Ladies and gentlemen, thank you for standing by, and welcome to the Q3 Report 2019 Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press Star and One on your telephone. I must advise you that this conference is being recorded today, Tuesday, 29th of October 2019. I would now like to hand the conference over to your speaker today, CEO Jonas Gustavsson. Please go ahead, sir.
Thank you very much, and good morning, everybody, and welcome to this Quarter Three presentation of AFRY. I'm here together with Juuso Pajunen, our CFO. We will present a few slides for you and then, of course, open for questions. I hope you have received the presentation or you're able to look at it. I will immediately jump into the presentation, starting with overall development. What we have seen in the third quarter in general is a stable development in the third quarter. As you know, the joint company is growing, and we keep our margin stable. I also have to say that the strategic acquisition of Pöyry has created a leading engineering and design company in Nordics, and it has actually proven to be, if I would say anything, more strategic than we ever thought. It's a very good platform.
Among others, we are strengthening the international platform. The integration goes according to plan. We are where we hope to be, so that's really good news. Moving over to the combined company, again, I'm looking on the numbers as the combined company then. I would say that we have a stable performance, and there's, of course, a great focus on continued integration and driving efficiency. I'm sure you have seen the numbers that we are growing roughly 4%, and the EBITDA margin is stable at 7.6%, equal to SEK 345 million. I will get back to the market, but we have seen in general that the market is stable. However, in a couple of industrial segments, we have faced a bit more weaker market in the third quarter. These ones related to the automotive industry. The integration and the cost synergies goes according to plan.
I would even say that they are slightly ahead of plan. What we are doing now is that we are expanding the cost synergy, and I would say efficiency program into 2020. We will get back to that during the fourth quarter because we have not yet finalized the final number of the target for 2020, but that we will get back to you through in fourth quarter. We are working heavily on that. Next one, the reported numbers. Of course, this is when we see Pöyry as an acquisition, which has been done during the year. Then, of course, both growth and earnings is above 50% because it's been one of the biggest acquisition in the history of AFRY, and it's been really an important one. It will take a bit longer to integrate fully the two companies. We are well on the way.
Moving to market, as we said, our core markets show a continuous solid demand within infrastructure. Of course, we are focusing on Sweden, Norway, Denmark, Finland, and we have Switzerland also. In all these five countries, we see an underlying strong demand, solid demand in infrastructure. We have seen in automotive and some related manufacturing industry a slower demand during the third quarter. At the same time, we see other industrial segments like defense industry and food and pharma doing very good. Of course, automotive and some manufacturing has been a bit weaker. If you look on process industry, it goes very strong. We see a good demand in the Nordics and Latin America. As you also have seen the number, we are growing and also the margin is good. In the energy sector, there is also overall good demand.
However, we have seen some larger projects globally that has been postponed, in T&D and also in the hydro area. We have seen some of the projects, the decision is taking a bit longer. Of course, today we announced the fact that the market is a bit more uncertain, but we need to understand what is what done. Infrastructure doing good, there are a couple of industrial segments that we have seen them being a bit slower, again, these are related to the automotive and related manufacturing. Next slide, we will be putting up just to once again state the fact that we have a very diversified portfolio. We are organized in 5 divisions, infrastructure, industry and digital, process industry, energy, and management consulting, you see the relation between them.
Roughly 40% is infrastructure, 30% is industry and digital solutions, and then two segments, process industry, and energy 15% each, and then a smaller business in management consulting. You can also see the pie chart on the right side, how our business is split in different segments. What we want to say with this is that our strong belief is that we are less cyclical joining together with Pöyry because the relation automotive now is less than it was before the joining forces with Pöyry. At the same time for Pöyry, they had a bigger share of process industry. Together, we have an even more mixed portfolio, and that we can actually see now that segments are balancing each other in an even better way.
The same is valid for our geographical footprint, that we have a better geographical footprint. Our company, I would say, is less cyclical, and we have a good diversified portfolio in our offering. There's a number of projects, of course, that we have been winning during the third quarter. I will not read through all of them. What we like is that we see a general pickup on digitalization, which is a big offering of us in all the industrial domains. We are strengthening the fact that we have a lot of capacity in digital that we now are leveraging more and more into our different industrial domains. That can be about digitalization in a processing industry, it can be a digitalization to a city, for example, then, and this is something that we are seeing a continued good demand.
We have a lot of other interesting products. The order intake in general has been good during the third quarter. For example, process industry and pulp and paper, we have a very strong order book moving forward. If you look on cost synergies and revenue synergies, as we have announced when we announced the deal with Pöyry, we said that we are targeting SEK 180 million run rate by end of 2019. Actually we are delivering according to plan even ahead. We have a run rate of SEK 165 million, and we are following this really detailed on activity levels. Part of that is supporting us in quarter three, but not all of it, of course, because this is the run rate.
What we are doing now is that since the integration with Pöyry is a longer process, we are continuing with the integration cost synergy plan in 2020. On top of that, we will focus heavily on efficiency activities. That's kind of expanding the program into 2020. The amount, the target we have for 2020, we are about just to define, and that we will announce during quarter four. This is not yet defined, but of course, we are looking for an ambitious target in 2020. Basically we are doing that for three reasons. One is to drive profitability as we are planning. Also, since we have seen a bit more uncertain market climate in some industrial segments, but also the fact that we are doing some investment in our IT platforms.
We are looking to a joint ERP system and to get fully integrated with all the different business units, we are updating the system landscape, and that's a lot of work, and there are investments related to that. There are three reasons, but this is something that we'll do moving into 2020. If you look on the revenue synergies, each division now after six months, roughly together, have defined very concrete strategic plans. We are now driving those into execution. There are a lot of examples of interesting offers that we are doing jointly together between ÅF and Pöyry then. If it's transportation and building in Switzerland, the water offering, we have energy we are leveraging from both the different companies. Again, we are taking larger products in processing industry. We have digital offering and so on.
I see a lot of interesting activities on the front end towards the clients. At the same time, we are taking actions in 2020 on the back end and driving synergies together. One year ago, we announced the fact that we have started repositioning of energy business in the former ÅF company because we were not happy with mainly the global business, how the margin and top line developed, and we felt that we were a bit too fragmented. Then we made the acquisition with Pöyry, and we continued that work jointly together. We are basically in the end of that analyze phase, and we have worked quite heavily to find what is the position we should have on our energy business, and that is something that we're about to close during quarter four now.
It will be an enhanced strong business model based on, you could say the maybe Pöyry global model and the ÅF local model, and this one we are combining. This means that we are overlooking the complete global sales structure, we are addressing underperforming and subcritical units, and we are basically changing all those ones to a setup that we are sure will deliver an improved margin profitability moving forward. This will have a negative impact that we have estimated to some SEK 130 million to SEK 150 million. We will plan to take that in quarter four when we are done with the final analysis. The estimation is that it will be approximately 20% that is cash. The remaining part is then balance sheet items or goodwill that we'll take.
That will actually create a platform that is setting the base for a long-term or midterm profitable growth in the energy business. With that, I will leave it over to Juuso to talk a bit about the top line and the growth.
Thank you, Jonas. When we are talking about the top line and the growth, first of all, if we take combined operations, we are now at 21 billion SEK last 12 months running, which is a new plateau for us, but also in the whole Nordic engineering setup. If we take the combined growth on third quarter, we are in 3.7%, where basically Infra contributed positively around 7%, Process Industry around 9%, and Management Consulting around 5%, while Energy was stable and Industrial and Digital Solutions were slightly negative. If we take the portfolio view, I'm pretty happy to see that being in the middle of an integration, though very successful, we are still building the combined operations, growing and reaching solid figures. We did have one working day more in the quarter, which has impacted roughly one percentage point to the growth numbers.
When we are looking at the combined operation growth, we don't have any more that many other than Pöyry acquisitions impacting. Material part of that growth is one way or another organic. If we then take the numbers looking backwards, I'm pretty comfortable where we are. If we are looking forward, we see the solid demand, as Jonas explained, in our core markets, despite also seeing some slower development in especially industrial segments of automotive and manufacturing. Going to earnings. We are also in here producing stable, solid earnings at 7.6% for third quarter. We need to always remember that the third quarter is the, especially in Nordics but also in European countries, the holiday period.
It is always involving first a ramp down of operations and then a ramp up of operations, and thus third quarter profitability is normally below the full year profitability. 7.6% EBITDA margin during that period is solid and good. At the same time, we are delivering SEK 345 million of EBITDA, which is an increase from previous year on combined operations, and obviously then compared to reported numbers of SEK 220 previous year. We have had items affecting comparability in total of SEK 37 million and those are relating to the integration costs. We have delivered solid earnings across our businesses in our core markets, especially in such market areas as buildings, process industries, digital. We also have our pain points, which we have been addressing already earlier, and we continue to address, especially in infra. We have some struggles in Denmark.
We have some components, especially in the automotive, in industry and digital solutions. We are working on those ones, and we are confident that our actions will carry fruit when we are going forward. Cash flow. This is the second part. We are stable on the net debt position, reaching 2.8 net debt to EBITDA multiple if we take Pöyry acquisition rolling 12 months in there. What we have seen during the quarter is that we have normal seasonality for Q3, a bit of more buildup of working capital after summer than I would probably have liked to, but despite that one, we can see that we delivered SEK 190 million, SEK 185 million cash flow from operating acquisitions or from operating activities.
If we put the share buyback that we have also consumed money in and acquisitions and contingent considerations in total, we have delivered very solid, stable cash flow also during the quarter three. This is definitely a place that we will continue working on and also improving. If we take the IFRS 16 view, including the leasehold considerations, the big picture is obviously the same. You see a bit of the distinguishing between the lease components and the operating activities, 571 million SEK from operating activities, but that includes 386 million SEK related to IFRS 16 considerations. The big picture still is exactly the same.
All right. Thank you, Juuso. Stepping back a bit to the divisions then starting with Infrastructure, and we already talked about the fact that we have seen a continued stable underlying need for investments in our core markets, and that's for all the segments that we are operating within Infrastructure. For example, we have seen a solid development in buildings, and then we have had, as Juuso also mentioned, a weak development in Denmark, and we also had a slightly lower utilization part of transportation in the beginning of the quarter. We are taking action, and we are addressing that. We are happy that we are growing Infrastructure compared to last year. In general, the overall market is still solid. Of course, we can say private housing has gone down. We have a very small exposure to that.
I would say in general, solid market in infrastructure, and we are taking actions where we have not maybe delivered on the margin as we hoped for. On Industrial and Digital Solutions , we also talked about that in general, due to the fact that we are in these big transitions where all segments are looking for sustainable solutions, on top of that, we have digitalization, electrification. The underlying demand in industry is still there. We have seen, as we said, in automotive and the related manufacturing segments, a bit weaker activities in the third quarter. We are taking action in that. Again, we have a confidence that we will have a good development in industry and digital moving forward because the underlying demand for our services are still good. Process industry, very happy with that.
We are delivering a strong combined growth, and we also have a solid and good margin. I have to say that the order book we have is very solid, and this is one of the areas where we are world leading. It's very good to see our combined operation, ÅF and Pöyry, joining forces together, meeting clients, offering fantastic projects, actually across the world. This is something that we really can be proud of, and it delivers what we hope for. Energy, we talked about that. We are now repositioning the energy, and it looks very promising. We have this business where we have strong businesses locally in Sweden and the related Nordic countries, including Switzerland. At the same time, we are now implementing the global model, you could say the one that Pöyry was driving, into all our markets globally.
That will actually create a very solid platform for our Energy business moving forward. We can also see here with all the changes, transitions, we will see a continued underlying demand for our Energy services. Finally, Management Consulting. This is our smallest business, but at the same time, maybe this is our high-end business we have. We have fantastic consultants all over the world focusing a lot on the Process Industry segment and on the Energy segment. This one really gives us the full insight of those industries that we are also gaining for in our Engineering business. They are delivering solid result. It's a bit more volatile depending on the payment terms with our clients, and success fees that we get.
It's really solid, and we are really happy to have this strong team in the group because they will actually pave the way in a lot of interesting engineering segments or business across the world. It's a bit mixed bag, but all over, we are confident that we are taking the actions, and all the divisions are working hard to deliver on their strategic plans. Then we have to finalize, we were very happy with that fact that our brand was now, this year, ranked as the second most attractive employer among young engineers. Last year, we were actually down to number four. This year we climbed up, and we are the second, which is an improvement. I have to say, we are never really happy with the second place. We want to do our utmost to be the number one most attractive employer.
That's a target that we have set, and we will have a lot of branding activities moving forward to really show everybody what a fantastic company we are. To summarize then, as Juuso mentioned, it's been a solid combined growth and stable earnings during the quarter. The overall market, if you look on the SEK 21 billion revenue, as Juuso mentioned, that we are meeting, there are a few segments weak, but the general infrastructure and some related is still very solid. The integration goes according to plan. We are where we hope to be. Of course, to integrate two large companies, which we are, will take some time. We have more efficiency and cost synergies to take out, and that we will now formulate and present for 2020, and that will help us in many areas. We need to understand one thing.
We have IT investments and an IT landscape where we are now taking action to get joint IT platform system for the two companies. This is something that we are working on. It will continue into 2020. It will require investments. It will help us quickly in getting efficiency and transparency up in the company. Then, of course, we announced also the repositioning of Division Energy. With that said, I think it's just fantastic the fact that we have, within short time, we integrated, and we are integrating two really strong companies, two large companies. We are creating them a leading position in the Nordics, and we are strengthening our international platform. With that said, I would like to open up for questions if anybody.
Thank you. Ladies and gentlemen, as a reminder, it's a star and one if you wish to ask a question. You can cancel your request by pressing the hash key. Your first question's coming from the line of Johan Dahl from Danske Bank. Please go ahead.
Yes, good morning, Jonas and Juuso. Interesting to hear about how bullish you are on the combined entities in terms of selling new projects. I was just wondering, the figures are slightly bleak, however, only 1% organic growth. Can you explain why that isn't higher? Are you seeing better figures on order intake? Are we seeing negative effects on portfolio, sort of pruning integration effects?
Well, thank you, Johan, for the question. Well, bullish, I think when we looked on the Pöyry and ÅF combination, we knew where we were getting stronger. For example, process industry is one strong evidence of that. Of course, what we have seen in the automotive and related manufacturing industry in Sweden has, of course, been a bit more negative, which has not so much to do with the Pöyry integration because that's actually former ÅF operations then. On infrastructure, I think in general, infrastructure is doing very good. We know that the Pöyry infrastructure business came in with slightly lower margin, and that we're working on. Then we have had some more challenging time in Denmark, which is also actually related to the former ÅF business.
Management consulting, solid, and the energy, we are really gaining from the Pöyry business modeling in repositioning the ÅF business actually and the joint offering. I think. Yes, the numbers are maybe not as we hope for in all areas, but our confidence is built on the fact that we are building this strong platform moving forward, Johan. Even though the quarter three then was not meeting, we were a bit lower on the top line as we hope for, still growing 4%. We know where we have the pain points, and we are addressing them, and then feeling confident that we will have a good story moving forward.
Were orders higher or lower compared to sales in the quarter?
I would say in many, as we announced a bit, for example process industry, because part of our business is more transactional. I could say that in general, we feel good where we have the larger projects that we have had solid order intake. For example, process industry is one where we have a strong portfolio right now.
Yeah, definitely. If we take the process part, the biggest part then is process industries and energy. We are seeing solid order intake, and especially in process industry, our book-to-bill ratios are very healthy and very high. On the more transactional part, especially in the industry and digital solutions, we feel and see the automotive part, but we also see that one stabilizing. All in all, from order intake perspective, we are pretty comfortable where we are standing.
The fact that we delivered 7.6%, I think it's solid. As you also said, if you look back the quarter, it is actually a solid quarter. The actions we are taking pointing on a more uncertain market climate, these are as much preventive actions moving into 2020. We don't see really maybe that the market is going down right now. We will take those actions both to be prepared if that happens. At the same time, we will gain for that, of course, to build the story moving forward, drive profitability.
Okay. Just before getting back in line, there are a lot of programs it seems now looking into 2020. You've got the synergies, new cost out program, you got energy restructuring. What sort of numbers? Can you give any guidance about cost out impact next year versus 2019 in very round figures to get a sense of the frame of all these activities?
Well, a lot of programs, I would say that we have two, Johan. That may be a lot. We have the cost and efficiency program that we announced this year that should meet SEK 180 by end of the year. It will do that. We will expand that into 2020. We will get back with a number on that. On top of that, we are then taking this frame, as we have announced in Energy, that we are confident will improve the margin. We will get back with those numbers later this year or during quarter four, Johan. We are at this point just about finalizing all our thoughts and views on the 2020, and that's why we are not yet prepared to see how far are we looking into. We want to have a number that we really feel is the right number.
What comes to energy, it is very important to understand that this is not as such a program. It is a repositioning of our portfolio. What we are doing is that we are basically exiting some markets. We are talking about what kind of offerings we will have in the future, which may then include closure of units or divestment of units. This is a different dialogue than when we are talking about cost and efficiency program or synergies. We are revamping our portfolio so that we have an offering that can be sustainably in the benchmark profit corridors as we have disclosed during, for example, Capital Market Day, that where our ambition is. This is different compared to an efficiency program. It's really about touching our portfolio.
You could say that our energy, and if you look on the web, have always been a bit slower the last years. Now the target is to meet, as Richard Pinnock pointed out, we want to be solid in the corridor 8%-10%. That's the target energy has to deliver on.
Okay, I'll get back in line. Thanks.
Thanks.
Thank you. Your next question is coming from the line of Ola Södermark from Kepler Cheuvreux. Please go ahead.
Yes, hello and good morning. If you could give some more color on the infrastructure division. The growth rate was quite good, but the margins were at least a little bit lower or quite a bit lower than at least we had expected. Can you give some more color on the development during the quarter and the measures you are taking and how we should see it going forward? </edited_transcript
Yeah. You're right. First starting, we started up after the summer a bit slower than we hoped for, and that we're hitting a bit on utilization. I would say that we have at least a couple of areas where we have not been that successful. I think Denmark is one, and this is related to businesses that AFRY was acquiring a couple of years ago, where we had the project portfolio that has not been as good as we hoped for, and we are taking actions on them, and that affected the quarter. We have also seen that in general, the architecture business is still doing okay, but maybe not as good as it did a year back, and that affected us a bit.
we have a bit part of the transportation business that was also taking a bit, had a bit of a low utilization. A lot of it is we saw a bit of a mixed picture being a bit lower in the beginning of the quarter and getting a bit better by end of the quarter. those are the areas that we have been facing during the quarter affecting the margin.
Basically, if we take a mental bridge from previous year combined operations to Q3 this year, we can say that the positive contributors, we have one working day more, we have a solid growth number. Those are bringing more EBIT compared to previous year, and then we have had the Danish items, which is roughly two-thirds of the problem. We have everything else, which includes the slower start, some minor utilization gaps in transportation, and then the architecture business that has had some struggles like we communicated already in Q2, and that one is then one-third of the problem. All of these ones we are addressing and we are progressing in our reports. That's in a nutshell what has been happening in the infrastructure.
Yes. I have to do a follow-up. If you're saying the Danish problem is roughly two-third of the problem, is it possible to quantify it? Just a kind of range.
Well, you can do your own mathematics on that one, but we still need to see that we are talking about SEK 13 billion in pro forma numbers, negative deviation compared to previous year, and then depending how you evaluate the calendar impact and growth profitability, you get the total picture from there, you can calculate what is your feeling on that one. We normally don't talk about country-level results as such.
What we can say is that, and I agree with you, that we had hoped for more in the infra business. The thing that we have now is that the market is in general solid. Denmark has been maybe the market where it's been a bit more weaker, also not only our problems that we have had, but also the market as such. Moving into quarter four, we see a solid market in infrastructure across. There's a lot of spending in public infrastructure projects in the Nordics, but also in Switzerland where we are large. Of course, now with actions that we are taking in infrastructure division, we expect a solid development moving forward.
You can say that you have seen a clear improvement during the quarter, or is it too much too early?
Again, we have seen an improvement during the quarter, yes. Yes, we have seen an improvement during the quarter.
Okay. Just a follow-up question on the industrial and digitalization area. When the market maybe was a little bit better, the personnel turnover has been quite high. How do you see the development here?
Well, I think we are able to find the people we need, and we are also seeing a good development in keeping people. Of course, the whole industry, if you think of Gothenburg as a super strong automotive with a lot of businesses. Right now, there is maybe a lower kind of turnover since the market in general is a bit more weaker and uncertain in those areas. I would say that maybe a year ago, we had that as a challenge, but we are far behind having that as our kind of problem. I think the fact that we are strengthening our brand more and more is also enabling us to keep and retain and get the best people on board. Right now, that is not our problem, so to say.
again, if anything I want to say about automotive manufacturing is that, well, let's see now because we don't know what's happening in 2020, but we feel that we are taking actions on those segments that will help us in 2020.
Okay. My question was actually if the other way around, if it's a problem that you have rigged the organization for recruitment and now you maybe don't need it-
No.
that feeling.
No. That's a clear no.
Okay.
We are not overstaffed, not at all. There are task projects. There are some areas where we need to reposition. If you're fully into one of the big automotive players in Gothenburg and they are reducing, it will take a bit time to reposition those services to other clients, and that will create some gaps on utilization, but we are not overstaffed in that sense. No.
Okay. Thank you very much.
Thank you.
Thank you. Your next question is coming from the line of Dan Johansson from SEB. Please go ahead.
Thank you. A couple of questions from my side as well. First, on cost synergies. Your run rate was roughly on SEK 100 million at the end of Q2. Is it possible to quantify how much rolled into the actual Q3 figures? Is it anything more than SEK 25 million realized in Q3, or is it roughly around that number? Thank you.
Well, basically, we can talk about in a ballpark of 30. It's 25 from the first half, and then part from the actions on the 65 that we have gained during Q3 has already had an impact in Q3 results. We are in the ballpark of 30s.
Very clear. Thank you. Last one from me. On energy, the measures you're taking now, how far are you expected to take here? You're slightly below 7% margin now. Is it a fair assumption that it can come to be somewhere in the 8 to 10% margin corridor that you talked about during the Capital Market Day? Is that a fair assumption? Thank you.
Yes, yes, it is. This is absolutely what we are targeting in that division. That's the dialogue we have had also before we joined forces with Pöyry, is that we have not been super happy with part of the, especially the international energy business. Been too fragmented, too under critical, and now we are tightening that together, as Juuso said. It will be a combination of looking over the full sales structure, divestments, et cetera, to set the structure that should deliver a solid 8%-10% margin and growth moving forward. We are yet to finalize the plans into quarter four, and then we will see the improvement kicking in during 2020. That we are confident on.
Okay. Thank you. That was it for me.
Thank you.
Thank you. Your next question is coming from the line of Eric Elander from Handelsbanken. Please go ahead.
Yes, hello. I have three questions. First of all, given the weaker demand in the automotive and industry segment within industry and digital solutions, should we expect you focusing more on margins rather than growth in the next quarters here upcoming?
Thank you for your question, Eric. Well, I think we will focus on both, but clearly when you see a couple of segments going a bit slower, we are focusing on taking actions to defend and strengthen the margin, that's for sure. At the same time, as we have announced, there's been a very strong focus now on those segments in industry, but there are other segments that actually shows good growth, like food and farm has been good, and defense industry with others. It's more a question about how can we gear up and target even more those segments where we see a strong underlying demand.
I have to say that we don't for a second believe that the automotive industry will be good because the need for the whole transition in automotive, also in R&D to electrification, autonomous car, et cetera, is not stopping because we have seen now a short-term dip. We have to remember that we are not exposed to, if you look on car sales, we are more exposed to the fact that we are involved in a lot of these changes going on in the industry. Short answer, Eric, we will focus on margin for sure, taking action, but we will also target growth in that division.
Thank you. Very clear. The second one for me, also related to the industry and digital solutions segment. This segment is actually a consolidation of the former industry segment and the digital solution segment in former ÅF. How is it possible to get a split in terms of growth between those segments now in ÅF Pöyry?
Well, first of all, there's a reason why we have merged these divisions, and that is to increase the cooperation and to make sure that we have a joint offer in tackling the market demand. Part of that merger, we have made a true integration of the services. We don't feel comfortable in talking about those two separately. Obviously, if you think about the markets where we are operating and how we are operating, the digital solutions and the demand for IT-related services, embedded solutions and such continues to be strong and has been favorable. While in the automotive, which also includes an IT part of the offering, it has been more difficult. From those ones, you can fairly well jump to conclusions with how it could have happened.
as said, we are talking about one division with shared offering, with shared ways of working, so we don't feel comfortable splitting those two into two different bags.
Thank you. Yeah. The last one for me, actually related to the energy segment. When do you actually expect to have the platform in place in energy? In terms of your transitions that you're going to do here, and what will that mean for margins?
Well, yes, to start, we expect that, I would say, to be fully in place, I would say, during next year if everything works out. The majority of those actions, and I think we already have seen, just to point on, we have already seen that improvements are kicking in in that division. To be fully implement, I expect those to be finalized during 2020.
Yes. we need to understand also that what we are saying that once again, the key in here is not necessarily the platform. We have functional ways of working. We have functional platforms. We need to integrate them deeper and make them a bit more robust. the key in here is that we are taking a portfolio decisions on what type of a work we want to do or on what kind of markets we want to cooperate, and in which types of projects and markets we are not comfortable on operating or we don't see that our business model is fit for purpose for those market needs. this is more about a dialogue on the portfolio than on integration and synergies and platforms.
Okay. Perfect. That's all for me. Have a great day.
Thank you, Eric. You too.
Thank you. We have no questions at this time. Please, ladies and gentlemen, it's a *1 if you wish to ask a question. We have another question coming from Johan Dahl from Danske Bank. Please go ahead.
On the topic of prices, you're claiming market leadership in the Nordics with another well-known peer, and I guess they are having a great tailwind, sort of 4% on pricing. Can you just explain why your pricing performance appear to be significantly worse?
Well, I would prefer to talk about us then maybe not in comparison to the other peers that you refer to. I think we are, of course, pushing prices in all the segments as we can. Of course, if you would look on an automotive-related manufacturing industry that is being in a tougher situation, maybe it's a bit tougher to get through price increases in those segments. In general, I would say that all our business units, Johan, are pushing on prices wherever we have the position as such. If you take processing industry as one example and others where we have a strong position and a strong demand, we are getting prices pushed through.
is it that the weak sort of pockets that you're talking about are sort of offsetting those price initiatives? also looking into next year, what sort of milestones or follow-up points are you setting in terms of pricing? Is that more reactive from group management, or is it something that is diligently pushed?
No, we are talking frequently about pricing, Johan, and we are following it up also. Of course, to be clear, if you have part of the business where you see a lower demand, competition tends to increase, and we then need to be very balanced in when do we step in and take a project to secure volume, and to what price and what margin, and when do we actually step out. We are focusing on value-based pricing. It's a very balancing act, Johan. Of course, when you refer to the infrastructure business in general, where you see this solid underlying demand. Of course, here, we are also pushing prices as much as everybody else, but then we are a company with a slightly different portfolio than some others. We have a more international exposure to energy and process industry.
We have a bigger part to the industry segment. That's who we are. I believe then that, yes, right now we have a tougher time, but we believe that the diverse portfolio moving forward will be a benefit for us. We'll not quantify the pricing right now, Johan, but I can assure you that of course right now, the message to all our managers to push on prices wherever we have a position that justifies that.
just to highlight that we are operating in exactly the same market in many corners as the peers you may refer to, and there's a continuous market pricing on every tender you go out under. Especially when it comes to public sector, we have full visibility. Who wins, why wins, what are the prices. On that part, I'm feeling very comfortable that we are at least as good as anyone on the market.
I think it's very good also for us, the way we see the market now, and even announcing it, that in some industry segments, we see a higher uncertainty. That also enables us to take actions in them, and that, I think, will benefit us into 2020.
On the big ERP project, can you just mention timeframe, investment frame? What would you capitalize from this and yeah, just to get the figures right.
Yeah. basically, we have not disclosed the full values and full numbers, and based on kind of agreements with the vendors and such, I don't feel comfortable on giving all of that one out. we are talking about an implementation where we are renewing the ERP, so the full financial backbone of the total corporation. Normally, those projects tend to last three-plus years, and this is also the timeframe for us. obviously when we go core country to core country, we penetrate the material parts or majority of businesses quite quickly. we are talking about, well, ERP life cycle is normally average 11 years. we are talking about the depreciation periods on that full part, and the investment rate is several hundred millions in total.
How much again, Juuso
It is in several hundred million sets in total. As said, we will come probably back on that one also in the Q4 when we are talking about the efficiency program.
Yeah. Because the fact is that even, Johan, even before we joined forces with Pöyry, we had a very fragmented system landscape in former ÅF, and there was a need to actually renew or modernize a lot of systems. The really good part is now that the efficiency gain and structural gains and the transparency that we will get from this will be substantial, even though we have a heavy year ahead of us with changes and integration related to the IT platform. What we are seeing, the 165 million we are delivering now, I would call that the low-hanging fruits, very much people-related that they've been able to merge functions between ÅF and Pöyry. The gains in efficiency and platform gains to system length, they are still ahead of us, which is a good thing for us. There are more to get from that.
that we will see starting picking up in 2020 and actually also the year after.
Okay. There's SEK 130-150 in one-off cost in Energy. Clearly there's a lot of these write-downs. What are you actually writing off? Is it goodwill or is it projects? Second, the cash-out, is that redundancies? Is that a fairly good assumption?
Basically, yes, we are writing down goodwill and some other balance sheet items, which normally then in our business relates to projects. Basically the cash-out is expected to be various different kind of cash-out payments related on exiting certain projects or markets.
All right. Thanks a lot.
Okay. Thank you.
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