Afry AB

STO:AFRY

Earnings Call Transcript 2019-Q4

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Q4 report for 2019. [Operator Instructions] I must advise you that the call is being recorded today, Friday, the 7th of February 2020. And I should now hand over to your speaker for today, Jonas Gustavsson. Please go ahead.

[Jonas Gustavsson, President & CEO]

Thank you, and good morning to all of you. This is Jonas Gustavsson speaking. I'm sitting here in Stockholm, so now together with Juuso Pajunen, our CFO. And we will take you through this presentation covering 2019, and of course, quarter 4 then. So thank you again for calling in to this presentation. So let's start off with the first slide, which is basically an overview of how we ended up in the quarter 4 and also the full year. And as you can see that for quarter 4, the net sales amounted to just about SEK 5.4 billion, which was a decline compared to last year. If you look at the combined operation then, ÅF and Pöyry, 2.9% minus. I will get back to that. We are very happy that we have been able to improve the EBITA margin from 8.8% to 9.5%, ending up at SEK 560 million. And then just looking on the full year. I mean we are happy that we have been growing with 5.3% the full year 2019. And if you use the full ÅF period as one company compared to 2018 and then also improved the EBITA margin 5.4 -- the EBITA, in absolute numbers, is 5.4%. And we have kept the EBITA margin stable. So I would say that we are ending 2019 with a strong operation. And then, of course, we will get back to one segment that has been lower during quarter 4. Looking on the general market, it's been stable in most segments. What sticks out is automotive, and I would say, connected manufacturing industries. Here, we have seen a decline during the year. However, we have seen, during end of quarter 4, a stabilization if you look on a sequential development. But if you look year-on-year, quarter 4 automotive have been going down. We are very happy with cost synergies. And as you know then, we have then delivered SEK 218 million run rate cost savings. Compare them to the target we had at SEK 180 million, and we cannot see these are impacting positively quarter 4, supporting the margin. We are now expanding this program into 2020. I will get back to that with another SEK 120 million. And this will also support us during 2020. And at the same time, we have also now finalized the analyze of the repositioning program in Energy and this will have done a negative impact of SEK 105 million that we have done already guided for in conjunction with the quarter 3 presentation where we gave an interval, and now we have finalized that and it's SEK 105 million. Then looking on the next slide, which is more -- if you look the reported numbers, so to say. And of course, it's been a interesting feeling year for us because -- I mean, we did the acquisition of Pöyry, meaning that the reported numbers, we have 37% growth. And if you look on the full year, it's actually up to 41% growth. And then, of course, then big change in the EBITA margin. So that's -- but -- so I would say that the Pöyry acquisition, as such, have proven to be as good or even better as we planned for them when started to look on that mid-year 2018. We're very happy with that. Moving to the next slide, market. I would say, in general, most of the markets and segments in our core markets are stable. If you look on Infrastructure also, I would say, most markets and segments stable and good. We have seen some delays in some transportation projects, but that's more -- I wouldn't say, it's a market trend, it's more based on where we have our business. But in general, Infra continued to be a solid and good market. Then in Industrial & Digital, that's where we have seen the decline over the year, and that's very much related to the automotive segment and the connected manufacturing structure. And this, we have been seeing declining over the years. So we have been mitigating that to support the margin. And what is good now, I would say, is that we see more a stabilized trend by end of quarter 4. Still, the comparable number down to last year is much lower. We can see some very good segments in the industry. For example, Food & Pharma and the Defense Industries, have shown very good development during the quarter. In Process Industries, strong. North America, Nordics and South America, strong regions. And we can see now the sector -- and we have seen that for a little while that the whole buyer economy change is supporting, among others, Pulp & Paper. And also in Energy Division, we can see an improved demand, especially in nuclear. There are some delays in investments decisions. But in general, we see that the Energy market as such is stable and developing in the right direction, especially also with all the actions that we are taking in that division. So if you just isolate the automotive market and the related supply chain into that, the Tier 1 suppliers. And we have some timing effects in Energy Division, EPC project that is fading out. I would say the market in general is stable and good. But of course, we felt that automotive volume reduction during quarter 4. This is just an update on our portfolio and the share of revenue when we have then closed 2019, and you can see then that Infrastructure remains the largest, rough 38%; and Industrial & Digital, 29%; and then Energy and Process Industries, 15% each; and the Management Consulting, 3%. And now we have our industry segments where Infrastructure, also 20%, Energy, power, Process Industry, real estate and then automotive and vehicles. And then we have the other segments. And again, on the right side, we are 75% of the revenues in the Nordics. And then we have Central Europe and some strong core countries outside Europe. Moving into the cost synergy program of 2019. We set a target for us to reach SEK 180 million, and we have over delivered that. We reached SEK 218 million. And actually, it came as we hoped and believed that it was not a proportional over the year, it was more an exponential, that we saw a lot of activities when we closed the deal during the spring and improving effects during the autumn then. And we had a good effect in quarter 4. And I would say, we had good progress in all areas. Just to say, once, we could not also to see some effects of combining the real estate that we are closing down office and we are bringing people together and using that leverage. The integration cost amounted roughly to SEK 215 million, which basically means that we have to invest SEK 1 million to get SEK 1 million saving, but it's a good payoff for this investment. And of course, we are carrying that run rate with us into 2020. On top of that, we are launching -- we have started already with the next wave, which we are targeting another SEK 120 million run rate savings for this year. So that will also be supporting the savings we have with us from 2019. But we are also more clear now to say that in conjunction with the investments program we have on the platforms and on the IT side, we have a cost increase due to that amounting to SEK 50 million to SEK 70 million because we are implementing a new ERP system and CRM system, and setting the system platform supporting us for the future. So roughly half of these savings -- or these savings will also support us in doing those investments in the IT platforms. So we expect the SEK 50 million to SEK 70 million P&L impact from that investment program in 2020. But all in all then, if you would look on '19 and '20 as such then in cost synergies and efficiency program, we are amount -- we are targeting a number of SEK 338 million and -- when we closed 2020 run rate saving. And then, of course, some of that will then be reinvested in our business, as I said, related to the IT platform. But I'll -- I have to say that I'm very happy with the operational performance and the organization's ability to execute on those cost savings, and this is something that we will bring with us moving forward then Because this end of the day is strengthening our different divisions' ability to be very forward leaning and aggressive on the market. And so this is very good. And then if you look on the next slide, this is again a bit more around this cost program for 2020 then. It's -- but it's a bit same things as we did 2019, we have still more, I would say, synergy-related cost savings. On top of that, we are now step-by-step then, how to say, fine-tuning each divisional's management layer, sales structure, operational efficiency front end. And then, of course, we will step-by-step, get these gains from the combined IT platforms, et cetera, et cetera. But then, clearly, we are investing in our operational platforms. So we have IT systems. We have already communicated ERP. And of course, these are investments that are capitalized, but the cost related to implementing those system, we have an increase in 2020. So these savings that we are driving for 2020 will partly be reinvested in supporting that program. And I would say, I -- we are so much looking forward because I can already feel the strength we will have when we will operate with unified system across the company. We will have a stronger position. So the total run rate of those savings will be -- half of that will reach bottom line for 2020, the run rate savings. Just a few words on the repositioning of Energy Division. And this is something that we have been -- we started to look at, if you remember correctly from the ÅF point of view, more than a year ago to realize the -- especially that international Energy business, we had to do kind of a repositioning because they were under critical. There were markets and products that was maybe not fitting us perfectly. So we have started that analyze and then we want to get with Pöyry and then we have kind of even strengthened that ambition. And now during quarter 4, we have finalized that analyze, and we even started to execute on that. And it kind of consists exits from certain markets and products, and I would say, a renewed sales structure. We expect these effects to step up, and be visible during the first 6 months of 2020. And I would say that we can even feel that improvement already now. So I think they're doing a fantastic good job. So they -- that will -- means, though, that we have a negative impact on the SEK 105 million in quarter 4 compared to the range that we communicated in quarter 3, which was SEK 130 million to SEK 150 million. So it was lower than -- but now that analyze is done and we are executing on that program. And of course, we are continuing to bringing in a lot of good projects. And I would say, the order pipeline looks solid and good. And this is just an selection of what we are doing in the different business. We have new frame agreement with some of the regions in Sweden. We have interesting business in Finland for designing of the Tampere tram. We have a very interesting client, which is Oatly, and have a quite offensive investment program, and we delivered to them. We have also other projects in Gothenburg. Chr. Hansen in Denmark moves on, and we have other business in Finland. So I will say that looking on the order pipeline for all our kind of project part of the business, it continues to look solid. So with that, I will leave it over to Juuso, to take a few -- through a few of the numbers. So please, Juuso?

[Juuso Pajunen, Chief Financial Officer]

Thank you, Jonas. So the first slide is about the growth and the revenue. So first of all, as we can see, we have the total growth of 38% in the quarter, which is highlighting the further acquisition. And I prefer to mention it because it is a major topic and a big impact for us during the year 2019. Then obviously, when we are talking about the total growth on combined operations, minus 2.9%. We can't be fully happy with that number. But when we go down with the divisional split, you will get a bit more flavor on that one. But basically, we see we have solid growth in Infrastructure and in Process Industries. And then the lower volumes are especially coming from automotive and then the supporting manufacturing segment. Then in Energy, we have basically a major EPC project almost completed, and it generated less revenue in Q4 2019 compared to 2018. And then finally, Management Consulting, which is inherently volatile when it comes to success fees and the Q4 2018 in -- was highly, highly good, probably the best ever from that perspective. So that's, in a nutshell, what we are seeing. So if we summarize, strong growth when we compare the total growth due to Pöyry acquisition. Solid growth in most of our segments, but then when we had some decline in especially 1 market segment and then otherwise, mainly timing-related items in Energy and Management Consulting. If we then talk about the profitability, what I have to say is that I'm really happy on the 9.5% EBITA margin on Q4. On combined operations, the comparison point is 8.8% compared to previous year. And this is something that we need to continuously remember that we had roughly 1 working day less compared to previous year. And also, that obviously impacts the revenue levels and the decline in there. So with less working days, we have managed to substantially improve the margins. And at the same time, if you then compare that one with the cash generation, we are also generating this margin improvement as cash. So if we look this figure, I'm quite happy to report the SEK 516 million, above previous years on combined operations and obviously, clearly above on reported. We are having solid performance in all of our divisions. We have sequential improvement, so from Q3 to Q4 2019 in all of our divisions. So all in all, in this front, I'm quite happy. And especially then the cost synergy program, SEK 280 million run rate savings, and we have been able to show that, that is now visible in our margins. We are talking roughly SEK 100 million positive impact in 2019 from the actions implemented and now going for 2020, we have the SEK 280 million run rate that should support us. We have a really strong platform now that we are going to 2020. Then if we take a bit of the bridge and the divisional view, we see that going from 8.8% to 9.5% or SEK 492 million to SEK 516 million, we have had the negative calendar impact due to 1 working day less. We are talking about the ballpark of SEK 30 million rounded impact on that in a negative side and that has been then covered by basically synergies you see in the common or group elimination for SEK 35 million improvement. We see Process Industries, Energy and Management Consulting improving also. The absolute profitability, Infra, Industrial & Digital Solutions are then not contributing as well. But as said, sequential improvement, if we take from Q3 to Q4. And we take the delta Q3 2019, Q3 2018, we have been squeezing that delta smaller, and we see that our actions are having an impact. So I'm fairly confident that we will continue with those ones. Then going further deeper into the divisions. We see that Infrastructure is having adjusted organic growth of 2.3%. It is lower than in earlier quarters. We still see some softness, especially in architectural market, Q4 compared to Q4 previous year. And then we have had the delays in the progress in transportation. But otherwise, it is solid, it is strong. Industrial & Digital Solutions, minus 4.7% in the growth, basically driven by automotive and the manufacturing sector. This is something that has stabilized now between the quarters, but we are now going on a lower levels than earlier. So Q1 2020, for example, is still facing -- growing and strong market of Q1 2019. But also, if you put that money into the context that we have been losing top line, we have been able to stabilize the margins. We are delivering 8.5% margin in a division. It's not within our ambition, but given the market circumstances, I'm quite happy to see this type of a number in here. Then it's a Process Industries, 20% is, well, happy number if we put that one. If we take the combined operations, we are roughly 9% growth. No matter which one of those you are looking, this type of a growth combined with 13% profitability is an exceptionally good performance. And we are really happy to see this is supported by solid market conditions. There are many projects in the planning phase or in implementation phase, both in Nordics and in Latin America. So this is favorable for us. Energy, minus 2.4% growth. This is something that we need to understand the EPC projects being in here. So we have, at any point of time, we have 0 to 2 EPC projects. Currently, we have 1, and it is pretty much on the finalization stage, which means that we have less revenue from that one. The impact is roughly SEK 50 million, Q4 2018 to Q4 2019. That translates to 5-point-some percentage points on growth on combined operation level. So if we adjust for that one, actually, our Energy Division is growing. And then if you see the margin, 8.3% compared to 6.8 percentage points in combined operations, that's 150 basis points improvement. This is something that we are also really happy to see. And we see some minor impacts already coming from our repositioning. And this is the growth that we want to continue, and we are fairly confident that the actions that we have started in Q4 will materialize further in the second -- or the first half of 2020. Then also in here, we see the impact of the synergies from the merger. Pöyry had similar type of operations and combining those funds have been positive. Management Consulting growth, we are not happy, but this is something that I'm not worried at all. Q4 2018, we had, in a very unicorn quarter, what comes to success fees, we were not able to repeat that one in 2019. That is within the business model. We are still delivering 13.3% margins compared to 15.9% previous year. So we can even say that the underlying operations are stronger than a year ago if we take the success fee volatility out from there. So all in all, I would say that, especially when it comes to the EBITA percentages, I'm really happy. And on the growth, we have some work to do and items to address in our -- some market segments. Then the second component that I'm really happy to report is the cash flow. We are delivering basically almost SEK 2 billion of operating cash flow for the year or SEK 1 billion operating cash flow for the quarter. And this is now visible. If we take the net debt levels we have...[Technical Difficulty]

[Operator]

Please standby whilst I reconnect your speaker.

[Jonas Gustavsson, President & CEO]

It is working now, but you are still on mute.

[Operator]

Yes. You're now live in the call.

[Juuso Pajunen, Chief Financial Officer]

Thank you. I would be highly, highly thankful if some of the Pöyry team would confirm that we are being heard. Ellen, I see you are there, so could you confirm? Good. My deepest apologies for the technical issues. We do not know what happened, but we are absolutely happy to be back. So I understood that you lost me when I started to talk about the net debt. So basically, I am extremely happy on the SEK 4.4 billion net debt and 2.2 EBITA growing concern operations or net debt to EBITA. So our balance sheet is not a limiting factor on any of the actions we want to take in the future. That is also highlighted by the Board of Directors' proposal on dividend of SEK 5 per share. If you put that one into the context of our dividend policy, it is 50% of the adjusted net profit of the year. But obviously, when we take the items affecting comparability, it would be above. So SEK 5 per share is roughly SEK 560 million for the company, and we are happy to distribute that one to our owners. We are confident with our balance sheet position. Then going forward.

[Jonas Gustavsson, President & CEO]

Thank you, Juuso. So you have to finalize -- I mean, 2019, again, that was an exciting year. And for sure, there's a few things that we really need to address. But overall, we are pleased with the acquisitional period and integration. We launched a new brand, joint brand, AFRY, still having the legal name ÅF-Pöyry. We are happy to unify our forces under the AFRY brand step by step, and it has brought us a lot of new energy. So moving into 2020, I think we have an excellent platform, excellent base. So just to summarize where we are, I think you could say that by improving the profitability and the strong cash flow, it shows that we have a good grip of our operation. And I'm very pleased on that. And I think that's been for some of your concern then, can you do a big integration of the period? And what and how will that materialize? I will say that we are a much, much stronger company now. We have an overall solid demand in most segments, very much supportive for the big global trends. I mean we see this need of our engineering competence and design competence all over the segments. Yes, we have had a bit of a decline in automotive. We are addressing that. And I think the good sign is that we are more flat. And we have a sequential, more balanced volume. So this is something that we're addressing. But all over, it looks good. And I think to deliver the SEK 218 million then in the cost synergies adding on the SEK 120 million for 2020, will give us in a strong position because as more and more we become operationally strong as more often seen aggressive we can be from them. And this will also be supported by the IT investments we are doing. And these are needed, and we are doing that. We are driving that program as we speak. And it delivers as we expect so far. So I have a good feeling that by step by step, we will have these joint platforms that also will support our operational performance moving forward. So right now, there's a lot of focus on efficiency, and I would add growth. Of course, now moving into 2020 with the favorable market, we are focusing on growth. And of course, then unified with our joint brand, AFRY. So this is basically ending the presentation so far. So with that said, again, we want to apologize for the break we had on the phone, but open up for any questions.

[Operator]

[Operator Instructions]Our first for today is from Johan Dahl from Danske Bank.

[Johan Dahl, Analyst]

A couple of questions. Firstly, on this new efficiency initiative that you're launching. You're talking about the efficiencies, 130 -- SEK 150 million. When do you expect that to be net -- sort of accretive to profitability in the group?

[Jonas Gustavsson, President & CEO]

Yes, I will -- Juuso can answer, but I think we talked about SEK 120 million, but Juuso will take you through the thinking behind it.

[Juuso Pajunen, Chief Financial Officer]

Yes. So basically, the SEK 120 million is something that we are now working on. We are using the same methodology as in the synergy program for the 2019. And we have different type of components in there, but we are quite confident that we have a solid progress throughout H1 and continued in Q3 and Q4. So at the moment, we are foreseeing somewhat linear progress, but given the content of the program, having the efficiency and the platform components, the efficiency for us is a bit more operations-driven and subject also to market conditions a bit more, while then the platform for us has the IT and real estate components dominating it. So those ones are coming in a bit more binary type of components, how we address and how we progress. For example, moving people to new offices and IT is driven by certain milestones. So I'll leave Jonas to talk linear implementation at the moment.

[Jonas Gustavsson, President & CEO]

But of course, Johan, you -- we have a bit of the momentum from the 2019 program because we had a good progress by end of year, and we are using that momentum into 2020, adding on also a few efficiency activities.

[Johan Dahl, Analyst]

Yes. No, I'm just wondering what you're budgeting for, sort of, if you -- will it be accretive at all in 2020 or no.

[Jonas Gustavsson, President & CEO]

I'm impartial what it will be. But we talk about the run rate. And then we have been highlighting that this investment program we are doing then on the IT system platform. Part, basically we say, that efficiency and cost savings will be reinvested in our operation at the same time as we have the momentum from the 2019 program with us. For sure, we should have an overall benefit and support on the bottom line throughout the year. But again, part of it will be reinvested to support that SEK 50 million to SEK 70 million cost increase that we have to implement all those new systems that we are in.

[Johan Dahl, Analyst]

Okay. On Energy, having decided on the activities and taking the charge here in Q4, can you explain a little bit what -- sort of what -- how much sales are you cutting away? And potential impact on your reported profitability?

[Juuso Pajunen, Chief Financial Officer]

I have to, Johan, firstly reiterate that we have been continuously talking about repositioning, which is, from my perspective, different compared to restructuring. We are pushing our sales operations into different market forecasts and our key impact on the profitability is that we gain different type of projects, we target different type of projects having different type of higher profit margins, and that will come in visibility little by little during 2020. And at the same time, like you saw from the margins from the Energy sector, merger synergies that are visible in there. We have better span of management and taking over some overlapping functions or activities. So that will continue to be visible continuously. And then the repositioning part is coming throughout H1 and little by little continued in H2.

[Jonas Gustavsson, President & CEO]

I would say, Johan, that being in a worse before then it forces Pöyry to look at our international end of the business, where we have had some troublesome year. I see now confidence with this program and execution that we are doing from Richard Pinnock and the team, that we will have a strong and solid operation for further of selecting more products we're bidding for. So -- but I wouldn't say, as Juuso said, there's not a big negative top line thinking about it. So I think we still have also growth. So -- and then we have the EPC projects that will come. A lot's come, but I have a strong confidence we have that -- that we will reach that 8% to 10% margin band, as we have said, and also to reach growth in that division.

[Johan Dahl, Analyst]

Okay. It seems as if Pöyry reported weaker top line Q4 '19 compared to '18. Can you just elaborate a bit on these big EPC projects? What sort of headwind are you meeting there for full year 2020? You said SEK 50 million in Q4. Is it like SEK 200 million for 2020? Or how do you view that?

[Juuso Pajunen, Chief Financial Officer]

Yes. We have basically, in the further part, now we need to continuously remember that the combined operations are making a split between ÅF and Pöyry is not very meaningful anymore because how we have been pushing people and operations to different legal stuff. But if we take on a macro level, we have 2 components in the former Pöyry side. We have the EPC project component, which has roughly SEK 50 million quarter 4 to quarter 4 previous year impact on the revenue line, which is purely coming from a timing of an EPC project. We are implementing a thermal power plant in Philippines, and there we had in Q4 2018, the heavy installation materials -- material delivery was ongoing and now the project is ramping down. The thermal power plant is being taken into use. So we have -- it's not generating that type of a fast-through elements anymore in the revenues. And that is definitely visible and attributable to old Pöyry. And then the second component is coming from the Management Consulting success fees that I explained also earlier. If we take any other operations here, Process Industries and so on, there's no revenue decline in the former Pöyry side.

[Jonas Gustavsson, President & CEO]

No. Another [indiscernible] is, Johan, I think we have the strength and position to take, as Juuso said once and maybe also 2 large EPC projects a year. And we have good prospects, and hopefully, we will get one of these also coming in this year. But they're more binary, but I don't see that we are, in any case, weakening in the Energy. In the opposite, I think we are getting stronger in the operational cost, so to say.

[Johan Dahl, Analyst]

Okay. Just finally, what -- in terms of calendar effects 2020, what do you sort of put into your expectations there for the ÅF group, sort of '20 versus '19? That's all.

[Juuso Pajunen, Chief Financial Officer]

We have in average, 1 calendar day more in 2020 compared to 2019. So obviously, 1 calendar day more, all things equal, should mean 1 working day more of revenue generation. You put that 117,000 employees we are having so, then you can do the math from there with your own parameters.

[Jonas Gustavsson, President & CEO]

This should be a better year.

[Juuso Pajunen, Chief Financial Officer]

Yes, that's the conclusion.

[Jonas Gustavsson, President & CEO]

Thanks, Johan.

[Operator]

Our next question for today is from Dan Johansson from SEB.

[Dan Johansson, Equity Research Analyst]

A few questions from my side. First one, recent strike in the Finnish Pulp & Paper industry. Do you see it having any impact on your Process Industries business for Q1?

[Juuso Pajunen, Chief Financial Officer]

Basically, firstly, we need to understand that it is our clients who may be in strike and none of the major CapEx projects are not stopped down and so on. So basically, we don't expect it to have material impact in short term to our business. In the longer term, obviously, it's never good to have turmoil in our key segments as such.

[Jonas Gustavsson, President & CEO]

So short term, no. But let's see how long the strike will continue, because of course, it's not beneficial for our large clients in Finland.

[Dan Johansson, Equity Research Analyst]

Okay. Very clear. And last question on the cash flow. As Juuso mentioned, it looks very strong in the quarter. Is this any sort of onetime effect in the working capital improvement? Or is it just a very solid underlying cash flow development in Q4?

[Juuso Pajunen, Chief Financial Officer]

Well, part of that one is seasonality. If you take our longer track record, our business tends to deliver Q4 strong cash flows always. We have been working heavily on the network capital and talking about cash and creating cash culture, and I would like to believe that, that is now visible in our numbers.

[Operator]

And our next question is from Johan Sundén from Carnegie.

[Johan Sundén, Research Analyst]

One question from my side as well, and it's on the revenue of the group in the quarter. When I look at the bridge between the divisions, it seems like other eliminations has increased substantially compared to Q4 last year. What's the reason behind that?

[Juuso Pajunen, Chief Financial Officer]

Thank you, Johan. So basically, we are making a major merger at the moment. And if we in a way, put a bit of the legacy and history on the topic, ÅF was working in a quite local environment with limited number of internal counterparts. Pöyry has been working in a quite international environment with quite substantial number of internal counterparts. And that legacy has created into different type of internal elimination roles within the 2 groups, which has meant that when we are combining these 2 ones, we have needed to make some decisions, and we don't yet have a full system support for all of this accounting and consolidation work underneath. And that has created wider elimination differences. And then the second component is that when you look for the combined operations and review from the previous year, making these eliminations in retrospective for historical data is almost impossible, or at least would require such a substantial amount of manual work, that we have chosen not to take too much effort on that one. So that's, in a nutshell, what has happened, but it's also quite financial technical. But this is something that we are now working on and improving our system landscape. So we should see this one to stabilize.

[Johan Sundén, Research Analyst]

So around the full year effect should be some kind of good thing to look at going -- for the future then?

[Juuso Pajunen, Chief Financial Officer]

Yes. In a way, yes.

[Jonas Gustavsson, President & CEO]

Thank you.

[Operator]

[Operator Instructions] The next is from Erik Elander from Handelsbanken.

[Erik Elander, Research Analyst]

I have some questions here for you. So in 2020 now -- or in 2019, actually, your Industrial & Digital Solutions declined in terms of organic growth. Do you expect the weakness in automotive and industry sector to continue in 2020? Or is it possible to come back to the group target level within this segment of 5% organic growth going into this year?

[Jonas Gustavsson, President & CEO]

Well, good question. Of course, we are -- we know the market right now. And as we said, we have seen a stabilization, I would say, between quarter 4 and end of quarter 4 when it comes to automotive. And I will say, of course, automotive has an impact on the related supply structure, and that we saw declining, as we have said, over the year. Then we have seen positive, I would say, in segments like Food & Pharma and Defense Industries. So there are also bright spots into the overall industrial segments. What to see into 2020, Erik, not so easy for us and we are not guiding the forward-looking either. But of course, we are doing everything we can to drive growth on those segments where we have a good demand, and we see some good opportunities, and there are several. At the same time, as we are seeing at least now, what you see right now, I would say, a sequential stabilization on the automotive part. There are some great trends supporting us also in the industry. Automation, digitalization, electrification, to mention a few of them. So I'm not worried, Erik, about the underlying trends in industries. In the opposite, I think they look in favor of us. Then, of course, when you have a large segments that also affects the related manufacturing industries like automotive, having a decline, of course, we see that. But looking a bit ahead, not speculating on the market as of right now, I believe that the underlying trend speaks very much in favor of our Industry Division. So that's what we're looking for. So let's see, Erik, but we will do everything we can to continue to drive efficient operations and to go for growth also in that division, for sure. And there are many, many bright spots.

[Erik Elander, Research Analyst]

All right. And talking about growth in the Energy segment, it has been improving -- in terms of organic growth, it has been improving now for some quarters. Do you expect the Energy business to grow? I mean positive organic growth number in 2020? Or will you continue to focus on margins by reducing staff?

[Jonas Gustavsson, President & CEO]

No. I would say that if you take away these EPC projects that are very -- as we said, they are big, and they will come and -- if you take away them, we expect growth. I mean Richard Pinnock and the team are doing an excellent job in repositioning the whole Energy business, targeting countries, subjects, clients where we have a good position, solid projects. So yes, if you take away EPC, we expect growth. But we know also that the focus has been much to reach that interval between 8% and 10% EBITA that we gave them as a challenge, because going back a couple of years, what have been very much volatile and being on larger levels. And then on top of that, a few small divestments we might have. But in general, the underlying Energy business, yes, we will see growth. And it's very much supported on the transformation on the Energy market. We all know that at a certain point, the whole electrification, renewable, the whole challenge we have on the sustainability part and climate challenge, will support us and the need of engineering solutions in the energy market. So I'm quite positive.

[Erik Elander, Research Analyst]

Okay. Great. And then on the net recruitment. So the development of a number of employees quarter-over-quarter, it actually declined by 277 people. What is the reason behind this?

[Jonas Gustavsson, President & CEO]

Well, I think you see the sector. Of course, if you look at the Industrial & Digital, they have to mitigate the fact that we lost a bit on there. So that's been a kind of reposition. And then we have the effect on the group in general. I mean the synergies, as such, have declined people on the functional side, et cetera. And then I would say, how we are organized right now. We are organized in 5 divisions and a number of business areas with full P&L below, and they are the full focus on growing, setting the focus on their different structure. So that basically answers it, but we are a company that should -- we are recruiting a lot and people are also leaving. So that's what we see. So I think this was more a timing issue on the reduction.

[Juuso Pajunen, Chief Financial Officer]

This is a timing issue. And then we need to remember that we are talking about full-time equivalents, and this is maybe a place where we have some challenges, combining kind of the Pöyry of reporting and ÅF of reporting. So we are from employer to employee and FTE perspective, we have been fairly stable. I mean that's a fair question.

[Erik Elander, Research Analyst]

Okay. So it's not like you're seeing a higher personnel turnover again according to consultants?

[Jonas Gustavsson, President & CEO]

No. Not at all, and the opposite, Erik. But I think FTEs are all complicated also, joining the 2 companies together. But for sure, all our divisions have a high focus on recruiting and growing. And I think moving into this year, that will be the name of the game because the platforms are becoming more and more solid.

[Juuso Pajunen, Chief Financial Officer]

Yes. And then we still have more employees at the end of Q4 compared to what we had at the end of Q3. So this is also something that we need to highlight. Yes.

[Erik Elander, Research Analyst]

Right. And a final one for me. In the Infrastructure Division, are you seeing that customers are becoming more reluctant when it comes to new projects? Or if those transportation projects that you have seen being delayed, just a one-off case? It's not a structural change in the market?

[Jonas Gustavsson, President & CEO]

I would say, not a structure change in the market, it's more one-offs for us. I mean the market in Infra, we know especially in Nordic, but also when we include Switzerland and it is still very solid. Then I think more ability, sometimes, I think also the client to handle a lot of these big projects at the same time, it can delay some of the decision points. But the underlying demand for Infrastructure projects continues to be very solid. So these were more, I would say, related to us and one-offs. I don't see a structural change in the markets.Thank you, Erik. Thanks a lot.

[Operator]

And our next question is from Ola Soedermark from Kepler Cheuvreux.

[Ola Soedermark, Equity Research Analyst]

Some follow-up questions on Erik's question about timing and contracts in the Infrastructure business. And you also highlighted that some project were closed with lower profitability than expected. Are everything happening in Q4? And can we expect some positive effects quarter-over-quarter in Q1? Or should we expect some negative effects in Q1 as well?

[Jonas Gustavsson, President & CEO]

I think you should not expect -- I think we always -- as you know, we are becoming more and more project business. And now we happen to have a few delayed projects in transportation, and we closed a few projects with lower contribution than we expected. This is nothing, but it's a systematic thing that we should think will come. I mean every quarter, we have pluses and minuses. Just now it happened to be a bit more on the minus side, but this is nothing that we expect moving forward.

[Ola Soedermark, Equity Research Analyst]

Okay. That's very good. And also a question on the investments in the new platform and IT investments. I know our experience that when companies are implementing new structure and IT platforms, it could turn the focus internally. So do you see any risk there? And you lose some momentum?

[Juuso Pajunen, Chief Financial Officer]

No, I can tell you that a year ahead of the acquisition of Pöyry, we had already decided that all work that we had to do it. And it was we had to implement the new ERP system. We started it to work with that a year ahead of the Pöyry acquisition. So we have continued to work with that. And I guess, that shows that we are not fully internally focused, because in the meantime, we have been able to make an acquisition of Pöyry to integrate that, deliver the 5.3% growth over the year, stable margins still implementing and driving the ERP system platform. So I'm not worried about that. And I would say that we are doing this in an extreme rigorous way. Because we know that if we do it the wrong way, it can end up in trouble. But at the same time, I think we, as a company, using a lot of Pöyry's experience and the suppliers we have, it's a much higher maturity in-house implement new system platform. For sure, there are obstacles that we need maneuver in and handle but what I see is that we do it in a very rigorous way, and I don't have any fear that this will be a problem for us. In opposite, these are the things and tools and system we need to be even sharper in our business. And that's why I'm quite pleased with what we have been able to do as a growing company this year. Because for sure, we do not have the perfect system support, so to say. Still, with that not perfect system support, that actually drive inefficiency, we are delivering the result as we are doing now. So I'm quite positive in how we are implementing, and I'm very much excited, what kind of strength it can give us.

[Ola Soedermark, Equity Research Analyst]

Sounds very good. And just the last follow-up question on the order pipeline. And Juuso, out of curiosity, have any area in the order pipeline year-to-date surprised you on the positive side or on the negative side? Just to get a feeling of what's happening right now.

[Juuso Pajunen, Chief Financial Officer]

Well, I will say of course, we see the automotive declined. And I don't -- there's a big transition in automotive, as you know, that many of our clients are investing in new platforms. I mean there are some big bets for the big automotive. How fast you transform to electrification, how much are you protecting your old platforms. So there's a big transformation. At the end of the day, that will be beneficial. But throughout the year, we saw a decline, that was something that we didn't see coming then, but we have adjusted for it. Then the remaining part, I think, has been very strong. If you look on Process Industries, I was in Brazil last week, by the way, looking into some of the big clients and projects that we have in Brazil. And I was just amazing how strong our brand. And I'm not talking about Pöyry, that has been very much in Brazil for a long period, and we are the company that actually implements those big investments in the buyer economy in Brazil. So that's -- I would say, that's -- the things that we looked at for Pöyry that we said this we will gain with Pöyry, for sure -- I mean, there are things that we always want to have more. But in general, I can assure you that it gave us exactly what we wanted. Yes, there are more integration work to do, but I'm positively surprised how ÅF and Pöyry together are looking, and what we can do.

[Jonas Gustavsson, President & CEO]

Thanks a lot.

[Operator]

Okay. And our next question is from Johan Dahl from Danske Bank.

[Johan Dahl, Analyst]

Yes, a follow-up. You've been fairly slow on acquisitions for obvious reason in the last 12 months. What's your outlook here for 2020? When would you say that your balance is fixed to continue to grow?

[Jonas Gustavsson, President & CEO]

Well, I think as Juuso said, we are very happy that with the quarter 4 cash flow, Johan, and we expect also solid into this year. And that means with the net debt we have now that we are ready for stepping up that. So this is, of course, was in the plan. At the same time, we are becoming maybe even more selective what companies to buy. So this -- there are basically 2 things. But we are now step by step improving our pipeline on potential acquisitions. So I don't think you'll see a big catch-up effect. But for sure, we are ramping up the focus on that. And we are getting ready for some larger ones. And this is also very much supported from the Board. And again, the net debt position is supporting that.

[Johan Dahl, Analyst]

Yes, but given the higher demands on candidates, have you sort of cleaned out the pipeline and sort of restarted it? Or is it that slower period in 12 months that created a lot of potential deals to be made in the short term?

[Jonas Gustavsson, President & CEO]

Well, I mean the truth is that just when we were -- when we did the Pöyry, we had a lot of other prospects that we discussed with. And of course, when we did the Pöyry, we had to say no to many of those. So some of them are still in the game. We are looking at them. At the same time, as we talked about this online during the webinar close to 3 years ago, we are looking also for companies that will help us in the transformation. We are targeting higher up in the value chain. We are looking at software companies. We are looking at companies that could also maybe give us a recurring revenue to complement our service business. So for sure, we are more selective also from a strategic point of view where do we invest in companies. We have a broad geographical spread. So there are more variables. But the -- it's -- I've seen now we are get -- both on balance sheet and direction, we are getting ready for now to take on 2020 on the acquisition side.

[Juuso Pajunen, Chief Financial Officer]

Yes. And then if we prefer to purify the pipeline, the pipeline is solid, the MSA activity in our industry is there. So there is opportunities. But as Jonas says, we want to be careful on which opportunities we grasp.

[Operator]

And there are no further questions that are waiting.

[Jonas Gustavsson, President & CEO]

Okay. Then we are getting close to 11 o'clock. Thank you all for listening in and for all the good questions and dialogues. And thank you from us here at Stockholm, and we wish you all a great day. Thank you so much for listening.

[Operator]

Thank you very much, sir. Ladies and gentlemen, that does conclude the call for today. Thank you all for joining. You may now disconnect.