Good day, and thank you for standing by. Welcome to the Sweco Q2 2023 IR report. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star, one, and one on your telephone, and you will then hear an automated message advising your hand is raised. To withdraw your question, please press star, one, and one again. Alternatively, you may submit your questions via the webcast. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your speaker today, Marcela Sylvander, CCO. Please go ahead.
Good afternoon, everyone, welcome to this presentation of Sweco's Q2 report. As you heard, my name is Marcela Sylvander, I'm the Chief Communications Officer here at Sweco. Sweco's President and CEO, Åsa Bergman, and CFO, Olof Stålnacke, will take us through the results of the second quarter. After that, we will, of course, open up for questions. Please go ahead, Åsa.
Welcome, everyone, to Sweco's Q2 presentation. Before we move into the quarter, I would like to give you a short recap of Sweco. Sweco is today Europe's leading architecture and engineering consultancy, with operations in eight geographical business areas across 15 markets in Europe. We are a well-diversified business operating across three different segments with a good balance of private and public clients. The foundation for Sweco's long-term success is our mix of competencies spread across 21,000 experts, our focus on organic and acquired growth, as well as our efficient and decentralized Sweco Model. With a strong legacy, we continue to build Sweco's success. Our solid financial position keeps proving itself essential, value creating acquisitions, as well as dividend growth. The second quarter was another good quarter for Sweco, with strong performance across the group.
We continue to deliver a strong combination of organic and acquired growth, with the net sales increasing to SEK 7.2 billion in the quarter. EBITDA increased to SEK 564 million. Adjusted for the calendar effect, the result improved by 29% compared to Q2 last year. The result is driven by a positive momentum in pricing, a solid FTE growth, and positive contribution from recent acquisitions, especially from VK architects+engineers, and Olof Stålnacke will provide you with some more information on this later in this presentation. Moving over to the operational highlights in the quarter. Overall, the demand for Sweco services remained good, and we continue to see good growth opportunities.
One key to our organic growth is our positive momentum in recruitment. Over the past couple of quarters, we have established a solid level of FTE growth. We are also improving employee retention. The performance in Q2 was generally strong across our business areas. Seven out of eight business areas reported both organic growth and EBITDA improvements in the quarter. I would like to especially highlight the strong performance in Belgium and Denmark that is driven by a strong positioning in attracting growth segments. We are also seeing good growth in Norway, Finland, while Germany and Central Europe continues to take steps in the right direction with good growth in the quarter. We made four new acquisitions, welcoming around 200 new experts to Sweco Group.
With good demand and solid inflow of new orders, we also continue to strengthen our order book and won several new exciting projects. I will come back to this later in this presentation. Let us now look at the market situation. The market situation is overall unchanged compared to previous quarters. The underlying demand for our services is good, but the market uncertainties related to the macroeconomic development remains. This means that we need to continue to stay agile in the market. The green transition continues to be a core driver for Sweco and a theme that cuts across most of our business areas and projects. This is notable in the water, energy, industry, and transport infrastructure segments.
The segment building and urban areas remained a bit mixed, with a stable demand in public buildings, but a continued weakened demand for services in residential and commercial real estate, driven by the macroeconomic situation. Overall, we continue to see good growth opportunities, and we also see that our diversified offering and business models is a strength in this mixed market. With that, I will hand over to Olof to walk you through the numbers. Please, Olof.
Thank you, Åsa. Good afternoon, everyone. Starting with a quick summary again, then. Net sales in the quarter, SEK 7.2 billion. We see 9% organic growth, 7% from M&A, and 4% from FX. EBITDA, as Åsa said, is SEK 564 million. We are SEK 77 million up versus last year, and excluding the negative calendar effect, we are SEK 140 million or 29% up. Margin is 7.8%. Leverage increases to 1.5, and that's driven by M&A, dividend growth, and also working capital build-up, both seasonal and growth driven. In this quarter, we now have VK architects+engineers in our P&L. It is consolidated into Sweco Belgium, primarily, but also into Sweco Netherlands. This is our largest acquisition since 2015, and they make a significant contribution in the quarter.
SEK 230 million in net sales, SEK 32 million in EBITDA, and 14% in EBITDA margin. The integration of VK is progressing according to plan. Looking then at net sales, we are pleased to see solid organic growth in seven out of eight BAs, ranging from Sweden and the Netherlands at around 5%, up to Norway, which is close to, and Finland, Belgium, Denmark, and Germany, and Central Europe, clearly in the double digits. The only exception in the growth pattern is U.K., where we have seen a further weakening of the market in some segments, negatively impacting parts of our business. Across the board, the growth drivers have been continued price increases and FTE growth. We continue to have good momentum in recruiting, and personnel turnover has continued to decline in the quarter.
On the EBITDA side, we see a 29% increase year-on-year, adjusted for calendar. We see margin improvement in three BAs, despite the significant negative calendar, and the EBITDA drivers are much the same as the growth drivers: price increases and FTE growth, and also that the negative impact from sickness absence we had last year in Q2 has been largely reversed. Billing ratio declined slightly in the quarter, but excluding the acquired entities, which are not yet into the Sweco time reporting and billing ratio follow-up processes, we saw a slight increase in the billing ratio. Increasing efficiency and improving the billing ratio remains a focus for us going forward.
Looking at the EBITDA bridge by business area, Belgium has a stellar second quarter, with a VK acquisition coming in, with a significant EBITDA contribution, as we just saw, and the existing business also continuing to perform very strongly. Denmark also continues on a very good trajectory. We see significant contributions also in Finland, Norway, and the Netherlands. Sweden is slightly positive, despite that we got the impact from the salary increase in this quarter. Germany and Central Europe improves after weaker Q1. As you can see, the decline in parts of the U.K. market has an impact all the way down to EBITDA. We are now taking action to get the underperforming parts of the business back on track.
Important also to mention that the calendar makes this into a relatively small production quarter for us, with six less working hours, corresponding to a negative SEK 63 million in net sales and EBITDA impact. Finally, then on the numbers, the financial position. Net debt is at SEK 4.1 billion, significantly up versus last year. LTM cash flow from operations is outweighed by larger outflows for M&A and dividends, especially the larger acquisition of VK that we made in Q1, and we also see seasonal and growth-driven working capital build-up. Leverage is also up at 1.5, but still well below our target, and we remain financially strong with available liquid assets of SEK 3.2 billion. With that, back to you, Åsa.
Thank you, Olof. We continue to deliver on a strategy to combine organic and acquired growth. Altogether, we have made eight new acquisitions during the first six months of the year. In the second quarter, we announced four new acquisitions, and another one just after the closing of the quarter in the beginning of July. These acquisitions add a combined net sales of approximately SEK 260 million and around 220 new experts to Sweco. The acquisitions are spread across four countries, Sweden, Finland, UK, and Belgium, and a wide range of interesting service segments such as buildings, architecture, and infrastructure. These acquisitions all contribute to strengthen Sweco's position in attractive segments. Our strategy with regard to acquisitions will remain on top of our agenda going forward.
Let us now have a look at some of the new interesting projects that we won in the quarter. We continue to see a good demand for Sweco services, driven by the green transition in society. Just to give you a couple of examples: In Belgium, Sweco will assist Belgian public transportation company, De Lijn, to transform facilities for electric buses. This is a part of making the public transportation emission-free by 2035. In Finland, Sweco is taking part of a unique wood building concept together with Stora Enso, proposing new ways of increasing the circularity in buildings. We are also seeing that our new acquisitions play a vital part in winning new projects. In U.K., our newly acquired company, Ball Berry, was commissioned to help in the transformation of a listed heritage property.
To conclude, I am very pleased with the quarter and with the achievements we made. Sweco strategy and market position enable us to keep catering to the demand driven by the green transition in Europe. The current market situation, however, remains uncertain, which makes us place even further importance in managing fees, efficiency, and costs. At the same time, continue to capture opportunities in the market and continue to execute on our M&A strategy. It is evident, particularly in the present market environment, that our diversified portfolio of clients, segments, and solutions is a competitive strength. We are also gaining good momentum in the recruiting. The Sweco Group is growing. Thank you.
Thank you, Åsa and Olof, now we will open up for question. As we were instructed in the beginning, it is possible for you to ask them directly through the phone line or through the chat function. Please, Sarah, if you can give us the instructions perhaps one more time.
Thank you. To ask a question, you need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again, and if you wish to ask your question via the webcast, please type it into the box and click submit. Thank you. We'll now go ahead with our first question. Please stand by. First question comes from the line of Daniel Djurberg from Handelsbanken. Please go ahead.
Thank you, operator, and, hi, Åsa and Olof, and a big congratulations to a strong performance here in choppy waters.
Hi, Daniel. Thank you.
Hi.
Hi, hi. The first question would be a little bit looking at the solid organic growth. Can you comment a little bit on the level that came from prices versus volume and mix? Would be great. You know, it's like half half, similar to your beer in the Nordic perhaps.
I think it's fair to say it's been like it has been for the last few quarters. It is roughly 50/50 from price and volume in the quarter.
Perfect. Thanks. Another question on the employee retention coming down, and do you see a risk that it comes too low, that you need to work the demographic in the company, you know, more on hands-on level? How do you see this?
No, I mean, if we look back and before the pandemic, we were on lower levels, and that means that we have seen an uptick after the pandemic. We have referred to the personal turnover being one of our, how to say, challenges due to that it's of course, costly and to onboard people. So we are really welcoming this decrease of the personal turnover. This is the second quarter in a row where we see lower levels and too early to see it as maybe a trend, but it is a positive. There is no risk that we are going to see personal turnover levels that is too low.
We have to expect, and we, have the capability of working with the personal turnover on those levels that we now see in the business. The answer to your question is, no, I don't see that coming, but I would welcome, even lower levels of personal turnover than we have right now, even if we are on the benchmark, in the market.
Perfect. If I may, a question on, the profitability in Belgium and Denmark was, obviously strong and surprised me a bit, also underlying. Did you have any, you know, non-recurring or one-offs projects that helped, that, we should be aware of, or is this the going concern, or the level we should expect given the current demand situation?
No, there are no sort of non-recurring items in there, no one-off. It's just a continuation of the strong performance. In Belgium, it's also the addition of VK, obviously.
Yeah
adds strength to the business, and in Denmark, it's again, just the continuation of the trajectory we've seen.
That's great. Thank you, and have a good summer, and I will get back in the queue.
Thank you.
Thank you very much. Thank you.
Thank you. We'll now take our next question. Please stand by. This is from the line of Stefan Knutsson from ABG. Please go ahead.
Afternoon, Åsa and Olof. My first question is regarding the outlook in the real estate market. Have you seen any increase in uncertainty and, for example, within public buyers of late?
The market situation related to the building sector remains weak in this quarter. I would say it's more that it continues, and it's mainly related to the residential sector with newly new build. It's more that it continues. I think, yeah, in our business, it's really a strength, and as I said before, of this broad client portfolio and this growth project portfolio that we have, so we can utilize the resources also into the public buildings, meaning schools and healthcare, and so on. But with that said, it is an uncertain market that we are capable of handling and maneuvering so far.
I mean, just to add to that, we overall in our market, we have not seen any sort of increased weakness in the public building market.
Still good demand in the public spending, as you refer to.
Perfect. Very clear. Then also, Olof, on the working capital, you said that it increases from strong growth. I also have it increasing in the share of revenues and approaching historical high levels. Any further comments on the development there would be helpful.
No, then we are working off the same numbers. I also have the % increasing. There is two factors in this. I think when you have the kind of growth we've had over the last 12 months, you will have sort of an excess build up in work in progress. The same thing when we go down, you have a sort of further decline in than the % of sales, so there is sort of an extra effect from growth.
What we also have in the quarter is that, the acquired entities come in with higher working capital ratios than we normally have. We see that as an opportunity to release cash once we get them into Sweco's working capital regime.
Okay, perfect. My last question is regarding Germany and UK, which still have sort of lower profitability levels. Are you taking any specific actions in those countries to improve that?
Well, in Germany, as you know, we have been executing on a turnaround plan for quite some time now. What is positive is that we see good growth, we see good ordering flow, in Germany.
The margin has not yet lifted. That's obviously something that we are working with to sort of get the cost levels right, et cetera. In Germany, I would say it's just continue to execute on our plan. In the UK, we've had more of a rapid negative impact in the quarter, as you've seen. There we are taking actions in terms of cost reductions on the sort of more shorter timeframe.
Perfect. Thank you very much for the answers. I wish you a nice summer.
Thank you.
Thank you.
Thank you.
Thank you. We'll now take our next question. Please stand by. This is from the line of Johan Sundén from Carnegie. Please go ahead.
Hi, Olof and Åsa. A question from my side as well.
Hi, Johan.
It's touching upon a topic that we discussed earlier, and it's the building and residential and wider construction market. If we can zoom out, the last kind of four, five quarters, is it possible to walk us through how any direction of the market and where you are end of Q2 compared to where you had been earlier during the last kind of four quarters, and where to expect going forward without guiding specifically, but because you should be pretty early cyclical in that sense? We've seen many other companies commenting that the weakness in the construction market has increased during the Q2.
As said earlier, these are the weak segments, and we have experienced that the residential market has decreased, I would say, the last two or three years. It intensified in the beginning of last year with the Russian full-scale invasion of Ukraine, with the inflation and the energy crisis on the market. Of course, the inflation and the rates is pushing our clients in different perspectives. With that said, we have been able to maneuver the market due to that we have a very local presence, in that we stay close to our clients in those segments, and that we also are able to utilize resources into other building clients that really invest.
What we also see is that real estate companies and residential investors still are competent in sustainability services, in energy efficiency, in reconstruction and this market is weak, there is still projects in those sectors. It's weak, but there's still a market, I have to say. Your question around the future, I think that I can guess as much as you by the information we have right now, but of course it's uncertain. Let's see. There's also one other thing. I think it's important to emphasize that the different markets we have in our portfolio is maneuvering this economical macro perspective in a different place.
Each market has their kind of different flavors when it comes to investing and not. For us, it's really about staying close and working really local towards our different markets.
Perfect. One second question on the summer period. We have had two years in a row now where you had a pretty slow start after the summer vacation period. How is your visibility and how are you planning to ensure that the kind of efficiency are at a good level when all the employees return after summer vacation?
Well, it is the same process that we have. I would say the visibility to start with is normal. As we said, our order book has improved, meaning that we have the, we have work to do for our consultants. As usually, it's just a question of short-term work planning in the organization. We are putting the same emphasis as usual on that. That being said, it's always a startup period. Our aim is definitely to make it as short as possible, like we do every summer.
With regards to kind of recruitment, et cetera, last Q3, you had a pretty high recruitment activity. You are not planning to have the same kind of recruitment boost and onboarding initiatives that we saw in Q3 last year?
What we saw and also what we saw in last Q3 was that we really pushed to get up to speed with recruitment after the pandemic, when the market opened up. What you saw was the result of that recruitment. We really succeeded with that, but we came back quite heavily, meaning that we have never, ever seen so many entering into Sweco as we did Q3 last year. With that said, we now are seeing a more kind of better distribution month by month, people starting. We don't expect the same kind of situation in Q3 this year.
Perfect. Thank you for the clarification. I get back in line.
Thank you.
Thank you. We'll now take our next question. Please stand by. This is from the line of Raymond Ke from Nordea. Please go ahead.
Hello, hello. Two questions from me. First one on billing ratio. I see that it is practically flat year-over-year. Did you perhaps notice a change in the billing ratio as you progressed throughout the quarter, which might indicate sort of where it is heading?
Yes, not very much, but if anything, I would say, a slight improvement towards the end. It's also worth noting, I guess you've seen that, and we mentioned in presentation, that we are actually slightly up, excluding the acquired entities. But slightly up, if any trend during the quarter.
Great. Do you see any noticeable differences across your various industry segments that you perhaps could provide a bit of color on?
In what sense do you mean? In terms of.
In terms of, yeah, for example, architects and, compared to, engineers working in industrial projects, say.
No, I mean, we are organized, as you know, in country organizations, and we don't disclose billing ratio information below group. What you can see from the report is that we see billing ratio decrease in Sweden and UK. That's the only information outside of the group information.
Fair enough. One final question regarding the order book strengthening, as you described it. Does that also mean it is strengthened in relation to LTM sales?
Yeah.
Okay, perfect. Thank you so much. Have a great summer. I'll get back in line.
Thank you.
Thank you.
Same to you.
Thank you. No further questions on the phone lines at the moment, so I will hand over to the speakers to take any questions from the webcast.
Thank you so much, Sarah. We have a question from Steven, from Goldman Sachs. The question is: Can you give us some details about the reasons behind the margin decline in Sweden, Finland, and the UK, even when sales increased in each region?
I mean, to start with, one of the reasons in all three countries is the negative calendar effect, which impacts all three countries. In U.K., the margin decline, we've talked quite a bit about that during the call. It is the weakness in infrastructure and in commercial buildings in the quarter, which has primarily impacted billing ratio and is the reason behind the margin development. In Finland, we are actually excluding the calendar effect, improving both EBITDA and margin. In Sweden, we are improving EBITDA, excluding the calendar effect, but have a slight decline in margin.
Thank you. There is a question from Quentin of Kepler Cheuvreux. The question is: Could you elaborate on wage inflation in your different markets? Do you expect additional wage increases going forward?
Now with the second quarter, the biggest impact of salary inflation, which is the Swedish one, the biggest organization, it is now fully included in the numbers. We have some more impact coming in a couple of the smaller one market, but now a majority of the salary inflation is in the numbers. And as we said before, we have managed to increase prices in line with or above the total salary inflation.
Thank you. With that, we have no more questions on the chat function, and I guess no more on the phone lines. With that, we want to thank you for joining us, and we wish you a really nice summer.
Thank you very much, everyone.
Thank you all. Have a nice summer.
Thank you. This does conclude today's conference. Thank you for participating, and you may now disconnect. Speakers, please stand by.