Dear all, welcome to this quarter four presentation and webcast from AFRY. My name is Jonas Gustavsson, CEO, AFRY, and I will start up the presentation, and it will also be followed by Juuso Pajunen, our head of finance, CFO, who will join us sitting today in Helsinki. Again, a warm welcome to this webcast presentation. Let's jump into the numbers. As you have seen today then, our quarter four ended up with, if you look on the growth side, a total growth of 12.3%, we were happy with that, and also the organic growth of 6.9%. We have seen in general an increased demand in the industrial segment, and you have also seen that four of our divisions is doing very well also from the margin development.
This is really driven from what we see the ongoing transformation in society. There is a lot of interesting investments in the industrial sector, and again, just looking here in Sweden, up in the northern part of Sweden, there is a fantastic market for a lot of investment, and we are extremely well-positioned. Well, good performance and a good underlying market. The result as such was affected by a lower margin in our infrastructure, and I could imagine there is a few question about that, and you will see later on that we have a program to bring infrastructure margin and growth back to where we think we should be. We also have had in this period higher Group Common costs, investment in digital, the implementation of ERP.
We have gathered empty office spaces on the Group Common and a few other parts that have been more from a periodization, meaning we believe that we have a much better situation. Next year, Juuso will take that under his part of the presentation. All in all then, we have also now decided then with the plan, we have an infrastructure to really take a cost program, a cost efficiency program of total SEK 100 million, whereof SEK 80 million is targeting infra too. This is a part of the improvement program we have in the infrastructure, and SEK 20 million will be targeted on group cost.
What is also good when you look on 2021 is that we have then done 18 acquisitions adding up to SEK 1.2 billion, and if you look on the margin impact, they have a positive margin on AFRY as a total. Net sales, as you've seen, on SEK 5.5 billion, 495 million in EBITDA equal to 9%, as such. Then just a few words for 2021. We're happy that we are back about SEK 20 billion because 2020 we were shrinking as an effect of the pandemic, and EBITDA SEK 1.7 billion and an EBITDA margin 8.5%. For sure the year have been in many areas very good, and we also know that we have areas where we will improve and need to improve moving forward.
Now, if you look on the market quickly, as I said, and I mean, in general, we see that there is a lot of investment driven from Sustainability, and there is a solid and strong underlying demand in society. If you just look on industrial segment, I would say that we have a really interesting period ahead of us because I would say all industries are going through some really interesting changes driven from Transformation to Sustainability and Digitalisation. Electrification, Digitalisation, and the whole transformation drives a lot of change and investments, and we are really well-positioned, and you can see that now in the numbers of our different divisions.
Infrastructure, where AFRY is positioned, we have seen a bit sluggish market over the last, I would say, six months at least, a bit pandemic effect, and we have had a bit more volatility, for example, in the real estate segment. We also have a strong belief that the demand for infrastructure investment is solid and looks good. Competition is slightly higher, and that's why we now, we have a program where one part is the cost efficiency program. Of course, the macro environment, for sure we had some impact also in the fourth quarter. We had a higher sick absence in the fourth quarter, especially December, that was affecting us. Of course, now we all believe and cross our fingers that the pandemic will fade away.
Of course, there is other parts to look into, inflation and such then, that we need to maneuver in. All in all, I'm quite encouraged when you look on the big industrial investments ongoing, and here we have a good position. We have also very solid order books. If you look on our order books and order backlog, I would say in many areas we are back to the levels that we have not seen since we were before the pandemic. We have a stronger order backlog since two years, so it looks very promising. Some of the products that we have been booking, we have announced a good project to Arla in Götene.
We have also booked a big design assignment for the Swedish Transport Administration for the Ostlänken. One thing that was also announced that we have been selected as the main engineering partner for Boliden in Norway. It's a great expansion they are doing there. Other interesting assignment for Neoen for analysis and measurement of wind power in Finland. The last one, also very much driven from Sustainability, an assignment by Renewcell to digitalize textile recycling process into Sweden. This is of course just a selection, so the important is that we have more stronger order backlog now than we had for 24- month.
Now, the cost program, and as we also indicated and told you, looking at the market during the fall then and actually starting after summer when we have seen a bit on the market, but also on our own performance, we have now initiated a clear cost program then targeting SEK 100 million, well, 80 million to infrastructure. We will execute that with the highest pace. The planning is ongoing. The plan is to take the one-off cost, approximately SEK 100 million in conjunction with quarter one. We expect to get the full run rate in the second half year. We will for sure implement that as fast as we can. Eighty million is focusing to the infrastructure.
We also have SEK 20 million where we will, you know, lean out group, the way we work between group and the different country platforms, so to say. Because now when you look on Sweden, Finland, Norway, Denmark, Switzerland, we start to have an interesting volume on the country side. We believe that we can make our overall structure a bit more lean, and the target is the SEK 100 million out. For the Infrastructure Division, it's a part of the plan because we started already last year, and of course, a new organization is not the silver bullet to fix everything, but it is actually a precondition to start to operate in a simplified and more local, closer to the market way. We have reorganized infra. It's country-driven now.
For example, in Finland, when we were approved to bring in the Vahanen Group that we acquired, we have now 1,000 employees that is actually organized under Infrastructure Finland, targeting to become the best in Finland. That's how this new kind of governance will work, and we believe that's a strong and powerful way of doing it. That is actually the precondition to simplify and to delayer and to drive SG&A efficiency and cost optimization. We are looking on sales excellence. We are looking on how we use our key accounts, because in infra, there is quite a lot of key accounts, how we systematically drive our products, the bid phase, but also the execution, the pricing.
We are also looking on near and offshoring as one part of the whole. Cost program in infra is one part, but of course, we are looking on all these other parts. This is something that we will for sure have a strong focus and follow closely throughout this year. Then just to highlight that we have also, as of first of January then, we are operating with six divisions because AFRY X is now launched, and the starting position is roughly SEK 1 billion in turnover, 800 employees. A big share is service, but we are also then having this ambition to mix up that volume with the SaaS business and software development to have a combination of service but also climbing the value chain.
It's a super interesting starting position we have, and the ambition is to be a Nordic leader in industrial digitization. Then our remaining five divisions then, and it's a decentralized way. We have had that, so below each of the divisions, we have the business areas with P&L and even business units. Then what we have seen now is that more and more of these new projects and segments evolving, like battery factories and Offshore Wind or Hydrogen, requires cross AFRY projects. This is something that we are now more and more focusing on. How do we bring the best of the competence from several division into a bigger project to this, for example, new really, really interesting fast-growing segments? Again, then six divisions, decentralized model, still having the capability to drive big projects across AFRY. Then just highlight AFRY X.
It's been a development for AFRY. What we have done is pooling the competence we have in software development, IoT, AI, and cybersecurity, and also service design. It's a SEK 1.8 billion super skilled employees into digital. Of course, by our own innovation and acquisitions, we want to take a position as a player in IoT and AI-enabled SaaS Products and Service. It's an exciting journey to be followed moving forward. With that said, I will leave it to Juuso, and see if this works now, Juuso.
Thank you. Good morning, all. Greetings from not that warm, but snowy Helsinki.
I will click when you speak.
Let's talk about numbers.
Yep.
Thank you. Let's start from the net sales development. I think this is a place we are absolutely proud of and positive. We have delivered SEK 5.5 billion compared to SEK 4.9 billion last year. That's a 12% growth. Organic growth, 8.2%. If we adjust for the calendar effect, it's 6.9%. These are definitely numbers that we are proud and happy with. This is mainly driven by the very strong development within Industrial & Digital Solutions, Process Industries, and Management Consulting. These are actually growing on Adjusted organic growth base, is double digits. We have Energy which is continuing declining as expected, as also guided earlier. The big projects are not yet entering the heavy revenue generating phases due to supply chain difficulties on the sites, and that has continued during fourth quarter.
We have Infra, who has been basically zero entity. It has been also the most heavily impacted by the sickness leaves, on which I will say a couple of words in the future slides. What is really solid also is that we have a continued stronger order stock in Q4. We are on a higher levels than compared to year ago, and that applies to all of our divisions. We are consistently on a better order stock situation no matter how you see it or how you measure it. I'm happy with the revenue generation, I'm happy with the growth, and I'm happy looking forward our position when I compare it to the order stocks. If we go forward talking about the EBITDA.
We delivered 9% margin compared to 10% previous year, SEK 495 million compared to SEK 490 million. On absolute level, it is a stable development, but not reaching our ambitions. Especially if we compare that one with the calendar accounting method, we had SEK 31 million positive comparables compared to previous year when we had charged for that one. The calendar accounting method delivered exactly as we had expected during the quarter. If we look a bit under the hood, I think that it's very clear to say that we have a strong development within the industrial segments. We have Industrial & Digital Solutions, Process Industries, Energy and Management Consulting as divisions delivering double-digit margins.
We have Infra, which delivered 8.5%, which is below our ambition and below what we are aiming for in the future. If we then look still further, we have the items affecting comparability. As you probably know, IFRS changed how accounting for cloud computing, so basically software is done, and that has impacted us negatively in 2021, but also we have restated previous periods. This one we have treated as an item affecting comparability to avoid the mix-ups between operational results and changes in accounting rules. We have some restructuring expenses related mainly to Infra, where we have gone to the country-based organization. On top of these ones, we have had a positive support from the M&A we have made.
The M&A we made has delivered SEK 380 million of revenues, and at the same time, some SEK 50 million of profits. You'll find that one from our notes at the back end of the report. That basically tells a 13% profitability on the acquired entities, and this is something that we are looking for. We are transitioning the company, and we are pushing it into a higher margin positions also via M&A. Finally, the final component impacting our EBITDA development, which was difficult to evaluate and forecast, is the sickness leaves. As we all know, COVID with the Omicron variant came hard, came heavily, and it started to impact us probably on the last week of November and then with an intensified grip during December.
It is pretty much as you can read from the news. Norway was pretty much in a full lockdown and started to take the hits like Denmark, and then it progressed through the Nordics, especially. At the same time, the impact in portfolio is split based on the geographical split and also a bit on the offering. For example, our Norwegian operations where we have Advansia as a brand on more site-driven construction management and project management support, it has carried a wider load on that one than maybe on traditional project deliveries, for example, in the Energy Division. With these ones, the sick leave impact was roughly SEK 40 million on the quarterly results.
If we then go further, and we look a bit on the EBITDA bridge, I think that the green ones quite well are understood from the solid market position, solid market conditions in the industrial segments. Infrastructure we have been talking about. The big item in here is actually the Group Common. We are SEK 87 million below previous year. This is coming from various different places. First, I'd like to say that of course the comparable period in 2020 was a period when we were still having some state subsidies and COVID-related savings, which are not fully carried forward in 2021 as the world started to open in August, September, and carried on until basically early December. Comparable was maybe a tougher one when we are checking the EBITDA development. The big thing in here is that we have continued the AFRY X investment.
Those have been happening in a quicker and actually in a better way than we originally expected and planned for, and that has impacted negatively now the result. We have continued on the ERP project, and then we have continued on our transformation to post-COVID world, and we are carrying expenses on all of these three items. They are basically investments in the future. AFRY X, obviously we need to deliver on the software product development, we need to deliver with solid growth and, obviously underlying EBIT in the future. ERP project is continuing. This, expense addition is more about timing than that we would be off the plan. We are delivering as we have been expecting from the substance perspective, but the timing of the cost has been different compared to our plans.
Empty premises, wherever we have room to improve our office space usage, we will continue using those ones. Approximately as a monetary value, we were guiding towards SEK 50 million run rate, accelerating to SEK 100 million annual run rate. The impact was south of SEK 30 million, but clearly above SEK 20 million in the fourth quarter. It is on an accelerated pace compared to our original. With all of these impacts, we have four solid divisions. We have infra with a very strong program, as you have also seen coming with the restructuring. Then we have Group Common, which is currently at a SEK 71 million quarterly average from 2021.
If we look now forward, what is happening in that part of that SEK 71 million, that obviously now then includes the AFRY X, which will be separated into the new division AFRY X and will be reported under that one. The Group Common operations that we are working on come obviously with a lower rate into the future 2022. We are very comfortable to say that we will continue on the 2021 levels, give or take when we are going forward on that part. If we go further, a couple of words on the next slide on the organic growth. As stated, we have three double-digit ones. I think this is a really solid one. Management Consulting, Process Industries, and Industrial & Digital Solutions, all north of 10.
Industrial & Digital Solutions even rounded to 20%, which is obviously also then a bit coming from the weak comparables previous year. There we have been able to catch up with the automotive, but then Food & Life Science continues a strong development as many other underlying segments. Process Industries, strong growth, it continues. It is especially in Sweden, but supported other regions such as Asia and Russia. Then we have continued high delivery, from the rest of the world, Finland, Latin America, and so on. Energy, continued strong results. This is a solid execution, the larger process. Still, the revenue development is something that we are working on further. We have a stronger than ever order stock.
We are happy with the position, but this one to materialize as revenue requires that the larger projects will ramp up as we could expect as the COVID little by little loosens its grip. Management Consulting, really strong growth and margin. Margin is less compared to previous year, which is mainly coming from the volatility from the timing of success fees and the nature of the business. Double-digit growth, 14% margin is obviously something that I can be happy of. Finally, Infrastructure, delivering 8.5% on the quarter below previous year, being now year-to-date a 7.4% entity. As stated, this is below our ambitions. It has been impacted by the sickness leaves. Out of that SEK 40 million, bigger part is in infra.
At the same time, we have seen difficulties in the real estate sector in some of our core markets impacting the profitability and also the growth of infra. At the same time, we are confident that we have a good plan going forward into. If we talk about, on the next slide, cash flow and net debt development, we continue to have a strong liquidity. We have basically SEK 3.6 billion of net debt. It is increasing compared to previous year due to the M&A activity we have been having. We have a solid operational cash flow delivery continued, and with these ones we are at 1.9 on net debt to EBITDA. We got a bit of a net debt positive from the reduction of pension liabilities in some of our operating countries.
All in all, 1.9% going forward gives us a solid positive way to continue on our growth journey. Strong liquidity obviously means that we can, well, invest further. With these ones, we are very comfortable and happy to talk about our dividend. The board proposes to the annual general meeting a dividend of SEK 5.5 per share. That is a 10% increase compared to last year. If we look at our EPS, we are at 10%. At 10% or 9.97%, including now the IFRS changes in the cloud computing, if we're following the same IFRS rules, we have grown 20% EPS.
We are growing 10% dividend. If we take that IFRS change out, the comparable numbers are somewhat 17%, and we are still giving a 10% increase to the dividend. I think that we are happy with our cash position, we are happy with our future outlook, and we are happy to share.
Part of this one with our owners with a proposed SEK 5.5 dividend. With these words, I would hand back to Jonas to wrap these ones up.
Thanks a lot, Juuso. Well said. Before just finalizing, I just want to highlight we are welcoming two new members to the group executive management team. Per Kristian Egseth on the left side here, head of AFRY X, who we have communicated. He started in AFRY last year, having a background from IBM and Hitachi. Really exciting journey with AFRY X. Henrik Tegnér, who has joined us now as Head of Strategy and Sustainability. For sure it also highlights that digitalisation and also Sustainability continue to be, if anything, more important than ever for AFRY moving forward. Two super strong new members for group management at AFRY. We're just finalizing them before we go to Q&A then.
I mean, our focus, first of all, if you look what Juuso said, our Divisions, Industrial & Digital , Process Industries, Energy, and also Management Consulting, full speed ahead. The market is really interesting. Yes, on Energy, we have had impact from the pandemic, so we are not on growth, but the margin really good and stable. I mean, we have now been, what is it, four quarters in a row, about 10% in Energy. Full speed and, you know, take position in an interesting strong market. Infrastructure, yes. Here we have a plan to execute on because we are not happy with the margin we have and of course we need to get back to growth.
I think acquisition of the Vahanen team, the new organizational structure and all the improvements we will put into infrastructure. I am confident then that we will see an improved margin and that we are getting back to growth in infra. Then AFRY for sure we want to maximize in digital. So that's one other area. M&A, as Juuso said, we have a good balance sheet, so we will continue to look for strategic acquisition. For sure acquisitions in digital is high up on our list, of course, so that we'll look on. Then the system platform. We have a few years also behind us now with some big investments in the system platform that was absolutely needed. New CRM system, we have implemented a few other systems.
Then of course the big implementation of ERP that we will continue with. As Juuso said, it follows the launch, the plan we have. Just to highlight, for sure the key will be to attract the talents because then using our brand and position, being able to take on more and more of these really interesting assignments. Because for sure there is a war for talents, and we want to come up as one of the winners. The way we can continue to build on our brand, on our position, being driven from Sustainability and digitalisation will be key for us. This is what we will for sure focus on moving forward. With that said, I am opening up for questions, and I know, Ebba, that you are prepared to-
Yes
To help us with the questions then.
Yes. I am. As you know, you use the function raise your hand if you have a question to ask. I think Johan was the quickest, so we take a question from Johan at Carnegie. Go ahead with your question, and unmute it. Go ahead.
Perfect. Thank you, Ebba. A few questions from my side. First, regarding infrastructure business, you highlighted a few initiatives that should help improve margins going forward. Is this nearshoring initiative the best way to deal with that business? That business is in nature quite local. Is it not a risk that you see that saving you through the crisis by doing this kind of initiatives? Isn't that a risk that you lose more than you gain in the long term?
Yeah, I can be quick on that. I think nearshoring is something that we have used. It's not new for us, Johan. I think we have sites in Czech Republic that we are using more and more. We are looking at other, but we see also for the large project that this one area was not only to secure cost efficiency, but also to secure competence. I would say this near and offshoring project is something that will be a part of the business moving forward, and it is also to make sure that we are able to get hold of capacity and competence.
It's not a quick fix. We have been working with that for a while, but we intend to ramp it up. It's one part of it. I think we are in good control of. It's not just that, Johan, so we have been doing it for quite some time, but we will increase the pace, if anything.
Yeah. That's good to know. When you say SEK 80 million specifically for the infrastructure business in cost savings, that's pure cost savings. You, as you highlight a few other initiatives that can be on top of that, such as pricing and systematic, better sales excellence processes, et cetera. Is that the right way to think about it or?
Absolutely, we have tried to be as clear as possible because I could imagine that you first read and you say, "Okay, they have one program which has cost SEK 80 million," which is not true. To you, the way to see it, and you know it, SEK 8 billion revenue, SEK 80 million, everything equal, that's 1%. We know, and you also said, that we are on 7.5%, so that's not enough. What we are doing now, it's a program with a lot of activities. We need to look on our top line. We are looking where we are present. We are looking on our sales structure, on the key accounts. How the bid phase, the product execution.
It is a program, and one part of that program for four is SCNA efficiency and the cost out. Because we believe, and I believe that the infra market that we are in, it's a solid and good market, but it is also becoming more competitive pricing changes, and we are now looking at setting up our infra to be really competitive. You're absolutely right, and I'm happy that you asked. The cost program is one part of it, one clear part that we are communicating cost out. Then there's a lot of other areas that we are attacking to bring infra to the level where we think it should be.
Great. I have a final question that's on your acquisition agenda. You highlighted at the end of the presentation that you want to do that digital companies is high on the agenda. How should we think there regards to multiples paid, et cetera? I guess if you buy a company with a big proportion of revenue coming from recurring revenue streams, et cetera, those multiples should be higher than you pay historically. How much of synergies are you able to take out from such a company, et cetera? Very interesting to hear your thoughts there.
No, you are absolutely right, and that's why we are spending quite a lot of time in analyzing, because if you would go to a pure tech-driven company, the valuations are so high, and the risk could be really high. That's probably not the area that we could or should go in. For sure, I would say that we are looking on balanced portfolios because we also like, you know, digital into the service level. That's why AFRY X will have a significant volume of service and that we can mix that also with building a position into SaaS companies and recurring revenue models.
When we look at acquisitions today, and we know what we can do, so for sure we are trying to balance that you are not getting crazy from buying something too risky, but still buying companies that helps us on the journey. That could also be that we are buying several small one, that we're building our journey. Right now we are in an extensive look for what kind of profile of companies would fit the journey for AFRY moving forward. We are not getting crazy.
We know what we can buy, but at the same time, I truly believe that to start to invest in companies that takes us a step forward, that we can mix up service with recurring revenue is super interesting for a company having 17,000 engineers being the leader in the world in Pulp & Paper. When you can mix that service and recurring revenue with the strong position we have in a few other verticals, I truly believe that AFRY is and can be a really strong player in digitalisation. We are not getting crazy. We are for sure challenging to make sure that we can get some companies helping us on that journey.
Maybe to update also on the synergy part, that it is clear that when we enter this type of a position, the synergies are revenue synergies. What we want to do is that we want to be able to accelerate the transition with the footprint we are having, and then the cost synergy part in such acquisitions is very minor component. In some cases, maybe not even a component at all. Places where we want to go is exactly like Jonas says, Pulp & Paper as an example. We have a super strong position globally on that one. If we can accelerate a digital software service company, whichever it is, highly, that's the place that is very lucrative for us.
Just a final follow-up there. The companies that you have acquired over the last, say, 18 months, which has had a little bit higher proportion of digital content in, have you seen this kind of revenue synergies taking place, or is that still to come? Or do we have proof of that strategy working?
Yeah, I would say that we have enough proof that we can say that it works, absolutely. Because what we are now doing when we are buying these companies, that we are putting them, and we are becoming more and more clear in AFRY in kind of joining that offering around those companies. If you take asset management as one example we are looking at, or if you look at cybersecurity, we are becoming more and more sharp and clear in how we jointly go to market. I would say yes, we have seen evidence that that model works for us when we do it the right way.
Perfect. Thanks a lot. I go back in line.
Thank you. We take the next question from Johan Dahl at Danske Bank. Please go ahead.
Yes, good morning. Thank you so much. Just on the question on the Group Common cost there, I think, Juuso Pajunen, were you saying that roughly SEK 70 million per quarter was your expectation here for 2022? Was that correct? And secondly, if you could also reiterate your guidance for AFRY X, you know, how has that impacted results from a net perspective in 2021? And sort of what are you seeing here for 2022?
Yes. So basically if we step back and start from the AFRY X, we guided in November that it is run rate SEK 50 million accelerating towards SEK 100 million. That is still the place that if we are looking forward, we are expecting to see. That one basically means roughly SEK 100 million compared. But at the same time, like I hinted, we were at around SEK 30 million in Q4 and taking into the investment from earlier year, mainly in Q3, we are already close to that SEK 100 million annual run rate levels. If we look forward on 2022, as said, we have SEK 71 million, including these AFRY X investments in our books at the moment quarterly. Roughly what does it make?
SEK 284 million or so as losses in Group Common. We are expecting that including the AFRY X investments, we are give or take in the same ballpark. That would mean rounded SEK 300, rounded 280 million all in all. That is give or take the place. One part of this which is very good to remember always in Group Common is that this is partly an allocation game. If we take two steps backwards, and we go to 2019 when we were SEK 21 billion company, when we started this platform journey on all of the harmonizations and things we are doing in Group Common, then we lost more than SEK 2 billion of our revenues going to 2020.
Now that we are going back into the SEK 21 billion levels, we are now at the SEK 20 billion. If you calculate the acquisitions that are contributing more than SEK 1 billion annually, out of which SEK 380 million is now in our books, you can see that we are reaching that SEK 21 billion fairly quickly. That one of course alters the allocations at one point of time and brings back the stability in Group Common at the same time. Like for like, as said, around the SEK 300 million probably south of it rather than north of it is our expectation on this path going for 2022.
So, so the-
That's the AFRY X investment part.
The increase in employees on group functions of roughly 200 people compared to Q4 last year. Should we read that as sort of AFRY X investments or what is it?
That is coming from various different places. AFRY is obviously the biggest component in there, but at the same time, there are items that are not visible in the EBITDA levels of Group Common. As an example, I can give you that in Sweden, our recruiting operations used to be divisional, but we have seen that there's lots of synergies in recruitment, and we have consolidated that one in under Group Common to leverage the efficiency gains on that part. Now the people are reported as FTEs under Group Common while their expenses are on an activity-based costing allocated back to division. That is an EBITDA zero impact on Group Common while then you see the FTEs in there.
When we have taken this type of consolidations in many of our core countries, you see an overly accelerated FTE development compared to the EBITDA. We don't have 200 employees more in AFRY X, but we do have more employees in Group Common. Still going back to that one, the EBITDA impact is not equivalent to 200 employees on Group Common.
Okay. No, I just think it's important to understand. I think your 500-some at group functions. I think Sweco is 50 people, and you're fairly similar size, but I appreciate it's difficult to compare exactly. On another question, on those cloud computing accounting standards, will you-
Yes.
What do you see going forward for that? Will you continue to treat this as a one-off, or and will it that disappear eventually, or how should we view it?
Basically, first of all, cloud computing will continue. The big impact, if you take the numbers and you go through the notes in total in our briefings, you see that the total equity impact is roughly SEK 200 million out of 421 is SEK 40 million. This is already in a highly declining phase. Obviously, as we are approaching the end of the development part of the cloud-based software, this is not only ERP, this includes all the other things we have communicated that we have done during the past couple of years. It may still have a minor impact during the first half of 2022, and should that one occur, we would treat it as an item affecting comparability. I would say that we start to be off that cycle totally.
Thanks.
Thank you.
Okay. Thank you, Johan. We take the next questions from Dan Johansson at SEB. Please go ahead.
Thank you so much, Ebba, and good morning, everyone. A couple of questions from me as well. Maybe I'll start with infrastructure. You mentioned in the report that competition remains quite high in most parts of it. Can you explain a bit more what you're seeing there? Is it new competition coming in, or is it related to a slower market and everyone is fighting a bit harder for the projects that are out there, and it might ease perhaps down with a little bit better market ahead? Also what are you seeing in terms of the market now going into 2022 in terms of public investment, the green deal investments? Is it something coming out there perhaps now with restrictions easing? Is that sort of a trigger for a better market ahead? Thank you.
Yeah. Thanks a lot. Well, yeah, we have seen that, I would say that if you look on projects in the Nordics in general, that, f or sure there are an increased competition coming in both from companies outside of the Nordics, but also inside the Nordics, that it is a kind of higher fighting to get the big projects, and that has a kind of price component into it. Then I would say on top of that, we have had the pandemic.
For AFRY with the stop and go on lockdown, it has had an impact on projects as such. Then we probably saw this also beginning of 2020 that the competition and the structure changed a bit. If you go back a couple of years at AFRY, we had Bypass Stockholm, a big project, and we had a big project in Norway. When they went away, we had a volume of medium-sized projects.
I think it has changed a bit for us, and that's also the reason why we now have a clear program on looking at what segment we are operating in, on what margin, and the position and execution, as we said. Right now, I think I also want to say that the way we see the market, because we are strong in real estate and in Transportation and Water environment, it is still a very national or even local market. With this new country-driven organization, we are to a larger extent focusing on making sure that the country organization can excel in the geographical focus area, like Finland, Norway, Switzerland, Denmark, and that Sweden is a bigger part of us.
There's been quite a lot of changes that we are implementing now that I'm confident will bring us to the level that we think we should, because we have a fantastic business. Coming to the market, I mean, my belief is that the underlying demand for infrastructure project, both in transportation and in real estate, will continue to be solid over the next coming years. Because if you just look, there is a need. If you add then digitalisation and the electrification, it is an interesting market for us.
Thank you. Perhaps a question on inflation as well then. Big topic in 2022, not only for AFRY, of course, but for everyone. Can you talk a bit how you feel about your general ability to tackle that inflation, both on longer projects that are already in the order book, and how you ensure that you don't take a hit from potentially higher wages and other costs going forward? How understanding are your customers today for price increases in this type of environment? I guess everyone has the same issues there.
Yeah. Yeah, if you start with what we see at current, we do not see salary inflation at the moment, and I think you can see it on four of our divisions delivering the highest margin for a long period. Of course, we follow it closely. I think when you see our position and segments, of course, we are using our pricing components as much as we can. What we have seen, though, is that some of these big CapEx projects, even international ones, they have been impacted from supply chain problems, but also that inflation have been hitting the material to be used in those big utility projects. That have had an impact on the project.
So far, we have been able to carry the inflation and in general, we have not seen a salary inflation impacting us as such. If you look on the tradition, we have normally been very good at carrying the inflation salary cost through pricing to our clients. That's the situation as it is now. For sure, we are keeping a good eye on it.
Yeah. Thank you so much. I think that was all for me for now.
Thanks a lot.
Thank you, Dan. Next questions we take from Erik Elander at Handelsbanken. Please go ahead.
Yes. Hello, good morning.
Morning
My first question is that, actually, the last time we had this call back in November or something, I asked that, since it took you three years to get to 10% margin in Energy, will it take the same time for Infrastructure? And then back then you replied, "No, it won't," because Infrastructure has much shorter projects in general, meaning that you can turn around it quite faster than the Energy division. How long should we expect it then to take for Infrastructure to go from 7.4% to 10%?
Yeah. I still stick to that, Erik, that it will not take three years. That's our strong belief. Of course, now it's three months after November, and it's been a rougher end of the quarter than we expected. I strongly believe that we, during 2022 then, will see improvement in infra, of course, also driven from the fact that we are taking the activities on the cost base. Of course, the macro environment we need to adjust to, and the sales we can really impact, and cost, we basically own.
Now we are taking the cost measure on what we can really control on a day to day, and we also believe that the new structure enables us to make it a bit simpler and also better fitted to the markets. And then, Erik, we will push on all the other activities that we just talked about, and then our strong belief is that we will see a gradual improvement on the infra margin not taking three years to get back to the 10%. That, how fast it will be, as it's a few variables in that, difficult to say, but for sure I expect and hope that we will quickly see improvement throughout 2022.
All right. I wish the best of luck in executing on that. That'll be interesting to follow.
Yeah. Thanks a lot.
M y last-
Thanks a lot.
Yeah. My last question, if I may, is regarding what is it called? Yeah, the Omicron thing. So you had some sick leave in Q4, meaning you had a SEK 40 million elimination on profit basically due to sick leave. Given that Q1, I mean, at least my feeling is that Q1 would be worse, at least in Sweden in terms of the Omicron spread. How much should we expect the sick leave number to be in Q1? Do you expect it to be more in Q1 than in Q4 in absolute terms?
Yeah. No, I think, Erik, we will not guide how much we believe it will be. What you are I mean, as you said, we feel, and of course it's difficult to make forecast on feeling. What we have seen is that the Omicron, as you also said, came in November in different pace throughout the Nordics but also in Europe. For example, Norway went into earlier lockdown and quarantine rules than Sweden, for example, and then it came to Sweden. By that it is also then of course now, Erik, we have seen Denmark and Sweden open up society. There are different rules now from quarantine and testing. I think it has been a mixture of sickness leave and quarantine.
I also would say that here in Sweden we have a lot of effect from sick children where, you know, even though our employees is really good at working remote from home, it have had an impact, and we have seen it. How much it will be in quarter one, I don't really know. We have a good feeling that we are increasing operation stability in Norway, in Denmark because they are beginning to see the wave going down.
You know, Erik, feeling also in Sweden, even though we have people sick, feeling is that it is going down, and we are now early February. With all that said, we just wrote, as you know, clear as we can that it probably will have an impact in quarter one. I hope it will not be as much as in quarter four, but we don't really know. So, that's the truth. I have a feeling, but maybe it is, Erik, because we start to feel and hope that the pandemic will fade away, that the feeling is better than it was in November.
Yeah, I like that. I like to be happy, so that's good. Yeah, thanks so much actually for the answers. I'm done now.
Thanks, Erik.
Thank you, Erik. I see that we might have a follow-up question from Johan Dahl at Danske Bank. If you have another question, you can go ahead.
Thanks a lot. Now, just on the topic of ERP and efficiency in the group, it was highlighted at the Capital Markets Day, you know, as an important lever to get you guys to 10% margin. You know, we've addressed some of the cost associated with that project today, but can you just talk about how you see these efficiencies coming through, possibly 2022, 2023, and when that will be fully realized? If you can just convey some sort of outlook there.
Yeah, I can start on that, Juuso. I mean, for sure implementing a new ERP system in conjunction with the pandemic and so on is maybe not the kind of best. As we also said, the decision was made even in 2017 that we had no other choice by doing it and then period. Step by step we have gone live with the system. Of course, when you go live, that part of the system, that part of organization that uses it, there's a learning period to start to get used to it. Then I think we have seen that when people start to understand the system, it will give us a lot of benefit, especially when you connect the system to our CRM system that we have implemented.
We have some steps ahead of us, Johan, country by country, when people will start to implement and use the new system. In that period, there is no efficiency gain because the old system, you know how it is, you know exactly how you do it, but in the new system it takes a while. I would say we still have a period ahead of us before we can see the whole AFRY having an efficiency gain from the ERP system. What you say, Juuso? You are the ones that is operationally driving it.
Yeah. Yeah, basically. You describe it well. The beginning is always such that you don't see efficiency gains. Vice versa, you see in the first couple of months efficiency losses, and then you start ramping it up there. We need to remember that what are the gains that we are looking for? The big improvement in there is coming from the cooperation and shared project execution. That one you gain leverage little by little as you implement the system. For example, now we have gone live with the pilots in Sweden, and we are continuing the Swedish rollout. Once the whole Sweden is in there, we start to see Swedish synergies. That one should definitely help, for example, Infra on better and better delivering projects and then also across sharing resources.
Let's take a civil engineer that is used in end product, is used in industrial offerings, that is used in energy offerings. This type of a work we can do better and better. Those type of synergies start to be visible, little by little at the end of this year, give or take. Then you have the second part of the synergies and the benefits are coming from the cost of growth. You build up a platform where you don't need to increase people as you go forward when you deliver better and better revenue numbers. That one of course, comes then partly that we need to grow, which I think we have demonstrated we are able of doing it.
Then partly it comes on the backend synergies where we simply need different amount of people to deliver the new revenue numbers, and that one comes as we implement throughout the organization also. I would say that the better part of the benefits is in the shared project execution and the increased utilization, for example, that we can deliver.
Thank you.
Yes. Yeah, summarizing, it's a good question because over the last two years we have implemented a new CRM system, a new HR system, and also a new ERP system. Of course, when you go back and if you look on our ambition moving forward to also be able to take on larger and larger project, the earlier system environment did not support large projects as one. There we have with the integrated system landscape a completely different opportunities. Of course, the implementation phase is for sure challenging, but overall we are following the plan, and I'm really confident that it will give a completely different platform for efficiency and growth moving forward. Ebba, that's all questions?
Yeah.
All right.
Yeah, there's no more questions. Yeah.
I would like to thank all of you for listening in to this webcast. Let's hope that when we meet next time, spring, that we have a different pandemic situation, and there is also a springtime when we will meet, a bit lighter outside. We are back to present the numbers for the first quarter. Thank you so much for listening in, and thank you all also for the questions. Stay safe and have a fantastic weekend. Thank you so much.