Afry AB

STO:AFRY

Earnings Call Transcript 2021-Q2

[Jonas Gustavsson, President & CEO]

So dear all, a warm welcome to this quarter 2 presentation from AFRY. My name is Jonas Gustavsson, CEO of AFRY. And I'm here now in sunny and warm Stockholm, and I will do this part of this presentation. I, of course, also have Juuso Pajunen, our CFO, with me, and he is in sunny and warm Helsinki. So he will take part of the presentation. So again, a warm welcome. Let's jump into the presentation, starting with the first summary slide. As you see, the headline, strong organic growth, which was, I would say, one of the highlight of the report. We ended up at SEK 5.2 billion -- close to SEK 5.2 billion, equal to 7% organic growth. And that was for us a step forward. obviously, since 2020 has been a year when we had the effects from the pandemic, we were really happy to see a solid step into the growth mode then. As you know, then the industrial side have really picked up for us then. EBITA, SEK 416 million, equal to 7 -- 8% EBITA margin. But you all know then that we have done this change in salary accounting, which is a timing effect between the quarters. If taking that out, we would have been at 9.2%, which was also an improvement compared to last year. We had a negative currency effect affecting the top line and as well as the EBITDA, SEK 134 million on top line and roughly SEK 12 million on the EBITDA. Besides the organic growth that we have highlighted, also the fact that we've been able to close 8 additional acquisitions during quarter 2 and 12 for the full year, adding some SEK 500 million or 2.6% on growth is also very positive. So as we decided last -- end of last year to really push for growth, both organic, but also get our acquisition kind of focus up again. So with that said, I would say that quarter 2 has been a step forward, and we are quite happy with a lot of things that we have been able to deliver on the second quarter. Looking on the market, you could say in general that we are very happy with the market development we see on the industrial side. Also, Infra is continued to be solid and strong, but I would say the increase in demand, we have seen quite especially on the industrial side. It is driven from a lot of product from transitioning to a more sustainable business as well as digitalization. So that's a trend that, of course, we continue to see, and that we will do everything we can to focus on and be a part of that journey moving forward. Infrastructure has been stable. We can also see that, I would say, the real estate is getting back, still a bit affected from the pandemic, but it's stable and good. Our division Industry and Digital Solution had a really strong growth quarter. Last year was challenging, especially on automotive, but now we see that the demand is getting back also on automotive. So a good and strong quarter, and we see that market continuing to be favorable. Process Industry, really strong, and that has been that even throughout last year, and it continued to deliver stable and good margins as well as strong growth. We see a continued demand, especially on the OpEx side, and also smaller scale products. So it's a stable segment for us. Energy, solid and good margins. And I believe it's the third quarter in a row where Energy division delivers 10% EBITDA margin. Not yet growing due to the transition we have done and the fact that we see an effect on decision-making on large-scale CapEx projects that is a bit delayed, that affects the growth part on Energy, but really solid performance on the margin side. And then Management Consulting doing very well. We see a continued need for strategic consulting advisory service on bio industry as well as energy. So a favorable market right now and especially on the Industrial side. There has been a lot of good projects coming in. And what we can see is also it's mirroring the market then. A lot of project is related to transitioning to more sustainable business, clean energy. And there's some highlight of them, we did -- we had a good agreement to the Swedish public sector on IT. A really good project in Ideas, a turnkey project for food and pharma in Denmark. Some really interesting energy products, both in pumped storage, but also in solar, both of them moving into clean energy as we are focusing a lot on. We are also involved in thermal energy storage in Finland. We have also done some really good projects in new production plants to Viking Malt's w production plant in Finland. And there has been also some really good projects in Germany and Switzerland in transportation. So I will say that the overall market is stable. And Juuso will probably comment a bit on the project pipeline, but it is a solid as it has been then. And I think we will, of course, leverage now from the fact that we have a strong industrial know-how as well as infrastructure. So many projects are melting together. And then if you add digitalization on top of that, that's where we will focus a lot moving forward. I mentioned acquisition. And of course, we have really been focusing a lot on finding good acquisitions supporting AFRY becoming a stronger company, not the least in digitalization and now supporting our growth journey. And we have been able to close 12 acquisitions. Some of them, as you know, smaller, but each of them adding to our portfolio. And quite many of these acquisitions have a big part of digitalization supporting our journey into improving our digital offering, supported from the AFRY X where we are investing now, but also in each division that we are becoming a stronger digital company. SEK 500 million roughly top line addition, 2.6% growth. And we will also continue throughout the second half year to hand for good acquisitions. So that's been a really strong and good development during the first 6 months. We have a very active sustainability agenda, both working in the back end, how we as a company can change, but also how we can help our clients becoming more sustainable. And a few highlights. We were listed by Financial Times as one of the top 300 climate leaders in Europe for reducing the CO2 emissions intensity between 2014 and 2019. It's a recognition that we are moving in the right direction as a company. We were also awarded the highest sustainability rating at -- a platinum ranking from EcoVadis, which is the biggest global sustainability rating provider. So also a good recognition from us. We were also again highlight or listed as the #1 company in Sweden among researchers, which is really a great award to get because there are some really good companies there. And that strengthened also AFRY as a brand moving forward. And then we have a lot of good cooperation with Norrsken, Gapminder and w have, as you know, then joined the 1.5-degree Business Playbook. So a lot of activities into making AFRY as a company more sustainable, but also how we can help our client in all the projects moving into more sustainable solutions. So with that said, Juuso in Helsinki, are you ready to take us through a few highlight from the financial part?

[Juuso Pajunen, Chief Financial Officer]

Thank you, Jonas. Definitely ready. It's hot and nice Helsinki and happy to take forward from here. So in second quarter, I would say that our story is on the growth. Net sales has been growing almost SEK 400 million during the quarter, the total growth being 7.7%. If we then take the negative FX impact and the M&A impacts out, the organic growth was 8.7%, but that is supported by one working day more in the second quarter compared to previous year. So the adjusted organic growth is 7%. I'm really happy to see that we are back on that one. And at the same time, 4 out of 5 divisions are delivering growth. And 3 out of those ones actually double-digit on the organic growth. We will get to those details a bit further. FX continues to burden us on some SEK 134 million negative. But at the same time, we see that this is now stabilizing as we see how the currencies have been moving and how the big movements started last year in Q3. The strong development in the organic growth is coming from Industrial segments, both Industry and Digital Solutions and Process Industries and as well as from Management Consulting, who is also working mainly on those segments. At the same time, with the revenue growing, the order stock continues as strong as ever on a continued stable level. So really happy on seeing where we are going from a growth perspective, also including the M&A, which was 1.7% or roughly SEK 80 million in the total numbers. Then if we go, Jonas, forward to EBITA development. This is also actually a story of growth. We delivered SEK 416 million compared to SEK 383 million last year. Margins stable at 8.0. But at the same time, if we adjust for the salary accounting changes, we would have delivered 9.2%. And actually, then the EBITA growth would have been some 24% compared to previous year second quarter. We have especially strong performance in Process Industries, Energy and Management Consulting, who are in double-digits. But at the same time, also Infra is delivering if adjusted for the salary accounting method 9%, as is Industry and Digital Solutions. Obviously, we are then supported by one working day more but that's how seasonality goes in our business. Negative FX impact starts to also stabilize in the numbers. And finally, on the cost saving parts, it is contributing positively in our EBITA generation. If we then go forward, Jonas, I will not dwell into the details on the changed salary accounting method, but just a brief reminder for those of you who may have forgotten what it is about. So ahead of our new ERP system implementation, we are updating how we account the salaries. We are going basically into the real salaries. Meaning that if you have 21 working days in May, you have fixed monthly salaries which are the same as in the 19 working day February. So that creates more earnings volatility, but it also represents fairly our working agreement structures. This is -- was in the year. So on a full year basis, it evens out to 0. It is simply how we periodize the impact. And now we have taken SEK 28 million negative in first quarter, SEK 60 million negative on the second quarter, and main bulk of the positive impact is coming on the third quarter, while then Q4 basically balances that back to 0. And if we take both second quarter and year-to-date figures, if adjusted for these changes, we would have been at 9.2% on both periods should we have continued on the old practices. But then going forward on -- a couple of words more on the EBITA bridge. So basically, what we see is a clear, clear improvement compared to previous year, especially in the Industrial segments. Both Industry and Digital Solutions obviously facing difficult market conditions in second quarter last year, is now back on track to get to the normal levels. And that is highly positive and visible in the absolute contribution in EBITDA. But at the same time, Process Industry is running really well. Management Consulting also. Energy, despite having negative growth, contributing positively in the EBITDA, which we are really happy about. And as Jonas stated on the revenue side, we have delays in the project starts, which continues to impact Energy revenue generation also in the second half. In Infrastructure, showing red number, 17, but if we would adjust for the salary accounting methodology, we would have improved the absolute EBITA also in Infrastructure. Then we have the group common costs. First of all, I'd like to state that our cost structure is in really good shape. We have continued positive impact from the cost savings. So this is not a question on the size of the cake. This is more a question on how the cake is split among divisions and group common. Currently, as you know, we are investing in digitalization quite heavily. We have both the AFRY X that is mainly intending to improve our client offering and ensure that we are in the digital part of the business in all ways what it can mean. At the same time, we have gone live with our ERP in the first entities, and we have started [ depreciate ] that one, and we have some ramp-up expenses on that part. Then the second part of the increased expenses in the group common is that, we are now rehearsing what it means to come out from COVID from real estate perspective. How empty premises, empty workstations are taken over by the group and make it as a group problem rather than a divisional problem because we know that there's room to make facility usage more efficient in the future. So we are now carrying a bit more expenses on that side to ensure that our divisions have solid strong incentive to enter as quickly as possible to the new world what will come hopefully soon. Then going forward, on taking a quick peek on the divisional growth and EBITA. The biggest thing in here, if we look on the organic growth, it's the adjusted organic growth, excluding calendar, excluding M&A, excluding FX. We have 3 double-digit entities. Management Consulting or even knocking on the doors of 20% organic growth. Then we have Industry & Digital at almost 15%, and Process Industry is rounded 12%. I'm absolutely thrilled to see that we can ramp these ones up on the pace that we can -- we are doing at the moment. And then seeing Process Industries and Management Consulting delivering at the same time double-digit figures. That is really positive. We have to say that the Industrial segment market position and market situation is improving, and that is driving the result development in all of these segments. Then we have Infrastructure, adjusted organic growth at 1%, delivering 7.6%. But remembering that if we would adjust for the salary accounting practice, we would be at 9%. We see that the market development there is quite good. It's solid as ever. But at the same time, the real estate segment, especially on the commercial side, it's still burdened with the COVID. But just put it in the comparison, what I said on our own facility usage, I am quite convinced that we are not the only one thinking like that. And that continues to impact the market to certain degree. At the same time, on the longer perspective, I would think it as an opportunity for our type of a business where we are advising facilities on being more efficient, on being better. And every time you change something, you basically need engineering. So I'm fairly confident on that one. And once the COVID more and more gets out from the systems, this market also continues to improve. So all in all, looking on divisions, we are delivering solid results, solid growth almost throughout the organization. Then finally, a couple of words on the net debt. If you go to there, Jonas. Basically, we end the quarter at 2.2x adjusted net debt-to-EBITDA, which is still a solid one. Our target is to be on 2.5x. We have a huge bandwidth to accelerate our growth. We -- as you have seen, our M&A activities have been quite rapid. We have closed 12 deals during the first half of the year and 8 in the second quarter. We see that the pipeline continues to be solid and strong on that part. And from a balance sheet perspective, we are ready to take steps necessary to improve our position, both from offering or geographical perspective where the opportunities emerge. We continue to have very positive operating cash flow, not as positive as previous year. We have a net working capital tie-up driven by the growth. But in general, still, I would say that solid cash delivery. But then at the same time but then at the same time, we paid some SEK 566 million of dividends to our shareholders, well deserved. Happy to do that one. And then we have acquired companies, as you have seen. So all of those ones push the net debt from Q1 of 1.7x to 2.2x at the end of second quarter. So happy with balance sheet, supporting our accelerated growth agenda, all looking bright going forward. Back to you, Jonas. Thank you.

[Jonas Gustavsson, President & CEO]

Thank you so much, Juuso. Thank you for that well presentation of the financial development. So I will just end then with a summarizing slide. So for sure then, as you have seen then, we feel there is a positive momentum on the markets. We can see that the Industrial recovery is going fast, and we are well positioned into that. The same with Infrastructure, also continued to be strong. And we have a strong platform. And I also have to say that last year, we had to focus on the cost side and efficiency because some of our segment went down in -- when the pandemic were hitting. Automotive is one. But now that we have been able with our divisions to get back to growth that fast, delivering 7% growth, and at the same time, pushing a lot on acquisition at the same time. I'm impressed how fast we could go from needing to meet the pandemic and then ramp up to growth. So for sure, we will now build on that momentum to continue to focus on the growth throughout the next 6 months, the remaining of 2021. We feel that we are well positioned, as I said, both from the balance sheet, as Juuso said, we will hunt for good acquisitions. We believe that digitalization, of course, becomes more and more important, and we have a tremendous know-how. We have a deep sector knowledge in -- on the Industrial side, but also on the Infra side. We feel that we can use our also really skilled employees. We have more than 2,000 employees in different kind of digital areas and to build on AFRY X where we look on Software-as-a-Service models more and more to support our base business of consulting and product model to add on more and more recurring revenue models. And to push for digitalization will be something that we will continue to work a lot with, and we have started up that journey. There's a company-wide focus on sustainability, both in the back end, but also in the front end, and we will continue to push for that. And then Juuso mentioned, since a couple of years, you know that we have invested in a new system landscape. We are implementing a new ERP system and other systems then. And we will continue to implement them as we have planned. There's a rigorous implementation of that, and we are step-by-step reaching our ambition then to have an integrated system landscape supporting our platform efficiency, but also growth. So we are really leaving the second quarter with a good feeling and the keen on then moving into the third quarter to push for growth. So with that said, I will leave it over for any questions that you might have. So please, Cathrine. I guess you will monitor the questions.

[Cathrine Sandegren, Executive VP and Head of Communications & Brand]

Yes. [Operator Instructions]

[Jonas Gustavsson, President & CEO]

That seem, if we have anybody or if we have been more clear than ever in our presentation.

[Cathrine Sandegren, Executive VP and Head of Communications & Brand]

Yes. we have a few questions. And the first question will come from Erik Paulsson. [Technical Difficulty]It seems like we have a problem with the Teams here. So we just need to restart teams, and we will be right back.

[Jonas Gustavsson, President & CEO]

[Foreign Language] Cathrine?

[Cathrine Sandegren, Executive VP and Head of Communications & Brand]

Yes. Then let's try again. So Erik Paulsson.

[Jonas Gustavsson, President & CEO]

We have a problem with the sound to us. We are trying to solve it with the next couple of minutes to make sure that you can ask your questions. We are really sorry about this. And just give us a few minutes, and we will try to get the connection up again. [Technical Difficulty] So it looks like we have a problem that we might not be able to fix. So if you could please post your questions on the chat function, and Cathrine will read them.

[Cathrine Sandegren, Executive VP and Head of Communications & Brand]

First question here from Johan Dahl. The recovery in demand in Industrial, what is the potential of demand or postponed projects? And what is the underlying CapEx need among industrials, do you think?

[Jonas Gustavsson, President & CEO]

Thank you, Johan. A well-formulated question. I would say that it's not so easy. And Juuso, you can support me in this. Of course, there is -- last year when the pandemic was hitting the industrial side, a lot of investment was put on hold. So we see some of those one is getting back now, with the Industrial segment starting to have a strong belief that the pandemic will fade away. And if you, on top of that, put the need of transition, I mean we have seen it in the Automotive segment now, where basically all companies go into electrification, adding then all the digital part in the Transportation segment. My personal opinion is that we will continue to see a strong Industrial segment moving forward, driven from getting back from an investment need that was put on hold before -- during the pandemic. And if you add on top on that, the need -- the transition in industry into sustainable models, Automotive segment is a big driver into that. But when you just look now about the new way you're making steel in a more sustainable way as another segment, then the whole energy transition. So my personal opinion is that both industrial side, but also the energy side, we will see a strong and good demand related to the AFRY offering moving forward. I don't know, Juuso, if you want to complement that.

[Juuso Pajunen, Chief Financial Officer]

No. I think it is spot on. I think on the midterm to long term, there is a very clear investment needs in all of our key segments, whether it is Automotive, Process Industry, so Energy. We see the world reshaping, and that requires also CapEx. So that one is very clear. But then, obviously, with the Industrial segment, it comes a bit on the volatility side, at the timing, the investments will happen throughout the year. But currently, the pipeline looks really clear. I would say that our order stock support has already .

[Jonas Gustavsson, President & CEO]

So I -- as we said then, if you just look on the need, the potential related to digital solutions, and the -- I think we will continue to see a strong Industrial segment. And then I think infrastructure, needless to say, there is a lot of money that is invested in infrastructure in the Nordic, but also down in Europe. So that, I think, also will remain solid and strong. So let's see then, of course, the pandemic how that plays out in the next 6 months. But again, betting on a solid market moving forward, and that's why we are pushing a lot on growth activities right now. So do we have a more -- and other question, Cathrine, from the chat? Sorry about the technical problems we have.

[Cathrine Sandegren, Executive VP and Head of Communications & Brand]

Yes. We have 3 questions from Erik Paulsson, so I will take one at a time. So first one is regarding the order stock. How had this developed quarter-on-quarter? Positive or negative?

[Jonas Gustavsson, President & CEO]

I will leave it to you, Juuso. Order stock quarter-on-quarter, I would say solid and stable. What's your view?

[Juuso Pajunen, Chief Financial Officer]

Yes, we are stable. And if we take the whole portfolio, we see that Energy has been having the struggles, but at the same time, projects are being awarded. We are waiting for the start. So all in all, it is actually very stable. If we take absolute numbers and we don't adjust for FX, it is slightly negative. But basically, if we take the FX numbers, it is actually slightly positive. But as we have stated, the word is stable. So no matter .

[Jonas Gustavsson, President & CEO]

So stable.

[Cathrine Sandegren, Executive VP and Head of Communications & Brand]

Yes. So we need to move everyone to YouTube because we don't have a sound out in Teams either. So we will just be back in one minute, and then we will take the next 2 questions. If everyone in Teams can join the YouTube link instead, and we have published a YouTube link in the chat in Teams.

[Jonas Gustavsson, President & CEO]

YouTube now, as we have said, we're -- I hope the sound works, and Cathrine will take the questions from the chat. And again, we are very sorry about this. And probably we'll come up with an improved solution for the quarter 3 webcast. So Cathrine, do you have another question then from -- on the chat?

[Cathrine Sandegren, Executive VP and Head of Communications & Brand]

Yes. How has the pricing developed during the quarter, even though it's a complex topic?

[Jonas Gustavsson, President & CEO]

Yes. Pricing is always complex, but a very interesting subject. So I will say that, we are pushing for pricing, and especially when the market is recovering. Juuso, what's your view on the pricing? We have talked about it that in the Infra segment, we are -- it's a lot of public projects, and we are pricing ourselves on the level that the competition is doing. What's your view on pricing, Juuso?

[Juuso Pajunen, Chief Financial Officer]

Yes. Thank you. Like probably, Erik, right, it's a complex topic. Let's not go into that one. I have the same words every quarter. But it is true that in the public sector, especially in the infra side, we feel pressure on the pricing. We feel that it is a highly competitive market. Then obviously, on the industrial side, especially places where we are already quite strong and the demand is strong, we have a positive impact in pricing. So all in all, the impact from pricing within the portfolio are slightly mixed.

[Jonas Gustavsson, President & CEO]

Yes. And of course, we will get back to you guys, because at the same time, we are transitioning a lot into more and more projects. One key in our company is to sell on value, to try to go really on value-based selling and what that means. So we'll get back to that. But in general, when the market is recovering, the pricing power is getting stronger and stronger. You had another question, Cathrine?

[Cathrine Sandegren, Executive VP and Head of Communications & Brand]

Yes. So this is the last question from Erik Paulsson. What is your exposure within buildings and real estate? How much is towards residential and how much is towards commercial?

[Jonas Gustavsson, President & CEO]

So I'll leave it to Juuso to go into it. But I would say the majority of our part is to commercial buildings. And of course, there's a distribution when you start to talk about big investment in hospitals or in airports or in complex commercial building. And there is a part then we have some architecture business, for example, on the private side. So I don't know Juuso, if you want to comment about the exposure to real estate as a total.

[Juuso Pajunen, Chief Financial Officer]

Yes. So basically, residential is quite a small portion of our total exposure in the real estate. It is actually not that material on the total portfolio level. So basically, I can't say word all, but a big, big majority of all the offering is going to commercial and public buildings rather than residential. So the bigger dialogue probably is what is commercial and what is public.

[Jonas Gustavsson, President & CEO]

So that's in general then. So I believe also, as Juuso said, that we will see a continued improvement on the real estate side also for us then. And we have seen it a bit in the second quarter still affected and as the pandemic is still around us. But of course, all changes now moving ahead then as a part of the post COVID will have impact and changes will be needed to do. And I think we are a good company to work with in that real area. So Cathrine, any more questions from the chat?

[Cathrine Sandegren, Executive VP and Head of Communications & Brand]

Yes. We also have a question from Johan Sundén and Dan Johansson. Thank you for e-mailing. So questions from Johan Sundén. Given your wording, it seems as the energy market has become weaker, given that you see -- regarding the project starts, is worst ahead of us or is it at the bottom?

[Jonas Gustavsson, President & CEO]

That's a good. Because I'm not sure I would say that it's gotten worse. I think we have been maneuvering in a pandemic situation, because when we talk about annually for AFRY, we have a portion of [ annual ] that is driven from the Nordic energy market especially, a lot of service offering and small and midsized project. Here, we see the market continue to be stable and good. And we signed a very good contract with Vattenfall that we also published the other -- not too long ago. So there, we see a stability. I think it's more of these big CapEx projects on a global basis where, of course, the pandemic on the global is still really around us. And here, we have seen some delays, very few or if not any, kind of cancellation of projects. And that is not, from my point of view, worse or better than it's been over the last quarters. I personally believe that we are starting to bottoming out, betting on the fact that we get also a bit control of the pandemic on a global basis, that we will see the CapEx project on energy also starting to be released moving forward. But that's my own personal guess. I don't know, Juuso, if you want to add anything to that statement.

[Juuso Pajunen, Chief Financial Officer]

No. I think that is quite spot on. Then the final component that needs to be understood is that how a project generates revenue, especially when we are talking about bigger CapEx projects. It is like a S curve. So you have a ramp-up period where the revenue generation is quite slow. Then you have the peak on the S, where you have the very, very busy time on the project where you generate a lot of revenue. And then you go back into the handover phase where you once again generate less revenue. And once the COVID has been pushing the start of the project forward, we will have also, looking the coming quarter or 2, we will have many projects in the start-up of the S curve, and that will hamper us. So as such, the market conditions and the numbers of the project and the opportunity pipeline is solid. So the market is good, but the difficulty is on how you get the projects into the start-up phase and into the accelerated revenue generation phase. And that one will be visible in the coming quarters. So market is good, but due to how the market -- how the past has been hampered by the COVID, it continues to impact us still in the coming months.

[Cathrine Sandegren, Executive VP and Head of Communications & Brand]

Thank you. And the next question. Margins in Energy and Process Industries are once again strong. How sustainable are these levels?

[Jonas Gustavsson, President & CEO]

Well, I think on -- if you look on the Process Industries, I think the -- you have seen that the margin had been stable throughout even the last year, plus/minus, even with full effect from the pandemic. And it shows us -- shows that we have a really, really strong position in that segment. I expect that to stay. It will -- we will always have some fluctuation. But we are looking also how to expand our offering into process in Industrial segments like mining and metals, but also supported from a very strong position in bio industry. On Energy side, I think we have done a great journey because you following former OF then many years back, we were -- we had a struggle to get the margins up and even to drive that business. Now we have done, I would say, the whole repositioning of Energy. And then we have said for some times that we have a 8% to 10% margin corridor. Now we have been delivering on the high side on that, 10%. But I expect also the Energy segment and our Energy business to remain on solid good margins and then, of course, getting back to growth. Juuso, anything from your side? But of course, we will have fluctuation, but these are 2 segments that should generate good margin moving forward.

[Juuso Pajunen, Chief Financial Officer]

Once again, pretty much spot on. Then maybe just a brief note, that we have been slightly benefiting from the COVID on the cost side or not being able to travel in the pace earlier. But at the same time, especially when we talk about Energy, now we also see that kind of traveling is not possible, we are hit on the revenue side. So our execution capabilities, I'm really happy with. And then once the new world emerges, probably we travel a bit more, but at the same time, we generate the revenue on the top line more. So I would say that we are happy with both the execution, how we are doing and how we are selling, and the current margins are reflecting the market conditions.

[Jonas Gustavsson, President & CEO]

And if you remember, when we merged or when we joined forces with Pöyry, 2 segment that was really fully effective from that was Process Industry where we took the OF Process Industry, pulp and paper, but also joining, of course, with a very strong Pöyry. And that has created a world-leading division into bio industry, for example. And also Energy, we took a lot of advantage of joining forces together. And as we planned, these 2 segment have deliver strong margins and good business. And that's what we will continue to push for. So the expectation internally is that they will continue to deliver really strong and good margins and growth.

[Cathrine Sandegren, Executive VP and Head of Communications & Brand]

Thanks. So next question. Given the high demand with the industrial side, do you feel that you should be able to raise prices? And how is the salary inflation?

[Jonas Gustavsson, President & CEO]

Yes. We talked about prices. And yes, I would say prices is a complex theme. But of course, we will do everything we can to work on the pricing, but also on our offering. Meaning that if you can really explain to your clients what kind of value you are delivering moving into more a product model, of course, we will push everywhere we can. And then I would say, on the salary inflation, we have not seen any bigger change on the salary inflation than normal. I don't know if Juuso, if you want to say something about inflation, but nothing that sticks out at all.

[Juuso Pajunen, Chief Financial Officer]

No. At the moment, I don't see any material movements on the market. And maybe just to remind the analyst and investor community that our capability to both adjust the revenue and adjust the salaries or let's just say that push the salary inflation towards pricing has been quite strong throughout the years. So this is not the topic I mean, mid- to long-term berries. And at the same time, we need to remember that the -- like Jonas said, the key important factor is to provide value for clients. And we have seen that, especially when there's scarcity of resources, clients are willing to pay for that value that we can deliver. So that is the most important part. And then the second part is that, should there be salary inflation, our capability to fight it is strong because it is up to us also how we deliver the value to clients. So basically, we can have different type of mixes in the teams and so on. So it is a topic that is part of our business. And it's something that at least I feel we have been quite good to work with and have a track record also.

[Cathrine Sandegren, Executive VP and Head of Communications & Brand]

Yes. And the last question then from Johan Sundén. Should we be worried regarding increased vacation takeout during H2?

[Jonas Gustavsson, President & CEO]

Worried?

[Cathrine Sandegren, Executive VP and Head of Communications & Brand]

Yes.

[Jonas Gustavsson, President & CEO]

Yes. We are monitoring the vacation planning quite rigorously. But this is nothing that really worries. I think people have -- take some well deserved vacation. And we have good plans for the vacation ramp down as we are in right now, but also the ramping up of the vacation. So nothing that really worries, but of course, something that we need to monitor in general, as we do every year.

[Cathrine Sandegren, Executive VP and Head of Communications & Brand]

And then we have 3 questions from Dan Johansson. So you mentioned that you plan to ramp up in recruitment during Q1. Have you been able to find the people you want during Q2? How are salary levels? And how much of increase in employees compared to Q1 is new hires? And how much is related to recent acquisitions?

[Jonas Gustavsson, President & CEO]

Yes. I mean in general, I would say, good questions. As always, it is kind of a hunt for the best competence and right people. I would say so far, we are able to attract good people to AFRY. So -- but we need to continue to offer really good assignments to employees. We need to offer good interesting projects. And also, strengthening AFRY as a brand helps us in attracting good people. so far, I would not say that we have been hampered on the growth side due to people. And as you know then, we are now starting to be more and more brave in hiring people to make sure that our supply is getting strong. And we commented salary inflation. I think we keep that under control. So we don't see new salaries affecting us in any ways. And the third one was a bit -- what was that? Remind me, Cathrine, the last comment from ...

[Cathrine Sandegren, Executive VP and Head of Communications & Brand]

How much of the increase in employees compared to Q1 is from new hires?

[Jonas Gustavsson, President & CEO]

So for sure, with all the acquisitions we have done, part of the increase has been driven from acquisitions. And I don't know the split now. Do you have that, Juuso, the split between acquisition on headcounts and new recruitments?

[Juuso Pajunen, Chief Financial Officer]

We have basically grown roughly 600 employees from quarter 1 to quarter 2. And 300 to 400 of those ones are coming from acquisitions and then basically 200 to 300 from recruitments.

[Jonas Gustavsson, President & CEO]

Yes. So 50-50 maybe. And of course, when we recruit, that means that we also, of course, we are -- we have attrition also every quarter. But so far, I think the momentum and feeling we have is that we are able now to start to hire people and adding the acquisitions, that, in general, we are filling up our supply with good people and meeting the demand on the market.

[Cathrine Sandegren, Executive VP and Head of Communications & Brand]

So group-wide initiatives with the ERP AFRY X, how do you see it evolving going forward? Will it ramp up further or stay at these levels over the coming quarters?

[Jonas Gustavsson, President & CEO]

Yes. I mean, as Juuso said, and we have also communicated since quite some time, we have decided to do the needed change on our system platform. It's the ERP system. It's the CRM system we have implemented. We have implemented a new HR system. So that part, I think Juuso will comment. But we will continue to see that maybe on the level we see right now and then fading down. Juuso explained also a bit on the facility side, that we want to allocate empty premises centrally to give a good in sentiment for the divisions and units to move into the new way of working. And then we have the digitalization, including AFRY X. And I don't think -- we will not see that getting on a too high level. But at the same time, we will invest and partly reallocate digital competence into the AFRY X accelerator because we have a strong belief that we will do more business in SaaS model or software-as-a-service and so on -- but I don't think we will not get to too high levels. There's no plans that these numbers will go skyrocket. We have created a very strong lean platform during last year, and we will keep a good eye on that, as Juuso said, that we have good cost control as a group. I don't know, Juuso, if want to add to this. It's your -- one of your favorite topics.

[Juuso Pajunen, Chief Financial Officer]

Yes. No. I think you were once again spot on. Basically, we have the 2 topics. First of all, I'd like to say that we do not stop investing in the digital. So obviously, we will have AFRY X, the cost component. But the further we go forward on that one, there's also the revenue component, which will be divisional revenue as AFRY X is not an external segment, but at the same time, that revenue generated will also push costs out from the group common on that part. So no, I would say that we have a ramp-up pace on that one, and that's now visible in the group common. Then on the ERP, we have gone live with that one in the pilot entities. We will continue according to plan. And also on that one, we have a bit of ramp-up expenses. But the further we go on that part, then the more we start to see also the efficiency gains and the improvements in our operations. So all in all, I would say that we are in a fairly good position and the costs are under control.

[Cathrine Sandegren, Executive VP and Head of Communications & Brand]

So next question. How do you see demand developing within your Food & Pharma offering going forward? It has performed very well, and you seem to continue to take orders. Is it possible to maintain double-digit growth within that part of your offering going forward?

[Jonas Gustavsson, President & CEO]

Well, I think in general, we have a positive view on Food & Pharma or food and life science as we see it, and it's something that we also want to invest more, and we want to take on bigger and bigger projects. Then there is a seasonality between quarters as always. But in general, then if it's on the growth [ high ] that we have had or -- but I would say, in general, we invest and believe in strong growth in the food and Life science and Food & Pharma moving forward as well. And you are right, we have taken some really good projects now, like the one we highlighted yesterday, I think, in Denmark.

[Cathrine Sandegren, Executive VP and Head of Communications & Brand]

Yes. And then we have a final question from -- an additional question from Erik Paulsson. The level of depreciation went up in the quarter. What do you expect the level in terms of a number to be for the full year of 2021?

[Jonas Gustavsson, President & CEO]

I think this is a perfect question for you, Juuso, depreciation, full year 2021.

[Juuso Pajunen, Chief Financial Officer]

Well, as we have not guided the other numbers, we will not guide the full year numbers. But obviously, from the quarterly report, you start to get the claims on the ERP depreciation. So the current quarter, I think it goes slightly still up as we go forward, but then it stabilizes on those levels.

[Jonas Gustavsson, President & CEO]

Okay?

[Cathrine Sandegren, Executive VP and Head of Communications & Brand]

Thank you so much. There are no more questions.

[Jonas Gustavsson, President & CEO]

Okay. So thank you, guys for bearing with us with this technicality challenge, and we will make sure that quarter 3 webcast presentation will be super solid when it comes to technical setup. Really happy that you were able to post your questions, and we could answer them. And again, summarizing AFRY, it's a quarter which we feel has been a real step forward to get the growth numbers as we hoped for. We will continue to invest in our digitalization. No question about it. There is a strong belief that we can also support our base business with a lot of new recurring revenue models. And then, of course, the sustainability transition we see, we feel that we are well positioned for the second half year that we are looking forward to. So thank you again for taking the time and listening to us. And we wish you then a fantastic, safe, but also a great summer. And looking forward to see and talk to you soon again. Thank you so much.