Projektengagemang Sweden AB
STO:PENG B
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Projektengagemang Sweden AB
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Ladies and gentlemen, welcome to Projektengagemang Q2 2019 Report. Today, I am pleased to present Per Hedebäck, CEO; and Peter Sandberg, CFO. [Operator Instructions] Speakers, please begin.
Hi and good morning to everyone listening in. We would like to welcome you to this Q2 2019 presentation. This is a quarter where we continued to grow our business, which is good, but we do that with lower earnings year-on-year and this is due to lower profitability in some of our business areas. And this is a disappointment to us. However, we are glad and we are pleased to see that our hard sales work is now starting to pay off. And during the quarter, we have won a number of new contracts and frame agreements, and this is important. This includes that we have secured a high utilization in our largest business area, Systems, for the rest of the year. So improving profitability is our top priority in the management team, and this is something that we will continue to do. We will keep that sense of urgency in the organization regarding sales, and we will also execute on our savings programs that we launched in the first quarter. And this program will give us an annual savings of SEK 15 million in 2020 and onwards.So with that, I will give the one of you that are new to P a short introduction to the company, so let's move on to next slide, 2. P, we are a quite young company. We were founded 13 years ago and we were listed in June last year. In the company, we have multi-disciplinary teams, we have an entrepreneurial spirit working closely to our customers and we have around 1,200 employees. If you look into our operations, we have our main operations in Sweden, but we also have a small office in Norway and 50 highly skilled engineers in India. If we move to next slide, 3. We have 4 business areas: the Architecture & Management, Civil Engineering & Infrastructure, Industry & Energy and Systems, which is our largest and most profitable business area. We offer a comprehensive mix of services and we have really good cross-selling opportunities to our more than 3,000 customers that we serve every year and we are focusing on delivering multidisciplinary projects, and in total, we do about 10,000 projects per year.So with that, I hand over to our CFO, Peter, to present the summary of the quarter.
Thank you, Per. And the group financial summary for Q2. We continued to grow and that is driven by acquisition and the growth is 12% in the quarter. Earnings were down year-on-year and that is due to lower utilization rates and fewer full-time employees, primary in our business area, Industry, and in the management consulting unit of Architecture & Management. This is a disappointment and we are taking firm actions to improve earnings, as mentioned in Q1, especially in the underperforming areas, including both sales and cost initiatives. And as Per mentioned, this work has started to show results and we are pleased that we have managed to restore utilization within business area, Systems, to a high level after a short drop that we saw in the first quarter.If we then move over to the group EBIT bridge. So there, we can see overall the lower earnings are mainly due to the lower utilization and fewer headcounts and that we see in the division Industry & Energy as well as in Architecture & Management due to the management consulting part. Although we see lower result also in Systems, we have managed to turn the trend and restore utilization to a higher level and the EBITA was up 40% versus Q1 and that is an effect of our initiatives for the sales effort in the quarter and that is also where we had fewer working hours in Q2 compared to Q1.We also see somewhat lower result in Civil Engineering & Infrastructure where some of our units in the business area are affected by lower demand in the Stockholm region that we see. With that, I hand over to Per and the business highlights.
Thank you, Peter. If we look into the business highlights for the quarter, again, we can conclude that our hard sales work is starting to pay off where we have won a number of new contracts and frame agreements and also worthwhile mentioning here we have also -- see a good mix between the private and the public clients, and that is important. So we believe our organization has done a really good job here.And as mentioned earlier, it is our top priority to improve profitability where we have firm activities in place, already mentioned by Peter. And on a group level, we continue to develop our platform for profitable growth, and here, we would like to highlight 2 things that we have done in the quarter. We have done a massive work, and again, here, we would like to thank the whole organization where we have reduced our legal entities from 65 to 1. And as a result of this, we can see and we will have reduced administration moving forward, more efficient internal processes, and maybe most important now we will present our offering under one common brand, PE. We also have a program where we're moving together our offices and this will be finalized in 2021, and this is ongoing. So when this is done, we will go from 70 offices today to 40 offices. That's also a massive and a very good job. So going into 2020, we will have a lower cost base as a result of all these activities and we also will have a more focused offering to our customers.If we move on to next slide, #8. Here you can see some examples of the recently won projects and framework agreements. And here, I would especially like to highlight Danderyd Hospital, which is one of our biggest projects ever in the PE history. That project has already started somewhat, and that will kick off directly after summer holiday and it includes all disciplines in our business area, Systems.We're also glad to see that many of these new projects are in the Stockholm region where we have seen a little bit of a lower market, but again, it is from high levels. And if you work hard and have that sense of urgency, there are a lot of projects to win. So again, here, we will see a higher utilization rate because of these projects going forward.So with that, let's move on to next slide and the result of our 4 business areas. So if we look into Architecture & Management, we have 3 business units: architects, project management and management consulting, which is the smallest unit. If we look into the overall revenue in the business areas, we had a decline in the quarter and this is mainly due to low utilization within the management consulting unit, but also an effect of the transformation work done in 2018 with reduced headcount in the business area. And as a result of this, we have made staff reductions in the management consulting unit in the quarter to restore profitability, and now we have adapt our offering to only focusing on sustainability where we see a strong demand and where we will continue to invest going forward. Also worthwhile highlighting is that the stable development we saw in Q1 in the Architecture business continued in the quarter and here we plan to recruit additional architects during the remainder of the year.So with that, let's move onto the next slide, Civil Engineering & Infrastructure. Here, we saw a strong growth in the quarter and that is driven by the acquisition of Integra. And also worthwhile mentioning, the integration of Integra is going well and they delivered solid results in line with our expectation, which is good. Utilization rates within Infrastructure and also within Civil Engineering in the Stockholm region was lower in the quarter versus last year, but we saw improvements also here at the end of the quarter as a result of our hard and intensified sales work. So that is very promising. In the business areas, we are therefore very glad to see that we have won several projects within Civil Engineering as well as the continued very positive trend in railroad with additional contracts signed. And to comment a little bit more in detail in railroad, we are approaching breakeven and we see a solid development in utilization moving forward.So let's move on to Industry & Energy. In Industry & Energy, this is our smallest division or business area where we have made further staff reductions to adjust and focus our offering to the growing market segment, digitalization and automation services. In the quarter, we have also continued to consolidate offices to reduce cost.So to summarize, the status in the business area, a lot is already done but it takes too long time while we now are reviewing additional activities to restore profitability. Important, though, and I would like to emphasize this, is that we will continue to invest and focus on sales and efficiency measures towards profitable growth within automation and digitalization, which we see stable demand and synergies toward other business areas in PE and especially to Systems.So let's move on to Systems. This is our largest business area regarding both share of revenue and EBIT. And during the second quarter, revenue earnings were impacted by the weaker market that we saw -- that impacted Systems already in the first quarter, and this is something that we saw especially in the Stockholm region within the business unit, electrical and telecommunications, where we are among the market leaders and we also have a lot of engineers here in Stockholm. Even though the lower demand has affected us also in the second quarter, we are very glad to see that we quickly have managed to reverse the utilization trend in this business area, and when that is done, we have secured high utilization for the remainder of the year, which is great to see.And with that, I hand over to you, Peter, for the next slide.
And then we're on Slide 13 with the cash flow and net debt. We have a cash flow from operation of nearly SEK 64 million for the quarter and that is, to a large extent, due to the change in working capital. We have a cash conversion of 95% and the net debt is SEK 390 million, and of course, that has increased now with the IFRS 16 taking in consideration all the lease contracts.And we also in the quarter have paid out a dividend of SEK 1 per share and that is SEK 25 million.And after that, I hand over to you, Per, and -- for the slide.
Yes. Thank you, Peter. So we will now make some final conclusions on the second quarter and give you our outlook for the remainder of the year. And to conclude that, we continued to grow, which is good, that is driven by acquisition that we made last year, however, earnings are low year-on-year. Therefore, improving profitability is our top priority and includes both sales and cost initiatives. And again, to us, it is therefore very encouraging and good to see that intensified sales efforts we have made is now starting to show results, and that will improve our overall utilization during the rest of the year.And again, as I mentioned, our action also include cost reductions and that will also start to have effect in the second half year. And here, we will realize SEK 5 million on that program and we will have the full effect in 2020 and onwards of SEK 15 million.So with this, we anticipate a full year EBITA result for 2019 in line with or slightly better than in the previous year.So with that, we end this presentation and we'll now open up for questions.
[Operator Instructions] Our first question is from Julius Rapeli from SEB.
Can you hear me?
Yes.
All right. A couple of questions from my side. Firstly, starting with the Civil Engineering side and the EBIT declined year-over-year and sequential as well despite adding Integra. So could you elaborate a bit on the underlying profitability in the Integra and the remainder of the group?
We see that Integra is performing according to our expectation and so that sums up here that we have earnings that are similar year-on-year. And that means, of course, that the underlying has a bit earnings to make up for and it's affected by the Infrastructure side that we are building up.
Okay. Then you mentioned the breakeven in the Infrastructure side. So what is the time line for that? Do you expect it to be breakeven in Q3 or during Q4? Or can you comment on that?
We would expect that to happen in Q3.
Q3?
Yes.
All right. And then last one from my side. The Danderyd project that you mentioned for the Systems, I mean, such a big project and you mentioned that the market is a bit more competitive and a bit more challenging at the moment. So did you need to take the project with slightly lower margins compared to Systems on average? Or is there something you can comment here?
No. We didn't. So I mean and important to mention here, I mean, it is somewhat tougher market, but again, it is from high level. So I think when you have that sense of urgency and are out there meeting customers, there are a lot of projects to win. So it's a good contract.
[Operator Instructions] And there seems to be no further question at this point so I will hand over back to the speakers for any final comments.
Okay. Then we would like to thank everyone for listening in, and we wish you a great holiday. Okay. See you. Bye.
Bye.
This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.