Sweco AB (publ)
STO:SWEC B
US |
Fubotv Inc
NYSE:FUBO
|
Media
|
|
US |
Bank of America Corp
NYSE:BAC
|
Banking
|
|
US |
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
|
US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
US |
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
|
CN |
NIO Inc
NYSE:NIO
|
Automobiles
|
|
US |
Fluor Corp
NYSE:FLR
|
Construction
|
|
US |
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
|
US |
TopBuild Corp
NYSE:BLD
|
Consumer products
|
|
US |
Abbott Laboratories
NYSE:ABT
|
Health Care
|
|
US |
Chevron Corp
NYSE:CVX
|
Energy
|
|
US |
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
|
US |
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
|
US |
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
|
US |
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
|
US |
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
52 Week Range |
100.4939
180.4
|
Price Target |
|
We'll email you a reminder when the closing price reaches SEK.
Choose the stock you wish to monitor with a price alert.
Fubotv Inc
NYSE:FUBO
|
US | |
Bank of America Corp
NYSE:BAC
|
US | |
Palantir Technologies Inc
NYSE:PLTR
|
US | |
C
|
C3.ai Inc
NYSE:AI
|
US |
Uber Technologies Inc
NYSE:UBER
|
US | |
NIO Inc
NYSE:NIO
|
CN | |
Fluor Corp
NYSE:FLR
|
US | |
Jacobs Engineering Group Inc
NYSE:J
|
US | |
TopBuild Corp
NYSE:BLD
|
US | |
Abbott Laboratories
NYSE:ABT
|
US | |
Chevron Corp
NYSE:CVX
|
US | |
Occidental Petroleum Corp
NYSE:OXY
|
US | |
Matrix Service Co
NASDAQ:MTRX
|
US | |
Automatic Data Processing Inc
NASDAQ:ADP
|
US | |
Qualcomm Inc
NASDAQ:QCOM
|
US | |
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
Good morning, everyone, and a warm welcome to the Sweco Group's Second Quarter 2018 Telecom Conference. My name is Lars Torstensson, and I am the Communication Director at Sweco. Together with me today, I have Jonas Dahlberg, our CFO; and, of course, Ă…sa Bergman, our President and CEO. So without any further delay, I would like to hand over to Ă…sa to lead us through the presentation. Please, Ă…sa.
Good morning, everyone. Thanks for joining us for the Sweco Q2 2018 Conference Call despite from this excellent and hot summer weather, and I'm very proud to present solid second quarter this afternoon. And with that, we move on to Slide #2. The positive trend from the start of the year continued in the second quarter. The organic growth increased to 7% and the EBITA increased to SEK 79 million, and that is adjusted for the calendar. And from a revenue perspective, organic growth was particularly strong in Western Europe, the Netherlands and Norway. And for the EBITA, the positive development in the Netherlands and Denmark continued, and they were the main contributors for improved operational performance in the quarter. The underlying levers driving growth were new colleagues joining us and improved pricing to areas that we have been focusing on to drive positive revenue development, and it's also the same drivers that actually was the drivers in Q1. And I would like to highlight that the quarter is showing the strong value that the Grontmij acquisition has brought to the Sweco group, and it underscores the successful inorganic growth strategy that we have in Sweco. And it is through a combination of organic and inorganic efforts that Sweco will continue to grow into the future. So all in all, the quarter showed good markets with a positive outlook. And then let's look at some of the projects that we have won in Q2 2018. And with that, we move to Slide #3. As I said before, all projects are equally important in Sweco, large and small, and that is how we ensure that we will support our customer in the best way, independent of project size and it also ensures that we can keep a high billing ratio in all our units. Make -- it also makes us less affected by economic volatility and market fluctuations. And here are some highlights from Q2. Sweco has been commissioned by PKP Polish Railway Lines to supervise safety improvements at railway crossings throughout Poland. And the project concerns a total of 182 railway crossings. It includes upgrades and introduction of safety devices and improvement of road surfaces and allowing smoother passages. And then in the energy scene, on the behalf of Swedish Transportation Administration, Sweco will investigate the need for fast chargers for electric cars along the major roads in Sweden. This is[Technical Difficulty]
We are experiencing technical difficulties. We will resume the conference once they have reconnected. Thank you. Please standby.
Okay. We had technical issues here, so we're starting over at the financials on Page 4. Sorry for that. Ă…sa, thank you for the introduction. So one of the highlights in this quarter is the strong growth that, in total, amounts to 15% compared to second quarter last year. Of this, organic growth, when adjusted for calendar effects to -- amounts to 7%. And in addition comes acquired growth of about 3%. The remainder to 15% constitutes calendar effects and currency effect. And the calendar effect is due to the Easter holiday being earlier this year. It added 10 hours to the quarter, and that had a positive contribution to revenues and EBITA of approximately SEK 73 million, which adds [ nominally ] about 2 percentage points to organic growth. The currency effect is due to the depreciation of the Swedish krona. And the translation effect of the revenues and profits denominated in other currencies to Swedish kronor, that adds another 4% to the total growth. The strong growth we had is supported by a strong and growing order backlog, which is very positive. Moving to Page 5, what's most encouraging about the organic growth is that all business areas are contributing positively to the development. And in particular, I'd like to highlight the contribution from Netherlands and Denmark, which is very positive. As many of you know, when we acquired Grontmij 2.5 years ago, Denmark and Netherlands were restructuring cases. And during 2017, we downsized both countries [ within ] 10% to reduce low-performing parts of the businesses. Since a few quarters, downsizing is complete. Both business areas are well-positioned now for growth and they're benefiting from the tailwind of a good market. And this is now paying off, and both countries are delivering strong organic growth during the quarter. It's also encouraging to see the growth in Sweden and Norway to pick up. Both business areas have had good markets and is now fully capturing those markets. At the same time, we have Spain, good growth in Western Europe and Central Europe, although, not at the stellar plus 20% growth rate as we had in the first quarter. Looking at the drivers for the organic growth on group level. The key drivers are more FTEs. We have been successful in our recruiting and have about 400 more FTEs compared to last year. Having a strong employer brand and being an attractive employer, we can recruit competitive talent, we can recruit competitively and good talent in the market without overbidding on salaries. And this is obviously very important and something we're monitoring closely and what we can see is that our salaries are moving in line with our fee development. Speaking of our fees, this also adds to organic growth and the increase is in line with trends we've seen for several quarters now. And then an increase in subconsulting revenues is an important driver to the organic growth. And last year, we had net negative contribution to the organic growth from subconsultants and this year, it's turning to a positive contribution. These 3 drivers: more staff, [indiscernible] and subconsultants each contribute about 2 percentage points each to the organic growth. And then in addition, comes another 1% from lower absence, lower vacation, that is, mainly. Moving to Page 6, a bit more on the organic growth. In our Q1 presentation, we talked a bit on the long-term trends and the current momentum of organic growth, and I'd like to reiterate that story. And if you look at our long-term average organic growth over the last 15, 20 years, that has been around 5%. But it varies a bit up and down, depending on the market, of course, but also when it comes to our internal priorities. And then, as you know, some of you, that 2016, we had very strong growth and '17, it was a bit slower. And this was mainly due to integration we did at Grontmij, where we had full focus on synergy capture, which was very successful. And focusing on our customers and in building order backlog, but we didn't have as strong recruiting as we usually have. Now the integration is completed since 1.5 years back and last year, we started to position ourselves for growth. And that started to pay off now in the first quarter with 4% calendar-adjusted organic growth; and now that is increasing to 7%. I think what is important to realize is that the organic growth goes up and down but the long-term average is about 5%, and that will be a business spend in the growth rates in the long run. And now moving -- continuing down in the income statement, turning to Page 7, and looking at the EBITA development. Second quarter EBITA was SEK 152 million better than last year, and adjusting for calendar, the increase is SEK 79 million. Of this calendar-adjusted improvement, more than half comes from operational improvement in the existing business, that's like-for-like; and less than half comes from a combination of recent acquisitions, and then there's some contribution also from foreign exchange translation effects.In total, EBITA [ level is at ] SEK 464 million. Moving to Page 8, the calendar-adjusted EBITA bridge by country. We can see that essentially all business areas are contributing but most importantly, Denmark and Netherlands. Combined, they contributed SEK 60 million to the improvement, and that's, of course, very satisfying. And what this shows is that we're delivering on the value-creation plan set out at the acquisition of Grontmij. The first stage was completed 1/2 year back with the delivery of cost synergies. And what you see now is really the second phase paying off with culture and operational improvements, increasing customer focus and increasing internal efficiency, which is boosting both organic growth and EBITA. Also, we have started to touch upon the third phase in value-creation plan, which is further growth with M&A in this new footprint. And we've done acquisitions in Germany, Denmark and Belgium, and they contribute significantly to the quarter. And in particular, the acquisition of Ă…rstiderne Arkitekter that we did in Denmark that was consolidated 1st of March contributes with some SEK 10 million to the quarter. Now what is also positive in the quarter is the positive development we've seen down in Norway compared to the slow start of the year. There's still more work to do before we are fully healed and we have full stability. In Norway, it's actually 2 other divisions which are overcompensating, so there's more potential in Trondheim and energy division. In Finland, the issues we had in first quarter in structural design. They are back on track, but we would like to see more track record before we have full stability. All in all, good progress but key, a little more potential. All business areas still have way to go until they reach the market leadership and operational performance of Sweco Sweden, landing out at a very strong -- margin of 12.1% in the quarter. Turning page to Page 9. A few words on cash flow statement. Cash flow from operating activities increased compared to last year, both in the quarter and half year. Seasonal increase of working capital, very much in line with normal seasonal capital and last year. Turning to Page 10, looking at net debt. During the first half year, we've increased net debt with some -- SEK 181 million compared to last year. And in the first half year, this is mainly driven by acquisitions but also increased share buybacks and then there's some currency translation effects on debt we have which is euro denominated. And in first half, working capital, very much developing in line with the same period of last year, seasonal patterns. But we are on a somewhat elevated level on working capital, and this elevation half than the second half of last year. And I'd like to emphasize that we see no structural change driving this development, and we are within normal variations. It's also so that if you look at the growth we've had or the increase in working capital of about SEK 500 million, SEK 200 million is related to growth, both organic acquisitions and currency effects. So the remaining SEK 300 million is what makes the difference and what we have to work with. We're on it. I can promise you that, but we will not give any forecast for the development. All in all, solid financial position. We have the capacity we need to capture opportunities in the market when it's needed. With that, hand you over to Ă…sa to walk you through the market situation and wrapping things up.
And then we are moving to Slide #11. Thank you, Jonas. And as you already understood, our markets are overall good and demand for our services is solid. But let me go through a few country highlights, starting with Sweden. In general, the Swedish market remains overall good. We have a positive FTE development and improved pricing. We attract the right people. It's a ground for a strong and attractive brand and with attractive projects to offer. And the demand for our services is really strong. There has been discussions about the health of the Swedish real estate market, so let me comment on that in particular. The real estate market remains good, particularly in public buildings. Residential construction is, as you know, slowing down, but the impact on Sweco is limited and mitigated by growth in other segments. Other markets that I would like to highlight are Denmark and the Netherlands. As Jonas mentioned earlier, they were both underperforming when we acquired Grontmij, and now both are showing very good operational momentum in the quarter as a result of -- our conclusion is that in Denmark, the restructuring of Sweco is now completed and are focused in on profitable growth. And the same truth for Sweco in the Netherlands, where downsizing is now completed and the focus is, as in Denmark, on profitable growth. Going forward, it is key to focus on the operating model of Sweco and ensure strong execution towards the customer. And this is true for Denmark and Netherlands but, of course, for the other Sweco countries as well. And this brings me to our strategy and priorities going forward, moving on to Slide #12. As I said before, our strategy is set. It has proven to be successful, and we will continue to execute on it. I have spent my first 3 months visiting our countries to create a better and deeper understanding of the local needs. And as I now have a view on what to focus on and improve, and I look forward to develop my thinking together with my executive team. We are acting from a position of strength, and I see potential going forward. So to capture this potential, we need to be in even stronger customer relationships and ensure that we are the most attractive company for the best people. And our operating model with the decentralized responsibility, strong corporate culture and clear leadership supports the way we work. Now it needs to filter through all our operations, including the newly integrated countries. And on top of this, I see that we have potential to realize more value as a multinational company. Today, cross-border collaboration at Sweco is only a tiny part of our total turnover and I see synergies to cooperating between countries and business units going forward. This quarter showed continued positive organic growth and a result of us executing on our strategy, and we expect to be able to maintain our trajectory for both organic and acquired growth as there is room for improvement. And to repeat our strategic priorities, we will maintain our relentless focus on our customers, understand their needs and be approachable and committed. We will attract the right people, continue [ the strength ] in our employer brand in all countries and improve pricing when possible, ensuring that in all perspectives, we use our resources in a efficient way. Reinforce our decentralized business model in all our countries. Moving on to Slide 13 to summarize. So once again, our second quarter showed continued positive development with EBITA increased by SEK 79 million and organic growth expanding to 7%, adjusted for the calendar effect. The positive organic growth was mainly driven by new colleagues joining us and improved pricing, 2 areas that we have been focusing on to drive positive revenue development. Our hard work is definitely paying off. So all in all, the quarter showed good market with a positive outlook. We now look forward to have some questions from the telephone conference. Thank you.
Thank you, Ă…sa. So that concludes our formal presentation. I would like to open up for Q&A. Operator, can we have the first question?
[Operator Instructions] And the first question comes from the line of Johan Dahl.
I was just wondering, there seemed to be quite significant step-up in profitability in the group comparing first quarter compared to the second quarter. I mean, now knowing where the billing ratio went, organic growth, acquisitions, et cetera, could you comment a little bit what those drivers are? Is that correct that it is a step-up in Q2? Is it sustainable going forward?
There is a step-up in profitability, but most importantly, the contribution to EBITA comes from growth really. If you -- I mean, if you wash away the calendar effect and then looking at just the organic momentum, it's primarily the growth that drives the profit improvement. So a slight increase in profitability, but it's mainly growth driven.
Would you argue that the net between cost inflation and prices is similar in Q2 compared to Q1 this year?
Yes. And on -- I mean, on the spread between fees and salaries, we see both pretty much move in parallel. So gross margin is fairly stable.
Okay. And you -- just if you could elaborate a bit on the Swedish organic growth. You mentioned some less vacation, there were also some other positive effects. If you try to break down Q2 and see what sort of -- what is the underlying organic growth, where would you say that is?
I mean, as I said, for the group, if you talk about group numbers, FTE growth is about 2% and then price development, same order of magnitude. So that's around 4-ish percent, and that's very much in line with what we had in the first quarter. And then what we had in addition in the quarter was also more subconsultant revenue and less absence. The 2 latter ones, 2% plus 1%, are a bit more volatile. So looking at sort of the core drivers of organic growth, they were in line with Q1, I would say.
Got you. Just finally...
Go ahead.
Yes -- no, I want to hear what you say, Jonas, what was finished.
Turning to Sweden, in particular, in the order of priorities, the organic growth driver was, first, the subconsultants. And you probably remember that last year, we had quite a negative contribution from subconsultants organic growth in Sweden, mainly related to -- well, we were in between phases of the subway project here in Stockholm. The second driver is increase of FTEs and the third is fees, order of priority.
Okay. Just finally, on the order book, can you give any indication how that looks currently in terms of growth year-on-year and possibly profitability?
No, I just want to say it's -- there's a strong order backlog and it's developing positively, and it will be able to support organic growth going forward also. Now it's mainly about capacity and in a disciplined way recruit the right system at the right cost level.
Did it grow more than turnover?
The issue with the order backlog is it can be -- it's not the best indicator of future growth, so as what -- stay with saying that it supports the organic growth that we're looking at right now and it's strong.
Next question comes from the line of Viktor Lindeberg.
And first, congratulations to a great Q2 report guys. It's interesting to see your growth rates accelerating, and that's also where I have my first question. I'm looking at Slide #6, where you have the year-over-year growth in the past 5 years or so. And it seems to me that it's moving in waves. We could see it's accelerating for some time back in 2014 until 2015, and we have now the second wave since the trough back in early 2017 now accelerating up to 7% this quarter. And just interesting to hear your thoughts about this. And actually, Jonas, you mentioned you expect continued organic growth, but how do you see this wave playing out? If you could elaborate on that, that would be interesting to hear. Would you expect to peak here around the 7% or 9% reported? And then a gradual slowdown or how do you see it?
Well, I'm in this for the long run, and that's how I would like to look at it. I would like to put emphasis on the long-term trend, and that's about 5% organic growth. And then you're right, it moves a bit up and down depending on market and also what priorities we have. And it's a good momentum we have currently. Short-term, working with [Ludas] I think that's a bit speculative. We think that the underlying growth is solid and it's supporting the historical growth rates we've had over a long period of time.
Okay. And then another question relating to that, you mentioned subconsultants adding some, I think, 2% to organic growth in this quarter year-over-year. Can you comment on how has the contribution from these consultants been in Q3 and Q4 last year? So we understand the dynamics going into the second half.
The contribution to organic growth, that is?
Yes, if it was negative also last year in the second half...
It was negative last year. I don't have the exact quarterly numbers top of mind, but it was negative contribution definitely last year, and in particular, for Sweden. And this is typically related to large projects. And in that case, it was -- a lot to do with the subway expansion in Stockholm.
Okay. So fairly easy comps from subconsultants when we think about that component.
It's a bounce -- I think it's a bit more than a bounce-back. Then the natural question is, okay, so is this now the sort of average level we're on? I think it's very difficult to say. We just want to say that last year, it was negative and now, it's a positive contribution. So it's bouncing back.
Is there a profitability angle on adding or removing subconsultants? Does it affect your profitability in a material way, would you say?
No, it doesn't. We have order of magnitude the same type of margins on subconsultants.
Okay. Then on Finland. I have Finland and then one more question from my side. Finland was definitely better than what I had in my estimates. I have been assuming a slight slowdown after you accomplishing very good margins and growth in 2017. And the outlook seems to be decent and the delivery in Q2 was also stellar. Can you comment a bit on how you see the projects in your pipeline being finalized now? Was Q2 a phenomenal quarter in that sense? Or would you say that, looking at the first half of 2018, it's representative from let's say a margin perspective going forward also?
I think what you've seen out of Finland is definitely in line with the potential of the Finnish organization, very high internal efficiency, strong billing ratio. They have a lot going for them. The issue we've had in Finland in some quarters has been related to write-downs and projects. And then so what you see now is the potential of the Finnish organization, but we need more stability and earnings and avoiding backlog and...
There's no element of reversals or positive calculation earnings in the third quarter?
No, no, it's not, it's not. It's just that we're avoiding self-inflicted wounds.
Okay. Final from my side on the acquisition of Ă…rstiderne in Denmark. You mentioned, I think, that it added SEK 10 million to earnings in Q2. Is that correctly understood?
That's correctly understood.
Okay. So looking at my notes, it was generating close to SEK 20 million on full year basis when you acquired it. And now it seems to be at a run rate twice that level. Is it top line or margin or what is the main improvement that you have accomplished since you consolidated it?
It's both. It's both. It's very strong trading.
Yes. And is it -- I mean something you would extrapolate given what we see right now? Or was it just too good to be true in your view?
No, they're doing well. But I wouldn't extrapolate it fully. I would cautiously elevate the expectations on Ă…rstiderne, but I wouldn't extrapolate it fully. Also bear in mind the strong calendar effect in this quarter.
[Operator Instructions] And your next question comes from the line of Predrag Savinovic.
Another question on subconsultants. So they contributed decently to growth here. I'm just wondering, are you involved in any larger projects at this moment that are contributing particularly much in Q2?
Yes, the subway extension in Stockholm is one example, but you see it in several countries. We also have an increase in subconsultants in the Netherlands and in other cities as well. It's not just one project. There are several projects.
Right. And you also mentioned again on the residential market that it is slowing slightly and the take here is that you will be, of course, be able to compensate this by other projects. But is there any margin difference here when you change the mix?
No -- Ă…sa, here. No, it's not. So we have been growing other segments step by step, and we aim for the same margins. So no.
All right. And on your financial position, which is very strong at this point, can you utilize your balance sheet in any special way or adding some plot for M&A or -- because there seems to be some substantial headwind here?
Absolutely, we have the financial capacity to further continue with M&A. And it's more a matter of finding the right target and making sure that we do the right deals. We have the financial capacity we need as well for the bolt-on. And then there would be, I mean, substantially more sort of transformational type of deals. And so then we'll see what is needed. But for the bolt-ons we have in the pipeline, and we have a pipeline. We have the financial capacity.
And in Norway, Jonas, you mentioned I think that 2 divisions are overcompensating. Can you talk more about these and how they're doing and which -- what kind of divisions are there and -- which are not doing too well?
Yes, so 2 divisions in Norway. The issues we've had is in the energy division, in particular, in the Trondheim office, where we had a portfolio of projects being -- well, that we had to make corrections in and the office has not been performing as well as it should. So that's dragging down the entire energy division. But what is developing very strongly is the building and construction division as well as infrastructure division, and they are sort of overcompensating for the performance issues we have in energy. And so there's more potential in energy.
We have no further questions at this time, sir. Please continue.
So in that case, we conclude our formal presentation, and thank you everyone for participating in today's conference call regarding Sweco's second quarter. Please feel free, as always, to reach out to us if you have any further questions following today's call. And we look forward to stay in touch throughout the third quarter. And speaking of which, the third quarter then will be reported the 8th of November. So with that, thank you very much, and have a great summer. Goodbye.
Thank you, ladies and gentlemen. That does conclude our conference for today. Thank you all for participating. You may now disconnect.