Earnings Call: Q4 2016

Feb 2, 2017

Well, thank you very much and welcome everyone to our Q4 meeting. I'm here alone today. Our dear CFO is in bed with a clue. So, but I hope I can answer any questions still. So I would like to start just with an overview of our operations. So when we have got the 20 16 numbers together, We see that we have been in 107 countries with business, during 2016. Our revenue has increased over SEK 11,000,000,000. Swedish grant and the employee is somewhere 9100 plus. If we look closer into our business overview, if we see our business operations, power generation is today, represents 15% of our revenue, you can compare that with 19% last year, or 2015. And 40% if we go back 5 years to 5, 6 years in time. I think this is good, that web is less and less dependent on the very tough power generation market. For Automotive, we've had a slight increase that represents today 16% of our revenue rail and road, also growing to 21%. And during 2016, we have seen an increase from 50% to 18% of our revenue is in real estate, which is a profitable and very stable business over business cycles during the last 15 years at least. So we are happy for that. We're also happy for Life Science to slightly increase its market share of our business as well. This also comes through in our largest client list where it looks more or less the same last year except that E. ON is not longer on the list than the region replaced by general electric which is mainly medical business. All in all, today, and infrastructure represents 40% of our business and industry 45 and power seen. So if infrastructure is our fastest growing business and industry is still the largest part of our revenue When it comes to countries, we have grown significantly in Norway during 2016, having a 40% growth last year and last quarter, the growth rate was even higher than that. The other countries is is on the same position as last year. And just to mention Czech Republic, 1% is about 250 employees there. We, well, our mission is, I mean, we are an engineering and consulting company for the E3 markets, you could say 80% of OS Business Engineering and 20% contacting. And we claim that we have a unique range of technologies, that really this unique range of technologies is our tool to get our clients more profitable innovative and sustainable. And this wide range of technologies is getting more and more important for the customer solutions we deliver. We are a company which is totally independent from any other interest than our own and the client. We are for sure having products in our but we are absolutely independent from all suppliers and we always choose the solution that we believe is the most profitable for the client. We could have short term wins, if we in profit if we represented a certain vendor, but since we're selling trust, we believe strongly that this is the best long term profitable strategy to be independent. CE Mark is the way for us to, gather this large pool of experience so that every individual in all has access to the complete approval of experience. We believe very much in a great sequel both when it comes to leaders and when it comes to employee. In fact, people, it's our strategy and, and, and, I used say that if I have to choose between a great strategy and great people, I choose great people, we believe we have a great strategy as well. Division statement is representing our long term strategy for our clients. We want really to develop partnerships, partnerships require trust, trust requires long time together. And this is a way to make our clients more profitable and that gives us ourselves an opportunity to be more profitable. We have an ambitious goal again for 2020 to get our business up to 1,000,000,000, to be have the best in class profitability and to have a sound balance sheet. When it comes to our growth target, if we look on the 20 seen, we have grown 12.4 percent, during 20 seen. This is we have a growth target of 13%. If we look forward for the coming years, the coming 4 years, we need to continue to have an annual growth rate of 13% if we use the FX rate, 1 Euro is equal to 9 grams. The acquisitions we've made during 2006, secured a good growth from the acquisitions we made. And we more or less need to have an organic if we do know more acquisitions, we need an organic growth of around 4% to be online with the target for 2020 team. We don't know if we're best in class with our peer companies for this quarter. But we've certainly been, during the quarter that has passed. However, we haven't reached 10% over a business cycle, we're happy to see that the profit margin increase is due in 2016, but we are not on the 10% target yet. And if we look into the strategy, we want to become 1 or number 2 in each market. We actually did something we have continued to work on. We have grown our presence in countries where we already are present in Norway, in Switzerland, in Denmark, We have added China during the year 2016 for the Automotive, knee segment. And, and, I can't say we have an ambition to be the number 1 or number 2 engineering camp in China, but we do have an ambition to be a leading player in certain niches, including parts of automotive design. Growth targets remain, profitability target remains. If we take a look into our market situation. We have the long term trends, and I think, I think, all of you have heard me talk about the important of the trend and how globalization is forcing us to be more and more productive and efficient in our operation, but also that we can reach out easier with many of our solution. Digitalization is a strong force for productivity increase. And I would say, I would say that we're always has come the forest in digital solution is within industry 4.00. We have during Q4, but also the whole year may significant productivity increases in production lines in Sweden and international with digital technology. Urbanization And Sustainability drives our infrastructure business and the fact that our client is moving forward in the value chain means more outsourcing to companies like OS But we also see that all, as itself, could do more for our clients in aftermarket and also in early phases. If we took a look at the short term or the current market view, I think it's the first time for quite some time that we have a slightly more positive market outlook. It's for certain the for sure still a bit uncertain, but we are slightly more positive overall. Automotive pharma has remained strong, but we also see in other businesses, that we have more requests and we see more investments coming through. Infrastructure remains very strong. Energy market remains weak, although we have seen, we a new order for us with Fortum in Lithuania, which is a new power cleaner plant to be built there. And we are hopeful of actually some more power plants coming in during first first half year. Embedded systems, digital solutions, not only remain strong at set here, but it's actually getting stronger for every quarter, I would say. Close to look on the numbers. It's our best Q4 ever. We have profit, excluding items affecting comparability, I'm a little bit unhappy with this line, but we have to we have to state it. It's very, very small money. It's 1,500,000 for the whole year. And it is about, IFRS and how we value the earnout payments for companies that already have been acquired. But nevertheless, a good growth in profit, 9%. We believe that all divisions did a good quarter, infrastructure, of force standing out with a very strong growth and, technology with a strong organic growth. All in all, the growth in sales were 50.5%. The organic growth is, of course, suffering from, the negative growth in the international division. But the organic growth has picked up during the year and are coming back to that. We take closely looking to the industry. We have gone through the the overall market feature that I didn't mention that, although, nuclear oil gas and mining is still weak market. We see signs of stabilization in nuclear, very much thanks to the political agreement that was made in the Swedish parliament regarding the nuclear power plants investments for lifetime expansion. We started the year with more or less a complete freeze in investments in the nuclear power plants in Sweden and that has been are not insignificant part of our revenue and profits during previous years. Also in mine and steel industry, we see a little bit more of activity. The project portfolio, our turnkey project portfolio is growing and we see more and more demand for, turnkey solutions. We are selective when it comes to which kind of turnkey projects we accept, but we see an increasing demand and we see an increasing order backlog. In the in the wet industry, which drives the profit and if we compare this quarter to last quarter previous quarter or the same quarter previous year, we have a better profit, the same profitability over the year. We have increased both profitability and and profit. Q4 was, Q4 is always challenging this year, we had 4 working days in, in, between Christmas and New Year, which affected the Swedish business with a lower attendance rate than normal. The organic growth, which was negative in the beginning, 1 year ago for industry, is now up to 4.1% And of course, we have higher ambitions than that, but I'm very happy to see a positive trend here. We have also strengthened division with the acquisition of Rainers and in Sweden, which is oil and gas upstream. It's refinery and other process industries. And we believe that there is a lot of competence in this company, and we believe was a good transaction itself. If we move over to our infrastructure division, we have a slight increase in profitability for the quarter, for the year, we are a little bit lower profitability than the previous year, but profit going up, substantially at that growth. We had a growth rate of 27% in the quarter. We had an organic growth of 5.3 for the quarter, for the year. I think the number was 7.83 infrastructure term. Strong market, we have, the profit margin has been affected negatively by the very, very fast expansion in Norway. We believe, however, that this is a very sound investment And we think the Norwegian market is, very, very interesting when it comes to land based infrastructure, the years to come. And we've started this year, as you know, with acquisition of mid consult in Denmark, which we think will be a good platform for growth in the estate area and construction area in Denmark. International Division Again, for those of you who have followed the web, we typically have a better quarter in Q4 than other quarters. We have a weak market in Europe, but also in Latin America and actually in Middle East. But the demand and Southeast Asia continue increase. I think the most important that has happened during the quarter and also during the year First, if we take a look on the quarter, we have acquired a a renew a company within Renewable Energy in space a yes, engineer, which are, very capable and competent when it comes to solar energy solution. And it's a corner. It's an infrastructure company based in all regions of Switzerland, which quite uncommon for infrastructure company. So we represented in the whole country, which languages and so on, a very profitable and sound business there where we see synergies both with the tweaks hydro business operations, but also actually with our Canadian infrastructure business. We have today 2 Swiss companies involved in Swedish infrastructure projects. As you know, the year was affected negatively by the nuclear project in Brazil. This is still free. We have made provisions for possible costs that we could can foresee. But we also have signs on that this project will be restarted during the first half twenty 17. I want to stress, however, that it would be very good if this project starts. But if it did doesn't start, we're not dependent on these projects, and we've taken the costs for these projects. We then look into our technology division, that like industry and infrastructure had a calendar wide tough December, but, has achieved an organic growth rate of 7% during the quarter and have had a stable and good organic growth the whole year. Best, however, is that profitability has also steadily increased. The Q4 again was affected a bit by calendar, but over the year, this division that has improved the most during 2016. I think it's strategically very important for whoever to have the technology division that feed, IT and digital knowledge into the solutions within Energy Infrastructure And Industry. But it's also majority of the revenue has remained, in the technology division itself. But I think the technology division will become more and more important for OS coming forward. All in all, summary, Q4 profit up 16% saves up 15% and market looked a little bit better than 1 year ago, and we have strengthened our position in our home countries in accordance with our strategy. And if we take a look at the full year picture, we have increased sales with 12.5 plus percent. We have increased our profit even more and our profitability has increased from 8.4percentto8.7percent in the smart team. I should, yes, and maybe the most important that has happened during 2016 is that we were again ranked as one of the top employer among young professionals with a master of science degree in engineering. And we're very proud of this. And, because the need for engineer, is continued is getting higher and higher and the competition among the best people is tougher and tougher. So this is what I want to say about OLQ for and I'm happy to answer any questions. Thank you. You. We'll take our first question from Victor Lindbergh from Carnegie. Please go ahead. Thank you. Hi Jonas. It seems you're fairly optimistic about the growth prospects in the infrastructure business and we can definitely understand that. But when I'm doing my number crunching in the model, you mentioned 5% organic growth, but if I recall correctly, you include FX changes in that. So if I, if I remove the FX effect, you're down to just above 2 and organic growth in Q4. Can you comment on this if that is correct? And also should we then expect this level to pick up in 2017 given the the outlook that you now see? Well, I wish I had my CFO, right, but I know. I mean, his team My impression is that the FX effect has been 1% in Q4, just one percent and over the year, less than that. So for what it might be, is that specifically for Sorry? No, I don't recognize that number, to be honest. Now because I was doing the number on the infrastructure rather than on group level and I guess you have a bigger portion of infrastructure than group in Norway. Is the big driver. That's for sure. So maybe I should try to wake up No, no, we can take that back a little bit. These impacts have been minimal overall. The Norwegian Crown or the Swedish Crown of course, gone down here a bit during the year, but I would say before your question that this year is the year with very low FX effects. Incurred in Q4, 1%. That number I know. Yes. Okay. And a question regarding to your high M and A activity now in in Q4 and also continuing in 2017 integrating these companies. Has that been cost that you have not really disclosed or have you lost some momentum? Can you comment on that you have some hidden costs in the divisions that that have been incurred, but you don't quantify that? Well, I mean, we commented that our fast growth in Norway has taken down our profitability, and that is true. And I'm not sure it's so much mean, it's part integration costs, but it's all, yeah, you can call it integration costs, but, but, we have had some challenges with projects, that was taken over from, from Rainerson. And we have also I mean, there were some projects that we didn't take over. And as you know, we also had a or at least taken provision for a credit loss due to the problems that the sellers raised currencies into. I know I'm trying to answer your questions. Looking here in the documents. And I, for your previous questions, we think that the FX effect for Q4 intra was 1.5% in Q4. Okay. I think that's clear. Thank you, Jonas. I'll go back in line. The Norwegian business we have more to do there to get it up to the same profitability level that we have elsewhere. Okay, understood. Thank you. There are currently no further questions on the telephone. I'm happy to realized that my presentation was very clear, right? So we do not have any more questions. Well, then I want to thank everyone for your attention and, wish you all a great weekend. Thank you, Primo.