For standing by. Welcome to today's Q2 report 2019 conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session, at which time, if you wish to ask a question, you will need to press star and one on your telephone. I must also advise you that this conference is being recorded today, Friday, the 12th of July, 2019. I would now like to hand the conference over to your speaker today, Jonas Gustavsson. Please go ahead.
Thank you. Good morning, everybody, and welcome to this webcast and the presentation of the second quarter report for AFRY. I'm sitting here in Stockholm together with Juuso Pajunen, as you know, is newly appointed CFO. I will get back to that shortly. We have one hour, and we will go through the presentation with good pace and then be open for any questions. The agenda for today, short about a few appointments, including then Juuso. I will talk about overall performance in the quarter, a few words about the market. Juuso will take us through the financials. A bit deep dive into each division and a short a bit about the strategic execution as we are driving it, and then a short summary. That's the plan for the presentation.
Moving over to really good news is that we have appointed Juuso Pajunen as the CFO for AFRY. I'm really, really happy with that. As you know, Stefan decided to step back then a few weeks ago. We then work with Juuso as acting CFO, but we have now decided then that Juuso has been appointed the CFO for AFRY. Juuso have some extensive background from AFRY. I think he brings in a lot of knowledge about this business and is a great person. I know that Juuso will bring a lot of quality into the management team of AFRY. Juuso will take you through the finance part just within shortly. That's one, of course, very important appointment. Another one I want to highlight is Marie Trogstam, who was appointed new head of sustainability at AFRY.
As you all know, the sustainability part of our business has always been a big part. It's increasing in importance. Marie has an extensive background from international business within the area of sustainability. She's been working for, among others, Telia and also Saab. Marie will join AFRY on October 1st. We're really happy about that. Now, looking on the overall quarter and also the six months, we feel it's been a stable period for AFRY with stable growth and profitability. Of course, we are still in this situation that we are working with the pro forma numbers and also having paid us on acquisition then for us. That sometimes makes the figures and the numbers a bit difficult to follow. If you just look on the pro forma, we feel that the group joined together is performing in good pace.
We also feel that integration is actually going better than we have expected, and we are also realizing the cost synergies with a faster pace than we had planned. Also when you look on the overall demand, we will get back to that, but on the overall segments, we see a continued good demand, both on industry, infrastructure, and actually the energy segment is becoming more and more interesting also. We have seen one area or a few areas where we have seen a slight slowdown, and one we also talked about in quarter one, that is automotive segment. As you know, we are exposed to a few large clients also here in the Swedish market. Here we have seen a slower demand during the quarter.
We have also seen on the architect side, as you know, we have a few separate brands, architect brands, we are operating in Sweden, but also in Denmark and also Norway. We have seen as a consequence of the fact that there has been a slowdown on residential building, which is not our core focus, but that has affected the architect business as such, where we have seen a slight decline having some impact on us over the last quarter. Not a really big one, but we have seen that there has been, as we see it, more architect capacity available in the Swedish market than demand in the second quarter. That affects us a bit then. Then we also have had in Denmark an effect on infrastructure, which we feel is also partly because we have been between projects.
We have been ramping down a few projects at the same time as we have started up to ramp up new project. On top of that, there was an election in Denmark that was also affecting the decision process in getting new assignments. This is nothing that we see as a long-term issue. We are working on all of those, but these things were the ones that affected us in the second quarter then. As you know then in the numbers, we ended up on a solid SEK 5.4 billion on the top line with an EBIT on SEK 481 million, which we felt was in line and good, and the EBIT margin then with 9% then. For the full six months, we also had a solid growth of 5% for the six months and 2.5% for the quarter.
Juuso will also explain a bit the effect on Pöyry on the growth numbers. All over, it has been solid. We hoped for a bit more in some areas, but again these areas where we saw some slower demand affected us a bit. We are working on them, I would say all over now. Moving over to the integration of Pöyry has been the big thing for us. I would say, as you all know, the acquisition is done, and we have done the right issues, and Juuso will talk a bit about how the balance sheet is developing. When it comes to the integration, we are ahead of plan.
I'm very happy with the pace that we are getting our two companies together and that we have from the beginning focused a lot on our clients and being able to go out with joint customer offer in many areas very early. We can see the effect right now. There are a lot of projects that we are now putting in the bids where we are using the strength of both organizations. That's very good. When it comes to the cost synergies, we are ahead of our own plan. You know that we have communicated SEK 180 million as a run rate cost synergies. We are ahead of that internal plan. We actually have realized run rate synergies to the amount of SEK 100 million or SEK 99 million. I always said that we are committed to the SEK 180 million, but our ambition is higher.
Let's see then, but right now we are very happy on having SEK 99 million as a run rate. Again, with stable organic growth and earnings, we feel that this rather big integration between the two companies is going very stable with good pace. That's very good. Again, just to remind ourselves what kind of company we have become, I think we are still a company that has a very broad exposure to very different interesting segments, as you can see from this slide with the portfolio. What we have seen is, of course, that our dependency on the Nordic market have declined a bit. We have now a bit broader international exposure with more business in Europe. We have 50 countries where we have presence, and the majority part of our portfolio is delivered in different kind of projects, which we think is very good.
Slight increase on fixed-price project, where we really feel that the Pöyry organization brings a very strong capability in project execution. Actually, we are making a lot of good money on the fixed-price projects. The customer base is, of course, becoming stronger when you're bringing two strong companies together. We know and we can see that now that the portfolio as such has been very complementary, both from a segment point of view, but also from a geographical reach. That means that our top 10 clients, some of them we have been working with together, both AFRY and Pöyry, and now when we bring the companies together, we have even stronger offer to these companies. That's good. Then coming to the market, we see that the demand in overall AFRY for sustainable solutions continues to be very good.
Of course, this is driven from all the disruptive trends. If it's the overall climate challenge and the urbanization and together with all the opportunities, you have digitalization and then the electrification going on, there is an underlying strong demand for high competence service within the area of engineering and design and also advisory service. That's clear, and we see that continuing for sure. The market for infrastructure also in general is strong, and you know that we have a very strong position in buildings. Even if we are in between projects in, for example, Denmark, the overall business is doing very well. We can see that demand for technical solutions in complex buildings like airports or hospitals or commercial building continue to be very favorable.
The same is valid for the industry sector, where you also see a lot of our clients are working in the area of disruptive trends with 5G or electrification and automation as the drivers. We have seen, as we have said, the demand in the automotive industry is being somehow impacted by some cost-saving activities or reprioritization of the R&D portfolios during the quarter. We see this as more temporary. We know that many of our clients are getting back with their R&D spend. We are not feeling that this is a long-term situation. In the opposite, we see also a lot of good activity to many of the automotive clients. Some effect we had in the second quarter. Process industry market remains very strong, especially in Europe. Energy market, we see a continued good demand for large-scale energy projects, for example, in Southeast Asia.
At the same time, we work a lot in the Nordic and Europe with renewables and I would say the new energy landscape evolving. I see now the advisory service we have in our management consulting business, which is focusing a lot on energy and process industry, where we see still a continued good demand from our service. In general, despite a few areas, the demand and the market situation is favorable for us. Of course, we are bringing in a lot of new projects, and I would say many of these ones on these slides are also a consequence of us being stronger together. I would say many areas we have combined now the best competence from ÅF and Pöyry. This is just an example of the portfolio that we are bringing in.
The order intake is continuing to be very strong in our key segments. With that, I will leave over to Juuso to take you through a few slides related to the financial part.
Thank you, Jonas. Let's talk about our revenue first. We are delivering the second quarter SEK 5.4 billion of revenue. That's roughly SEK 1.8 billion added compared to previous year. If we take the pro forma numbers, we delivered roughly SEK 5 billion. We are SEK 400 million also when counting Pöyry as acquired already 1st of January 2018. When we are talking about continued organic growth, I'm happy to say that we are having that one. The 2.5% organic growth during the quarter is impacted by the calculation how we do it. We are looking organic growth only from ÅF perspective. Anything that Pöyry delivered as growth figures is not part of the organic growth as such when we are talking about reported numbers.
If we would adjust the Pöyry part as acquired 1st of January, that would add some 2 percentage points on the growth. If we take the combined power of ÅF, Pöyry, we are actually quite solid on the growth numbers. Having said this, we have been impacted then by the automotive industry slowness and the architecture slowness. That has a minor impact in the figures, especially when we are talking about the full portfolio level. Also, if we are looking forward on the growth, we are quite strong here. I'm very happy to see where we are standing and looking forward for the coming half, of course, also. If we jump from the revenue to bottom line, we are delivering SEK 481 million of EBITDA, excluding the items impacting comparability or affecting comparability, which were in total SEK 76 million. This is purely integration costs.
As was our SEK 99 million of the synergies ahead of plan, this correlates with that one. The synergies are coming at a cost which is also ahead. In general, the pace how the integration costs are expected to happen is still following the same logic as we have announced earlier, SEK 180 million of synergies will come at the cost of SEK 180 million. Also if we are seeing full year numbers, we are SEK 99 million of cost synergies, and we are having that at the cost of SEK 94 million. We are very well within the frame of our plan, yet being ahead in the implementation. If we are then seeing the profitability at 8.9%, it was slightly impacted the automotive and the residential building, but it has not been fully material.
On the portfolio level, we need to remember that automotive is around 10% of the total portfolio and not the full automotive sector is impacted. It's only one part of the automotive sector. Architecture also is only smaller component of our total operating. I do not see issues in this topic. If we are seeing the combined group, we can see that we are delivering roughly SEK 5.4 billion revenue compared to the SEK 5 billion previous year. We are having roughly SEK 400 million growth in there, which is asset solid. If we are taking the EBITDA numbers SEK 481 compared to SEK 474 previous year, we need to remember the calendar impact, Q2 was shorter than previous year Q2. Then the second component we need to remember is that Pöyry is coming to the portfolio.
As happy as all Pöyry employees are, Swedish National Day, material part of the Pöyry people were not celebrating or were at least working on that day. We are now coming to a different world from comparability perspective also. The final component is maybe that despite Pöyry showing 40% increase from SEK 108 million to SEK 148 million on the profitability, we need to remember that we are in the middle of an integration where our target is to stop talking about former ÅF and former Pöyry. It is every day a bit harder to make the difference how the numbers flow. Just as an example now that we have been talking about the cost synergies. We are seeing the impact now in the Pöyry part because many of the actions we have taken, especially on the platform level, have impacted more Pöyry than ÅF platform.
In this type of separate calculations, it is bringing benefits to the former Pöyry. In real life, we are already working without any kind of borders. That's why we also intend to stop talking about former ÅF and former Pöyry. It is both from strategy perspective wise because we want to be one group, but also from number perspective, it is harder and harder to make the difference what is former ÅF and what is former Pöyry. If we are talking about cash flow and net debt, this is now excluding IFRS 16 impact. We were SEK 7.1 billion at the end of previous quarter. Maybe just to highlight the biggest components, we had the rights issue, SEK 2.8 billion flowing to AFRY and obviously coming as money in. We paid the SEK 560 million dividends to our shareholders.
Everything else, if we are seeing what is happening, is more or less business as usual, and reaches us to SEK 5.15 billion of net debt at the end of the quarter. If we are just Pöyry rolling 12 months, our net debt to EBITDA is 2.7 times, which is very close to our target, but not yet there. At the same time, when we continue delivering solid operational cash flow, we are within our financial target in a very short time. Maybe on the cash flow from operating activities, our cash conversion was not as strong as it should have been. We need to point out that the two last days of the month, 29th and 30th, were Saturday and Sunday, and that impacts and pushes some of the payments on early July.
If I would take the 5th of July situation, we have far more cash at hand than at the 28th of June. This is normal seasonality as such. All in all, our net debt position is where we want to be, is going to be where we want it to be. That enables us, should we choose so, to take a couple of interesting bolt-on acquisitions in the second semester if we see strategic fit and rationale on them. We have including the IFRS 16 leases, then we can see that we have some SEK 2.5 billion more net debt or SEK 2.6 billion more net debt if we take the IFRS leases into account. Otherwise, everything is aligned how I commented on the previous slide. Let's go forward.
Okay. Thank you, Juuso, for that. Getting back then shortly to each of the divisions then starting with infrastructure. As you said, the infrastructure then ended up at just about SEK 2 billion in sales, and the EBITDA margin was 9.6%. In general, we say that there is a solid development within infrastructure. We have a few pressure points as we talked about, Juuso. We mentioned our architecture business is one. We have also felt that in the operation in Denmark, we are in between some of the projects that affected a bit the Danish operation, including that we felt that there was a bit delay in getting the new assignments approved within Denmark. That's where we have had some effect that have affected the margin during the quarter.
I would say when you look on the core countries where we are operating jointly together in Sweden, Norway, Denmark, Finland, and mainly Switzerland, there is a big underlying demand for infrastructure solution within the transportation segment, rail and road, but also on the building segment. On top of that, we have a strong position in our niche offering like architects and design. If you look then how these countries are planning to invest in infrastructure solution and, for example, complex buildings, we see a continuous strong market, and we will address the pressure points as we talked about, and we are doing that at the current. We feel that we have a solid, strong position in infrastructure together.
Absolutely correct. Maybe just when we are talking about reported numbers that we have on the screen, we need to remember that the Pöyry part of the portfolio is coming at a significant lower margin level.
Yeah
AFRY part of the portfolio. The 1.8% decline in the EBITDA margin is still mainly coming from that part.
Yeah.
We have a very healthy and good portfolio in general.
As we talked about when we informed about joining forces, we feel that the AFRY position in infrastructure has been very strong and developing very well. By combining then Pöyry, getting Finland, getting some interesting niche offering, for example, in Germany, the combined group in Switzerland, we feel that we are much stronger. Of course, then the AFRY part had a higher EBIT margin than the Pöyry part. Now we are drawing the full effect of combining these two groups and taking out cost synergies and focusing a lot on developing our client offering. That's infrastructure. When it comes to industry and digital solution in general, there's a strong market. We ended up at SEK 1.4 billion, and the margin was 8.8%. Of course, we have an automotive exposure, as Juuso also talked about. Here we have seen some decline.
It's been quite open in the public that some of the big automotive players, for example, in Sweden, have had some different programs to address cost issues or how to handle the R&D spending. That has affected us a bit during the quarter. We see that the trend is positive. We are addressing it, our position is strong in many of the areas. We don't see that as a long-term problematic area. Opposite, we are seeing a lot of opportunities, and we are addressing the position we have right now then. The underlying demand for automation, for digital solution across the sectors are still very strong. For example, food and pharma business within our industrial division is doing very well, and there are continued good demand across the markets we are operating in.
Automotive have been a bit weaker in the quarter. Process Industries, just below SEK 1 billion, SEK 914 million, EBITDA 9.6%. I would say that this market will continue to be very strong. I so much like the fact that here you can see really a lot of positive effect from combining Pöyry, of course, having the long, traditional, strong position in this area, but also ÅF with a lot of capability. Jointly together, we are becoming very strong. In pulp and paper, we are the world leading player. Then we are also a strong player in petrochemical and mining and metal as one interesting segment. We see a continued solid development in this segment across all the markets we are operating in. The order intake continues to be strong. Energy ended up at SEK 830 million, EBITDA on 7.3%.
In general, we see the energy field becoming even more and more interesting. Clearly is that ÅF part, as you all know, have had some challenging years behind us with the repositioning from a lot of large-scale power generation project in Europe and Nordic, where we're now moving into more renewables, I would say the new energy field. At the same time, we have a continued strong market in big parts of the world where there still are a lot of large-scale energy project planned and executed. The ÅF part on the international business has not performing that good. We have been too small scale. We have talked about several time by combining ÅF with a much stronger Pöyry business model and footprint on the international business, we have become a much stronger company jointly together.
The team within the energy division are working very hard now to combine the two groups and to actually execute on the strategy, where to operate, how to operate, quite a lot of the synergies are coming out of this group then. I'm very happy that we, on one hand, are able to do that, and on the other hand, developing a solid margin then. I know that Richard Pinnock, head of the energy division, said that our ambition is to be on the corridor 8%-10% on the margin down the road, which we feel absolutely is our ambition then. At the same time, I can also note that, for example, in Sweden, the whole question related to energy is becoming big. There is a lot of discussions about transmission capacity in Sweden.
We are moving into a more and more electrified world, and how will we meet that? The demand also for advisory service within the field of energy is becoming big, that also has a positive impact of our management consulting business, where we are really strong in advisory service on energy. This business we are looking forward to continue to execute on the strategy, I think it will be a solid growth down the road with good margin.
Yeah. Basically, when we are seeing the energy numbers and we are looking especially the growth, here you see the example and the impact of not celebrating Swedish National Day to a certain extent. Even though the organic growth in here looks like -4%, it is current portfolio compared to previous portfolio. If we would just take the combined operations, if Pöyry was acquired 1st of January 2018, we see that the revenue would have gone from SEK 770 million, more up to SEK 830 million figures, SEK 60 million or roughly 7% up. What we now see is that we are combining the operations quite successfully, but then maybe we have been adjusting the ÅF operating model a bit, and then we are seeing there some decline from revenue perspective, while the Pöyry part has been growing at a solid pace.
We can also see that we have actually gained 1 percentage point compared to the reported numbers profitability, but also we see solid increase on adjusted base of pro forma-based profitability. We are doing a lot at the moment in the energy to combine the operations. At the same time, we are evaluating our total energy offering portfolio to meet our 8%-10% ambition on the profitability.
Finally, Management Consulting, which is a very solid business. As you see here, we are delivering an EBITDA margin of 15%, having SEK 200 million in sales. This is, of course, a really interesting position focusing, as we said, on the process industry and energy globally, high-end advisory service. This business per se is a bit more volatile because you are also basing a part of it on successes, et cetera. It's a fantastic business as such, complementing the overall engineering offering we have across the other divisions now. We are looking forward to continue to developing this nice position we have in management consulting.
Yes. Then it is important to see that management consulting is absolutely crucial when we are talking about revenue synergies within the ÅF Pöyry combination, because management consulting is often the gatekeeper or door opener to various other services. This one, we are also happy to see that it's progressing really well during the second quarter also.
We really feel that this is a strategic interesting position, as you also said then, we will work hard to continue to developing that as a part of the portfolio. Good. That was the divisions, I will just move to the last part a bit about how we continue to work. Of course, branding is an important part, you all know that ÅF over the years have created a strong brand in Sweden, not the least being highly ranked by young professionals. Last year, we came out in this on the number fourth position after a few good ones like IKEA, Volvo Cars, and Google. Interesting, there was a new study this year where ÅF was actually ranked as number one when a scientific researcher could answer which brand do they rank highest when it comes to research.
Point with this one is to say that our brand is highly ranked, which is an asset for us, we will continue to work very hard on the branding topic. Also looking now in, of course, that we have two very strong brands at the current time. Besides the local brands we have, we have now ÅF and we have Pöyry, we are working now to assess how to maximize the position we have on these two strong brands. We will get back to that a bit after the summer during the fall. The strategy, just to highlight, we are continuing to working very hard right now in executing the strategy, how to drive growth, create value, how do we drive operations, how do we make sure that we have the best possible people practice.
These four pillar was the base pillars for ÅF, they are the same base pillar for ÅF Pöyry Group as combined. Even more important now since they have become a larger company with also a stronger international business to reassess how and where to grow, how to create value, how to improve and change the business model, as we have talked about so many times. Moving up in the value chain in delivering more and more a combined offer that enables us to have value-based selling. The operations as such, of course, here you have a lot of the cost synergies. Everything from how we delayer the management structure, how we are combining our functions, how we are maximizing our system landscape, also how we work with the facilities down the road.
In this area, we see a lot of the cost synergies step by step being executed. Then, again, coming back to the branding, but also ÅF Pöyry, a company operating in sustainable solutions, meeting a lot of the demands from a client is actually a company where people want to work. This is something that we will even maximize more down the road. These four pillars are as important as actual as ever before. Then just about the cost synergies. We are now on the run rate of SEK 99 million, I think question will come, why are you not raising your initial targets of SEK 180 million? Well, we could do that, first of all, our ambition is to come as close to the SEK 180 million run rate by end of this year, as we promised also externally. We are extremely much focusing on that.
Then step by step, we will of course increase, we already have an increased ambition internally. Before we go out and talk about higher cost synergies externally, we will make sure that we then get to the SEK 180 million as we promised. It looks very promising, of course, being on SEK 99 million. We also know that step by step, we need to attack other areas like system landscape and facilities that takes some more time to realize. The majority of the SEK 99 million is, of course, the fact that we have been able to release different positions that has been overlapping. Again, it looks promising on the cost side. On top of that, we are of course working very hard to maximize the positioning and by that deliver revenue synergies, which is a big part of the overall business case.
I can just note that if you look on the project portfolio as such, there's a lot of effects by us being a combined jointly stronger group. The financial targets, not to stay too much long on this one, you know we have communicated them, you know that we are working hard to reach them. We deliver now 8.9% EBITDA, which is below our target of 10%, we have some work to do. The annual growth of 10%, which would be a combined organic and acquisition growth, we really are looking to meet. Then as we said, the net debt position is improving step by step down the road.
Just maybe on the growth that we are at 5.2% half year at organic growth and remembering that excludes the Pöyry part organic growth from the numbers. I would say that we are pretty much meeting the 10% when we talk about organic/M&A part of the organic is still delivering or even some parts over-delivering.
When you zoom out and look on the fact that we have done a rather big integration over the last five months, ÅF and Pöyry together, we are delivering a solid close to 9% EBITDA margin. As Juuso said, when you look on the underlying organic growth of the two groups combined, we are close to the 5%. The balance sheet is getting strength that will give us the capability to also do bolt-on acquisitions. It is a fact that these targets are within reach. That's why I feel pleased with the fact that we have a solid business right now. Of course, there are areas that could have been better, but for sure it's a very solid and good start of our combined company.
I think as we said many times, looking on the markets in the different segments. Looking on infrastructure, industry, energy with the capability and the competence we have, for sure, we are looking forward to a very exciting second half year. With that, just summarizing that the first six months have been very stable. Organic growth, again, 5.2% and then 2.8%, adding on the fact what Juuso said. If you would include the Pöyry part, organic part, it would be higher also in the second quarter. Overall, if you look on the overall business, a continuous strong demand. Then we have had some pressure points we talked about. We are very happy with the integration going very well and the cost synergies ahead of plan.
Obviously, the effect of the SEK 99 million run rate will come then more in the second half year because a lot of these synergies we have been executing in the end of the quarter, but the run rate is close to SEK 100 million now after the second quarter. That gives us a strong and good platform moving into the second half year. I think with all that said, we will open up for any question at this point.
Operator, we are ready for questions.
Thank you very much. As a reminder, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Please stand by while we compile a Q&A queue, which will only take a few moments. If you wish to cancel your request, you can press the hash key. Once again, star and one to ask a question. Your first question comes from the line of Predrag Savinovic from Nordea Bank. Please ask your question, your line is open.
Thank you very much. On the auto issues within industry, is it possible for you to single out, for example, saying how much that segment in particular declined year-over-year? Also as a follow-up on that, with Daimler issuing a profit warning today as well, is this the start of something that can get worse? Do you believe you can turn this around, and how in that case?
First of all, let's talk about the automotive. Like we have disclosed earlier in various our materials, we have automotive is around 10% of our total revenue, around 30% on the Industrial & Digital Solutions revenue, that is covering all sorts of automotive. It's not only the personal vehicles, but it's also trucks and so on. Now we are seeing that what is the impact on that revenue. For example, first half, if you take 30% of SEK 1.5 billion, we are talking roughly SEK 500 million revenue in total from automotive. That has declined some 5%-6% or that ballpark number as a revenue. Then we need to remember that we have been also able to gain part of that revenue back from other industries because we have a vast and good offering throughout the industrial segments.
The pure impact of automotive decline is in that ballpark. Then Jonas will cover the second part of the question.
If you look on that, I saw also what you referred to today then. If you look on our position then with Pöyry, it's clear that we are operating to a few large players in the Swedish market. That's our majority of the customer base. On top of that, we have operation in China. We know that the whole automotive industry is, on the R&D side, investing a lot in the new fleets related to electrification, autonomous cars. Driving a lot of the demand on embedded system, for example, but also on R&D service into that area. If you split our offering into both R&D, then we are also, of course, strong in the kind of operational part, meaning the manufacturing part, providing automation solutions to the factories, so to say.
On the R&D side, we are delivering everything from, you could call it professional service to team delivery. We are operating centralized, we are executing a lot of the projects to the players. With all that combined, I feel comfortable that we will not have a big hiccup in the automotive down the road. In the opposite, we see opportunities in that segment because we know that they have to continue to invest in their R&D, in their car fleet. That we now have an effect is, I think, more from a timing perspective, that some of our large clients had to adjust their cost base and act on that. We are then taking action on that.
We knew that when we published this on the report, that we see that in automotive, there will be a lot of follow-up question, people might interpret that it has an overproportion big effect on the overall portfolio, Juuso tried to explain on that. We don't see that. I'm not too worried about the profit warnings related to number of sold cars because the service we are delivering are much more related to the future platforms that the automotive players are implementing. That's, for example, why we see that the demand on our service, for example, in China, on our Shanghai office, is continued to be solid. It's not the biggest operation we have, but the fact that many of our clients are investing in electrification and new platform is as strong as ever.
Super. That's very clear. Thank you. On the infra segments, I remember in Q1 you had some utilization issues. Q2 looks better. Are these issues behind us now? Also if you can give us some flavor on the utilization on a group level as well, which is down a bit year-over-year.
I think in the overall, as you noted, we had a slower start in the beginning of the year, where we were very ambitious on growth, and we had actually too much capacity, you could say. Infra have improved utilization, and we are fighting in the Industry division as a consequence, among others, on the automotive with utilization. Overall, I feel comfortable that we are addressing utilization topic, and we are focusing a lot on it. When it comes to the Infra, I think the pressure points we talked about has affected us a bit. We talked about architectures, but even here we are taking actions. Also in Denmark, we have some issues being in between on the project portfolio.
Overall, I feel both Industry division and Infra division are taking actions on these pressure points, and I expect that we will continue to improve utilization in the second half-year.
Maybe when we are looking about the utilization and the year-on-year impact, we continuously need to remember that we are comparing on the previous year numbers, reported ÅF numbers, and now we are having four months of Pöyry numbers included in there. If we see the utilization rates, they are inherently lower in Pöyry than in ÅF, mainly due to the advisory and technical consulting services. In Pöyry, the project delivery and the consulting delivery was a majority of the offering and the professional services were only small part of the offering. If you take the utilization rate curve, the more you are in the professional services, the higher utilization rate you have, and the more you are in advisory services, the lower utilization rate you have. We have also this portfolio combination impact, including the numbers that you see in the quarterly reports.
I think when doing a big acquisition or merger, as we have done with the ÅF and Pöyry with slightly different business model. Besides the fact that we have a market impact, we also have a mixed impact of utilization. We will sort that out even better moving forward. It is still an extremely important component, of course. I feel comfortable that we are addressing utilization, especially in these two areas, Infrastructure and in Industry and Digital, where we have had some segments with a bit lower demand during the quarter.
Okay. Thank you. Follow up on that, when you mentioned Denmark, the phasing issue there, how much did that affect the Infra segment this quarter? Any flavor on that would be helpful as well.
In our total portfolio, it is practically immaterial. I can double-check that one, but it is a fraction of what I told about automotive.
Okay. Super. In absolute terms. On EBITDA, how much is the impact on the calendar? Can you give us a number or a range here? How much that hit your figures?
When we are taking the pro forma numbers, we are talking about SEK 20 million-SEK 30 million, give or take.
Okay, super. I know you don't disclose this number anymore, can you give some flavor on the order backlog and how that has developed in the quarter in year-over-year terms?
I can leave it to Juuso. In general, we feel that the order intake continue to be very strong.
We have a solid order intake, and we see that different divisions are having slightly different outcome. In general, it is really strong and solid, and our order backlog is on the level that we are really happy with.
Super. Thank you. One just final. When you alluded to 8%-10% EBITDA margin with the energy segment, what timeframe are you looking at then?
Well, we are now operating just about seven. We have a lot of work to do, and we are executing it. Juuso mentioned that we have part of the portfolio is assessed. We have some homework to do at ÅF before we went together with Pöyry now. Jointly together, the team is addressing how do we combine the different sites we have, where should we operate. All of that is to drive. Of course, the focus is really to get the margin up and then also to drive growth. I can't say a timeframe, but I will not say a timeframe.
Okay. Just to put a bit of flavor. We have two different type of actions in there. The other part of the actions is the synergy part, which you see already now in the results, and those ones are quicker to materialize. Then the second part is the adjusting of the offering part. On that one, let's say that a bigger energy project is easily 18-36 months of duration. When you are choosing what you offer and what you tender, if you today tender in a better segment with better margins, until you have all of the older, potentially lower margin projects out, it takes normally a year or even a bit longer. This is now in general terms and just to put flavor.
Also, if you want to have more flavor, go to see how Pöyry energy turnaround went from 2% levels to the 8% levels. That took almost two and a half years, but that's also 6% it was.
I really feel that Richard Pinnock and the team is doing a really great job, and I think we will be on the 8+ with not too long down the road, without saying exactly when.
Super. Thank you very much for all the answers.
Thank you.
Thank you. Your next question comes from the line of Ola Södermark from Kepler. Please ask your question. Your line is now open.
Thank you very much. Just a couple of follow-ups. Just to clarify, the organic growth, if Pöyry has been consolidated from the 1st of January 2018, that would added roughly 2% to the current numbers.
Did I get it right then?
Yes. That is how I roughly calculated it.
You can see it also from the combined operations perspective in the report that when Pöyry has gone on year-to-date basis, SEK 400 million, for example, up. That is not included in the numbers at all. From organic growth perspective, it has not been included.
Yeah.
Now we are talking about pro forma basis.
Yes. That is very good that it disclosed that number. If then coming back to where we saw the weakest organic growth in the Industrial & Digital Solutions division. You are saying that you are not worried about the long-term trend, but how should we view the coming quarters? Can you change assignment for an engineer that have been working with automotive to other areas quite quickly or does it take quite a while? Do you expect automotive to come back within a couple of quarters, or how should we view the coming quarters?
Yeah. Without disclosing, as we don't do exactly when, of course you are on the right things here. First of all, we believe that part of this automotive we have seen is also related to some of the actions that the customers is taking. We think it will get back to this. On top of that, we have the ability to focus on other assignments for part of the people working automotive. Now we need to remember that we are delivering more and more advanced service, which is a part of our strategy. If you compare to a product company, we can be quicker in changing some of our services to other segments where we have a strong underlying demand.
For example, if you look on the digital and by the systems that we have a strong position in, of course, the team is now taking a lot of actions in refocusing some of that capacity to other segments. I'm not so worried, as I said before, that we will be stuck with too much capacity in automotive. Of course, when some of these big players take quick actions, even though we are fast, we will have some hits. That's how it works. Especially, I would say on the low-end offering. On the more professional service side, it can go very fast. As I said before, we also have everything from that offering all the way up to project assignments, where we really offer competence that our customer do not have. Here we are more a long-term fixed, how to say it?
It's not so easy to just change.
Compared to many others, we have quite vast offering portfolio where we have solid growth areas. If we just take food and pharma-
Yeah
we take defense or we take telecom and such. We have quite good capability to shift people also to these ones. Once they are growing and there's a solid demand, it definitely helps the situation.
Yeah.
Yes. I still have to ask.
as I understand the development here in the short term, have you seen the biggest hit in Q2?
Yeah. I can't, of course, take into account everything that automotive customers are planning to do, we feel that some of the actions they have done, I feel that they have taken action for this year, and they are now executing on that. We believe and hope that many of these actions have been taken, and that we are now adjusting accordingly, and that we will see a more stabilized and down the road growing business again. That's our belief. At the same time, we have plans. If it would not be like that, we need to take other actions. If you look back on our communication, including the capital Markets Day, Robert Larsson, Head of the Industry and Digital, also on that, talked about some varying tendencies in automotive. Of course, this has been going on now during the spring.
Also publicly announced that some of the big Swedish automotive clients have taken action to address their cost situation, affecting consultants as we have done. Again, we have so many different offerings, and we are constantly also bidding on new offering, for example, in the project service model.
Just a last question about the synergies.
It's going very well, apparently. The run rate was roughly SEK 100 million at the end of the quarter. How much was realized during the quarter? Is it possible to say?
First of all, if we take the SEK 99 million of cost synergies we had in end of Q1, we were at SEK 25 million, and that is pretty much rolling into the Q2 numbers. But remembering that that is an annual run rate, so one fourth of that one, roughly SEK 6 million. From the SEK 74 million materialized during Q2, it was more than we had in the plan, and many parts of that one were materializing only on the last part of the quarter and even on the last weeks of the quarter. Those haven't had that big of an impact in second quarter. They are rather starting to roll in the Q3, Q4. Maybe a final comment is that you see that the performance improvement in Pöyry is around 40%-50% compared to previous year.
That one is partly showing that the cost synergies are more visible in there, and they are coming. At the same time, some of the openings have been built or some of the services have been built now more into Stockholm compared to maybe in Finland. You can't discount that all of that one would be based on cost synergies.
Okay. Thank you.
Yeah. Thank you very much. Very helpful.
Thank you.
Thank you. Your next question comes from the line of Johan Dahl from Danske Bank. Please ask your question. Your line is open.
Yes. Hi there. I was just wondering whether these problematic areas which seem to be existing in the legacy ÅF operations, have that caused you to alter your recruitment plans for the current year perhaps to tread more carefully going forward?
Not really. As also you said, just actually, if you look on the overall business as such, it's a few smaller areas actually, Johan. I think, we as we also write in the report, we are looking forward to a continued growth in the second quarter. Of course, in these specific areas, we need to be careful how we use our capacity not having utilization problems or ending up with too much people not being on assignments. If you look on the overall company with 17,000 employees on the SEK 20 billion plus revenue rate, we are as offensive as we have been. In some segments, you need to be selective, and that's why also the operational model right now is that we have a clear structure on business areas in P&L units. Each of these managers knows what's the plan.
Is it to focus a lot on growth with a solid market, or do you have to address utilization? Looking on the overall, Johan, we are as offensive in recruiting on overall basis.
Got you. Looking on the ÅF legacy operation, just looking at the second quarter, you are printing a 150 basis point decline in adjusted EBITDA margin. To what extent was that a sort of surprise to you?
I think we could feel automotive as we felt already in quarter one. You never know how much you will be hit from it, that we knew was coming. We have talked for quite some time about private housing going down, would this affect the architect business or not? We are not primarily focused on private housing as such, but we have felt maybe in the second quarter that the spillover effect has been coming in more in the second quarter. I would not say it was a surprise, Johan, but still it hit us a bit. The Danish operation was maybe coming up a bit, during the quarter that we were not able to ramp up new assignments at the same pace as we were closing down a few other ones, that affected the infrastructure a bit.
It is a mixture, Johan, not super surprising. We need to remember that the ÅF operation is coming from quite high levels on the infra side. We do not see any significant weakening. It is a couple of pressure areas that we need to address, we are addressing it. It is a mixture, Johan.
Okay. Just a final question. On amortization of intangibles related to acquisitions, is that -SEK 60 million here, the underlying sort of level we should see going forward, Juuso?
Yeah, I know. I need to double-check that one, but that was the amortization levels were now on that side. Just a second. We have that.
Yeah. Maybe Juuso can get back.
That's fine. Thank you so much. Bye-bye.
All right, Johan. Thank you, Johan.
Thank you. Your next question comes from the line of Erik Elander from HCB.
Okay.
Please ask your question. Your line is open.
All right. Thank you. First of all, just about a question regarding the residential market in Sweden. From previously, what I remembered is that the older ÅF had just 1% of sales generated from Swedish residentials. How is this spillover effect actually affecting you, so that you talk about the weak market in relation to that in your infrastructure business?
Well, as we said, Erik, is that we still have that exposure, but we have done, as you know, over the last few years, acquired a few architects companies, which are operating under a standalone brand, Sandellsandberg Concept, and we have Gottlieb in Denmark, among others. That means that we have an architect business. What we have seen over the quarter is that while the residential buildings in Sweden have declined, there have been a lot of architects companies that now need to refocus on other areas. That means that there are more architect capacity, you could say, available than maybe the demand, and that has had an indirect effect on the architect business. I would say if you look on our building operations, for example, that has not been affected at all due to that, because that we are not focusing on the residential.
It's more the architect niche business. I think you also said it, if you look on the overall group, it's not a significant business at all, but just for infrastructure, it had some impact in the quarter.
Yes. This is something that is a function of time. People learn when you see that market goes dry, it is natural that you go to seek for other markets. There's a barrier of entry on every market. In architecture, it's quite high, so it's difficult to jump from residential directly to something else. The more you have time, the more you can develop the competencies and so on, so that you can make a transform to another market, and that's only natural. Obviously we have exactly the same time to adapt to such market changes. The further we go forward, the further the market stabilizes and normalizes.
We are taking action, Erik, and I'm not so worried. For sure, just in this isolated quarter, we felt some effect of it.
Thank you. Very, very clear. The second question is regarding the Energy. Maybe I didn't listen good enough, but what is behind the negative organic growth within Energy? Also, given that you get tougher comparables now the coming quarters as well, is this around -4% something we should expect in organic growth terms also the coming quarters?
First of all, going back to the explanation that how the organic growth is measured, it is only former ÅF which we are measuring. If we take the total combined operations as if Pöyry would have been acquired earlier, we see a solid growth in there. Material part of the growth is actually in the Pöyry operations part, and far smaller component of the growth is in the ÅF operations part. Then within, especially in the ÅF part, we have taken some difficult decisions on adjusting our offering, which also is seen as a negative component. If you see the total portfolio component, the organic growth is solid and stable. Splitting between former ÅF or former Pöyry numbers looks slightly, let's say, stupid, to be honest.
Yeah.
The methodology is built on a going concern perspective and not based on a platform acquisition that we have made. The comparison is actually difficult. If you just take the combined operation view, you see that the growth is solid.
I think what you need to remember, Erik, also before we went together, Pöyry, we addressed the fact that the ÅF energy portfolio was not performing. If you go back a year ago, we had really low numbers, and we knew that we had to cut out some of the businesses because we were not making profit enough. We had a plan to execute that, and that we are doing now jointly together in the new division then. That's why it looks like it does. If you add on the Pöyry part, and if you include that organic part, it would be solid. That's why we feel comfortable, Erik, that when we have addressed these topics, mainly in the work portfolio, we will have a solid growth and a good model development in the energy division.
Perfect. Thank you. Just like a final question. It seems now, when I started to follow this company, maybe two years ago or something, everything was very good in terms of market demand and so on. It was until that, until maybe two quarters ago, then you started talking about the weaker automotive sector and so on. Now we have problems also with residentials and architecture market in Sweden, but also in Denmark. Do you think that the market is actually turning more sour overall? Do you see that the market demand is nearly as strong as it was before? Can you talk a little bit about that?
Yeah. It's a valid question, Erik, but I think if you read what we're saying, we are saying that if you look on the overall infrastructure market in the countries we're operating, it is as strong as it's been. If you look on the industrial segment, there is a lot of discussions, have we reached the peak or not, but we see a continued good demand. For example, if you look on food and pharma, for digital automation solutions. We see automotive as a standalone segment, having some adjustments during the quarter, and that we felt for a while. The residential building we have seen, now it affected a bit architecture. The energy is strong. Process industry, as we have not talked a lot about, now is as strong as it's been, and our offering is stronger than ever. Management consulting is doing well.
We are sticking to what we are saying. The market overall looks continued very strong. A few segments, yes, and that we are addressing. I think also when you referred to two years back, well, yes, there was more probably less effect from, for example, private housing and automotive players were running on the highest peak ever then. In these two segments, I think it was a different ballgame two years ago. I have to say that taking into account that we have done this complex integration of Pöyry, I'm so pleased to see that the segments where we're operating in the overall basis looks very promising down the road.
You need to remember that we have been faring. If you now compare the market and you compare the performance, we have been actually delivering very stable 9% EBITDA for a past decade, and we are still delivering very stable 9% EBITDA at the moment. Maybe it is a bit more related on how we comment the markets.
Yeah
than what is actually happening on the markets.
I think the numbers, and you also said it, the report is not so easy to read due to how you have to report. If you take into account the Pöyry business as if it would be full owned by the full year, we would have a stronger organic growth, and we would deliver close to 9% EBITDA. For us, it's not perfect all over, but it's a very strong base. On top of that, we are taking out costs. Based on all that, we are looking forward to an exciting second half year with some areas that we need to work hard on, but in a continued good market.
Okay. Thank you very much to you, Jonas.
Thank you
Also to Juuso, have a great summer.
Yeah, you too. Thanks a lot.
Thanks.
Thank you. We don't have any further question at this point. Please continue.
All right. Thank you all for listening in. With that said, we also wish you all a fantastic summer. I'm looking forward to get in touch soon again. Thank you very much for participating, and have a great summer.
That does conclude your conference for today. Thank you for participating. You may now disconnect.