Release Date: April 24, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The Energy division experienced strong growth, driven by high demand related to the energy transition.
- Order backlog increased by 4% sequentially, adjusted for currency effects, indicating strong future project commitments.
- Several new client projects were won, including an automated forest plant production factory and an offshore wind farm in Estonia, showcasing Afry AB's role in sustainable initiatives.
- The Infrastructure division delivered slight growth due to higher average fees and attendance rates, despite a challenging real estate market.
- Management Consulting division saw high demand for its energy offering and growing interest in sustainability consulting.
Negative Points
- Sales and profitability declined slightly, pressured by weak markets in Industrial & Digital Solutions and Process Industries divisions.
- Profitability was impacted by a slow ramp-up at the beginning of the quarter and a negative calendar effect, reducing EBITA by SEK 37 million.
- The global business environment faced increased uncertainty due to the global tariff situation, potentially affecting client investment decisions.
- Utilization rates dropped to levels not seen since the 2008 financial crisis, indicating inefficiencies in resource management.
- The Agency Work Act continued to impact profitability, particularly in the Industrial & Digital Solutions division, causing client uncertainties.
Q & A Highlights
Q: Could you elaborate on the elevated cost base in Q1 and your vision for the remainder of the year if weaker momentum persists?
A: Bo Sandstrom, CFO, explained that restructuring costs of approximately SEK 20 million were taken in the Process Industries and Industrial & Digital Solutions divisions. Additionally, group costs were elevated due to IT licensing costs. These are specific items and do not change the cost expectations for the full year.
Q: Can you provide details on the restructuring costs associated with the new group structure?
A: Bo Sandstrom stated that the specifics and size of the restructuring costs will be detailed in the Q2 report. The new group structure will be fully implemented by July 1st, and more information will be provided then.
Q: How is the Agency Work Act impacting your profitability, particularly in the IDAS division?
A: Bo Sandstrom noted that the Agency Work Act has caused some insecurity among clients, affecting utilization rates, particularly in the IDAS division. This impact is expected to fade over the next few quarters.
Q: What are the main causes of the negative development in the IDAS division compared to Q4?
A: Bo Sandstrom highlighted three factors: the lingering effects of the Agency Work Act, a slow ramp-up at the beginning of the quarter, and a generally uncertain market situation. However, there was no dramatic market shift in Q1 compared to previous quarters.
Q: Are you concerned that tariff discussions might delay large clients' investment decisions?
A: Linda Palsson, CEO, mentioned that while AFRY has limited direct impact from tariffs, they are closely monitoring client developments for any potential delays in investment decisions. There is also potential upside as companies may increase domestic investments.
Q: The utilization rate is at a low level. Is this due to market conditions or structural issues?
A: Bo Sandstrom acknowledged the low utilization rate, attributing it to a slow ramp-up at the start of the quarter and a continuous decline over several years. Addressing utilization will be a focus in AFRY's next chapter.
Q: How does the new company structure impact existing roles, and is it adding a new layer of management?
A: Linda Palsson clarified that the new structure simplifies the organization by reducing divisions from five to three and segments from 31 to 14. It is not adding a new layer but rather streamlining operations.
Q: Can you provide more color on the utilization drop and its impact across divisions?
A: Bo Sandstrom explained that the drop in utilization was most significant in the Infrastructure, IDAS, and Process Industries divisions, with Energy also experiencing a decline but to a lesser extent.
Q: What is the outlook for recruitment in the Process Industries division?
A: Linda Palsson indicated that the focus is currently on harmonizing and improving utilization before resuming growth. Recruitment is expected to remain cautious in the coming quarters, with potential growth towards the end of the year.
Q: Is there a risk of a slow start to Q2 similar to Q1?
A: Bo Sandstrom noted that while the start of Q1 was slow, the order backlog is strengthening, providing confidence that a similar slow start is unlikely for Q2.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
