now, we are exposed more to the non-private housing area. So in general, the market is very good, and we have more operational issues on our own that affected the margin in beginning of the quarter.

[Ola Soedermark, Equity Research Analyst]

And yes, the question on synergies, it seems like the integration is going quite well despite that you it's just 1 month that you had a consolidated number or consolidated Pöyry. Should we read in something in the wording that you are now saying that you expect most of the synergies to be realized at least during 2019? Is there some change there? Or are you still confident and expect that?

[Jonas Gustavsson, President & CEO]

No, I would say that we've already been quite clear in saying that the majority of the cost synergies, if you look on the run rate, will be affected by end of quarter 4. And I still think -- we'll stick to that. And then there's always plus/minus. But we will be -- we have a good confidence that we will be closer to SEK 180 million by end of the year. So I think there's no difference in what we are saying. It's more clarifying that we continue to follow the plan. And yes, actually, to realize the synergy, it goes neither easy or more difficult than the expected. It follows the plan that we were putting together.

[Operator]

Your next question comes from the line of Johan Dahl from Danske Bank.

[Johan Dahl, Analyst]

I was just wondering, can you say anything regarding orders, the order intake, the repurchase order perhaps particularly at Pöyry, which you used to disclose that number before? Secondly, I was wondering, you talked, Jonas, about bidding for more complex, bigger projects in the combined -- with the combined group. It's just since very early after 1 month of integration to have coordinated that offering. Are there any -- can you sort of point to any tangible sort of orders? Or is that just your strategic ambition to go there?

[Jonas Gustavsson, President & CEO]

Well, on the first item, I would say that we are not yet in a situation where we will be able to disclose the joint together order book to build. And I know Pöyry has been very clear on that. Now we are just 1 month out of 3 jointed together, so we will get back to that. But in general, Johan, the pipeline is good and strong also if you read on, for example, the wordings on Process Industries and Energy. And then you are right, we are only operated, jointed together 1 month. But you should also be clear that the business units have been very early together in going out on the market. So I think the reading we have on the integration was that the seat would be very strong. And this majority is complementary business. And that actually has led to the fact that the teams are very early out meeting clients jointly. So I would, at this point, not be ready to disclose any specific project that we have booked due to the joint group. But I can assure you that there's a lot of prospects coming up where we can see evidence that, by going together, we have stronger combined offering in the business. But I hope and I believe I will get back to you guys. We will see some strong interesting evidence that we could take a bigger project due to the fact that we are strong together.

[Johan Dahl, Analyst]

All right. And you also talked -- as you validated the synergies, from what sort of buckets will these synergies come? Can you just take that in broad terms?

[Jonas Gustavsson, President & CEO]

You talk about cost or revenue?

[Johan Dahl, Analyst]

Yes, SEK 180 million in synergies out by year-end. From where does that come from?

[Jonas Gustavsson, President & CEO]

Yes, I can say that -- yes, you could see it in different cuts. But obviously, it comes quite a lot from the functional side by combining finance, communication, HR, IT, legal, et cetera. There's an expected synergy. And then we talked about people. Then there's an expected from management delayering and excess sales force delayering from the operational side. So for example, by having a few salespeople for ÅF, smaller business, Southeast Asia, Pöyry, they have a much stronger coverage. You could basically integrate that sales in the Pöyry business. And by that, you can actually reduce the number of salespeople, but having the same effect in Southeast Asia. So the first wave will be a lot of having people redundance. Second wave is system platforms. By scaling up the operation, we can also renegotiate some contracts of big suppliers of systems to ÅF Pöyry. Third wave will be joint office facilities. These ones are coming basically in that time span. First wave will be people; second, system optimization platforms; and the third wave will be by combining offices and facilities.

[Johan Dahl, Analyst]

Great. Just as a final question on the billing ratio for sort of ÅF traffic. I mean, it's a bit difficult to compare, given the -- with Pöyry in the numbers. But how much was it down would you say in ÅF traffic?

[Stefan Johansson, Executive Officer]

Well, I think you can -- most -- if you read the report, I think you can translate the decline as ÅF numbers.

[Operator]

The next question comes from the line of Viktor Lindeberg from Carnegie.

[Viktor Lindeberg, Financial Analyst]

Some questions were actually just answered, but maybe if you could update us on the P&L merger and integration costs that you expect from here onwards and the timing of this. Is it predominantly going to be incurred now in 2019, given that you reaped the bigger portion of the synergies by year-end as well? So that's my first question. Secondly, on your definition of EBITA and thinking about IFRS 16, so I know that the Pöyry, they report EBITA without IFRS 16 impact. But it seems to me that you have included it in your numbers. So just wanted to see if you could confirm or just help us here.

[Stefan Johansson, Executive Officer]

Yes. If we start with the first question. The answer is yes. Most of the cost synergies will be implemented during 2019, which means that we will also post the costs related to those during this year, mainly from Q3 and ÅF forward. Q3 and Q4 will be the most affected quarters. When it comes to EBITA, we have a discussion internally whether we should change our definition or not. But since the impact only was SEK 8 million in the quarter, we have decided that, so far, we don't make any changes. We would also review what other large companies doing this -- are doing in this way. So instead of trying to invent a known margin definition, we are waiting for the other big players how they will act. So far, IFRS 16 is included in our definition.

[Viktor Lindeberg, Financial Analyst]

All right. Understood. And I think it's -- I mean, in my view, it's very good that you keep the disclosure as you have it and also give us granularity on the financial leasing impact. So very much appreciate that you can continue to strip that one for us.

[Jonas Gustavsson, President & CEO]

We will continue to disclose the effect of IFRS 16 going forward as well.

[Operator]

The next question comes from the line of Erik Elander from SHB.

[Erik Elander, Research Analyst]

So the automotive sector, you talked about it being a little bit weaker now. Can you explain what it is, it's being weaker? Is it - because you now have included both Industries and Digital solutions within the same business area. Is it mechanical, engineering projects that is being weaker? Or is it Digital? Or is it both, you would say?

[Jonas Gustavsson, President & CEO]

Well, I think, in general, what we can see is that the decision process is going a bit slower, and that we have obviously also noticed, related to -- if you're the big Swedish clients, that they are looking over their cost base. But in general, we can see and see that, especially the decision process in assignments are taking a bit longer. And I think that's crossed the line. But as you can see, we are a bit careful in the writing we are feeling indications of. But since it's an important big segment, we have highlighted it. But that's how clear we can be at this point.

[Erik Elander, Research Analyst]

Okay. And then I was wondering about how one should model the extraordinary costs related to the higher integration over the coming quarters. Should we expect it to come down from this SEK 63 million that you have in this quarter? Or how should one model it?

[Stefan Johansson, Executive Officer]

Yes. I mean, you can divide the cost in 2 parts. One is the transaction cost, which is now concluded. We took some of the cost in Q4 last year, and the balance was posted this quarter. So now we have the balance of the integration cost left. We took SEK 20 million this quarter, and the remaining will be charged and will be posted during Q2, Q3, Q4 and maybe some minor items in Q1 2020.

[Erik Elander, Research Analyst]

Okay, so that will be -- how much is left in Q2 to Q4 after...

[Jonas Gustavsson, President & CEO]

Well, we have charged SEK 20 million this quarter. And we have said that the integration costs will amount to roughly SEK 180 million. So that means that it's SEK 160 million left to post.

[Erik Elander, Research Analyst]

Perfect. And then I was wondering about the organic growth as well because it was very impressive in the quarter. How much of this is related to natural [ recruitment growth ] and how much is related to price increases? Is it possible to divide those 2?

[Jonas Gustavsson, President & CEO]

Yes. We are following both, but we will not disclose that. But I think you can see a big part of that is related to kind of growing by recruitment and not by growing -- taking on new assignments.

[Stefan Johansson, Executive Officer]

But, Erik, I mean, we do have salary increase, as you know, and we are always trying to compensate for that. So part of this is, of course, related to price increases.

[Erik Elander, Research Analyst]

All right. And I was also wondering about it's a little bit related to the last question there in the beginning related to the Infrastructure and the Industrial Solutions Industry and Digital Solutions area. You mentioned that they started quite weakly in the January, but how have they finished during the latter part of the quarter? And how do you expect them to develop going forward? Are you, in other words, back on track in these 2 segments?

[Jonas Gustavsson, President & CEO]

Well, I would say that we are normally not giving any forecasting guidance, as you know. But of course, we could see a ramp-up through the quarter. After Christmas, we normally have a starting up. But this year, it went a bit slower than due to the fact that we went hard on growing both areas. But moving forward, I think we will wait with that until we have the quarter 2 results. But over the quarter, we saw improvements.

[Erik Elander, Research Analyst]

Okay. And last question for me. Now we have integrated Pöyry, and they had a lower operating margin than there was in the stand-alone. But, we're also in a very good economic cycle. When do you expect to actually reach your 10% EBITA margin, given that you also want to climb the value chain and deliver more high-value added projects, which, in turn, should also lead to higher margin? What type of timing framework are we talking before you reach this margin?

[Jonas Gustavsson, President & CEO]

Yes. I think, first of all, you asked to -- now we have integrated Pöyry, I would say that we have been operating 1 month or 1.5 months. Jointly together, it's 6,000 employees across the world. So I think it's a bit too early to say that we have integrated Pöyry. But besides that, integration is moving according to plan, and we are happy with that. And then, obviously, we have a joint plan, as we have communicated, now in our financial targets to reach the 10%. When that will happen, now I think we will need to wait a bit before we set the date when that will happen. But of course, we have a lot of actions now to climb the value chain, take on new assignments, expanding our offering, using digitalization as one tool and take out costs. So obviously, step-by-step, we will take the journey to reach the 10%. When it will happen, I don't -- I'm not prepared to set the date at this point.

[Operator]

The next question comes from the line of Johan Dahl from Danske Bank.

[Johan Dahl, Analyst]

Just a follow-up. I was just wondering if you look on the divisions like Infrastructure and Energy, there seem very different profitability in the operations coming from Pöyry and from ÅF. I was just wondering, what's your sort of feedback from the organization when you approach that fact? Is that very much part of the sort of strategy to fix that going forward? Or what's your take on that issue?

[Jonas Gustavsson, President & CEO]

Yes. I think you point on one of the reasons why this is a perfect merger together with the 2 companies. We know that Pöyry had a stronger position in Energy, more integrated and clear business model. Everything from how they follow the project and the fact that they have and we now have an operation, for example, in Thailand, enables us to really drive margin on those projects. So I think by that, we have a strong belief that we will have an improvement in the overall Energy business. At the same time, on the Infrastructure, we know that the ÅF model on building strong local presence have been very successful, adding on niche offerings like architects, slicing designs, et cetera, and having them building technology. So I think both of them, we expect each of the 4 businesses to lift the other ones. So for 4, we hope that we can, jointly together, improve the former Pöyry Infrastructure business and the opposite on the Energy side. Now we have to respect that, for example, Pöyry had -- former Pöyry have an exposure to the German infra market, that's one example. So there are some geographical differences also in how we are positioned, and those one, we will, of course address. But I think, Johan, the thing that you point on has been a deep, deep part of the analyze why the 2 companies would jointly be stronger together.

[Johan Dahl, Analyst]

And the -- so the synergies that you're aiming for, is that sort of part of that operational improvement? Or...

[Jonas Gustavsson, President & CEO]

I would say that part of it is that, but I expect the journey to be towards one -- 10% EBIT will be partly the cost synergies. But I think, over time, it's more about changing, addressing the business model where and how to operate in both of those segments. I mean, SEK 180 million, I mean, we will realize them this year. The way we will set up Infrastructure jointly together and Energy on the global arena will take more than 3 quarters, obviously.

[Operator]

[Operator Instructions] And we have no further questions from the phone lines. I would now like to hand the conference back to Mr. Gustavsson for closing remarks.

[Jonas Gustavsson, President & CEO]

Okay, thank you, and thank you, everybody, for listening in. And again, summarizing the quarter for us, it's been a busy quarter, but I'm very pleased with the fact that we are able then to deliver and drive our business at the same time integrating. And that we have a lot of more work to do, but, so far, we follow the plan in a very good way. And also remind you that you're all welcome to our Capital Markets Day that will take place on May 29. Then we will hopefully be even more clear on each division strategy moving forward, as well as for the whole company. So thank you very much for listening in and have a continued fantastic day.