Release Date: July 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Afry AB (STU:B3Y1, Financial) reported a stable quarter with improved profitability, achieving an EBITDA of SEK572 million compared to SEK421 million last year.
- The company saw a total growth of 4.7% and adjusted organic growth of 2.2%, ending up at close to SEK7.2 billion in sales.
- The Infrastructure division showed significant improvement, driven by an ongoing improvement program.
- Afry AB (STU:B3Y1) secured notable projects, including advisory roles for NRK in Norway, technical analysis for Vattenfall in Sweden, and a partnership with food tech company cReal.
- The energy division experienced a substantial uplift in adjusted organic growth from 1.3% to 8.8% since the last quarter, indicating strong demand in the energy sector.
Negative Points
- The market was mixed, with some segments like pulp and paper and telecom and IT facing challenges.
- Process Industries reported a negative growth of close to 6%, reflecting a challenging market in the pulp and paper segment.
- Order stock decreased by 3% year-over-year and 2% quarter-over-quarter, with a negative FX impact contributing to the decline.
- Utilization rates were lower than last year, particularly in the Process Industries division, which saw a significant decline.
- Cash flow from operating activities was somewhat weaker than last year, highlighting ongoing challenges in working capital development and cash flow generation.
Q & A Highlights
Q: An industry peer of yours claims to see more requests for larger projects in Q2, which they look at as a positive sign for the market overall. Has this been your experience also, or have you picked up any other behavioral changes from customers?
A: (Jonas Gustavsson, CEO) There is no real material change for us. We see strong demand, especially in the energy segment, and some larger projects coming in. However, the pulp and paper side remains weak. Transport infrastructure has been stable. Overall, no big shift, but more stability with energy as a driver.
Q: Regarding the utilization rate, if pulp and paper were excluded, how would the utilization rate have developed year-over-year?
A: (Bo Sandstrom, CFO) The vast majority of the decline relates to process industries, particularly pulp and paper. Excluding pulp and paper, the total utilization would be flat year-over-year.
Q: Could you explain the low group common cost in the quarter and if they are sustainable?
A: (Bo Sandstrom, CFO) Group common costs were somewhat lower than last year. There were no specific events; it was more about diligent cost management. We are not changing our guidance for group common costs from a full-year perspective.
Q: Do you see any improvement in real estate or architects' early cyclical in real estate customers?
A: (Jonas Gustavsson, CEO) We expect a positive impact on the real estate segment as interest rates potentially go down. Industrial real estate has been better than private real estate. Currently, it remains flat, but we hope to see positive signs as inflation and interest rates stabilize.
Q: What is your take on weaker telecom and IT demand within digital solutions? Are there signs of recovery here or still stable but lower levels?
A: (Jonas Gustavsson, CEO) Our exposure is mainly in the Swedish market with a few larger clients. Over the last quarters, clients have been cautious. We see stability rather than significant shifts, and we are working to improve the business.
Q: Given the current margin run rate in IDS, is it naive to believe that you will be able to lift the margin year-over-year, excluding the calendar in Q3?
A: (Bo Sandstrom, CFO) The profitability level in IDS is not where we want it to be. We are working diligently to improve performance and profitability over time, but whether we will see an uplift in the next quarter remains to be seen.
Q: Is it possible to qualify or quantify the magnitude of transaction-related projects in management consulting?
A: (Bo Sandstrom, CFO) Approximately SEK50 million.
Q: How do you aim to capitalize on the very strong demand in energy? Should margins be sub-10% given the strong order intake and organic growth?
A: (Jonas Gustavsson, CEO) We are scaling and balancing growth with margin improvement. The energy transition is a long-term opportunity, and we aim to grow while improving margins step-by-step. We need to attract good people and manage larger projects globally.
Q: How was the margin level in Q2 in the Process Industries segment compared to what you expected at the end of Q1?
A: (Bo Sandstrom, CFO) The calendar-adjusted margin in Process Industries was somewhat above 3%, slightly higher than Q1. This performance aligns with our expectations given the market demand and order intake.
Q: What caused the decline in energy capacity utilization, and how much did that contribute at the Group level?
A: (Bo Sandstrom, CFO) The decline in energy capacity utilization is due to the focus on building up order stock versus producing from it. The contribution to the Group total from utilization is marginal.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
