Afry AB

STO:AFRY

Earnings Call Transcript 2022-Q2

[Jonas Gustavsson, executive]

So they are all -- a warm welcome to this presentation of the second quarter report for AFRY. My name is Jonas Gustavsson. I'm the CEO of AFRY, and I will also be joined by Juuso Pajunen, our CFO. And I'm in Stockholm here in Solna, our head office; and Juuso will join us from Finland from Helsinki. So we will go through a few slides covering the second quarter, and then we will leave enough room for any questions that you have -- you might have after the presentation.

So let's start with the summary slide. Second quarter summarized with strong growth. We see a general continued high demand in many of our segments, and all divisions reported positive organic growth. So we ended up at growth of 15.4% and that's equal to close to SEK 6 billion. And that's also -- and that was then 7.5% adjusted organic growth. So it was a strong quarter when you look on the top line. If you look on the EBITDA, that ended up at SEK 451 million, and the margin was 7.6%. But then if you adjust for the calendar effects, the underlying margin actually improved compared to last year. So I will say, and we are seeing -- it's a step in the right direction for AFRY, we are not yet where we want to be. But compared to the quarters before, we feel that it was clearly a step forward when I look on operational performance.

The cost-saving program that we announced in the beginning of the year has been implemented and end of the second quarter, we have a run rate of SEK 100 million effect that will help us in the second half year. So that program is actually delivering according to plan. And we also saw some effects of that in the second quarter, and Juuso will cover a bit more on that when we talk about the financials.

We have also announced 3 acquisitions so far this year. And one very interesting one we announced yesterday. I have a slide on that later on. And it is for sure, moving forward to the second half year that our top priority will be to continue to work on efficiency and cost savings, including pricing, both to support the margin for AFRY that has been -- that is one of our key priority, but also to potentially meet a more sluggish market. And we know that inflation and the cost increases put uncertainties, especially in some segments. But all in all, we feel that it was a strong quarter for AFRY and a step forward. The market, in general, for sure, we see the geopolitical situation with supply disruptions and the increased inflation, material cost and interest rates are putting uncertainty in the segment.

We can also see that some decisions for some bigger CapEx projects have been delayed. But in general, we have seen that the overall demand is very strong. And of course, driven from the sustainable transition if you look on the whole industrial segment, that has been a main driver. So when -- again, when we look in the industrial sectors where we are strong, we see like batteries, hydrogen, offshore, wind electrification, et cetera, software competence is continued to be very strong. And also in the infrastructure market, it's been a solid demand. For sure, we keep a good eye on the real estate segment because that's obviously -- that would take an early hit when price increases goes up and the cost for construction material increases. But all over, right now, we see a continued strong demand across many of our sectors. And of course, that was reflected from the top line with a 15% growth and the 7.5% organic growth. Yes, we are getting a lot of good interesting project, and Juuso will mention that our order backlog is really, really strong. And these are 3 examples.

The first one, a really cool and interesting project to the Nordic Choice Hotels where we will work together with them to improve energy efficiency, which is actually a strong, strong driver today, not only to look on the whole power generation, but also to work with energy efficiency, that's a strong driver in sustainability. We receive a project for engineering service for a modernization of Rostock Wastewater Treatment Plant, also interesting project. And the last one is to make an investment plan and zero-carbon road map for an interesting company based in Helsinki, HKScan to reduce their emissions. So this is for sure, just a few examples. But again, we had a good order intake, and we have a very strong order backlog in AFRY. Just to mention also then that yesterday, we announced the acquisition of Ionic Consulting, which is a strong company based in Ireland, focusing on onshore wind and renewables.

And we have, in general, for a strong position in energy and we are now working on making bolt-ons to strengthen also our transformation towards 2 segments, clean energy, renewables and in this case, both onshore and offshore wind. So again, a very good addition to the AFRY portfolio. And we will continue to look for good acquisitions moving forward, always balancing our net debt and balance sheet. But when the right companies there that we believe will really add to the for portfolio, we will be very active on the M&A area also in the second half year. Performance in the division, I would say that all divisions delivered organic growth. And starting with the Infra, positive is that Infra we now see the effects from the cost and efficiency savings. And on that [ Malin Frenning ], the team in Infra have worked a lot and will continue to work. And I would say that in quarter 2, we saw a step in the right direction for Infra and we believe we will continue to work moving forward in the infrastructure, both with efficiency, but also to drive growth.

Industry & Digital Solutions, the market is strong. We have seen some really strong growth in software business, but also when we offer advanced technical service. And here, the organic growth was close to 10%. And step by step, we are also focusing here to improve the margin. And since the challenge we had in 2020, [ industry energy and digitalization ] have steadily improved the margin and that work will continue. Process Industry, we actually had a bit lower margin in the quarter. This is more an effect of sales mix. We had a bit more negative sales mix in the quarter. And we believe and the order backlogs are strong, so we believe that there will be a good performance in that one moving forward, even though the close to 10% EBITDA margin is strong, but we have gotten used to being above 10%, but we will continue to work to bring that back to the high levels we have had.

Energy continued to have a margin between 9% and 10%, which is really strong. And in the quarter, they also showed close to 7% organic growth. AFRY X. The service business of AFRY X continued to do very well. And then, of course, we are investing now in our software portfolio. So the total became then [ 2.1% ] EBITDA margin. We are continuing to evaluate and adjust and focusing our software portfolio and investments to step-by-step improve the whole business case of AFRY X. But quarter 2 was for sure also here a step in the right direction. And then finally, Management Consulting, high levels. And of course, if you look on those 2 segments where we are focused, bioindustry and energy, there's a lot of activities and a lot of demand for expertise. So here, we will continue to push for both high margins and growth. So all in all, we are not yet as a free where we want to be on the margin, but it was a step in the right direction.

With that said, I will leave it to Juuso to take you through a couple of slides on sales and EBITDA. So Juuso?

[Juuso Pajunen, executive]

Thank you, Jonas, and greetings all from Helsinki. So a couple of words on the net sales development. We recorded a SEK 6 billion quarterly revenue, which is actually the highest revenue AFRY has recorded in a single quarter that also pushes us on the rolling 12 months basis, almost SEK 22 billion. So development has been clearly positive in the revenue side. The total growth of 15.4% is a strong number and the adjusted organic growth of 7.5% is also something to be happy with. This is mainly coming from the strong growth in the high demand areas, but then also on the increased prices. So we have been able to both at our volume, but also increase the prices.

Second part, that is positive on the growth is that all divisions reported positive organic growth. As we know, we have had a couple of high performers in this end, but now also Infra is picking up on the growth level and Energy who has come from the negative growth now to clearly positive organic growth.

And then finally, if we think a bit forward, we have continuously improved order stock, and it is on a solid and high level throughout our segments, especially in the industrial segment, but also strong in the infrastructure segment. So we have a good basis to go forward in the second half when it comes to the revenue. So happy to see these type of growth numbers and happy to see growth throughout the portfolio.

Then if we look on the EBITDA development on the following slide, we recorded SEK 450 million adjusted EBITDA and 7.6% margin. Previous year, it was 8.0% but taking into effect the calendar impact that was negative 1.2%. The underlying margins have been now improving in the second quarter. We are getting a positive impact both from utilization, that went 0.6 percentage points up and the pricing component. So once again, quality of sales and the quantity of sales have been slowing down to the bottom line also. On top of that one, the cost program is within plan and contributed to our profitability during second quarter. However, it's good to note that we see some cost inflation and the peers fight for the talent is visible when you hire new employees. And this is something that we are continuously then mitigating also with the price increases and improving our efficiency.

Then if we take a quick view on the bridge, how the figures are coming out. But we first a note that on the left-hand side, Infrastructure and Industry & Digital solutions are delivering a clear improvement in the underlying margins and trending to the right direction. Then the divisions in the middle who have been continuously on the high level of profitability, Process Industries, Energy and Management Consulting, continue to be on the solid margins. While as Jonas explained, Process Industries has a slightly weaker underlying margin compared to previous. AFRY X, the digital services is delivering solid profits and then we have been optimizing the software portfolio. But when we are looking the comparison to previous year on absolute EBITDA in second quarter last year, we had not yet started our investments. So at the moment, the [ figure ] is still negative, what comes to second quarter.

If we then take a look on the net debt development and a couple of words on the EPS, we have a strong liquidity. It continues to be strong. Our net debt is [ SEK 4.8 billion ] and when comparing to EBITDA, adjusted for the items affecting comparability, we are 2.5. We had, during the quarter, we paid out the dividend. We had a bit of acquisition-related payouts, but then we had a solid operating cash flow decreasing the net debt. However, it is good to note that there's always room to improve the net working capital development. But with 15% growth rate, it is also natural that some net working capital is tied to the operations.

Then finally, if we think about earnings per share we have 2 negative impacts in there. We have divested a real estate cash positive future income statement positive divestment. And then we have some negative currency impacts, especially arising from the Russian ruble, where we have an internal position that can't be hedged at the moment. So it creates volatility in the financial expenses. So all in all, we have a solid balance sheet, a bit weaker all based in the second quarter due to dividend payment, but we have a well cash delivering machine underneath that continuously supports our growth targets.

With these ones then the cost program. So as Jonas iterated the SEK 100 million cost savings that was introduced in Q4, we have delivered within the target, and we have achieved the run rate of SEK 100 million. It is materially related to personnel expenses and it is, of course, the bigger part in infrastructure. You see a bit of this impact already in the improved utilization also. This has contributed on that part.

Finally then, this is not an end of working with our cost structure. We will continue on those efforts. And we do see that there is inflation in the world, we will continue mitigating that and we will continue addressing our cost structures. Our margin is not yet in our ambition level. So cost structure is obviously a clear part of making sure that we reach our ambitions.

With these words, then back to Jonas.

[Jonas Gustavsson, executive]

Thank you so much, Juuso. And then just a final slide, as we also communicated in the quarter, we have a planned succession in Energy, Richard Pinnock will retire. Still support us as a senior adviser for many years to come, we hope. And Linda Palsson have been announced to take over that position as Head of our Energy division starting first of August, and Linda have really, really interesting background, strong background. She's been working for [ AFRY ] for many years, and she has also been CEO in another company before. And it will be really -- I'm really happy to have Linda in the group management, and I -- we have done, I would say, an overlap now for a few more months to come. But as first of August, Linda will then officially take up that role.

So then just to close before we move into question when you move forward then to be very clear what is our focus. And the first one is absolutely to continue to drive efficiency, cost savings and including the pricing. As Juuso said, and we are aware of that our margin is not yet on the levels that we have as a target and ambition. So we will continue to work with cost efficiency and pricing also to meet the potential tougher market. We know that there is a lot of uncertainty on the market, if you look on, for example, the real estate side. So this is absolutely key for us. But the second is also to gain from the, I would say, positive momentum we have in many segments. There are segments and areas where we have really strong growth, and that we will continue to build on and to make sure that we can attract the best talent because to drive organic growth in many of those areas, we need to be able to recruit and hire the best and it's a fierce competition.

Thirdly, we will also continue on those focused investments that we have started up in our operating platform. One is, of course, the implementation of our new ERP system. It's a product that has gone on for a few years and it will continue a few more years. That's an absolute necessity for AFRY to be more efficient moving forward and to create a scalable platform, but also to invest in our digital position. These are 2 examples. However, I think you should read focused as that we are trying to adjust it as much as we can to support the overall story of AFRY. But these 3 are the ones, I would say, in that order that we are focusing on moving forward to make sure that we also have a positive development in the second half year, but also that we are prepared to meet a potential more sluggish market moving forward.

So with that said, I think we will open up for any questions that might be. I'm asking -- Ebba here supporting us if there are anybody who.

[Ebba Vassallo, executive]

Yes, so we'll open up for questions. And just as a reminder, please use the function, Raise your hand if you have a question. I see questions from Johan Dahl. We can start with you, please. Go ahead with your question, and unmute yourself. Please go ahead.

[Johan Dahl, analyst]

Thank you. Can you hear me?

[Jonas Gustavsson, executive]

Yes.

[Johan Dahl, analyst]

Excellent. Just a few quick ones. Firstly, on the real estate exposure you have. Can you just talk about what you're seeing there at the moment? So sort of how your clients in that area are sort of reacting to the very much changed environment? And also, if you could put it into context out of your exposure there, how much is sort of maintenance and more of a recurring nature and how much is more of a sort of discretionary CapEx projects? If you can elaborate on that?

[Jonas Gustavsson, executive]

Yes. Thank you, Johan. And we'll try to start answering then Juuso to build on. First of all, I will say that -- I wouldn't say that we see a lot of clear effects right now, Johan. I think the business is still doing fairly good. Our real estate business, if you include all countries because we are -- we have a lot of it in Sweden, but also across the Nordics but also in Switzerland. And it is, as you say, it's a mixture from bigger CapEx project to a lot of smaller service projects. We have seen some [ CapEx ] projects being delayed. But right now, the numbers we have now, we do not see a lot of delays. It's more that we also read and trying to monitor the market where it will go. And then the split you so maybe you can support me in what we -- the split between the different segments in the real estate.

[Juuso Pajunen, executive]

So basically, if we compare CapEx and OpEx, we are fairly more in the renovation side of things, but obviously, we have also the new builds or greenfields in there. Just before going to that one complementing Jonas's answer, one part that is normally indicating building segment volumes is architecture. And as you know, we have a fairly big architecture business that is doing well. So at the moment, it is difficult to say from client behavior perspective where things are going, like Jonas said, there are movements here and there. But underlying it is quite solid still on the indications we have full visibility into.

On the CapEx and OpEx part, I would need to double check that what is the total number, but materially, it is on the renovation part rather than rebuilds. And then also on the rebuild part, we are fairly strong in the public sector, traffic stations, hospitals, schools, public buildings, which, in our view, should be fairly in a better position compared to private buildings.

[Jonas Gustavsson, executive]

I agree. And just finally on that, Johan, I think what we have learned from the past is that our exposures to private real estate, the new build apartments, et cetera, is really low. And at the same time, we also see a high demand, for example, the product that we announced to Nordic Choice Hotels with energy efficiency savings are increasing then. So I think we have a good portfolio. But of course, we read and noticed the high inflation and increased construction material so we are getting prepared. But right now, I can't say that we see it in the numbers more that we are getting prepared if it will be weakened down.

[Johan Dahl, analyst]

Also just as a follow-up before I get back in line. But the -- you talked about these price hikes that are visible clearly. And if I understand you correctly, you claim it's also accretive to margins. But are those price hikes also reflected in the order book that you have now for the second half, would you argue. Is that sort of a fair depiction of the H2 comparing it to Q2?

[Jonas Gustavsson, executive]

I would say, yes, I think what we see then Jonas and Juuso was into that at the cost program given effect, including that we are pushing for price increases to mitigate also the cost inflation that we have in some areas on sellers, et cetera. So when we are new pushing for new frame agreement or new CapEx projects, of course, that is reflected in the order backlog. So I would say that part of the order backlog is reflecting higher prices in those areas when we can -- when we have a chance to increase our prices, it's all about competition and our position. But that's what I will say that part of those price increases are also included in the order backlog.

[Juuso Pajunen, executive]

I would say that materially, order backlog is supported by the price increases because [ already ] construct structure support those ones with different kind of escalation clauses and so on. So I'm comfortable with the pricing position of our order stock.

[Ebba Vassallo, executive]

Okay. We take the next question from Dan Johansson at SEB.

[Dan Johansson, analyst]

I hope you can hear me.

[Jonas Gustavsson, executive]

Yes. Perfectly.

[Dan Johansson, analyst]

Perfect. First one, a few quick questions. First one, elaborating a bit more on the growth. Perhaps a bit difficult to answer right now, but you're at least seeing a continued improvement in orders. You grow more than 7% organically on the quite [ decent ] comp. You have an ambition to recruit even more people. Considering everything that's going on in the world, it still sounds like you're quite confident on growth also for at least the second half of this year, and that will see what happens. But is that a correct interpretation that at least for what you see now in the order book and for the near-term, it sounds like you can maintain quite decent growth?

[Jonas Gustavsson, executive]

Yes. I would say following -- we have a good order backlog and that we will gain from. And then, of course, when it comes to what we have told all because our structure is -- we have the divisions and then beneath, we have the business areas, and we have a quite decent life P&L. Of course, we are gaining from the positive momentum we have in the segments. So we are recruiting where we see the demand. But at the same time, we are getting prepared, if the headwind will start on different segments. So I think right now, we feel that the numbers we see and we have looks really good. But of course, we are getting prepared, if it will be a more sluggish market. So I will say that in a way, we are comfortable for the second half year. But at the same time, we also noticed the inflation numbers and the turmoil on the market with increased interest rate.

We believe that there is, of course, an offset to inflation with all those investments that, for example, industrial segments are driving now into, I would say, sustainable business. If you look at investments in battery factories, the whole investment that needs to be done in the whole energy footprint, there are a lot of investment in renewables, et cetera. So the question is a bit how that will net out the other areas. But right now, I would say that we feel good that the market is solid and there is a lot of demand in [ main ] areas. At the same time, we are prepared if it will weaken down in the second half of the year. I think the order backlog is strong. So of course, we will push to get that down to the revenue side throughout the second half year.

[Johan Dahl, analyst]

Great. Thanks for the clarification. And perhaps jumping to the other side of the coin on the cost inflation. Is it possible to perhaps speak a bit about salary levels there are for new talents entering AFRY today compared to perhaps 1 or 2 years ago. I mean how much higher are new talent demanding in terms of salary compared to what it used to be? Do you have any figures or any feeling about how it looks right now?

[Jonas Gustavsson, executive]

I don't think we will expose any figures, but it's clearly that we have the salary -- the general [indiscernible] agreement that we have to a large extent, in the Nordic are still very good. And what we see then as you are talking about is when we are hiring new employees that the demands that they have in some areas are a bit higher than we have been used to. I wouldn't say that it's gone up in the roof, but this is something that we closely monitor. I don't know Juuso, if you want to build on that.

[Juuso Pajunen, executive]

No. Like you said, I don't think that we would like to expose ourselves to numbers on this topic. But like you said, there is some inflation visible on, especially the new recruits.

[Dan Johansson, analyst]

Great. I fully understand. And maybe a last question in terms of your different investment initiative. You have the AFRY X investments. Are you seeing general investment levels now in AFRY Group stabilizing compared to revenue at least over the coming quarters? Or any big moves in investments, either up or down that we should have in mind now for the future?

[Jonas Gustavsson, executive]

No, I think you are more on stabilizing for sure. I think the ERP investment that we started a decision was made in 2017 that we are probably seeing the peak now, and we will then have a few more years ahead before we have implemented ERP system, and then we will step by step start again from the efficiency gains that we see because we know that in many countries, and we operate with many different systems, and that will be replaced with a modern ERP system. That will be very helpful for us.

And then you talked about digital. And for sure, with AFRY X, I think we wrote that continue with the focus investment continued with evaluating the portfolio in AFRY X because AFRY X is clearly one big business in service. And we have an ambition to, I would say, increase our position in the value chain on our service offering to being that digital partner in the industrial sector. And we have a lot of extremely good competent people and the demand is really high and focus on areas like cybersecurity.

And the second one is that we have a few software offerings that we really believe are good. And if anything, the software portfolio that we started with was a bit broader and step-by-step throughout the year, we have looked on each case and actually have scaled it down. And we have now a set of products, service offerings that we really believe in. But we will continue to evaluate that portfolio and balancing investment versus the revenue to make AFRY X step-by-step over the coming quarter, improved the total margin for AFRY X including the investments we're doing. But you are absolutely right. If anything, it's a stabilization of the whole investment, and we will continue to work now with the efficiency and cost optimization because we know we have an ambition to improve the margin.

[Ebba Vassallo, executive]

Okay. We take the next question from Johan Sunden at Carnegie.

[Johan Sundén, analyst]

Thanks a lot. Hi, Jonas and Juuso. Few questions from my side as well. First one is on working capital swings. You touched upon it during the presentation, Juuso that it's natural that you build some working capital when you're growing. But -- can you please give some more color on this because at the moment, is a big focus on cash flow development.

[Juuso Pajunen, executive]

Yes. So if we look on the net working capital, I think that we were slightly more negative than I would have wished on Q2, but at the same time, showing pretty natural or normal quarterly swings. So as you recall, basically, we have the big net working capital releases always in the Q4. So basically, I think that we are in a fairly good place with some room to improve. We have the CapEx part of the business, which is quite a lot driven on advanced payments, for example, and those ones are difficult to estimate and those create volatility in the net working capital. So this is one place that we are looking for and working further. If we then just take kind of the change in net working capital January to June, we are negative 495 this year compared to negative 471 previous year.

And given that we are delivering 15% more revenue, I think that we are in a not optimal place but not far off from where we can. Of course, then remembering that '21 first half was not the greatest of the cash deliveries. But as said, I would say that growth requires capital, and we are confident that we are also releasing that capital in the second half like we do every year.

[Johan Sundén, analyst]

So nothing new that has put up that is impacting at least.

[Juuso Pajunen, executive]

No, there is nothing material new in how clients are behaving, how terms and conditions or normal operations are behaving. So there's no changes in the business environment in that sense.

[Johan Sundén, analyst]

Excellent. On the Energy side, you mentioned in the report also that you had some very good project executions that supporting margins. Is there any abnormal positive project adjustment that's driving the margin? Or how should we read that comment on the Energy division. Should we expect that the growth starts to pick up now or is it still some lumpiness that can come up from the second half? You mentioned maybe some weakness in the nuclear sector, et cetera.

[Jonas Gustavsson, executive]

Yes. Juuso, you can start, if you want.

[Juuso Pajunen, executive]

Yes. So basically, if we talk about early the project execution, energy has been in project execution, one of our strongest divisions throughout the history as I recall it. So this is more to highlight that despite working in international initiatives despite working in international projects and having worked under difficult conditions when it comes to delivery due to COVID and travel restrictions, we continue to deliver on an excellent level, the projects. So this should not be interpreted in a manner that we have some kind of one-offs or specialties in those results. And of course, then we are expecting that within the Energy division, we continue on the exceptionally good project deliveries. So that is definitely the first part of the question.

[Jonas Gustavsson, executive]

I have to build on that. I also believe that I don't know how many quarters we have had energy between 8% and 10% and even about 10% EBITDA margin, and we expect that to continue. And then as you say, the clear focus is to get to growth. There is some areas always that you keep a more close eye on like nuclear. But I think the Energy division with Richard Pinnock have done a really good journey and created a very strong platform that now Linda will take over as leading the division. And we are then building on -- I would say, transition to more of these growth areas like wind and the renewables and the acquisition that we announced yesterday is one of them. So for sure, we believe that the Energy division and the market will be a really, really interesting market for the years to come with solid and good margins and getting on good growth.

[Johan Sundén, analyst]

Excellent. And I just have one final question. That's on the Infra business. We see an improvement in margin that should be very appreciated. And I also noted that there's been some management changes on the local CEO and the local CFO in that division. Is that reflecting any kind of big turbulence in the segment in general, given kind of a little bit higher cost saving pressure recently? Or how should we think about the kind of what's happening in the division in general?

[Jonas Gustavsson, executive]

No, it's not reflected on the term of the division, both of the ones that left had some really new interesting jobs, and they have been in the company for a long, long time. And at the same time, the new hires we have will also bring in a lot of new competence so that will be very supportive for Infra, which is a big division, roughly 40% of AFRY, and we have expanded to a lot of international business. So I think this will, if anything, strengthen the management team around [ Malin ] with competence from also international business. So I think it's maybe also a more reflection that we have been growing rather fast in the Infrastructure division, if you look over the last 4, 5 years. And I think it's pretty natural that -- then you need also -- you have that change and we bring in competence that have a good experience from also international business.

And we know that the target for Infra to bring the margin up and gone growth. So there is a plan that we will execute on. But there is no real turbulence like that, more than that we are quite focused on executing on those plans. We have to bring in from the margin side that we expect us to be in.

[Juuso Pajunen, executive]

And maybe to highlight that the COO actually retired. So when we are talking about 2 key positions. One is retirement and the other one is going to elsewhere.

[Ebba Vassallo, executive]

Okay. We'll take the next question from Raymond KE at Nordea.

[Raymond Ke, analyst]

Two questions from me. First one. With the first half of 2022 done, the cloud computing costs are expected to end. Is this still how we should see it? Or should we expect cloud computing costs to continue going forward?

[Juuso Pajunen, executive]

I would expect that there's still something minor in Q3.

[Raymond Ke, analyst]

Great. And the second one, considering that costs are rising up faster than previously anticipated by most macro forecasters, I imagine your price hikes must also be more aggressive now? Just sort of stay in front of margin squeezes. Could you share your view on this and what actions you have taken and when?

[Jonas Gustavsson, executive]

Yes, you're right. And I think pricing is and has been a process for AFRY that is established when we have our monthly reviews with business and when we have the bid process, et cetera. But if anything, right now, of course, we are putting even more emphasis on the pricing components in the structure we have. And we know that it's possible because we have our cost increases, and we have -- we see that we can then push prices in our products more than we have done before. So you're absolutely right that that's one component that we are driving together with efficiency and cost moving forward. And we have put a bit more emphasize or more emphasize on that also structurally to keep a good eye on that. And then step-by-step and we are implementing our system landscape, we're also getting more and more support from the systems because I mean it is clear that one reason why we had to do that bigger ERP implementation is because we have had and still have a very fragmented system landscape.

We are coming from the [ work side ] that investments in the system landscape have not been done for many years. So we were living a very decentralized multisystem environment. And this is step-by-step done both we are improving the process, but also getting more and more support from the systems in that area.

[Ebba Vassallo, executive]

And then we have a question from Johan Dahl again, I think.

[Johan Dahl, analyst]

Just a quick follow-up. If you can just quickly explain the logic behind this property transaction, how it impacted cash flow? And also why it ended up that type of net loss? Just since just like interested in hearing about that.

[Juuso Pajunen, executive]

So basically, the property we divested came along with an acquisition somewhere in 2007, 2008. And during the COVID time, we were already or before COVID time, we had been evaluating what to do with that one. And during COVID time, we have emptied that premise. And then obviously, market price for empty premise when you are not willing to commit long-term lease agreements in those ones are not as high as we had in the balance sheet. So basically, the impact on that one is probably bigger than we originally expected when we started already pre-COVID to evaluate these ones. But now we have gotten rid of it and it is a clear cash -- positive cash flow impact. I would need to double check the exact number, but I think you will find it in the quarterly report or you can see it, but it is between SEK 50 million and SEK 100 million that we are talking about on the positive cash on that one.

And then it will have a positive income statement impact for the [ older ] futures come because then we don't need to depreciate anything, and we don't have any of the utility costs that we had in that premise. And as said, we have emptied it during COVID time to gain net efficiency in the real estate in that country where we divested.

[Johan Dahl, analyst]

Yes, of course. So that cash flow impact was in Q2, right, yes?

[Juuso Pajunen, executive]

Yes, it was in Q2.

[Ebba Vassallo, executive]

Okay. Then we have 2 last questions from [ Daniel Urba ] at Handelsbank, and they are written questions, so I will read them to you. First question is, any view on overall visibility on Q3 and Q4 from a year-over-year comparison, project starts, average size of projects, perhaps also from a geographical perspective?

[Jonas Gustavsson, executive]

Wow, that's a wide question. And I think we were [ entering ] in a few other questions that we see right now that the market is strong. We have seen some delays in some investment decision at the client side on CapEx projects, I would say, mainly maybe on the international side. And we are keeping a very, very close eye both on every country where we're operating, but also in the segments. So when we look on our review structure. We are spending a lot of time also looking ahead what is to come and looking at different indicators. But I think I will not be ready today to speculate more of where different segment will go and how it will play out. But for sure, it is a market that is really interesting because the demand right now is strong and solid reflected in our numbers. At the same time, we course follow and read everything about the macro that indicates that it could be a more challenging business moving forward.

At the same time, I also have to say that those investment has started up in the energy sector in the transformation to a sustainable business, electrification, green steel making, et cetera, et cetera, they are pushing a lot. They are pushing a lot to get to market as soon as possible. So there is a lot of factors also on the positive side. But I guess that summarizes our view on that one. We were following closely, and there are some clouds, but there is also a lot of positives.

[Juuso Pajunen, executive]

And then, of course, looking clearly the numbers that we have strong order stock. We had -- we recorded 17,300 FTEs at the end of Q2 or average while previous year Q3, we were at 15,800. So obviously, we have a fairly good increase in the FTEs that should, of course, support the development compared to previous year figures.

[Jonas Gustavsson, executive]

So that was one. I [indiscernible] there's one more.

[Ebba Vassallo, executive]

Yes. The next and last question from [ Daniel ] is many companies have seen original budgets double or triple when implementing new ERP. Lessons learned and what are the key risks from this point in time? Can you also quantify any efficiency gains seen so far from using the new system?

[Jonas Gustavsson, executive]

Yes, I think we have not yet seen any efficiency gain because we are in the middle of the implementation. So I think that's too early to say. But however, we see the pilots and the step-by-step rollout, we see a lot of good effects that will come. And I guess Juuso, you are in the middle of that, but one lesson that we all know is that before you go into system implementation, equal is important to sort out your own processes, but I think right now, we are in the middle of it. And I would say Juuso that we see the peak of it and hopefully step-by-step in the coming quarters, we will then continue the rollout. Or what's your reflection who are actually the one in AFRY?

[Juuso Pajunen, executive]

Yes. I think you narrated very well. So at the moment, clear quantifiable efficiency benefits are definitely not there. But we see culturally that when you speak on the same language and you have a similar visibility throughout your project portfolio and employees. It helps, but putting a number on that one, how much it has helped until now, it's very difficult to say.

And then on those doubling or tripling ERP budgets. I think that it's natural in places where you have very complex delivery models [ warehouses ], production, all of that one that you can make bigger splash, if you do something from our business model is 80% people and then 20% expenses type of a business. So it is fairly simple. So seeing these type of risks to materialize would be very unlikely. So all in all, I think that despite being slightly ahead of budget like we have communicated earlier, we are in a fairly good [indiscernible] step.

[Jonas Gustavsson, executive]

And just one small remark. When I also travel around and visiting countries outside or even in Sweden. And when you look on the system landscape, we are operating now that we have to deal with a lot of system in the back and in the front end I think we will have some really good gains from the systems moving forward. I mean we have implemented a new CRM system that we are step-by-step now using more and more, and we're getting more and more data. We have implemented a lot of system on the HR side. And then we will have the ERP system, and that will replace a lot of other systems, and that will give us a gain moving forward. So we will continue to focus on those implementations, and they are, as Juuso said, we have a bit higher budget, but it's not at all way off. So step-by-step, we will get that in place.

[Ebba Vassallo, executive]

Okay. So we don't have any more questions and can end the Q&A session.

[Jonas Gustavsson, executive]

All right. But then it only remains to thank everyone for the support, and thank you for participating today. And then I want to wish everyone a fantastic summer, and we will meet and talk to you soon again. So thank you again, and have a nice summer.