Dear all, warm welcome to this year-end report presentation from AFRY. My name is Jonas Gustavsson, CEO of AFRY. With me, I have also Bo Sandström, our CFO, who will join me in a minute. Again, thank you for being here. We will have some 20 minutes of presentation and then of course open up for any questions. I will start then with on the Q4. Of course, what we saw in Q4, you have seen it in the report, a continued strong demand, driven from the industry, Energy segment, but I will also say stable demand in the Infrastructure. Of course, some pockets in the real estate where we saw some weaker demand, but in general, good demand. That was reflected in our, in our growth.
We delivered 20% growth in the quarter, 11% adjusted organic, ending up at SEK 6.6 billion. Obviously, that's the highest level we have had in any quarter in this company. That's a real highlight. EBITDA SEK 578 million, which was 15% growth compared to last year. A good development, and the margin ended up at 8.8%. I would like to highlight that in AFRY X, we'll come back to that, we have now, I would say, repositioned that business. We did some write-offs of software products in the quarter, and we should now be finalizing AFRY X. Of course, we continue now to leverage from the strong demand that we see, and cost control and pricing will be key also moving forward.
In general, when you look on the demand side, it was a really strong quarter. A few words about 2022. I would say 2022 was also a year with a lot of uncertainty, of course, but still we ended up with a year with very, very strong demand. Total growth for AFRY was 17%. Adjusted organic growth ended up at just about 8%. Also, when you look historically, that is probably the strongest we have had in one year. EBITDA, SEK 1.8 billion, ending up at 8% in margin. In the year, we have announced and concluded a cost-saving program, targeted a lot in Infrastructure division. We also concluded four acquisitions throughout the year, adding SEK 600 million on top line.
We have also then announced and agreed to divest our Russian operation, still waiting for approvals, but that process is ongoing. A few highlights from 2022. Market, and I already mentioned the market, and you probably have seen it, that the market and the numbers we see are very strong. Coming back to 11% adjusted organic growth. This big transformation, green transformation in industry, but also Energy, drives a lot of demand for our services in AFRY. Also in Infrastructure, except a few pockets, we have seen a solid development. That is also reflected, Bo will talk about it, that our order stocks are on all-time high levels. Performance in our six divisions.
I would like to start then with Process Industries, Energy, and our Management Consulting business. They all deliver strong growth and good margins. Moving into Infrastructure, I would say I'm pleased with the growth, but in Infrastructure, we had a margin lower than what we hoped for, and there's a few explanations. In Finland, we did an acquisition last year, and just in the integration of that company in Finland, we had a significant cyberattack. We have been working with that throughout the fall, but that has affected us significantly during the quarter with really low utilization. The delta in Finland is significant, affecting Infrastructure. We are also using more sub-consultant than normal in Infrastructure, and that is also having an effect on the margin.
With that said, we still have work to do to improve our margin, these two, especially the Finnish one, was one big explanation that we see in the performance in the fourth quarter. In industry and digital solution, we had one project write-down in a bigger project that affected the performance. Here the growth and the market is good, we expect good development moving forward. Finally, AFRY X. We have now throughout, I would say, most of the second part of 2022, adjusted our position in AFRY X, we have now cleaned out our software products. We had to do a write-down in the fourth quarter. We are now done. Moving forward, we will, we should expect good development on AFRY X.
Three divisions very good, and then we have had some quarter four effects in the other ones that we are not super pleased with. In general, moving forward, I feel that we have also improved in many areas. I want to highlight as we have strong order books or backlog, three projects that we received. One is actually in AFRY X. Here we have together with SL, we are then chosen to be the digital partner for building out a you know, a system for traffic information. It's a really cool project, also in the core of what we as AFRY can do with our infrastructure knowledge, but also the fact that we have a strong position in digital. This one goes into AFRY X.
Second one, Liquid Wind, this is a project where we support the build-out of a factory in Sundsvall. This is, of course, probably you follow Liquid Wind. They are focusing on the shipping industry and where they will supply green electrofuel. It's also a very interesting project for us moving forward. Finally, Stora Enso in Oulu in Finland. Of course, this is in the core of the core of AFRY, where we will support Stora Enso in a conversion project where they will use the machines for renewable packaging. All these three projects are, I would say, a symbol of digitalization, but also the green transformation that we are working on. Just before handing over to Bo, just highlighting sustainability.
We as a company, we are ranked high or very high in many different sustainability rankings. I would like to highlight the last one, CDP, where we as AFRY really received a leadership score based on our climate work. We are really proud of this, and this is important for us moving forward. With that said, I will welcome Bo Sandström on stage to take us through the financial part. It's all yours, Bo.
Thank you, Jonas. I will cover the main financials for the quarter, starting with sales. Total net sales in the quarter, SEK 6.6 billion, more than SEK 1 billion higher than Q4 last year. This was then the second quarter in a row with a 20% total growth compared to last year, and more than 10% adjusted organic growth, this time 11.3%. Growth was then driven across our segments, solid demand, and it was supported by price increases. This quarter, we estimate price increases to be around 4%. We see a continued very strong development of the order backlog, just as we have seen last year, that continues in the quarter.
We finalize or we end the year on a record level in terms of order backlog. On the EBITDA side, as Jonas said, we came out at 578 million for the quarter, 15% higher than last year, and margin ended at 8.8%. Despite being marginally lower than last year, what we can see in the fourth quarter is that we managed to take sales growth to EBITDA in a better way than we've seen the previous quarters. We're still challenged in getting full scale effect of the growth, but better than what we've seen in the previous quarters. Three highlights in the EBITDA development for the quarter.
As often in Q4, being a year-end, we have some items of one-off characteristics. From a group level, we see that they net out in terms of total EBITDA, but they of course effect the divisional performance in the quarter. We have a positive in Group Common that is netted out by negatives in IDS and AFRY X. Second part is that as Jonas described, we see a continued increased use of sub-consultants to in a sense facilitate or meet the high demand that we see and cover the high growth. That also this quarter pressure the margin development, and this is particular for Infra and IDS.
Thirdly, also like Jonas said, we have a weak performance in Infra Finland, affecting the utilization in the quarter. Looking then at the development by division, we see, as we've seen before, we see consistent strong growth across the divisions, with AFRY X then as the exception. AFRY X was affected in the quarter by the product portfolio revision that was finalized, resulting in a write-down of approximately SEK 11 million and a lower EBITDA margin to follow. Looking at the two biggest units or biggest divisions, Infrastructure and IDS, they both deliver margins of approximately 8% in the quarter, both then affected by higher use of sub-consultants.
We have the weak EBITDA margin in Infra Finland, which explains the deviation to last year fully from Infra. We have the single project write-down in IDS. Leaving those three or looking at the remaining three, we have Process Industries, Energy, and Management Consulting on very strong growth levels, but also on EBITDA margins in the quarter of above 11%. We're very happy with their performance during the final part of 2022. In addition, you should consider a somewhat higher level of cost allocation from group to division than last year. We expect Group Common to be stabilizing at approximately 1% of net sales on an annual basis in net cost.
Finally, looking at net debt development, we ended the year with a net debt of SEK 4.6 billion, sequentially down from SEK 5 billion in end of Q3. With the positive development of the EBITDA, this then brought the net debt to EBITDA down to 2.3x below our target level of 2.5x . Operating cash flow in the quarter was positive but not as strong as an exceptionally strong Q4 last year, primarily driven by then the or negative working capital effects for the very high growth that we have seen this year, both in Q4 and also in previous quarters. Liquid assets and unused credit facilities totaled at above SEK 4 billion at year-end.
Finally, then the board proposed a dividend of 5.5 SEK per share to the AGM, this would then correspond to approximately 0.3x on net debt to EBITDA. With that, I leave back to you, Jonas.
Thank you, Bo. Just to wrap it up, moving forward, of course, we see a continuous strong market. For us it's to take all advantage to strengthen our client offering, and continue to work with interesting assignments and projects. That's one thing. Of course, cost control and pricing, because, you know, as we said, we follow the market closely, and there are of course some clouds also out there. In general, on the numbers now, they are strong. Then of course, to attract talents and continue to develop our employees to be able to take on these super interesting assignments and projects that we see coming up. Then we continue to do those focus investment that we need to work on our operational platform.
With that said, I will just finally want to welcome you all to the Capital Markets for AFRY. We will have that here in Solna, in our head office on March 16th. You will get an invitation, and we hope to see you here. With that, we will move over to Q&As, and I will have Bo back with me here and answer any questions that you might have. Please, Ebba.
Yeah. We open up for questions, and as usually, use the function raise your hand if you have a question, and don't forget to unmute. We take the first question from Johan Dahl at Danske Bank. Please go ahead, Johan.
Yes. Good morning. Can you hear me? Yeah?
Yes. Yeah. Hello, Johan.
Hello. Just a few questions. Starting on the, you talk a lot about the increased use of sub-consultants. We can see also that you know, clearly increased the number of FTEs year-over-year, fairly well in line with your organic growth. What the, what's the dynamics actually behind that, happening in Q4?
I think one thing in Infrastructure is that clearly we have seen that the strong growth that we had specifically now in Infrastructure in quarter four led us to needing to use more sub-consultant than we normally do because we are not scalable as big in some to handle this, so we had to bring in more sub-consultant. The same was valid for industry and digital solutions. We always have a sub-consultant structure we will work with. In quarter this, four, also based on slightly higher sick leave, more like we had last year, and a bit higher attrition, Johan, led to, for us, that we had to use it a bit more than normal.
Is attrition, is that increasing for you guys, as you exit the year?
No, not increasing, Johan. I think it's still on high levels, potentially stabilizing going down probably as an effect of the general, I don't know, market and so on. It is still slightly higher than what we have if you look year, back, you know, a year or two. That together in December, a bit higher attrition, a bit higher than normal sick leave, and a very strong sales and led to those effects that we talked about. Yeah.
Also on a
It sounds as if you're doing some efficiency initiatives here entering 2023.
Yeah.
How should we read it? The number of employees, I think it was up sequentially.
Yeah.
I mean, usually cost out is personnel to some extent.
Yeah.
Can you just explain what your plans are here for 2023?
I will do it quickly, then we will talk more about that when we meet here in Solna in March. Just to simplify it, we had an interesting product portfolio of software products that we have looked through and, you know, developed over the year. A couple of them we will continue to work with Smart Forestry, but many of those product initiative we have actually canceled because we have had challenges to commercialize them. I would say, Johan, the simple explanation is that AFRY X that we are pushing for now is driven towards more a strong service offering business with a couple of software-related products and support.
We have actually done that clean out, you could say, throughout 2022, and we took the last write-off in Q4. Now we're done, we expect, and we will push for good development moving forward.
I will get back in line. Thanks. Thanks.
We take the next question from Johan Sundén at Carnegie. Please go ahead, Johan.
Good morning, thank you for taking my question. Two questions from my side. First is just on the Finnish cyberattack. How come that you don't comment on it in the report?
I mean, what we saw is that the attack happened during summer, and then we have been working with a lot of mitigations throughout the last six months. I think right now, we commented the fact that we had problems with the utilization in Finland in the report, but we didn't go into the fact in the report that the original reason for that was a cyberattack that we have been fighting a bit with over the last six months. Now we had actually to redo some of the drawings due to that, and that came out now in the quarter four. That's the reason, basically.
What we see is now we will have a bit low utilization in the beginning, but then we will be out of that. That's the plan moving forward. That's the reason why we have no specifically comment on that it was an attack on one of the acquisition. It was publicly known during the summer, but then we have been struggling to get back with utilization in Finland.
How should we view the situation? Is it all solved now, or is this something that will be a drag also the first of next year or?
I think we will probably see a bit low utilization maybe in beginning of the this quarter. We will work ourself out of that problem. It's not a drag-on problem. We expect that in quarter one, we will see an improvement in Finland moving forward.
Great. As a second question on the cash flow and the working capital. Q4 usually are a good cash flow quarter for you, but now we're not seeing the natural kind of working capital swings, as last few years. When I look into the balance sheet, we see that the receivables rising quite more faster than current liabilities. Just to get the sense what's driving this then, 'cause if the growth, organic growth is the reason for the working capital build out, then those two factors should kind of follow each other, right? How should we read?
Yeah, I mean, you should read it in. I mean, there's always, of course, multiple things affecting the cash flow. What we did experience in Q4 was that we had a strong cash flow, also supported by operating cash flow, but not as strong as we saw, you know, an exceptionally strong Q4 last year. This is then driven primarily by the growth, but also if you look on the collection side.
Yes
We can see that in comparison to last year, it was somewhat weaker. That is in that sense that is not the driving factor, and that's something also that we can see in the beginning of January that is only related to, in a sense, our collection numbers at year-end and not the driving factor for the cash flow as such.
Is that calendar-driven or is it, some specific client that has been slowing down their payments or?
No, it's no specific clients. It's, it's in that sense, distributed.
Okay, great. I get back in line. Maybe I have a follow-up later on.
Okay, thank you.
Thanks.
We take the next question from Dan Johansson at SEB. Please go ahead.
Thank you so much for taking my questions. I think a few of mine have been answered, but I had two more that I would like to ask. First one on how large was the price component out of the 10% organic growth here? Also a follow-up to that, how you think about price increases into this year and your feeling about your clients' willingness to accept further price increases here? That was my two questions. Thank you.
Thank you. Price increase in the quarter was approximately 4%. In line or marginally lower than what we saw in Q3, but still at a healthy level. I think, your second, you know, to your second question, we're of course anticipating a need for further price increases going into the next year. Our expectation is that we are very well prepared for it. As always, you know, it will be a challenge, you know, in that sense, to continue price increases, you know, moving on. We've prepared as good as possible to continue that positive development going into the next year.
Perfect. Thank you so much.
Thank you.
Yeah. We take the next question from Raymond Ke at Nordea. Please go ahead.
Yes, hello.
Hi.
Two questions from me. First one, last year, Omicron was negatively impacting sick leave, if I recall correctly, and capacity utilization was down this Q4. If we exclude Finland, is it still an, you know, positive development or negative development on capacity utilization?
You talk about Infrastructure, division, I guess then.
No. No, I mean just overall on the group, like in total, Now we know that, Finland of course was impacted, but...
Okay. Yeah. Yeah.
If you exclude Infra Finland and the effect thereof, utilization is in line with what we saw last year.
Great. Could you talk a bit about the cloud computing investments now going into 2023 as it continued now in Q4? What should we expect, like, there?
No, we should expect, I mean, this is done related primarily to our ERP implementation. We should expect similar levels going into 2023 as we've seen throughout 2022.
Okay. Perfect. That's all for me. I'll get back in line. Thank you.
Thank you.
Thank you. Okay, we take the next question from Stefan Knutsson at ABG. Please go ahead.
Good morning, Jonas and Bo.
Good morning.
I have a question regarding the writedowns in IDS and AFRY X. Can you put them into perspective versus the positive effect you had from the sales in Vietnam?
Yeah, I can provide, you know, overview, and I think you can find a lot of it, you know, in the notes in the report. The revenue effect from the sales in Vietnam is approximately SEK 30 million. The writedown in AFRY X, approximately SEK 11 million. As I said, you know, they all net out, you know, in total. Approximately SEK 20 million, you know, is a fair estimate for the project writedown in IDS.
Perfect. Very clear answer. Then also a follow-up on the price increases that was talked about earlier. I mean, 4% in the quarter, do you think that is enough to offset inflationary pressure next year? I suspect that wages will increase more than they have done so far in 2022 next year.
I think that standalone, I think if we can continue at a 4% or 5% level, I think that will be sufficient. Of course, doing that, quarter by quarter going on, that is the challenge that we're facing.
Thank you very much. That was all for me.
Thank you.
Thank you.
Okay, next, question from Fredrik Lithell at Handelsbanken.
Thank you. Good morning.
Morning.
Thank you for taking my question.
Thank you.
I had on the other side of pricing increases, you also then have salary increases. If you could describe the wage drift that you have experienced, if it has turned more elevated? That's the first one. Secondly, do you feel that it's moderating due to maybe that consultants are sitting more still in the boat, that they are not moving around as much, so your personnel turnover is coming down? People are watching the news as I am, I guess. Two questions in one maybe. Thank you.
Yeah. No, a relevant question. Thank you. Well, as we have seen throughout the year, we have seen an increase in people turnover, and that leads to the salary drift, if you want to call it, or salary inflation. You lose an employee, and rehiring is normally you need to pay a bit more. That is really one reason why we have seen throughout the year salary inflation. Of course that has affected the salary cost more in 2022 than we have seen in many years. Of course now, as we said, we push a lot for pricing or increasing the fees to our clients, and it's all about selling value. Right now I feel that we are netting out a lot of that with pricing, roughly.
Moving into this year or we are already, of course, the kind of salary agreements in the Nordics, Sweden, Finland, will be very important for us, of course. So it is something that we are watching very closely because that's really when the salary starts to move, that affects us, of course a lot then. Right now we are kind of balancing it out, pushing prices, but it will be very important moving forward how the salary agreement process in the first quarter will turn out in Sweden and Finland as an example.
Thank you. Maybe just a follow-up on that. I guess you can't give us sort of a hint on where these negotiations are moving. Do you expect that the salary agreements will be shorter in length compared to the old one that was, I think, two and a half-three years?
Oh, yeah. Now you're moving into speculations, and of course I'm very much following that, so I can't say. I mean, there are.
Okay.
I mean, the different parties have started to kind of put their different, you know, on the, on the table. It's very difficult to say.
Okay. Okay.
One thing is, it's not only the, you know, consultant business like us or people-driven service company, but also the industrial companies have a really close eye on that one. It will be very important that we are coming out of that in a good way. How it will be, I wish I would know.
Okay. Thank you very much.
Thank you.
Okay. We, I think we have a follow-up question from Johan Sundén at Carnegie. Please go ahead.
Just going back to the cyberattack. You maybe mentioned it, but please repeat it if so. Was it present in the Vahanen acquisition, or is it wider? Was it wider in the entire Finnish group?
No. No, it was-
How-
No, it was the Vahanen. The unfortunate thing is that it was just in that intersection when we were about to, you know, integrate the company into the AFRY framework. That created that problem. It's very isolated on Vahanen, but since that's a significant part, it affected the Infrastructure division. It was not wider spread, but it was related to the Vahanen acquisition.
Perfect. I'll have it there.
Yeah.
Okay, we might have a follow-up question from Raymond Ke at Nordea. If that's so, please go ahead.
Oh, sorry, I forgot to lower my hand. I didn't have a follow-up question.
It happens all the time.
Okay, we try with Stefan Knutsson at ABG. Do you have a follow-up question?
Actually, I don't, but I can just ask a question regarding cost other than salaries. Is there some efficiency gains there? We saw, for example, Sweco yesterday decreasing their rental costs. Do you have similar projects that you can execute?
Yes. I mean, I believe you. I mean, I believe we can. As you indicate, you know, typically outside of salaries, real estate or lease cost is, of course, a big, big factor for us. Those are long-term agreements, but we have, you know, a wide network of leases, and we focus on working with that portfolio, you know, all the time. It's a big factor for us. I believe there are opportunities, but they will come, you know, at a point of time where we can execute that on, you know, on a lease perspective, on those long-term leases.
Perfect. No further questions from me.
Okay, thank you.
Thank you.
Okay. Fredrik Lithell at Handelsbanken, if you have a follow-up question, please go ahead.
I actually did have a follow-up, so thank you for that. Maybe if you could have put a few words on your, you know, balance sheet situation and the gearing that came down a little bit from Q3. If you have any refinancing scheduled for coming up for this year and how you, when are you prepared to sort of turn more active on M&A, given that you have a roof of 2.5 on your gearing and so on. Just if you could color it a little bit, would be interesting.
Yeah. I mean, we, as I said, you know, we have a clear target level of 2.5, right now we are a little bit below, which is always nice. That is providing room for us to be active in the M&A arena, which we always are. Currently, there's no strategy for us by itself to move lower than our target level. Of course, it's always nice to build up some headroom to the target level to make us even more able, in a sense, to be active in the M&A arena.
Okay. Thank you.
Thank you.
We take the next question from Johan Dahl at Danske Bank. If you have a follow-up question, please go ahead.
Yes, please. Thank you so much. Just to understand your mindset heading into 2023 here, because, I mean, you were fairly clear on the fact that you were discontent with profitability in the first half of 2022. I think you came up with some tangible measures, you know, to drive efficiency in the group. What we've seen so far is clearly you've delivered on those savings, but, you know, efficiency in terms of billing ratio have continued to slide. You're meeting a fairly tough situation now going into 2023 here on leasing cost, on calendar, et cetera. I'm just curious, you know, what levers are you pulling and what new initiatives have you produced to actually get margins to improve? Because they're, they've slided for a couple of years now in AFRY.
Yeah. Well, you're right. I think, in 2022, we concluded that cost program, and it was actually effective in Infrastructure. We reduced FDs on index side. We have also had AFRY X in 2022 that have actually burdened us with this. We are working with a lot of levers into 2023. You are right. If you look on the margin development for the last couple of years, it's been slipping. We know where it is because we also have part of our business that is actually strong and healthy. I can say it's not, we are not launching a cost program today, but we have a lot of activities to drive margin development across the Group, specifically in the Infrastructure division, where we have been on two low levels for some time.
Is there a discussion in the group? I mean, growth is strong, right?
Yep.
There's always, you know, You weigh growth against margins.
Yeah.
Is that a discussion that's on the management agenda at all, or how do you look on that?
No, of course. It is on the management agenda for sure. As Bo said, I mean, the growth is really strong. We will do our utmost to turn that growth also to margin leverage. We see an effect on the EBIT in absolute terms, but we are not satisfied with the effect it has on the margin. Yes, it is on the discussion because, of course, the good thing is that with that strong growth, we need to find ways to tweak the offerings, the execution, the bidding process to margin development. For sure it is on our agenda.
When you look on 8.8 in the fourth quarter as a solid number, it's a stable number, slightly lower than last year. Infra was a bit of a disappointment. We know where we had a problem. Finland is one explanation, but it will be a strong focus in 2023 for sure.
From one thing-
You are right. Yeah. No, no, you are right that we are meeting inflation and cost increases. We talked about the lease agreement for our offices. Of course, we are trying to pull every levers we can moving forward.
From one thing to another, what do you estimate the calendar effect, how negative was that in Q4 in your books?
I think we did disclose it in the notes.
I'll take it in the notes then.
Yeah.
That's good.
It's somewhat negative. Yeah.
Thanks.
Okay. We have one hand left, and it's Stefan Knutsson at ABG. If you have a follow-up question, please go ahead. Okay, it's gone.
No, no, sorry, I don't.
No. Okay.
Okay.
We don't have any more questions.
All right. Again, thank you for taking the time to listen. We hope to see you here in Solna in March 16, we will continue to discuss many of the questions that you have asked and hopefully give you some more light into it. Again, have a great Friday, good weekend, and thank you for listening.
Thank you.
Bye.