Projektengagemang Sweden AB
STO:PENG B
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Projektengagemang Sweden AB
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Ladies and gentlemen, welcome to the Projektengagemang Q1 2019. Today, I am pleased to present Per Hedebäck, CEO; and Peter Sandberg, CFO. [Operator Instructions] Speakers, please begin your meeting.
Okay. Thank you, and thanks, everyone, for attending this presentation of our Q1 report 2019. We will start with a short introduction, so let's move on to Slide 2, the company overview. We are a company that were founded in 2006 and listed on NASDAQ Stockholm in June 2018. We're a multidisciplinary technical and architecture consultancy company. Our primary market is Sweden. We also have a small office in Norway, and we also have about 60 engineers in India. Let's move on to Slide 3. If you look into our operations, we have 4 business areas: Architecture & Management; Civil Engineering & Infrastructure; Industry & Energy; and Systems. So in these -- or with these business areas, we have a good comprehensive mix of services where we deliver about 10,000 projects per year to about 3,000 clients. Let's move on to Slide 4 and the Q1 report. In Q1, to start with that, we continued to grow, but we see the earnings that are below our estimates. And these earnings, the impact is mainly coming from a slowdown in some of our business segment that we especially see in the Stockholm region, and we will get back to that later on in the presentation. But if we look into the business highlight in Q1, we are pleased to see that the integration of Integra Engineering is moving according to plan in a very good way. We are also very pleased to see that we now see a positive effect of our transformation work within Architecture & Management as well as an increasing order backlog where we have won some big orders in railway. So that investment is now really starting to pay off. But as I mentioned initially, the quarter was significantly impacted by a slowdown in some market segment, and that is related to the Stockholm region within Systems and Civil Engineering & Infrastructure. And when we do a sort of deep dive into the divisions, we will get back to that. But we would also like to highlight that we have initiated some efficiency measures to mitigate and be prepared for what we view as a little bit of a more uncertain market and especially related to the Stockholm region. And the yearly savings from these measures that we have initiated is expected to deliver SEK 15 million from 2020 and we will realize SEK 5 million in 2019. So if we then move onto Slide 6. Here, you can see some examples of recently won projects. So when we say that we see a slowdown, it is still from high level, and is mainly affecting us in the Stockholm regions. But there is still a lot of projects to be won, but you need to fight a little bit harder to win them. And one very important project to us that we have won recently in the Stockholm region is Tekniska nämndhuset. And in this project, we have both our division Architecture & Management and Systems involved, and the order value on this project is about SEK 15 million to SEK 20 million. Also worthwhile highlighting is that we have now won several projects within railway and especially within ERTMS for Trafikverket. So here, if you look into the total order value, we have a value of about SEK 60 million that we have won. So that is also something very positive. So with that, Peter, I give it over to you.
Okay. We are then on Slide #7 with the financial summary of Q1. We have a net revenue around SEK 370 million, that is an increase with 21% relating to Q1 2018. And that is driven by the acquisitions made during 2018.We have an EBITA of SEK 14 million, that is impacted by the slowdown in some markets. And we are taking measures to mitigate the effects of that slowdown and to also save some costs. And we have a margin that is around 4%, that is lower than last year. And if we move on to Slide 8, we have a bridge on the EBIT levels on the divisions. And as we indicated in our Q4 report, we expected a lower profit in the first quarter in 2019 versus 2018. However, the earnings were lower than we anticipated. The lower result versus last year is mainly an effect of the market slowdown in some of our segments, resulting in lower utilization rates and earnings that is in Civil Engineering & Infrastructure and in Systems. On the positive side, we saw increased profit within Architecture & Management. And then if we look into the division, I hand over to you, Per.
Thank you, Peter. Let's start with Architecture & Management. Again, as we have mentioned here, we are pleased to see that the result of the transformation work is now delivering. So we see a growth both in revenue and profit in this division, although there is still work to be done to be in line with the group target margins, but we see good progress here. Also worthwhile mentioning is that we did an acquisition of Mats & Arne Arkitektkontor in Gothenburg in the quarter, which has strengthened our offering in the western part of Sweden where we see a stable market. And also that Helena Liljegren started as the new head of the division. If we then move onto Slide 10, Civil Engineering & Infrastructure. Here, we see a substantial growth in the division and that is a result of acquisition of Integra Engineering, which is moving on in a very good way. As Peter mentioned, we see that the utilization rate within Infrastructure, where railway in the quarter is impacting the results, but looks good moving forward. We also see an impact of low utilization rate within Civil Engineering. So if we look in the Infrastructure where railway is the biggest part of that segment, we see with these new orders won and an increasing order backlog that we will reach breakeven in the second quarter that we have mentioned earlier. So that is good to see that we deliver here in railway. And with that, let's move on to Slide 11, Industry & Energy. This division is a relatively small part of our business and, at the moment, as we have mentioned before, we continue the transformation towards digitalization and automation services. In the quarter, we have also consolidated some small offices to reduce cost. And we believe that we now are approaching a sound operational and cost base, from which we will continue to focus on sales to grow within automation and digitalization where we see a stable demand from the market. And then, move on to Slide 12, Systems. And in this division, we have 3 segments. We have electrical and telecommunications, we have our HVAC segment and then the newest, fire and safety. And within HVAC and fire and safety, we are in line with our expectations in all regions and that also includes Stockholm. But we saw a lower utilization rate than expected in Stockholm within the segment, electrical and telecommunications, where we are among the market leaders and have the majority of our operations. So this goes, of course, without saying, the continued high sales activity of the market is extremely important going forward, there is a lot of projects, but at least we experienced that we need to fight a little bit harder to win the projects. And with that, I hand over to you, Peter, and Slide 13.
Yes, cash flow and net debt. The cash flow from operations was negative for the quarter with SEK 14 million and that is mainly due to an increased working capital that is due to the process that we are in on consolidation of legal entities. We are now in the process of reducing our legal entities, around 40 entities going into one operational entity to reduce cost and administration. The cash conversion was 89%, excluding the change in net working capital. And the net debt for the end of the period was SEK 396 million, and the increase, to a large extent, is due to the IFRS 16 that affected the net debt with SEK 136 million. Next, and moving on to you, Per.
Okay. So Slide 14, conclusion and outlook. In the quarter, we continued to see a revenue growth and that is driven by acquisition. We see lower earnings and that is due to a slowdown that we have mentioned in some market segments in the Stockholm region within Systems and Civil Engineering & Infrastructure. But based on the investments and the transformation work that have been done and efficiency measures that we now have initiated and our assessment of the market, we anticipate a full year EBITA result for 2019, in line with or slightly better in the previous year. So with that, we open up for the Q&A.
[Operator Instructions] The first question is from the line of Julius Rapeli, SEB.
I have a couple of questions. Firstly, related to the EBITA guidance, do you know -- does the full year EBITA stand for the reported numbers? Or does it exclude the SEK 5 million from the new cost-saving program? And then a follow-up on that one. Can you talk a bit more closely about the actions you're going to implement to ensure the cost savings going forward?
Yes. For the first question, if I repeat. The question was whether or not the cost saving was within our estimate for the full year, and they are including that figure.
And the second question, can you please repeat again? That was...
Yes. If you can just talk a bit about in what goes there, the actions of the -- in the cost-saving programs?
Yes. Again, a big part of it, Peter mentioned that we are in this consolidation of legal entities. So that is, of course, one thing that will reduce the cost a lot. So some of that -- and that's, the majority of the cost saving is related to that consolidation of legal entities.
Okay. Okay. Then in Q4, your report, you mentioned margin improvements from Q2 onwards. Are you still expecting like substantial improvements in the second half of 2019? And then, if you look in Q2, do you expect an improvement in the billing ratio for Q2 based on what you have seen thus far in the market?
We expect -- or we believe that the market is a little bit more uncertain at the moment, and that is, at least for us, very much -- or much related to the Stockholm region in some segment. But we also know that it can be the difference of winning 1 or 2 projects or a contract. So we see a little bit more uncertainty, but we expect and aim to improve the margins in Q2.
Okay. Then if I just can quickly, one last question, in the Systems division. Can you just briefly discuss the opportunities to lift the profitability and your expectation going forward now?
In Systems, I mean, we are coming from very high level in the margin. So I think the most important thing going forward is to continue to have a high activity on the market and the skills that we can to the customers, which we are. And I think when we do that job, that will result in the progress and by that, increasing the billing ratio as well.
And next question is from Johan Freij, Danske Bank.
Just a question, could you just explain what was the contribution year-on-year from acquisitions to earnings for the group?
Please can you repeat that?
Yes. If I switch the question around. Excluding the -- some -- the acquisitions that were not in the numbers last year but are in Q1 '19, was the group -- was it black figures or was it red figures for the group?
It was black figures. The contribution is if we don't specify that is in the area of SEK 5 million for the quarter.
So SEK 5 million from acquisition, that implies that Integra would have a very sort of seasonal earnings development, I guess?
Yes.
Are there any other reasons to see sort of a changed profitability in Integra compared to what you've previously communicated?
No.
Okay. Second question, just in -- I heard the question here regarding where cost savings would originate from. Could you be a bit more specific there? You're talking about legal entity consolidation, but what exactly is that? And how do you sort of add up to the savings that you communicated, the total number? Also, how far are you from making redundancies at the moment to control this?
If we sort of look into the consolidation, there is many parts on that. But in IG, for example, we can reduce the cost for licensees to computer, which is a big part of it. There are also some savings if you look into, of course, administration of all the legal entities, that takes a lot of administration and bureaucracy. Also, for revisions of these legal entities, but that's another thing, of course, here. So I would say that's some part of it. And the second question, what was that?
I'm basically after the sense of urgency in Projektengagemang. I want to understand in terms of more aggressive cost-out actions, how far are you from that given that the sort of group is small [ black ] figures, I guess, excluding acquisitions.
There, we are selective and we have done some, I would say, more of our fine-tuning in some of the divisions where we have seen some entities not delivering. But, to us, again, it's still a slowdown related to Stockholm. It's a market segment. So we believe that focusing on sales and customer is something that we foresee that we will continue with.
How would you rate sort of the visibility in that sort of improvement in the billing ratio and demand? I guess, it's a fairly short order book.
I think, for us, we always have acquired short order book that is 3 months basically. And, of course, in...
Just a final question. In terms of sort of consolidating acquired units or consolidating legal units, as you call it, how much were you able to do in that respect last year? I mean, you had the acquisitions from previous years where, I mean, you talked about the same sort of savings actions in the last 12 months, which you do today. Some I'm just curious to know, how much have you realized so far?
I think last year, we didn't realize much of savings related to that consolidation. So that consolidation is actually done in this quarter. So now we can see the effect of that consolidation work. And we've also done some fine-tuning, for example, in Industry & Energy where we have shut down some smaller offices and that's also part of this cost-saving actions.
[Operator Instructions] And there are no further questions registered on the telephone line. So I will hand the call back to the speakers. Please go ahead.
Okay. Then, we would like to thank everyone for listening, and have a good day. Cheers.
Thank you.
And this now concludes the conference call. Thank you all for attending. You may now disconnect your lines.