Welcome to the webcast for the second quarter financial report for AFRY. Today's conference is being recorded. There will be a Q&A session towards the end of the presentation. Now I will hand over to Mr. Jonas Gustavsson, President and CEO of AFRY. Please go ahead, sir.
Thank you. Welcome, everybody, to this webcast where me, this is Jonas Gustavsson speaking, will together with Stefan Johansson, our CFO, present the second quarter results for the AFRY group. I will start off with a few slides on the overall level. Then Stefan will take you through some of the financials. We will have a look into each of the divisions and a short summary then. Of course, there will be time for questions after we have done the presentation. Again, welcome to this webcast. Looking on the first slide, summarizing AFRY group for the second quarter, we ended up on the net sales of SEK 3.2 billion, which was an increase with approximately 10% compared to the same quarter last year.
Then we have to take into account that this quarter had a calendar effect that was very negative, and Stefan will take you through the details of that. Looking on the top line, considering the fact that we had a tough quarter from a working day effect, we think it's a good development also in this quarter, even though we saw some areas where we had a less organic growth, for example, on the infrastructure. On the overall level, we are quite pleased with the development also in the second quarter on the top line. Also knowing that a lot of this is coming from acquisitions that we have done. Moving down to the EBITDA, we delivered just about SEK 300 million on the EBITDA. That was an increase of 3%. Of course, this is the EBITDA excluding the items that is one-off.
As you know, we have taken SEK 20 million as one-off costs during the quarter related to restructuring, taking out costs and actually continuing to moving AFRY in a direction where we should also have a positive and continuing improvement on our bottom line. All of that ended up to a margin of 9.4%, just above nine, which again, then considering the quarter that was a bit more challenging from a working day, we are quite pleased with that as an EBITDA margin, even though we, of course, always wish more knowing that we have a target in the group to reach a 10% EBITDA over a business cycle. Of course, a lot of the activities we are doing now is to strengthen our operational performance, meeting the 10% EBITDA as we have as a target.
Next slide is zooming out, I would say, looking again then on some of the global trends that I, as you know, I've been into the company only for three months, and I'm more and more convinced that these trends that we have on this slide, the globalization, digitalization, urbanization, and repositioning of our customer is really in the favor of the development of AFRY. In the strategic work we are doing now, we will come back during the fall and be a bit more specific how we see ourselves playing in the industry based on these big trends ongoing, that I think is very interesting. Next slide. That's just some business overview, where you can see on the right side that we have one-third of our output to the public sector, while two-thirds approximately goes to the private sector.
We have some big segments like real estate, rail and road, automotive, power, of course, and then there's the distribution of our other segments. Obviously, this is mirroring the quite wide offering we have in AFRY with infrastructure, energy, and also industry application, including a lot of competence into interesting areas like embedded systems and digitalization. Some of the 10 largest clients, of course, we have a lot of big clients, and you can see them below, not the least into the automotive industry, but also, of course, on the infrastructure side. Looking at more specific in the second quarter, a few of the highlights. We have, of course, booked a lot of new projects and assignments. We have listed a few of them here. We have won an assignment towards LKAB for an industrial project with a flexible production system. We continue to book new orders.
In this case, it's a control system to Stora Enso, that's the paper industry, paper and mill industry. We have hospitals as one interesting area where we continue to book projects. This is a renewing of a local hospital in Sweden. We have won a project in Norway, actually project management of the police national emergency unit in Norway. That's also an interesting project. We have won an assignment in Denmark to the highest residential building in Denmark, where we will take care of the technical installation in that building. Which I think is also interesting, even though Europe is a quite weak market when it comes to big new energy project into the traditional large-scale energy, there's a few ones that are still active, and we are happy to see that we have actually won two owner's engineering projects for a new hydropower plant in Egypt. But also one in nuclear plant in Turkey.
But also one in nuclear plant in Turkey. We are very active, and the ones where we see a project into that, we are successfully winning them. This is a list of some of the highlights in the second quarter when it comes to new projects and assignments. On the acquisition side, there's two companies that we have acquired that is moving into AFRY. One is Koncept Stockholm that we also presented during last quarter, which is a architecture company firm in Sweden with some 70 employees on a sale of SEK 85 million, and we are currently bringing them into AFRY, and we see a great combination with this together with sandellsandberg, as we have acquired before. I'm also very happy to see that we actually acquire top-end architects, which is a part of our strategy that we want to really have the best competence into our portfolio.
We believe this will be an interesting combination with the overall offer we have in infrastructure moving forward. We also just announced that we have made an acquisition of an automation business. This is Eitech, who has announced that they will release their automation part of that company. This is an interesting base of competence, 42 employees with a sales of around SEK 90 million. It also indicates that the sales is more than ours because on 42 employees, we have a SEK 90 million revenue. This will strengthen AFRY's offer into automation, including industrial digitalization and robotics, which is actually one of the core competencies in AFRY, which we are now delivering a lot into the industry. Interesting is also that we see more and more an increased demand of that competence also into infrastructure solutions.
Automation is really one of the core competencies in AFRY, and by this, we are strengthening our position into that. Two very important and interesting acquisitions moving into the AFRY offering. On slide six, just an overview of the market, and obviously, we cannot say anything else that the general market is very strong for most of the segments that AFRY is operating. Of course, the industrial segment in general in Sweden, but also in Europe, is very strong, and we see a good general market for industrial investment. Specifically automotive, pharma, pulp and paper, and general manufacturing, we see a growth and an increased demand on a specific project relating to AFRY's offering. We also see movement in mining and steel, even though these are from very low levels, and we feel maybe that this industry is still hesitating to make big investments.
Obviously, going back to before the financial crisis, these were two of the industries that did a lot of investment, which they are now utilizing. We see some movement. In general, digitalization is an increased demand across all industries. As you know, we at AFRY have an interesting base of competencies into embedded systems as well as on IT, especially IT towards industrial digitalization. This is something where we see an increased demand. Of course, it's a continued high rate of investment in the infrastructure market, even though we at AFRY today have a portfolio where we see that some of the big projects, we are closing them and fading out, and we are just ramping up new projects. Generally, the infrastructure market is still very strong. Energy market in Europe is still weak. There's a few new plant wins.
We have one example in Turkey where we booked one nuclear plant. We see an interesting market, as we have announced earlier, also in Southeast Asia and Africa, and we're very active in booking the ones that is ongoing in those markets. In general, good markets across, still a bit weak on energy and a few industrial segments, but a good market. With that, I will leave over to Stefan, who will take a bit more into details about the top line and also on the EBIT. Stefan, please.
Thank you, Jonas. We are once again happy to report a continued strong and steady growth amounting to 10% in the quarter, which means that we are running at SEK 12 billion on a rolling 12-month basis at the moment. If you look at the split of the growth, we report an acquisition growth of 11.2%. Basically those are the effect from the acquisition of ÅF Toscano in Switzerland, Midtconsult in Denmark, and the two architect companies. By those acquisitions, we have really created a good platform in Switzerland and Denmark for continued growth in those local markets. Adding the architecture companies, we have broadened our offering in the infrastructure sector in Sweden. The organic growth, we report the decline of 1.3%.
We should remember that we had a rather big impact of the calendar effect, which we reported on in Q1, in which we had a positive effect. The quarter contained three fewer working days compared to the same period last year. We have calculated, please keep it as a consideration, as an estimate, a 2.1% growth if we adjust for currency effects and the less working days. This is, of course, a theoretical number since the quarter is also affected by the Easter and other holidays. Don't expect us to continue to report this number because it's rather theoretical. My conclusion is that they're running at the underlying organic growth close to 3% in the quarter, adjusting for all those effects. Jonas will come back to the different divisions, but we have seen a decline in infrastructure because some of our large projects are declining.
On the positive side, however, we have had a negative growth in international for several years. Now we have a positive trend in that division, having a number of new orders in the backlog. We are rather confident that we could continue to see a rather nice, at least a stable development in that division going forward. If we look at the profitability, we report an EBITDA of SEK 302 million, excluding items affecting the comparability of SEK 20 million. The EBITDA margins 9.4% versus 9.9% last year. All divisions, three out of four divisions, reported the margin above 9%. We can see a stable development in terms of margins in the company. Adjusting for the calendar effect, we can always speculate, but if you look at the year-to-date numbers, we are at 9.1% versus 9.3% versus last year.
We're 0.2% units behind, and I will estimate that the effect of this variance is almost the same in the second quarter, adjusting for the calendar effect. Cash flow-wise, we continued to report a stable cash flow from the operations. The cash conversion rate is almost in line with last year. On the outflow side, we can see acquisition of SEK 265 million based on the acquisition of Midtconsult and Koncept Stockholm, mainly. At a lower pace compared to last year in terms of million SEK. Number of acquisition is rather high, but it's a number of small companies included in that number.
On top of that, we have made a payout of dividend of SEK 350 million, ending out of a net debt of SEK 2.6 billion, which gives the 2.3 net debt to EBITDA ratio, which is slightly above our target, but I am not rather afraid of that one. It is rather okay. In line with our financial target, more or less.
Okay. Stefan, thank you. I will just make a short view on each of the divisions, starting with industry. Here we ended up on the EBITDA on SEK 180 million, slightly lower than the same period last year. Stefan said it, part of that is explained by the less working days. I would say that in general, industry is doing very well. We see an increased demand for a lot of our areas. I expect, on the growth side, we have done good or stable organic growth if you exclude the calendar effect. We are continuing to build on our competence base. I am coming from the industry side myself, obviously this is one of the areas where we should and will continue to see good growth, and I expect more from the bottom line for this division.
I believe we will be able to deliver that. At this point, the EBITDA margin is stable, about 9%, down the road, we should be able to do even more moving forward. That is a stable continued growth, a bit lower on the EBITDA side. Moving on over to infrastructure, we have said it before, EBITDA stable at 10.9%, a rather good level. What we are seeing here is that we had actually a negative organic growth in the quarter, this is not related to any weakening on the market. It is more the fact that we have a timing effect in the work, where some of these big projects are ramped down due to the fact that we are coming close to the end of the delivery scope for these projects, and we are just about ramping up new projects.
It is more a timing issue than any market or issues. Even though we will of course work hard to make sure that we continue to grow since, of course, the infrastructure market is very strong. We can see that is not only valid for Sweden and Norway. As Stefan mentioned, the acquisition we did in Switzerland of Edy Toscano, now called AF Toscano , is doing very well. Infrastructure is an interesting area for us, we are doing good. We also see that the acquisition of Koncept builds up a strong architecture design, which we think is very important to be able to take even bigger projects moving forward. International, here we are happy to see that on the energy part of international, for the first time in a long time, we have seen a slight growth on the energy side of international.
We believe that we have bottomed out on the energy. We have seen a decline for AFRY over a period. In the ongoing repositioning of AFRY's energy offering in Europe, but also making sure that we are active on the right niches in the overall energy market, we will see a stable and continued improved operation from that part. We are happy with that, and actually we had an EBITDA margin of 7.3%, and we actually had an organic growth of 7.9%, and a part of that is coming from the energy side. Finally, technology. Here we see really two big areas, embedded systems and IT, and of course, with the ongoing digitalization, there's a quite big demand for this capability we have in the work. We have delivered close to 10% EBITDA margin, which is stable compared to the same period last year.
We have been able to grow 4.6% organically if you take away the calendar effect. This, we should remember, is an area where there's a high competition for competence. We believe really that this competence base will be very interesting moving forward, where we will move more and more into offering full industrial digitalization offering into the traditional industry, and we will get back to that later on when we present the strategy during the fall. This summarized on the next slide 14, the divisional development, where you see the fair of each division, the growth we have had on each division.
As we said, quite a big part of that is driven from acquisitions, but also if you take away the calendar effect, we have seen in three of the divisions positive organic growth, and we have the infrastructure on a slight negative, which is related more to a timing effect than anything else. On the EBITDA margin, three of our divisions are just around 10%, and infrastructure just above, and international 7.3%, but here we need to say that they are coming from even lower levels. We are quite pleased with the direction they are taking, but then they know, and we know that we need to continue to improve also that margin part. The summary then is that we see it as a strong result, and we see continued good growth. Obviously, you could, and should always hope for more.
EBITDA at SEK 302. Of course, we have taken this SEK 20 million as a restructuring, but SEK 302 is the one excluding. Net debt SEK 3.2. It's an improved earning. We see the overall market continue to be very good. Energy still is challenging in Europe, but we are pleased with the repositioning we are doing, and we see a market in Southeast Asia and Africa as interesting. We are winning key assignments. We have brought in two new companies, Koncept and Eitech as a strong automation part. We are currently driving the ongoing strategy review with good pace. We'll get back to that. The targets, just to state that again, it's still as they are. We are aiming for the EUR 2 billion in 2020, and we should be a 10% company.
Stefan Johansson just talked about the net debt target, we are slightly above, we don't see any risk in that at all. Just a few words on the strategy process then, I could imagine that you would like to have more details, we are in the middle of that. I would say that we have had a good progress in that, we are following the plans that we were putting together. I see that being now three months into the company, we have a unique breadth of capabilities, there are very interesting trends, disruptive trends. Digitalization has been, of course, ongoing for a long period, but we see that it's continuing, especially in the industry, also moving more and more over into interesting digital application into the infrastructure.
Automation, of course, also these smart cities where transport solutions will be integrated into overall infrastructure. We believe here at AFRY, where we have a big leg into infrastructure, a big leg into traditional industry, also a huge competence base in embedded systems and IT, we will be able to play a big part in that, we will get back to that when we present our strategy. When we look into our ongoing strategic review, of course, we look on growth areas, where will we grow, how will we grow? We also look on our operational performance on our cost base.
We have now SEK 20 million as one-off s in the second quarter, we also said that in the ongoing work, we have identified areas where we believe we will be able to take out costs and make sure that we strengthen our operational performance coming up to the EBIT levels as we have as a target. The SEK 70 million that we have indicated is really a part of the strategy to improve our operational performance. We are in that process, we will be very clear when we come out in the third quarter. This is really to make sure that it's structural costs that we take out of AFRY that support our ambitions to be a 10% EBITDA company, that we actually are slightly below today.
I know that we have done that in the past, then we have had a bit of headwind in the energy market and so on, we really see that this is a strategic important part to take out these costs that we have started to identify. We see a roof of SEK 70 million that we will have, that should actually benefit our business moving forward. That's why we announced further restructuring costs that will come up in the third quarter. We also would like to, as the last slide, welcome you all then to a capital markets day that will be held here in Solna, in AFRY headquarter in Stockholm on November 8th, we will come out with more details after the summer about timing and so on. We will be very specific in our overall strategic direction for AFRY.
With that, I would like to leave back to the operator and open up for questions, if any.
Thank you. If you would like to ask a question, please press star one on your telephone keypad. Please ensure the mute function on your telephone is switched off to allow your signal to reach our equipment. If you find 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. We will now take our first question from Johan Dahl from SEB.
Yes. Hi there. Thanks for taking my question. I was wondering, Jonas, these charges of SEK 90 million that you are highlighting, what exact activities are those for?
I would say that the SEK 90 million contains the SEK 20 million that we have already booked in the second quarter, and these are very much related at the moment into maybe international division, where we are continuing to repositioning international as very exposed to the energy part. I think one of the explanations why we see a continued stable margin development internationally is also related to the fact that we are taking out costs in the areas where we are not seeing a good development, so to say. Moving into, and then Stefan will complement me, but moving into the continued SEK 70 million, we started out the strategy process basically when I started. We are two, three months into that. In that, as I said, we are identifying, and we will be clear on how and where ÅF wants to grow based on our current capabilities.
We are also reviewing the cost base of AF. In that, we have identified areas, in different areas of AF, where we see a need of taking out costs basically and repositioning that should benefit our journey towards being a stable 10% EBITDA company. We are not completely specific into that because then we would have needed to take the cost in the second quarter, but we have identified areas on the admin part, on different parts of our kind of offering today, in this maximum of SEK 70 million that we will come back in the third quarter and take. That should actually be one of the areas that will support us up to a stable 10%.
Sure. Yeah, got you. Yeah.
Johan, as you know, if you look at the cost base on a consultancy company, that's mainly personal expenses. We are talking about employees.
Okay. It's a payback within a certain period, it's not write-downs as such. Is that correctly understood?
No, you are completely right. I would say that ÅF, and me being quite new, it's quite good in being flexible in using the competence we have and moving into other areas. There are some areas where we have problems really to make that, the deep specialists in some of the areas. Here we need to, based on the strategic direction, take some of this, and as Stefan said, that's mainly related to personal costs, that will have a payoff that we will be clear on when we present that in the third quarter.
Okay. Got you.
Some of the plan is identified, which is a part of the SEK 20 million, of course, we have also some ideas where to take out costs in other areas as well, even though we haven't specified them at the moment very specifically.
Got you. Just a question on the group level. I was wondering, you're delivering some 3% organic growth in the first half. If you strip away a little bit of price in that, which seems to be rising at the moment, do you feel that you're at the level where market demand is increasing, i.e., some 2%? Is the market really stronger than that?
Well, I think we are growing at the moment in line with the market.
You can debate about infrastructure with timing.
Exactly.
There you could say maybe that we have a bit of a more negative if you consolidate the first half year compared to the market, due to the fact that our view is that we are in between some of the big projects in infrastructure.
Yeah. It's a combined number, the 3%. Please remember that. If we are growing in international compared to previous quarter and are rather flat at the moment. If you look at the Q2 number for industry, we are actually increasing the pace in that division, but as Jonas mentioned, declining due to the fading off of two major projects in the infrastructure division.
Okay. Just finally, could you just clarify any potential full-year impact of this churn in the infrastructure division? Is this a really one-off event, or do you expect this to impact the full year as such?
We don't give you any forecast. We've been running at a pace of 6%-8% previously in growth rates in infrastructure. It could be hard to reach up to that number. We will continue our growth rate, that's for sure.
I would say the good thing is that currently we see a very strong demand on the overall infrastructure. We don't see any today. We don't guide for future, today we don't see any kind of signs on the market as such. More that, of course, some of these, especially on the rail and road, are quite big projects, and sometimes you are in the flow of booking a few and starting up a few, and we are currently ramping down a few of the big ones.
Okay. Thank you.
All in all, we are rather confident that we will continue to increase in our infrastructure division.
Right.
As a reminder, to ask a question, please press star one. We'll now take our next question from Viktor Lindeberg from Carnegie. Please go ahead.
Yes. Thank you. Hi, guys. A question on the price wage mix. A few peers of yours have commented on that they are raising prices basically now, and that will affect the growth rate going forward, but maybe not so much shorter term. Have you seen this effect, and is this something that you're also executing on? How may this impact you in the second half, if anything?
Obviously, in this quite hot market, we are currently reviewing the pricing in all our divisions. If you have to look on the infrastructure, we also try to be quite selective and rigorous in when we are booking to make sure that we benefit from that. We try, of course, always to balance that component towards the top-line growth. Of course, in a market when you see an increased demand, you should make sure that you have a good eye on the pricing. That we are also doing. I do not think that will have any negative impact on the top line.
If you look at the numbers, yes, we are increasing the prices because we have been able to fully compensate the wage increase by price increases, and hopefully we can take actions to even broaden that gap.
I might comment on that, because what we also see is that we are also, with our step by step, moving into more and more fixed assignments in different kind of project assignments. In the professional service business, price is in sector on the salary, but in a business where we more and more offer a solution, price is more, what is the benefit for the customer? What's the value proposition? Here we see an interesting thing. As strong as we are in combining our competencies into solutions, that's more we have opportunity to make sure that we get paid for the value for the customer. That is actually something that we will come back to during the fall, where we see an interesting pace for us to increase the part of projects and combine competencies into solutions.
If I may add to that, the client has been rather hesitating when it comes to product development, to give us packages or solutions. We can now see, which we have talked about for a long time, slowly but steady growth in requests from clients asking ÅF to take responsibility of packages also within the product development area. It's not at a high rate, but we have noted that.
Okay. That's quite clear. Second question on the infra division. You're mentioning you have some volumes on the back book now coming down. When you are replacing these volumes now in the second half and in 2018, is this with smaller projects or is it equally sized to bigger projects that you are entering and ramping up now relative to what is ending?
Well, obviously we are always active in trying to book the project available on the market, there will probably come up big ones also. We see maybe in the second half year that we will compensate more with, I would say smaller maybe, but mid-size projects. Of course, we booked a few big ones, Förbifart Stockholm and Västlänken and all of that, we see more now, a number of mid-size. If you look on the planning, it's not always that it's so much more negative to have more mid-size because then you have a big, better maneuvering, you don't see this phasing out of the super big projects. It's two sides of the same coin. We believe that we will be able to compensate with a bit more mid-size projects in the second half year.
Okay. That's my follow-up question on that. When we have seen these big projects where you have basically 100% billing ratios, replacing them will bring some churn and lower utilization, that could, I guess, affect your margins in the second half. You don't think that should be the case when we see this mixed in the contracts?
Yeah. Big size, you talk about SEK 500 million, SEK 600 million, SEK 700 million, of course, for us, a midsize could be SEK 200 million, SEK 300 million, that's big enough and even more to make a good planning. I personally don't see that we should have any problem with utilization due to that.
Please remember in large project, you are assumed by the clients to have a high billing ratio. The price level could be less in large project compared to mid-size project. You have to also look at the other side of the coin, the pricing, not only to the utilization rate.
Yep. Okay. That's quite clear. That's all from my side. Thanks, guys.
Thank you.
Again, as a reminder, to ask a question, please press star one. We'll now take a follow-up question from Johan Dahl from SEB.
Yes, thanks. We talked about, or Jonas, you alluded to on slightly margin potential in the industry division, given its market position, and we also addressed cost in international. What other sort of structural underperformance are you seeing in the group that you may want to address going forward?
It's a good question. I promise you to get back during the fall with that. In general, I believe a company like ÅF, we are a growth company. We have delivered a lot of shareholder value over the last years with growing. I also believe that we all do that. A very close company should deliver a strong margin. That's one of the focus areas that we will talk about how to do that. Of course, you know as well as me that it's a combination of top line and price activities and sourcing activities and the offer, the value proposition you have to your customers. For us, moving more and more into projects and solutions, there are opportunities on this side.
I promise you that at the Capital Markets at the latest in November, we will be a bit more detailed and specific on the journey for the work to also continue to improve the margin. Of course, cost performance is one of the areas. That's why we also have indicated this SEK 70 million that we think is needed as one step towards ensuring that we are operating on a 10% EBITDA margin on a stable level as we have indicated. We are slightly below that. Again, I will be more specific during the fall.
I look forward to it. Thanks so much.
Thank you.
Again, as a final reminder, to ask a question, please press star one. There are no further questions, I would like to hand the call back over to your hosts for any additional closing remarks.
Well, thank you again then for listening in to this webcast. We believe, and I believe, being three months into the company, it's a fantastic company with so much opportunities that we will talk more about during the fall. I'm happy that we delivered a stable and good quarter. That's a good closing before this couple of weeks of summer holiday for some of us at least. I'm looking forward to meet you again then during the fall when we will be more specific in what we mean then of taking over to the next level. Thank you again, everybody, for listening in, and I wish you all a great summer.
Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.