Sweco AB (publ)
STO:SWEC B

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Sweco AB (publ)
STO:SWEC B
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Price: 178 SEK -1.28% Market Closed
Market Cap: 64B SEK
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Earnings Call Transcript

Earnings Call Transcript
2020-Q1

from 0
K
Katarina Grönwall
Chief Communications Officer

Good morning, everyone. Welcome to Sweco, and welcome to the presentation for the first quarter. Today, we will listen to Ă…sa Bergman, our CEO and President for Sweco; and our CFO, Olof StĂĄlnacke, who will present the report.I would just like to inform you that we have special circumstances, as we all know, so we can only take questions through the chat today. So there will be possibilities to answer those after the presentation. So you can start thinking about your questions straightaway.With that, I hand over to you, Ă…sa.

ďż˝
Ă…sa Bergman
President, CEO & Director

Thank you, Katarina. Welcome, everyone, to Sweco's Q1 presentation. I would like to start this presentation by giving you a short overview of our company. Sweco is today Europe's leading engineering and architectural consultancy. We focus on 8 core markets in Europe, and we do business in more than 70 countries worldwide. Right now, we have more than 17,000 employees working at Sweco.Looking at the financials. Our net sales on rolling 12 months exceeds SEK 21 billion, with an EBITA margin of 9.3% rolling 12.Let us now move into the results of the first quarter. The positive development we had in 2019 laid the foundation to enter 2020 with a strong market position and a strong financial position. As we summarize the beginning of the year, I can conclude that we delivered a strong quarter. We continue to deliver profitable growth with a solid organic growth of 4% and acquired growth adding another 7%. Our net sales and EBITA increased 13% -- our net sales increased 11% and EBITA increased 13%, adjusted for calendar. For the quarter, we reported a strong EBITA margin of 11.1% compared with 10.4% last year. We have a strong financial position, with relatively low net debt and good liquidity. And on top of that, we had a good cash flow in the quarter.I'm also happy about the 2 acquisitions in the quarter: Talboom Group in Belgium, that I presented last quarter; and the Danish company, KANT Arkitekter, that I will present more in detail today. In Q1, we continue to win new exciting assignments. To the right on this picture, you can see one of them. It is our project for Northvolt as part of building one of Europe's largest battery factories here in Sweden. We are doing this in alliance with ABB and Fineweld, with around 100 engineers from Sweco being involved at this moment, mainly delivering project management and engineering services. This is a good example of our capacity to deliver cutting-edge industry solutions in close collaboration with the client and our alliance partner.And although we had a strong start of the year, there are more uncertain time ahead due to the COVID-19 outbreak. Looking at the market situation, the overall demand for Sweco services remained good in the quarter, and we saw limited effects from COVID-19. With a high degree of digitalization, our capacity to deliver has remained relatively unchanged. We have maintained close contact with our clients. We won new assignments and delivered according to plan in most projects. However, we also experienced lower demand in certain sectors, specifically within industry and the private building and real estate segments. Going forward, we expect negative impact on Sweco services due to COVID-19. This is specifically related to the segments that I just mentioned.Despite the short-term uncertainties, the long-term drivers remain the same. The demand for our services is driven by the need to address urbanization, digitalization and sustainability, including climate change. One good example of this is the need for sustainable public transportation. In Q1, we won the project that you can see on the picture here. We delivered services to Helsinki City Transport for construction of the new Kalasatama tramline. Sweco is the leading railway design expert in Northern Europe, and the assignment is an important contribution to Helsinki's target to become carbon neutral by 2035.In these uncertain times, our broad and diverse portfolio is a strength. And on this slide, you can see -- from the left you see our geographical footprint. You see our offer divided in our 3 different segments, meaning building urban districts, water, energy, industry and transport infrastructure; and to the left, you see a mix -- the mix of our client. As you can see, we have spread over our different geographies. And we have a good, diversed offering and also a good balanced mix of our clients with a fairly big proportion of public clients.Nevertheless, we are, at this moment, of course, taking measures to mitigate challenges related to COVID-19. Our top priority has, of course, been to keep our employees safe and well. We quickly reorganized the way we work, reaching a peak of some 14,000 employees working from home. With a high degree of digitalization, our capacity to deliver has remained relatively unchanged. We also see that our decentralized operating model with small teams, working efficiently and close to the client are strengths in these times. However, we have seen somewhat lower demand in the industry and private building and real estate segments. Due to this, we announced on April 6, the organizational adjustments with a total of 200 employees in Sweden being affected and with 15 employees in Norway, 35 employees in Belgium being temporarily laid off. After that, we have taken additional measures in U.K., Finland and Norway, concerning temporary layoffs related to these segments.To safeguard our financial strength and flexibility, the Board of Directors on April 21 also announced an adjustment of the dividend from SEK 6.2 to SEK 3.1 per share. We continue to monitor the situation very closely, and we are ready to take further actions when needed. The way going forward now for Sweco is to continue to work close together with our clients to deliver in our projects and to focus on winning new projects. We have a strong financial position with low net debt and stable cash flow that creates possibilities for us going forward. Supported by this, we will continue to execute on our strategy and focus on long-term goals.With that said, let us now go back to our performance in Q1. Starting with growth. As you can see on this slide, we delivered a solid organic growth of 4% in the quarter. We had strong development in Belgium and also good growth in Finland, U.K., Germany and Central Europe. The main drivers for the organic growth were positive fee development that we continue to hire new experts to Sweco, and that we started the quarter with a solid order backlog. However, we had low organic growth in Sweden and a weak quarter in Denmark. In Sweden, it is related to continued weak demand, mainly in the private real estate segment combined with weaker demand in the industry sector towards the end of the quarter. In Denmark, we are not growing at the pace we want, and we have also been affected by some international projects being canceled or put on hold in the quarter.Let us now move over to the result for the quarter. Adjusted EBITA increased with 13% in the quarter, and we reported a strong margin of 11.1%. As you can see on this slide, 5 out of 8 business areas reported double-digit margins for the quarter. I am very pleased to see 3 of our business areas, Sweden, Norway and Finland, delivering margins well above 13%. I'm also happy to see that the good development in U.K. and Finland is supported by our recent acquisitions on these markets. However, the overall performance in Germany and Central Europe was weak, and we also had a weak quarter in Denmark.Let me now present one of the acquisitions that we made this quarter. We announced the acquisition of KANT Arkitekter in March 2. The company was founded 1977, and at the time of the acquisition, employed about 80 people and had an annual net sales of about SEK 136 million. The acquisition is in line with our strategy to offer our clients integrated architecture and technical consultancy services. This is also a very good complement to the acquisition we did in Denmark of Ă…rstiderne Arkitekter in 2018. While Ă…rstiderne has a strong portfolio of private clients, KANT Arkitekter has a strong position and portfolio within the public sector. With this acquisition, Sweco has approximately 1,250 architects, of which 320 in Denmark and with a good mix of private and public clients through the acquisition of KANT Arkitekter.With that said, I will now hand over to Olof to walk you through the numbers. Olof, please.

O
Olof StĂĄlnacke
Chief Financial Officer

Thank you, Ă…sa, and good morning, everyone. Net sales in the quarter close to SEK 5.7 billion, taking rolling 12 net sales to SEK 21.2 billion, as Ă…sa said earlier. Organic growth is 4%, with an additional positive effect from 4 more working hours in the quarter. M&A at 7%, and including some positive FX effects, total growth in the quarter is 11%.Next slide, please. Solid EBITA growth. The solid EBITA growth that started in Q1 2018 continues. EBITA in this quarter is up 18% versus last year at SEK 630 million, almost SEK 100 million higher than Q1 last year and bringing rolling 12 EBITA close to SEK 2 billion. EBITA growth is SEK 71 million or 13%, excluding a positive calendar effect of SEK 28 million. And that positive calendar effect has affected all BAs, except Sweden, which is calendar neutral in the quarter; and Finland, which is slightly negative.If we then look at the EBITA by business area in Q1. The main EBITA drivers this quarter are Finland and U.K., in both countries driven by higher average fees and contribution from acquisitions: MLM in the U.K. and the rail design operation in Finland. In Finland, this development is supported by FTE growth and in U.K. by higher billing ratio. This higher billing ratio comes primarily from the large projects within water and infrastructure that earlier has been paused, now starting to commence.Sweden, Norway, Belgium and The Netherlands also improved, and we have 5 BAs that show double-digit margins, and Sweden, Norway and Finland are all at levels not far from 14%. Denmark has a weak quarter with lower average fees and billing ratio. And Germany continues to have challenges with profitability.If we then look at the financial position. We have a net debt of SEK 2.2 billion at the end of the quarter. Q1 cash flow from operations of SEK 467 million, and an M&A outflow of SEK 264 million. Leverage is at 1, and we have available liquid assets of SEK 2.8 billion. In April, we have also secured additional reserves in the form of a new SEK 1 billion short-term credit facility from one of our existing lenders.And with that, back to you also, Ă…sa.

ďż˝
Ă…sa Bergman
President, CEO & Director

Thank you, Olof. Let us conclude Sweco's first quarter of 2020. Sweco had a strong start of the year with continued profitable growth. We managed to grow organically with 4% and acquired growth adding another 7%. 5 out of 8 business areas delivered double-digit margins, and EBITA increased 13% adjusted for calendar. For the quarter, we reported a strong EBITA margin of 11.1% compared to 10.4% last year. We have a strong financial position going forward with relatively low net debt and good liquidity.Even though COVID-19 had limited impact in Q1, we expect it to have negative impact going forward. Despite this, we see that the long-term demand for our services is driven by strong underlying trends. Our focus right now is to continue to work close together with our clients to deliver in our projects and to win new projects. We're monitoring the COVID-19 situation closely and are prepared to take additional measures if necessary. Right now, we are preparing plans for how to return to office work.Looking ahead, our long-term focus is, of course, to continue to stay relevant and develop sustainable solutions together with our clients. Our societies and cities and industries are going through major transformations right now. Sweco is well positioned to support our clients in this. And as always, we will continue to deliver on our strategy and to implement the Sweco model on all our markets. Thank you.

K
Katarina Grönwall
Chief Communications Officer

Thank you, Ă…sa and Olof. And with that, we open up for questions. Yes, please. Let's have the first question.

Operator

Yes. We have the first question from Erik Elander from Handelsbanken. Please explain what is happening in Denmark? What is behind the decreased amount of employees, lower average fees and lower billing ratio?

ďż˝
Ă…sa Bergman
President, CEO & Director

What we have seen in Denmark this quarter is that we are not growing in the pace that we would like to. And we also see that there is some international projects that doesn't -- are stopped, and that actually affects us both when it comes to growth and also when it comes to profitability. And these are the main reason. It's also so that we have one division of GIS and IT that hasn't performed on top this quarter.

K
Katarina Grönwall
Chief Communications Officer

Do we have any more questions? Okay. It seems like we do not have more questions. Then I want to thank everyone for joining us today. Have a great day and stay healthy.

ďż˝
Ă…sa Bergman
President, CEO & Director

Thank you.