Afry AB

STO:AFRY

Earnings Call Transcript 2018-Q2

[Operator]

Good day, and welcome to the ÅF AB Second Quarter Financial Report Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jonas Gustavsson, President and CEO of ÅF. Please go ahead, sir.

[Jonas Gustavsson, President & CEO]

Thank you very much, and welcome to this presentation of the quarter 2 report of ÅF. My name is Jonas Gustavsson and, again, CEO of ÅF, and I'm sitting here with Stefan Johansson, CFO. And we will take you through the report and some slides that you have access to.For the agenda, we will cover following topics. Of course, business overview. We will talk a bit on the market, then some highlights. The financials, of course, Stefan will take you through them. We will do a bit of a look into each of the divisions, a few words on the ongoing strategy implementation and then a summary.Starting with the overview of the quarter and also the half year. So you see the headline is that we have an increased profitability and also growth. And looking on the quarter as such, we ended up at SEK 3.6 billion on the top line compared to SEK 3.2 billion 1 year ago, which was up 12%. The EBITA ended up at SEK 366 million, equal to a margin of 10.2% than compared to 9.4% 1 year ago.So I would say that we are -- we think it's a strong, strong quarter with an improved both top line and margin. If you look on the half year as a result, and they were up 8% on the top line, ended up at SEK 7 billion for the half year and SEK 691 million on the EBITA, which is 9.8% after 6 months. So summary of the -- both quarter, I would say, and the first half year is that we see an increased growth, improved both margin and profit. And of course, the market, I will get back to but, of course, we are operating in an overall favorable market. It's still in, I would say, the energy market is a bit sluggish still, but for most of the segment, it's a favorable market. And at ÅF, we have a full focus on implementing our strategy in all our divisions then. So all over, a quarter that we are happy with. We have still a lot more work to do, of course, but it creates a good base for continued execution of the strategy and a continued focus on deliver profitable growth. I will get back a bit more to the details a bit later on. Of course, we would like to highlight infrastructure, we will do that, and the fact that we also have a decent organic growth during the quarter.Well, just a few things about ÅF. I guess you all know but we are now about 10,000 employees; 2017, SEK 13 billion in revenue. Of course, we are a strong Nordic company. But of course, with our current strategy, we also increased our share of international business, especially in the Industry Division. We have a lot of projects, you see, in more than 100 countries, most of them related to the energy business. But we step-by-step, I would say, see an increase of interesting, healthy and good project in the Industry Division also outside the Nordic region. We are very selective when doing this to make sure that we get the profit and grow as we hope then, but that's ÅF.We are, of course, in a lot of different sectors. So I think one of the good thing is that we have a natural hedge in our portfolio. And again, if you look on all of these sectors, I would say, overall, it's a good market. If I would highlight one of them, it is actually the one that is mentioned, real estate here, which is a part of the infrastructure market, we call it buildings within ÅF. And that's a sector that is -- we are doing very well. We're seeing good margin and good growth in that sector. So if you would ask us, we don't really see any sign of slowdown. Of course, we are focused very much on commercial building, highly advanced buildings in hospitals and airports and commercial buildings. And here, we see a continued good underlying demand. But again, a good market. 1/3, approximately the public sector, a lot of that comes, of course, from our infrastructure business, and so the 70% goes to private sectors. So that's how we are set up. We are organized in 4 divisions, as you know: Infrastructure, Industry, Energy and Digital Solutions. And below each of them, we have our business areas. We have 21 business areas with a clear P&L focus. Of course, each of them have a clear now strategy for their -- how to improve their position. On top of that, we see an increased demand on cross-ÅF solutions, I would say. So of course, with the big trends we have, also we have them here on this slide smart cities and infrastructure, future mobility, industrialization and also the new and changing energy markets, we see an increased demand for cross-ÅF solutions. So if you look into a city now with all the challenges we have from urbanization and globalization and the opportunities we see with digitalization, we see an increased demand of ÅF's competence and this is extremely interesting. And we are getting more and more active in discussions, for example, related to smart or future cities then. To mention one interesting area, of course, all the activities around water in general in cities will be also an increased need for having competence in those areas. So that's what I like with our company, is that these trends are exactly right into the spot what ÅF is all about. So they are helping us. A bit more in the market then in quarter 2. The overall market, as we said, is good and we see just minor variations compared to previous quarters. So the market is still very strong.Looking on industry -- on industrial market, I would say it's strong in most sectors, both in Sweden, which is, of course, one of our strong market, and of course, the Nordic region, but also internationally. And again, within industry, we are stepping into more and more international assignments. As you all know, we have business in China related to automotive. We are now starting up a business in South Africa related to a pulp and paper project. And we see an increased demand then for ÅF in some of these sectors then.Within Infrastructure, we see a continued high rate of investment, again within buildings, as I have talked about, but also in Infrastructure, in general. And you all know that the Swedish transportation plan that was just presented indicates a continued high level of investment in general. I think this is valid for Sweden, but also for the Nordic region, then, of course, including Norway. The energy market then still is, as you know, then fragmented. Europe is still weak and there are postponement done on investments in general. But we have seen a slight increase in certain niches in Scandinavia then and I would say especially in Sweden. So still work to do. Also, we'll get back to that for ÅF., but we see a place in Scandinavia that it's, I would say, stabilizing and some niches are picking up slightly there.And of course, the digitalization trends overall drives an increased demand for digital solutions in all markets. Of course, in a quarter, we are assigning a lot of new projects and I would say, in general, the order pipeline is very good. And we see and as again then as a consequence of the strong market and these are just a few of the assignments that we have been signing during quarter 2. We have an interesting hospital in Sweden, in Gothenburg. We will do a lot of technical installation design.In Switzerland, we have several tunnel and industrial building projects. In -- we have some interesting project in Denmark. We have taken a new order to Arla Foods, which is a turnkey project. We are in an interesting niche and this shows again then that we have a very strong position in automotive related to autonomous cars. So this is supporting an order for a customer in California then. And again, I have to say that ÅF has a very strong position into autonomous cars and this is something that we find very interesting.We will deliver a complete production line to a battery manufacturer. We have some energy-related projects in Finland as well in Asia. And we see an interest in increased need of floating solar plants, so this is one in Asia; refurbishment of a hydropower plant in Sweden; and several digital-related projects within automotive. So all over, I would say that the order pipeline for ÅF is as strong as ever. Looking on acquisitions because, obviously, we are happy that, at least, firstly, in Infrastructure, we see a solid organic growth. Of course, we are stepping up in there our acquisitions. As you know, we did a lot in 2016. 2017 was a year when we said 2 things: we are revising our strategy. On top of that, we had a need to strengthen our balance sheet. But now we are gearing up activities in the acquisitions because we have set a clear strategy direction and now we will make sure that the hunt for the company is fitting through the strategy. And during quarter 2, we did a few acquisitions, all of them ending up to an additional revenue of SEK 235 million. And actually, a few of them into the digital area, small ones in Sweden. We did one in Facilia, which is a nuclear waste management and decommissioning company. A small company but has a really nice edge supporting exactly what we want to do in energy, really focusing on the niches where we see a continued and interesting growth. We have added on a company in building technology, electronic engineering in Sweden. We acquired a small company in Norway related to digital. And we actually presented yesterday a company in Switzerland, LBP, which is focusing on electrical engineering for traffic infrastructure that we also find very interesting. So when you sum up this look on 2018 so far, in quarter 1, we did 2 acquisitions, adding up to SEK 150 million additional revenue. And then with the ones that we just mentioned in quarter 2, we are close to SEK 400 million additional revenue then. And we are continuing to look, of course, for acquisitions. And I think with this pace we have at the moment and the pipe that we have, I think we have the strong focus to turn up and meet the 10% run rate growth that we have in our financial targets then. So -- and you see then there are 2 one related to architecture and design. And then we have these 3-in-one in digital solutions, building that we find very interesting in nuclear decommissioning. All of them, I would say, supports the strategic plan that we have set for ÅF. So we feel happy with that. And it also shows that 4 of them in Sweden and then Norway, Denmark and 2 in Switzerland, that we step-by-step build our base in our core countries as we have decided.Okay. With that, I leave over to Stefan a bit more on the numbers, starting with growth.

[Stefan Johansson, CFO & Head of Investor Relations]

As you have mentioned, we had a good growth in Q2 amounting to 11.7%. And if you dig into the top line numbers, we can -- we notice that the organic growth was 7.8%, which is up versus last year, both in terms of quarter and year-to-date numbers. If I adjust for calendar effects and currency effects, the underlying growth was 5.8 -- 5.1%, which gives a year-to-date number of 4.1%, which is up versus last year, which was at 2.5%, in which we have a 2.5% growth rate. We are working in a favorable market, especially in Infrastructure Division, which is -- that division is the main driver for the growth since we do have some challenges in other divisions, but we are focusing on activities in order to support future growth also in those areas, especially since the market is very good at the moment. And as previous -- and as we mentioned previous, we are growing also by acquisition, 3.6% in the quarter. And we do see an increased prospect portfolio in the group. So we are really driving acquisition growth combined with organic growth at the moment. In terms of profit, we reported an increase to SEK 366 million in the quarter, giving a margin of 10.2%, which is also a significant increase versus last year. The year-to-date number is 9.8% in margin versus 9.1% last year. You might notice that we included a disbursement received from a bankruptcy proceeding of SEK 18 million in the SEK 366 million. That item was posted under group-wide items, so they have no effect on the individual divisions. So there you can find the underlying growth. You can always discuss if this is a one-off item or not, which is, of course, is. But on the other hand, we have other items which also can be discussed as one-off items. So I would claim that underlying profit is in the range between SEK 350 million and SEK 355 million for the group for the quarter.Cash flow. Once again, a stable cash flow. Cash flow from operation, SEK 400 million. However, it was slightly below our expectations due to timing effects and calendar effects and in projects. The cash flow was slightly negative in the month of June. We have been running at -- if we look at working capital days, at an average around 40 days until June, which implies a key ratio net working capital in relation of, to say it's 11%, which is the rate we should be running at, which increased slightly during June. So I expect the cash flow coming back in July and August, so I am not that concerned of this effect in this month of June. Of course, acquisition and dividend had had a negative impact on the net debt. But -- so we ended up being in a SEK 2.8 billion net debt position for June, implying a net debt-to-EBITA ratio of 2.2. And that gives a very high capacity for future acquisitions. So the capacity is roughly SEK 1 billion to support acquisition growth. So we claim that we do have still a strong balance sheet, which will support our acquisition growth.

[Jonas Gustavsson, President & CEO]

All right. Thank you, Stefan. So then just a short look on each of the divisions then, starting with the Infrastructure. Of course, we are proud and happy to see that both strong growth and increased profitability in Infrastructure. And again, we see the market is very good, but we also see that we are doing very well. So I would also claim that it's not just growing on the strong market. I think ÅF then that has, over the last years, step-by-step built a strong position in these Infrastructure segments like building technology, I would call it, rail and road as well as then niche areas like architecture that we actually, I would say, have acquired some of the best architect companies and then looking into interesting niches like water and environment. So we have a very good division with highly competent people, and I would say that we are getting this operation better and better. And we are really set up for the, I would say, future infrastructure, including smart and future cities, as I talked about. We have, of course, booked some interesting orders, both in Sweden and outside, as we mentioned before. And one bolt-on that we did in the acquisition was the Effekt then that was supporting the position on buildings in Sweden then. And you see then, again then, the organic growth adjusted for -- was up to 12% and the EBITA on 11.4%. So a very good and strong result from the Infrastructure Division.Industry Division delivered good profitability, I would say, 9.4%. Market, in general, very good. However, we have seen, which is, of course, the focus right now in the Industry Division is growth. We have actually a negative growth when you adjust for calendar effect. We are becoming, I would say, quite selective on the Industry Division on what to do. We have a clear road map. Robert Larsson, who stepped in as new division president, came -- coming from ABB is getting the team together and have a strong focus on the overall strategic repositioning to deliver more solutions and increase customer value. We know the market very well in Sweden, Scandinavia, as well as internationally, and we are, step-by-step, putting ÅF to become even more relevant to our industrial clients. We have booked some very interesting assignments to Arla Foods. And again, the whole automotive, I would say, market with destructive trends like electrification and autonomous cars is very interesting for us. So I'm sure the industry will deliver a good result moving forward. But of course, short term, there is a challenge to get people on board. There's a big need for engineers in Sweden, but also in Scandinavia, we know that. But we also believe that ÅF is a very interesting company to work for. So I would say good profit for Industry, but we know that we need to step up on the growth side in Industry.Looking on Energy then. I would say that the positive thing is that we see a stable profitability at the Energy Division, ending up at 6.6% then in the quarter. We know that the market as such is still fragmented, with Europe being a bit sluggish. There are still postponement on a lot of investment projects. But in some niches, we see some changes, for example, in nuclear-related service, decommissioning, we see some pickup and also in some other areas, especially down in Scandinavia and in Sweden then. So also here, we had actually -- we are flat, I would say, on the top line, which I think if you go back a few years, we had been declining with a negative profit for some -- quite some years. And I think this is also in line with our strategy now. We have a stability. And of course, we are now continuing our ambition to reposition the whole Energy Division because, of course, we know that we need to get back to growth, and we also know that we need to improve profit in this one. And this is what it's all about and the whole division is focused on making that happen. But so far, to have a stability is something that we also are quite satisfied at the moment. But of course, moving forward, we have the fullest ambition to bring this back to growth and also to increase profit. And here, we also mentioned during the quarter that Roberto Gerosa then, that's been divisional president for quite some years, have decided to leave the company. We have an acting, Peter Plug, that's been working for ÅF for the last 4 years, and he has, I would say, 10 years-plus of experience from energy business. He is an international player, and I'm very confident Peter will, in the acting position he has done, be a perfect guy to continue to lead the strategic overlook and repositioning of Energy Division. So that change we did communicate during the quarter.Finally then, the Digital Solutions then. Also here, we deliver a stable profitability on just about 10% EBITA. And growth, I will say, close to 5% organic growth in the quarter. And we have been fighting here because also here it is an area where there's a big competition to get the best competent engineers. I would say this is one of them. Of course, the whole digital disruptive that is going on that goes actually across all the sectors, I would say, of course, industry. But also, if you look on the energy sector, even infrastructure, public sector, there's a huge need for digital competence. And this is a fantastic market, but at the same time, we are then fighting to get the best competent people onboard to ÅF then. So we are focusing a lot on recruitment activities to improve organic growth. We have a lot of assignments in automotive. And we will continue to bolt on strategic important acquisitions to build the position of digital moving forward because we believe that ÅF, that the digital trend and the digital changes that we see will continue for a long, long time. And we really believe that ÅF, with the strong knowhow on the industrial sectors, we can be more relevant than any others when it comes to implementing digital solutions then. This then sum up some -- then you see the summary of quarter 2 then and you know these numbers then. But again then, to end up on and you see each of the division then, and I think we have talked about all of that. So there are some highlights, of course, within Infrastructure, both in growth and EBIT, and the others are now stable. We know that the industry has a challenge to get back on growth then. But sum everything up, it's a good platform for driving continued profitable growth forward.A few slides about the vision and on then the strategy, and I can tell you that the work internally in ÅF to execute the strategy is as high pace as ever then. And I'm very happy that we can do this repositioning change at the same time as we continue to deliver strong profit and financial performance. So I'm very happy with that. And of course, this is our vision, providing leading solutions for generations to come. ÅF – Making Future, more relevant than ever, we believe. And we see ourselves as a company that creates sustainable engineering and design solutions. So sustainability with digitalization, those 2 trends are extremely strong and ÅF can be more relevant than any other company. That's my strong belief. You know also how we have decided to set up the strategy execution in ÅF. We are looking on growth as one pillar, the value creation, the operations and people. And step-by-step, each of our business units are working in these different pillars how to improve. And of course, this is something that takes some time, but we see interesting performance in many areas, and we will continue to implement that, of course, in the coming time then.The business model has one -- we have one discussion then in ÅF and we see ourselves as having 2 strong legs. One is the service offering we have, but also the fact that we are a company that is also delivering a lot of projects. And the split is roughly 60-40 then. 60% of the revenue goes out in the project area. And we are then again then in discussions with each of our units, having clear process as how to improve value, but not the fact that you have to leave service and move all into profit because we can also increase the value creation to our clients also when it comes to service offering by not just the delivering hours, we deliver professional teams. We are looking into the aftermarket because, obviously, when we have made a lot of installations into the industry and the infrastructure, there is an interesting market and need from our clients to have an aftermarket support. And then we are also operating satellites to our clients. And on the project, of course, we are then delivering both time and material projects, but we are also involved in fixed-price project and turnkey projects. The fixed-price and turnkey we are doing to the clear clients that we know, for example, Volvo or other industrial clients. So I think we have a good balance with profile at ÅF that we will move on then. I'm extremely thrilled from the opportunities to have them in increasing the value creation, also moving into solution concepts and even some signature products that will be complementary to our service and project offer.The strategy is implemented in a very structured way, and we have basically 3 ways that we have done, and we started this one during the fall then with the first one, and then we have been talking and discussing a lot how to drive cross-ÅF solutions and develop the business. And I mentioned one example is, for example, smart and future cities that we will be even more clear about in the coming period where we have a strong offer. And of course, we then implement structures and tools to our different units. So how we collaborate from the new organization, improving performance management, optimize incentive models, but also supporting also the local units with tools and processes to be able to execute the strategy. So still, we have done some work but, as always, when you implement a strategy, it is the time that you do to really make it happen all the way out to the local units in all the companies that will make a difference. So I will claim that we still are in the beginning of a fantastic journey to take ÅF to the level that where I think we can be even more relevant then and to meet our financial targets.One thing I want to highlight -- well, there's a lot of things, but one thing that I'm very proud of is that a few years ago, a couple of years ago, ÅF decided to start up a structured process to how to integrate and work with New Immigrated Engineers. And I'm very proud of the fact that we have now more than 100 recruited New Immigrated Engineers at ÅF. And we have 2 full-time diversity coaches that focus on that, to hire these potentials and then support them within ÅF then. And I would say this is a success story that has actually been discussed in Sweden in different areas then. And I'm very proud on that because it also gives a flavor of the values that we have in our company. We are a company that have 10,000 very devoted team players, and this is just one example where we do things that is a bit different and are very proud of that.We highlight quite often that one of the values of course is to be an attractive workplace, and ÅF has, over the last years, has been ranked from young professionals as top 3. Also, this year, we are ranked as #2 after Ikea and actually before Google then. So we have a strong brand by young professionals. Just recently, there was a ranking coming out from scientific researchers. So a question was asked to 600 researchers in Sweden, which company would you like to work for? And we're very proud to say that ÅF then was sharing the #1 position together with ABB and AstraZeneca. So if you just look on these 2 together then, first of all, we attract young professionals. On top of that, we are a company very relevant for researchers, meaning that the development and being able to have the most interesting technology in our company, these together builds a strong base for continuing to drive organic growth and attract the best people then. I'm very proud of that.The financial targets, you know, I will not repeat myself. We are going for growth. And as we mentioned, we have now, after 6 months, delivered 4% organic growth, actually stepping up a bit in the quarter 2, still with Industry having a challenge. And then we will continue to look for acquisitions. And of course, our target is to deliver or overdeliver on the 10%. And on top of that, we are looking for platform acquisitions. And this is a discussion that I have, of course, finding out what kind of structural platform acquisition could we find then. EBITA margin, we want to be and we have said 10% over business cycle. And of course, with this favorable market, we should get there. But this is something that is a big part of the strategy, and we are actually, after 6 months, at 9.8% then. But this is something that we really have in front of us and we are very dedicated to deliver this. It will take some time to get there but, I mean, I think we have a good base now. And as Stefan mentioned, we will end up at 2.2 as a net debt. That gives us the ammunition to continue to hunt for acquisition then. So summarizing then. These are the numbers we have talked about. We have delivered and improved profit and margin, the market is strong, and we see a general good demand. We have a strong focus on executing the strategy. So in one way I would say, of course, it's a quarter where we think it's a good base, but I can tell you guys, it's not at all that we are satisfied that we are resting. We know that we have a lot of work to do. Our ambitions are higher. We know that we need to beat the competition. We need -- we know that we need to deliver even stronger and better solutions to our customers. But it's a good base and a good step in the right direction, but it's far from over. We have a lot more work to do to make sure that we deliver and put ÅF where we really can be as a great company then.So with that, I think I will open up for questions.

[Operator]

[Operator Instructions] We will now take our first question from Predrag Savinovic from Nordea.

[Predrag Savinovic, Analyst of Consumer Goods]

I just had a question on Prosolvia, if you could talk a little bit more about what that is? And also, on the other items that you, Stefan, mentioned that could be discussed as one-off, I think you alluded to extra costs. What would that be, in that case?

[Stefan Johansson, CFO & Head of Investor Relations]

Okay. If we start with the bankruptcy proceeding, it's a very, very old receivable coming from an acquired company. So that has nothing to do with the operations in ÅF. So that's an old, old, old claim from an acquired company. When it comes to the other items, I will not go into that because you can always discuss what is a one-off item or not. We have different opinions on that. But I'll just try to guide you guys as we did have a positive one-off item. And of course, we had, in all companies, in all operations, items that could be discussed as having had a negative impact on the profit and loss. So see my guidance, see my range of SEK 350 million to SEK 355 million more as an indication for you to understand the underlying profit.

[Predrag Savinovic, Analyst of Consumer Goods]

Okay. And utilization is slightly down. Margin is up. Does this mean that you're pushing through prices successfully? And what is pricing? What is volume here?

[Stefan Johansson, CFO & Head of Investor Relations]

You can -- I mean, if you look at the utilization rates, it's, of course, very important, but there are other items also important for us, which -- I mean, moving into projects means that we are taking a slight hit on the utilization rates since we need to spend more time on tenders and sales efforts. So you cannot translate the utilization rate directly to the profit and loss. Coming into price increase, yes, we are able to increase price increase. So you can see the ratio between the cost for our employees versus the hourly charge we do, there is -- we do -- we are defending that gap. So even if we do have a kind of a wage increase, we can forward that to clients. In some specific areas, we are able to increase prices ahead of that gap. So we are pushing prices at the moment. At the same time, as we have mentioned, we are, in some areas, not positioned to push forward price increases due to competition. There are always companies -- competition that are prepared to reduce prices or not to increase prices in relation to wage increases.

[Jonas Gustavsson, President & CEO]

Just a comment from my side also, of course, as Stefan says, I think the whole repositioning or development of ÅF means that -- I mean, utilization will be always one of the extremely important KPIs that we need to follow. But of course, there's more hourly consultancy we do. That one is the only maybe relevant one, of course. But of course, when we are moving more and more into the thing that we really talk about, how to deliver a project, a solution that really is value driven for the customer, the pricing of that will be less on cost plus and more of the value to our clients. So there, we can see that we might invest a bit more and have, as Stefan says, in complex tenders, but the prices will be compensating for that. And of course, that's kind of the change that we are just about to do. So that means that we need basically to look on both KPIs. Of course, we, moving forward, we always need to make sure that we have a high utilization, but on top of that, become more and more relevant and to make sure that we are differentiating ÅF versus local competition. So what I think is coming a bit in 1 year in the company is that ÅF, with the size we have and the competence we have, we can do things that few other can do and this is exactly the trend we are doing. And what I'm happy with is that we can do this at the same time as we are delivering a solid financial performance.

[Predrag Savinovic, Analyst of Consumer Goods]

And just 2 more questions from my side. First, on market share, are you taking market share now in the infra segment? Because in the comments, you had -- in your presentation, it was as if you were alluding to this.

[Jonas Gustavsson, President & CEO]

Well, not going into the market, it's always difficult and a challenge to measure. What I can see though is that if I look on our building performance, I have to say I think we're doing very well. And I think we are, especially on the fact that we are covering a strong local presence, not least in Sweden, but we also see outside Sweden, I can just say that I think the performance in that unit is very strong and we see a strong growth. And then I would not like to maybe move into the exact discussion about market shares because, obviously, there is always different views how to measure it. But I'm just looking at one of the areas where we really see that looking at -- of course, there is several already about private housing and the housing market in general. But what we see on the new commercial-driven buildings and the needs of, I will say, renovate and replace some of them and you look on hospitals, if you look on airports, if you look on shopping, complex buildings, I think these buildings start to be quite complex and most probably have been that for quite some time because it's easy to see the concrete and the structure of the building. But if you look inside the building when it comes to ventilation, electricity, security, fire alarms, et cetera, et cetera, and also if you add on the connectivity part, the energy efficiency part that will be also a strong driver, I think this is a place where ÅF will be able to be even more relevant, and I'm happy with the performance. And then, of course, I will not maybe more about market shares, but I can assure you that we will continue to focus on that area.

[Predrag Savinovic, Analyst of Consumer Goods]

That's very good. And then just a final one for me. Industry is slightly slower here for Q2. Could you talk a bit about how you can turn this around for the coming quarters and years?

[Jonas Gustavsson, President & CEO]

Yes. I think one sector is, of course, that the industry in Sweden at least has a super competitive market when it comes to hiring new engineers. If you look in Gothenburg, that's one region in Sweden with the whole automotive that's growing stronger than ever. There's a strong competition. So we know that, that is. At the same time, we are then driving, I would say, the repositioning of the industry and these 2 factors are, of course, impacting us. But I know that the Industry Division, we have the strongest focus on getting back to growth, organic growth, at the same time setting the structure for really driving the business forward then. And so I'm not too worried. I think we will get back to growth in this division also. And it's all about now selecting and take the right orders and prioritize and get through with the price increases. So I think we have a great base. I'm not too worried moving forward. But it's a challenging competitive market when it comes to finding the best engineers, that's for sure.

[Operator]

[Operator Instructions] And we will take our next question from Viktor Lindeberg.

[Viktor Lindeberg, Financial Analyst]

Some questions were answered already, but maybe you can add on by elaborating a bit about your Chinese venture and both how sizable is it right now in terms of employees, revenue. Is it generating a surplus on bottom line, et cetera? These engineers, are they only working locally? Or can you source sort of competence from China to the Nordics in any way or vice versa? Just an update on China would be interesting.

[Jonas Gustavsson, President & CEO]

Yes. Thank you, Viktor. Good question. First of all, China is interesting for us and ÅF decided to move into China then to set up a small office related to automotive a couple of years ago and we are leveraging for that. Of course, this means that we had people on site interacting with the customers. And then, volume-wise, a lot of the kind of production of detailed rowings is done in Sweden with Trollhättan as a strong base. And of course, since we acquired them, the former basically solved the engineer team in Trollhättan. So we have a fantastic high-end capability in automotive. Now looking on China as a market, I would say that me personally had been there for so many times in my old company at Sandvik then. And if you look at Robert Larsson now who came into driving industry, he's been living in Shanghai for 2, 3 years with working for ABB. So I think China is a highly relevant market for us. So right now, we are looking into China, not only for automotive, how can we, with this not super big base at the moment, leverage moving forward then? So we are actually right on looking into China for other industries also then when it comes to industrial areas. We don't have the biggest business in China, if you look on the pure people on-site. But we are step-by-step building the capability presence, both in this but also other relevant sectors. It will take some time, of course, before we have a big operation in China, but I can tell you the competence level we have for Chinese customers is more relevant than others. If you go back a few years, the Chinese, they wanted to kind of understand how to, I would say, about how to understand how to make the products that was maybe done in the western part of the world. But I think they're very interested now is, of course, the engineering knowledge that we have then. And for example, I can give you one example, advanced manufacturing. We have a fantastic niche in delivering state-of-the-art manufacturing systems actually, robotized automated systems, a lot to automotive industry. We are very strong in Sweden to automotive industry. And this is something where we see a big interesting need in China then when it comes to advanced manufacturing systems supporting the big demand in manufacturing in China. You said about using China for maybe pulling back engineering. I'm not sure that China is the best place on -- it's not really a low-cost country anymore. There are other areas that we prefer our looking into for a while because that's one of the areas that we will look deeper into how to establish strong offshore sourcing bases for supporting growth. I'm not sure that China is the one. I think China will support China. That's what we see in all industrial companies that 20 years ago you thought like maybe a bit like you could use China for other parts, but now I think most of the companies uses China for China because the Chinese market is huge. So this was a long answer, Viktor, to your question, maybe not even on exactly what you wanted to have because I will not disclose how big we are, but it becomes more and more relevant for us.

[Viktor Lindeberg, Financial Analyst]

And are you using predominantly local skills in China? Or are you sending Nordic competence to your...

[Jonas Gustavsson, President & CEO]

We are building up local more and more but, of course, we have a few selective on site from ÅF then. But moving forward, it's absolutely clear that you have to build up your local presence with local people then. So we are looking for step-by-step then adding on local presence who really knows, understands the Chinese market and not least speak the language. And as you know, there is basically 2 sites of companies in China, state-owned, huge volume, and then the private companies. And the private companies are quite often Western-part companies. So all the big automotive players have big factories in China. But there's a huge volume of state-owned company. And to understand them, you need to have really Chinese local people then who knows has the contacts. But if you just look on ÅF now with Robert Larsson then, who has been living in Shanghai, has a tremendous good experience from the Chinese market. So I'm -- I feel confident that we will, step-by-step, be even more relevant in China. Going back a few years, China is far away from a distance point of view, but it is in a way as close as any European countries because the market is huge and it is interesting. I will not oversell it to you guys because it will take time, but we discuss China in ÅF now more and more frequent.

[Operator]

[Operator Instructions] It appears there are no further questions at this time, so I'd like to hand the call back over to you, Jonas, for any additional or closing remarks.

[Jonas Gustavsson, President & CEO]

All right. But then I would like to thank all of you for listening this hour. And again, to summarize, we have created a good base, but I can tell you we are extremely motivated to continue to execute our strategy. And then I would like to say thank you, and I would like to wish all of you a great summer and looking forward to meeting you soon again. Thank you very much.

[Operator]

Ladies and gentlemen, this concludes today's call. Thank you all for your participation. You may now disconnect.