Good day, welcome to the ÅF AB third quarter financial report conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Jonas Gustavsson, CEO. Please go ahead, sir.
Thank you. Hello, good morning, everybody, welcome to this call and update on the third quarter for ÅF. I'm here, Jonas Gustavsson, CEO, together with me, I have Stefan Johansson, CFO. We will, as usual, take you through some slides presenting the third quarter. We will cover a short business overview, some of the highlights, also looking a bit on the market financials. We will look into each division, a few words about the ongoing strategy implementation, the summary. We will also have time for any questions in the end. Starting with an overview of the quarter. If you look on July to September, we came in at just short of SEK 3 billion, SEK 2.9 billion on top line, which was an increase of 13%.
The EBITDA ended up at SEK 220 million, which was an increase of 20%, the EBITDA margin ended up at 7.4% compared to 6.9% last year. In general, you could say that we are pleased with the quarter. We have improved our earnings when we see a continued solid growth. In general, as you will see later on, the market as such continues to be very good. When it comes to the strategy implementation, it goes according to plan, so I'm also pleased with that. This means also that if you look on January to September, we are at this point on 9% growth for the three quarters, which is very close to our financial target, which is 10%. The EBITDA margin after three quarters at 9.1%, which is also an increase and improvement compared to the same period last year.
All over, obviously, we have high ambitions, but this is a quarter that came in according to our own plans, and we're quite pleased on that. While I guess you all know ÅF, this is just to remind who we are then, 10,000 and growing. We had actually in the third quarter, Stefan will get back to that, 6% organic growth. I think on the growth side, we were getting back a bit on the organic growth. SEK 13 billion and our main business is in the Nordic region then. Next slide shows that we actually have a broad product portfolio, so to say. We are exposed to many different segments, which I feel is a good kind of balanced portfolio, especially when you have some segment goes down and some is increasing. At the moment, we see in general good demand across many segments.
Next slide, again, as you know, we have a lot of global trends that actually drive the demand of the competencies and the solutions we deliver from ÅF. Maybe you saw that yesterday, we actually were sending out a press release where we are actually gathering our competence, know-how, and delivers in what we call Future Cities, which is an extremely interesting area where ÅF have, I would say, unique competencies from industry infrastructure digitalization, and I am extremely thrilled of that moving forward. Market as such. Well, I can say that the general market continued to be good both from the industry market and also from the infrastructure market. The energy market, we have said it for quite some time that if you look on the large scale energy market in Europe, still tough, and the whole energy sector is still in transition.
For sure, that is the part of our business which is not as favorable as the others then. Of course, when it comes to digital solution, we see a continued strong demand. We have some questions because there is a lot of question where will the market go, but at this point, we don't see any sign of a declining demand. We see a continued good demand as we are right now then looking in quarter three. We have, in general, a good book to build, and we continue to win a lot of interesting assignments. What I think on this list, we highlight a few of them, and starting with the first one, which is an, I would say, disruptive way of doing business.
This is where we work together from our digital competence together with the infrastructure, and actually we are doing a completely new way of measuring how slippery the road conditions are in Sweden. In the old way, it was a few cars driving around in Sweden and sending data. Now by using the anonymous data from all the Volvo Cars, we have actually made a disruptive project together with Volvo Cars that is one way of looking on many new projects that will come where you mix digital solutions with, for example, infrastructure and industry knowledge. Groundwater, this is one part actually in our Future Cities umbrella. We see water competence becoming more and more important, and we know that in the municipalities in Sweden, there will be a lot of investments done in the next coming years.
Water is important for us. Architects, the third one, we acquired Gottlieb Paludan, a very good Danish company that has a focus on infrastructure. They are taking a lot of assignments on their own, and we can see the importance of having this cross-knowledge with architecture and infrastructure. That's a very good project. On our industrial side, we deliver new automated production lines to Volvo Cars. This is a segment where we are very strong, and I also see our industry division is becoming even better in that one. Tetra Pak, also an automation line, we are continuing to focus on the pulp and paper segment, and we are getting increased assignment from. There was a few more in the power plants in the Nordics. We have a pump storage in India, and then finally, several projects related to digital and Industry 4.0 then.
All over, reflecting the market condition, we see a good order intake across our different business lines. Moving into acquisitions, we have since July done three acquisitions, a smaller one in Switzerland, we did one in Finland, and another one recently we announced in Denmark. I would say all of these three ones have a niche or a position supporting our strategic direction. Up in the value chain or, for example, the one in Finland supporting also geographical focus on the Nordics, including Finland. The third one that we just announced a few days ago, P.A.P. then, which is an energy specialized company based in Denmark that actually will support our focus on the new energy market in the Nordics. Pleased with that.
This means that so far this year we have actually closed 10 acquisitions, ending up to slightly above SEK 500 million, supporting our top line. Each of these ones are again then supporting the positioning overall in relevant segments or geographical focus then. I should say we are pleased with both the organic, but also the fact that we are ramping up our acquisition process then. With that, I will just leave over to Stefan to a bit more on the growth in Q3. Stefan, please.
Thank you, Jonas. Sales picked up and ended up in SEK 3 billion for the quarter, which means a growth rate of 12.5%. If we make a breakdown, we can see that the acquisition growth was 4.5%, which is a higher number than the previous quarter. That means that we are picking up as Jonas mentioned. As you recall, we were a little bit conservative during the end of last year due to the new strategy direction and the analysis of the strategy and some constraints of the balance sheet, but now we're picking up again. What's very positive during the quarter was the organic growth, it ending up at 8%, and adjusting for currency effect, it ended up in 6%, which is the highest number for a number of quarters. Comparing with Q1 and Q2, it was 3% in Q1 and 5.1% in Q2.
That was good news, even though we shouldn't draw too many conclusion of an individual quarter, especially during the summer period. It's good news anyway. We look at the individual division, and Jonas will come back on that, the solid growth came from Infrastructure and Digital Solutions division. Industry is still flat and in Energy we are still struggling with the international business, but reported a very strong growth in the Nordic areas. Margin-wise and profit-wise, as Jonas mentioned, the profit came in according to our expectations, even though one division Infrastructure might overperformed compared to our plans, and then the division came in slightly below our expectations. All in all, it was a good quarter with a margin of 7.4%, compared to 6.9% last year. It's picking up.
If we look at the unadjusted profit, we have to recall that we had a restructuring expense of close to SEK 70 million last year. Cash flow-wise, we are also happy. Working capital and cash flow from operating activities was good and strong. We have to remind ourselves that the volatility from the project business in cash flow is always a kind of a calendar problem. If you recall, last year we had some downturns in the cash regeneration due to the project business. Dividend 50% of net income, we stick to our policy, and we also bought back shares of close to SEK 200 million. The reason is to reduce the dilution from the convertible debt program in order to minimize the dilution for the shareholders, ending up in a net debt position of close to SEK 3 billion and 2.2 in the KPI.
To be compared with our target of 2.5. We are under the target at the moment.
All right. Thank you, Stefan. With that said, I'm looking a bit into each division. Stefan already mentioned a few things, but if you look on infrastructure, obviously we are happy with the fact that they came in with strong growth and also increased profitability. As we said before, we continue to see the infrastructure business as a very strong market across our different business line, or we call it business areas. For example, the building technology part, very strong. Also we see continued demand in road and rail as well on the architecture side. Then we have niched offerings like we mentioned, water, that becomes increasingly important and interesting.
Again, we have been winning a lot of assignments. Again, here is mentioned this one that we did, which we found very interesting together with Volvo Cars, which is again, a disruptive way of transforming an old way of measuring, in this case, how slippery the roads are. By using the Volvo fleet, we can basically much more online measure the road conditions. It's actually a safety feature also. I think this is just the beginning of seeing also the infrastructure business with disruptive eyes and use digital competence much more. I would say that ÅF is one of the companies that has the best position in this segment. You might know that I have 20 years' experience in the industry. Obviously industry is moving ahead. We can see that demand also.
When I look on the Infrastructure business, I think there's a tremendous interesting potential for making life both better but also safer in many ways. This is something which is a part also of our future city focus moving forward. We acquired a company in Switzerland, and we are building on our Swiss footprint, which is actually very solid, and I think we are starting to be a significant number of people in Switzerland. I think we are coming close to 600, 700 people in Switzerland. Again, a quarter that we could be proud of, and Stefan mentioned that we delivered actually 20% growth. If you adjust for calendar effect and also currency, we were down to about slightly above 13% organic growth. Even if it's a third quarter with summer, it's a very strong growth for us.
Moving over to Industry, I would say that we are pleased, and it's a stable earnings. At the same time, we are here fighting with the growth part. As you see, we are basically flat. However, I know that the Industry Division are working very hard on repositioning and implementing the new strategic position basically, that we talk about. I'm quite confident that we will pick up both on the profit side but also on the growth side, even though, of course, we fight a lot with competence, and of course, here our competitive section on that side is the industrial companies, basically. We are winning a lot of new assignments then. We mentioned a few one already before, but both to the industrial companies like Volvo, but also in this case, Tetra Pak, and also in the pulp and paper part.
We acquired a company into the Industry, which is the one in Finland, Profil-Bau, which is the first step, I would say, to enter the Finnish market a bit more. We have had energy-related business in Finland before, but now we also look on Finland more as a core market for us as a part of the Nordic focus that we have. 6.7% margin, so stable margin, but we expect more from the growth side. Moving over to Energy, and of course, this is one of our smaller divisions then, but you could say the top line then, and Stefan mentioned, if you look on these as two different businesses, you could say the Nordic in one way. In the Nordic, we saw increased demand on the ÅF services, and we were actually improving our profit, and we also delivered a solid growth.
Then we have our international business, which is more related to CapEx project, actually global project. Here we have seen a more volatile and also business, but also with price pressure. Here we are conducting, again, I would say, a review in order to reposition our Energy business according to our new strategy. We also are looking to reduce the exposures to volatile countries, volatile project, and this is a work that we are doing right now. I would say the sum of all of that, I would say, affected our margin in the quarter slightly. It's not a dramatic thing, and you can see that we came in one of our weakest quarters in the year, we came in at 4% EBITDA, and we actually delivered growth.
For sure, this is one of the businesses that we have been working on repositioning over the last couple of years. In the Nordic, we have done it a bit faster. What is for us remaining now is to do basically the same journey on the international business, and that we are doing right now. We ramped up that work before summer, and we have worked very hard throughout the summer, and we will continue throughout the second half-year now to basically set the structure on the international business that will be driving growth but also increase profit, and again, then having a balanced exposure, if you look on geographical and the different kinds of segments. And then we acquired a company, then, P.A.P, which is a niched Energy specialist company in Denmark that will add on to our Nordic portfolio in a great way.
As Stefan said, we came in a bit low on this one, of course, compared to some of the others. But I am also here confident that we will position Energy towards growth and increased earnings. And I would say now we are doing the things on the international business that is remaining in that business segment. Finally, Digital Solutions, and here you can see that the overall demand in the industry, but in society on whole, is still very high, and we have seen getting back here to growth, which was very positive then. We actually had 8% organic growth and also a solid profitability. And again, we do not see any end of need or demand in this segment.
And of course, part of this division delivers solutions directly to our customers, but a big part of this component in this division goes across other business areas. And again, the project we took to Trafikverket together with Volvo is one example when we used our extensive infrastructure knowledge mixed with digital components. That finalized, and if you look at the summary for the quarter, and again, Stefan said it is of course the weakest quarter, having the whole summer vacation period. But we are pleased with the fact that we were getting back to growth, a stable 6% growth, and also that include our earnings with 0.5% units then, which is a step in the right direction. A quarter according to plan.
With that said, moving over a bit to, as you all know, we presented a revised strategy a bit more than a year ago, or less than a year ago, and we are moving according to plan. This is just a frame with our vision, mission, value, and then we have our growth drivers. And again, yesterday, we communicated Future City as one kind of joint approach from ÅF to take on a few of the large complex challenges that we have in society with city development. We know that urbanization is extremely growing very fast, and it puts a lot of pressure on finding good solutions for making the cities. To deliver sustainable solutions in the cities. We have a clear growth strategy plan. We are working on our four pillars: growth, value creation, operations, and people.
When it comes to value creation, obviously for us to climb the value chain is one important part, here I can say that all of our business areas works very hard on defining their way of increasing the value. On top of that, then, as I mentioned now several times, Future Cities is a way for us to, with an umbrella, take all the competencies we have at ÅF to work in challenges related to city development. We know that if you look back, there's clearly things that could have been done better in different cities. I guess you all are, if you are in a medium-sized city or in Stockholm area, or if you travel the big global cities, sitting a couple of hours in traffic jam is maybe not what you want to do. On top of that, we have huge sustainability challenges.
On top of that, we need to create cities where people want to live. We believe that ÅF having infrastructure, having industry, having digital, we are one of the companies that really can lead and guide that development. We have been into that for many years, but I think this is the first time when we basically frame our complete competence into that part. We know architecture, we know building technology, we know sound and vibrations. We know industry, we know automation, we know automotive, and we know digitalization. We are now clustering that together, it will be extremely exciting looking at that moving forward. Strategy. We have a well-implemented plan to implement our strategy, I just want to say that we are implementing that according to plan.
I'm also proud that we are doing that without having any hiccup on the curb on our financial performance. We are delivering growth, we are improving our margin while we are implementing the new strategy, and I'm very pleased with that. Also to remind that, of course, for ÅF to be one of the attractive places to work on is important. The ranking that we have followed for years, where young professionals, engineers are ranking the top companies, we came out as number 4, and we are the leader in our realm, so to say, and we then compete with IKEA, Volvo Cars, and Google. They are strong competition, but we are very pleased on that ranking. On top of that, we know that when you ask researchers in Sweden which company they rate number 1, we came out with ABB and AstraZeneca.
Clearly, the brand ÅF, when it comes to technology, making future, is ranked extremely high. This is something that we will, if anything, increase our focus to keep that brand. By doing that, we will also take on the most complex and interesting assignments. I can tell you, coming back to that assignment with Volvo Cars that we do to Trafikverket, when you can see that you're mixing digital with infrastructure, that's when engineers get thrilled to do something disruptive that actually, in this case, even improves safety. Here, I think ÅF is a tremendously interesting place to work with. The financial targets, you know them, but of course, after three quarters, we are on 9% compared to the 10 we have on the growth.
You know that we have 10% EBITDA margin. We are fighting to get there, I'm sure we will. As Stefan mentioned, we are now off the third quarter on the net debt on SEK 2.2 billion.
Which means that we do have now ammunition to continue our growth-related acquisitions.
Again, I think we have a good selection when we look on companies. I can tell you we are turning down also because we are not paying the high end of the. Of course, in this part of the business cycle, some of the companies are expensive, but we have a good process of evaluating the companies we acquire. That summarizes the quarter then. Again then, it's a good quarter, came in according to plan with good growth and improved profit. The market continues to be favorable, and we are implementing the strategy as planned. Finally, before I open up for questions, we have seen that we would like to welcome you all to Stockholm and Solna on November 20, when we have our Capital Markets Day, and we will tell you more about the growth story of ÅF.
With that said, I think we will open up if any question.
Wonderful. Thank you, sir. Ladies and gentlemen, if you'd like to ask a question today, please press star one on your telephone keypad now. If you find that your question has been answered, you may remove yourself from the queue by pressing star two. Again, please press star one to ask a question now. Gentlemen, our first question today comes from Predrag Savinovic from Nordea Bank. Please go ahead.
Thank you very much. There's really strong growth in Infra this quarter. Do you have any extraordinary orders or maybe taking market shares here? If you could comment a bit on the fast growth here.
Well, I think we are, in general, strengthening our position on the market. I would, of course, like to highlight our building technology side, which I think also from a purely industrial perspective, have a fantastic position because the transformation going on complex buildings like airports, schools, hospitals, commercial building is just fantastic. Here we had another strong quarter. I would say across all our business lines, we had a good and stable quarter. Stefan, I don't know if you want to
No, that's correct, sir. I think it's a combination that we are taking market shares because we are growing this business, we are also operating on a market that shows good demand.
Okay, thank you. Automotive has had a tough couple of months with profit warning among several large companies. Will this affect you somehow, or what is your thinking here?
We obviously monitored Automotive sector closely, of course what we deliver is sometimes having a different cycle than selling cars and how that is moving on. We are very much involved now in setting up the automotive industry to electrification autonomous cars. That goes from even what we deliver from automated manufacturing lines all the way to what we do on the R&D side. For example, we are more and more involved now in setting up new lines for the electrified new platforms. On the R&D, we are involved in supporting the automotive makers in both electrification and autonomous cars. That is maybe sometimes even right now a different cycle than if you just look on the pure car sales.
Right now we see the Automotive segment in Sweden, but also the international business there continue to be solid and good as we see it right now, at least.
Could you walk us through the margin a bit here? Infra is very strong. Industry is slightly down. Energy is down in spite of nice organic growth, and the same thing for Digital Solutions. Why doesn't the margin take off here in specifically Energy and in Digital Solutions?
Well, starting with digital solutions, I think they delivered a solid and stable margin. Of course, it's a balance on growth versus margin. We had a few quarters now on the digital where we were not growing. We are focused a lot to get back on growth. Then in digital, we are transforming that business, moving from basic professional service, selling a lot of hours, towards more and more concept and taking on assignments, so to say, selling teams, et cetera. That balance act made us deliver there. For us, it was according to the plan.
Stable there, and in line with last year.
Yeah.
It's still a solid 9% margin business.
We expect that down the road also to improve. That was for us according to plan. The ones that we are pointing on, which is the smaller part of our business then, Energy, has been for a few years, the challenge. What we have done now, I would say, is that we have taken on the repositioning the international Energy business. That I could tell you, that kind of work have affected the EBIT margin in the third quarter. We have taken a few decisions on what projects to take on, what market to operate in, and that clearly have affected the margin a bit during the quarter. Iran was one market that we actually had some growing interesting business going back a year or so.
That's clearly one that we have actually completely stopped. We have left that market, and we have other such related things. The whole idea here is to set a stable balance also when it comes to risks versus reward. I expect that to be done. When we move into next year, we will step by step improve the margin and start to have growth also on the international business. If you look on the Nordic base, we are actually growing, and we are improving the margins. It's more the international business where we are a bit too scattered when it comes to the footprint, and this we are now consolidating. Actually today we also announced that we have now appointed Peter Plagemann as new Divisional President for the Energy Division.
We had Roberto Gerosa, who was leading that division for 10 years. Roberto was a guy that came into ÅF with, I would say, more with the view of the market as it maybe was 10 years ago. Now we are doing the repositioning of energy. It had some effect on the margin in the third quarter. It's not dramatic. As an overall, then we delivered a solid margin. Then, of course, you talked about infra doing really well. In industry, I'm also pleased because also here we are repositioning. Robert Larsson that we hired from ABB, is working very hard with all his business areas to move up in the value chain, to take on both national, Nordic, but also international projects. I'm quite pleased with the work we are doing to set ÅF for the future.
Of course, then we have some effect on the margin in the third quarter.
Thank you very much for that.
Thank you.
Thank you. Our next question today comes from Viktor Lindeberg from Carnegie. Please go ahead.
Morning. Thank you. Following up on energy and infrastructure, could you quantify if you had meaningful project revisions on the upside, I guess, in infra and maybe on the downside in energy relative to what you are used to when looking at this on a quarterly basis?
I would say, Stefan, super. I would say that of course as in any quarter, you have some projects delivering a bit better than you hope. I would say on the infrastructure, a few ones, but no really major one that you could say. It was more a underlying performance in general then. Coming back to the building part that we have, the big bread and butter we do here is really the volume of a lot of smaller medium-sized projects. When it comes to the energy, clearly the fact that we have now decided for a clear direction on the international business, and we are reviewing the project portfolio, I would say extremely tough on the international business, and we are taking the effect on that, setting a new direction had some effect in the third quarter.
Not material at all, it affected the margin slightly. Would you say so, Stefan, if you look at it?
Yeah. As we stated in our report, the competition and the price pressure in combination with our cost of sales in combination with some margin slippage as opposed to the margin slippage. Just overall, some good news on the infra and some bad news on energy.
Yeah. I give you an example also that when we now have been maybe a bit more rigorous in what project, what segment we want to do, we have actually said no to a lot of projects that would have given us work and that have led to lower utilization. That clearly affected the margin in the third quarter. By that, you could say that we went down from 7% last year to 4% this year, and that is clearly an effect, I would say, from the repositioning. Iran is one example. We had our Czech Republic unit having three ongoing affected high margin, and we for both political reasons, obviously, but that we don't want to be in Iran, withdraw from that quite quickly and that affected us. We have some other like that.
We will continue with that work, but I don't see a dramatic thing. We have said that if it's anything that we really need now to take the consequences fully to really set for the future, it's the international energy business, which is a smaller part of the energy in whole, but still.
just to be clear, what Jonas said is that the underlying business that is the kind of. The good news in infra and some bad news in energy, the margin slippage is not the main reason for the increased margin or the low margin.
No. obviously the international energy business for us is on half a billion.
Yeah
something like that. it's not the major part of it. that work is ongoing. on the infrastructure, again, to underline, we did not have any significant big project that we could release profit from that affected the quarter. It was the underlying operative business delivering that sort of result.
that was going to be my follow-up on how we should think about this going into Q4, if there will be a lingering effect from this better current performance on the book that you have in the infra business right now, and maybe also on energy, if you could quantify the size and length of that international order book so we know how we should risk assess that when you are looking through the projects. Is it a one to three quarter type of order book in infra?
Yes, Stefan, I would say on the infrastructure business, you know, and we know that infra demand is still very good. We have high expectation on infra moving forward with just about that. When it comes to energy, we are doing this repositioning as we work on them, and I think we can expect a couple of quarters moving ahead with a flattish view on the international business. While I have to say on the Nordic base, I still believe that we will grow and improve our margins. On that selective international business, we will continue to have a couple of quarters ahead of us with flattish margins, but again, with lower impact on the ÅF as a whole. That's what I would say. To say, Stefan, something like that.
That's right. It will take some quarters before we are back to a decent margin again, and then hopefully we can improve up to the 10% for our target.
Yeah
In the medium term. When it comes to infra, Vik, we know that some quarters we do very well. In this quarter, most of the good boxes were ticked off. It's a stable margin improvement in infra. It's a good margin.
Don't extrapolate too much, I guess, on the year-over-year improvement, that's what you're saying?
Do your Excel sheet as you used to.
Just to understand, you mentioned that the infrastructure demand being at a very high level. Should we read this as you thinking about demand being also at an elevated level right here and right now, and that longer term, the demand will normalize, and thereby trend lower? Or just how should we read that sentence, being at a high level?
Well, I think it's the same sentence we have had for a few quarters now that we don't see the market demand growing significantly, but still being on a high level. We don't see any sign that there will be fewer projects. What we can see, if you look on the demand on all the projects that have started. On top of that, I truly believe that this destructive trend will also change the infra market. Because if you take building as one example, while we are exposed to a lot of new build, but we are also exposed heavily to upgrades. If you look on a lot of the airport work we are doing, it's upgrades or extension, like on Arlanda or other.
I think you should read it as it says, it's a continued good demand on the infra business, and at that point, we don't see any sign of that going down. Obviously, everybody look into the private housing, and that we see that one is going down. Again, our exposure of ÅF in total is 1% to private housing. That was the decision that we have done over years and also maybe increased over the last year, that we are positioning everything from architecture and all the way back to commercial complex buildings, hospital, airport, and so on. That's, I think, how you should read it.
I can tell you with everything going on, we are of course reading a lot of reports, measuring a lot of KPIs to be very close on the market, by that being very quick in adjusting if anything. That's the beauty of ÅF, that we have that broad portfolio, that we are involved in many different industries, but we keep our eyes very close to the market.
Understood. Fair enough. I'll get back in line. Thanks, guys.
If you'd like to ask a question again, please press star one. Our next question comes from Johan Dahl from SEB. Please go ahead.
Yes. Hi there. I was wondering, Jonas, what gives you the confidence to believe in the improvements on the industry divisions? We have flat growth, flat margins, when the industrial activity arguably peaking, and capacity utilization arguably peaking as well. A lot of talk right now about slowing investments next year. What special initiatives do you believe will drive improvements here?
I would say that it's only a statement that I might know a bit more with the industry. I think with the fantastic competence base we have at ÅF, we have a solid, I would call, professional service business, and when we work towards the big industrial companies since we're in. Of course, where we make a big difference is when we deliver a concept or a project or even a closer product. That is really the strategy moving forward to increase the value creation for our customers. That we do by also mixing digital knowledge down. If you look on all our different business areas as we have named them, starting with advanced manufacturing, it's not just a Swedish, it's a Nordic, and it's an international business. Here we work very much on defining total projects to the customers.
We are, for example, moving into China with that segment. If you look on automotive R&D, we mentioned that before that we see that demand continuing to be high, reflecting the transition that the automotive makers are doing. We deliver then embedded system solutions. We deliver related chassis solutions for electrical cars and automated lines. Process industry is another. For example, pulp and paper or the whole biomass, where we see, for example, a project that we took in South Africa, which is related to tissue project that will actually be used for clothing. We see also an interesting where ÅF have been a bit defensive over the last years on the international market. Here we are moving out a bit more tougher, and these are examples on segments where we are working more on the value creation from ÅF.
I also meant food and pharma is another segment. These are four segments in industry where Robert and his team are working, how can we increase the value to our clients? I think that is what gives me the comfort that over time we will be able to drive margin because it will be less of a cost-plus model, which you tend to end up in when you do professional service, and more about the value-based sell. That will not go from one quarter to another quarter, but over time. That's basically the reason why I joined ÅF. That's the journey we want to do.
Okay. I was just wondering on prices, am I right in reading a higher contribution sequentially in Q3 from pricing? Is that just over-exaggerating?
No, you shouldn't do that. That's too big conclusion on an individual quarter. What we say is we are able to compensate the pressure on the wage increases by price increases in general. Then, of course, it differs from segment to segment and from industry to industry. All in all, we are compensating cost increases by price increases.
All right. Thanks.
Our next question today comes from Erik Elander from SHB. Please go ahead.
Yes. Hello. I was wondering, you have accelerated organic growth now for three quarters in a row. How should we look at organic growth going into Q4? Can you stay at these quite high levels of 6% in Q4?
As you know, Erik, we don't provide any forecasts. It was a high number, slightly higher than expected. If you look at the growth rate year to date, I think you will have a good guidance when you're looking into the Q4.
Okay, great. I was also wondering about the industry division. You wrote in the report that you're taking on some recruitment initiatives to boost organic growth in this segment. What are these recruitment initiatives, and when should we expect these to materialize in the numbers for you?
I think one example is that when we feel that we're confident in getting assignments, we are a bit more offensive in recruiting people into ÅF. That is ongoing because we believe there is a strong demand. I think that's what we mean with that, is that which I think we presented to you guys, is that if you go back. We launched a complete new organization 1st of January. We went from, you could easily say, a national geographical organization with less of a cross-collaboration even within the segments. You could easily say that we had, even in Sweden, different regions that was spoken in the regional work, and we have not moved our total competencies together in, for example, pulp and paper. We had a bit more isolated islands.
This we implemented as of 1st of January, which was a quite significant change, especially in the industry divisions. I would say that, of course, have taken us some time. On top of that, we were recruiting a new president, Robert Larsson, that has a fantastic experience from the industry. With all that said, we looked on all the projects, we looked on what we can do. Of course, in that period, we did slow down a bit on bringing in people because we wanted to really see what do we have and where do we go. We feel now with a new leader, clear business areas, clear structure, that we are prepared now to be a bit more offensive in bringing in people now.
I think it's both a timing question as well as the fact that we start to feel, as I also saying to another question that was asked, why do I believe that the industry will pick up? Well, I have a strong belief that we have a fantastic story down the road. Coming back to Stefan, of course, quarter four, we see more as we should read the longer trend. Of course, when we move into 2019, the clear ambition with ÅF is to deliver a 10% EBITDA margin. We have said that, and we are sticking to that. Will it come 2019? Well, we are not guiding you forward, but for sure it will come. We are extremely focused on delivering that.
That is actually the long answer why we believe that we will pick up in the industry, and that's why we are also increasing the focus on bringing in competent people in industry division.
Okay, great. I guess also in the industry division, there is a high competition for the staff that you want to recruit as well.
Yes.
How will you recruit this personnel? Why should they go to ÅF instead of, for instance, Ework as a self-employed consultant or other companies that are doing this kind of industrial consulting business as well?
I think if you compare ÅF to Ework, I think we should have a discussion about the strategy moving forward, because I think some of the assignments we are doing, Ework will not take on. When we are delivering the SEK 200 million project in South Africa with a complete new tissue plant or SEK 100 million extension to Volvo Cars or a complete new way of thinking with Trafikverket, I do not think these are the projects that Ework will take on. We are hiring. We meet some 300 employees every month that join ÅF. We came out on the yearly ranking on which company would you like to work on in Sweden among engineers, ÅF came on position number four. Of course, we were beaten from IKEA, Google, and Volvo, but still ahead of a few others.
I meet tremendous amount of engineers, they all rank and keep ÅF very high. The strategy we are implementing is exactly on that. We are a company that will deliver solutions, value rather than hours, that you're right, Ework could provide. We will still have a professional service business, over time, that will reduce in relation to the other parts. I think, I left a company that was good, Sandvik, I joined ÅF, I'm even more convinced right now that over time, we will transform this company from a traditional consultant company selling a lot of hours to deliver engineering and design solutions, which we are. This is actually the passion that we have, that's the passion that we are transforming to our leaders. I'm more convinced than ever that we can do that.
This, end of the day, will drive margin and growth.
Okay, thanks for that. I was also wondering about the declining billing ratio year-over-year. Was that primarily related to the energy business that you withdraw from, or why was that?
Yes, that was mainly related to the energy business. Since Jonas mentioned, we have been slightly selective in taking on projects, and that, of course, hit the utilization rate. It also depends on mix, what kind of projects or the mix of professional services and projects for any individual quarter. There I was talking about the other divisions. The main drop come from the energy division, yes.
Okay. Also, I was wondering about, can you say a difference between the margins in the Nordic energy business compared to the international? Because as I understand, it is the international business that is the anchor to the margins for you in this quarter and has been historically as well. What is the margin differences between these segments?
We don't go into those details, but the margin is higher in the Nordics and lower in the international business. I can't guide you, and we will not go into those details. It is a gap, there is a gap.
Following up on that, I think in the overall strategy moving forward, we have clearly said that what we believe is that we should grow strong and faster in the countries where we have scale and volume. We know that in Sweden, starting up in Norway and Denmark, where, for example, we acquired also a company now also in Finland, we have a strong, national delivery capacity to the big companies like Vattenfall or E.ON or whatsoever. Then we have the international CapEx related business that is different. What we are doing now is to really decide how big and where should we operate on the international CapEx business. Then when it comes to the Nordic base, we see ourself as a more one-stop shop then, where we actually can guide and support Vattenfall in the transition they are doing in many interesting areas.
I think the energy segment as such is very interesting, but you have to be selective and clear on where to operate and how to operate, and that's what we are doing right now.
Okay. Would you actually be open to close down, so to speak, the international business where you're doing the large CapEx projects and just focus on the more profitable Nordic related businesses?
I think what we will do, for sure we are overlooking our units, but I think some of these international segments, we will stick to them because they are driving growth and margin, and they are also important for our core country position then. You're absolutely right, then you're reading us correct, is that we are overlooking the international business much more closely and carefully now, that might affect some size, some units that we have. It's been a bit too spread out, no question about that. I think with also the shift we have now in leadership in the Energy Division, we can basically look on that, the direction we are setting is more clear now what we want to do.
It will still be a combination of very strong focus on the Nordic, including core countries like Switzerland, we have a strong positioning, then we will be much more selective on what CapEx projects do we take on and which region, which country, what support do we have in the international business. We will be able to do the transition over time, we went through that before then, that it will take a few quarters. It's not dramatic, but it's a clear changing direction then.
Okay. Thank you very much. That's all for me.
Thank you.
Thank you.
Thank you. Gentlemen, we have a follow-up question from Mr. Victor Lindeberg. You have to take it?
Yes.
Wonderful. Please go ahead, sir. Your line is open.
Thanks. Just two questions here. Looking at the number of employees in the group function, it has been increasing quite a lot throughout the year. Can you comment if this is just a different way of accounting, or have you been adding 50% to the overhead? Secondly, the court case with Danir, I think it's now heating up. Can you tell us where we are in that process right now?
Sure. We start with the first question. The reason why we have an increase in the common function is that we have centralized support functions in other countries in Sweden. One is example Norway, in which we have created the shared service centers, supporting the operations in Norway with IT, finance, HR. We are combining all those resources from the operating units into a larger central function. That's the main reason why it's increasing on the common function. I also know that we have some calculating issues during the summer period, calculating the staff functions because of the number of hours. It will come down slightly in Q4. The answer is more common functions to be a better support to the business operations.
We have no other philosophy. The whole governance model is to run a very decentralized way of thinking. At the same time, we start to be a company that can start to scale support functions across the countries. We have not any significant increase on kind of traditional overhead people.
Danir.
Danir, sorry. Danir. The process was supposed to start during this month. It has been postponed due to some illness from the counterparts' lawyers. It has been postponed. There are no new dates set yet for the process.
All right. Thanks. Got it. That's all from my side. Thanks, guys.
Thank you.
Thank you. Gentlemen, we've no further questions. I'd like to hand back over to you for any closing remarks. Thank you.
All right. No. Then I just want to thank you for taking the time to listen in and asking a lot of good questions. I really hope to see you all in Solna on our Capital Markets Day, November 20th. We will give you a good run through on the strategy where we are and then a lot of interesting thing, and you will also be able to visit our completely newly renovated, fantastic head office in Solna. With that, I wish you all a fantastic good day, and thank you for listening in.
Ladies and gentlemen, that will conclude today's conference call. Thank you very much for your participation. You may now disconnect.