Good morning, ladies and gentlemen, and thank you for standing by. Welcome to today's interim report, January-June conference call. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session, at which time, if you wish to ask a question, you will need to press star one on your telephone and wait for your name to be announced. I must advise you that this conference is being recorded today, Thursday, the twentieth of July 2017. I would now like to hand the conference over to your speaker, Tomas Carlsson. Please go ahead.
Good afternoon, everybody. I'm Tomas Carlsson, CEO of Sweco, and I also have Jonas Dahlberg, CFO of Sweco, with me here. We're really happy that so many have called in. I will start out with the summary of this quarter results, and then, Jonas will run you through the numbers. I will wrap it up, and we will open up for questions. So, if you, if I refer to the presentation, that we have sent out, slide number two, we have the Q2 highlights. We are really happy about this, this, quarter's earnings. It's a solid performance, on a good market overall. I think that's, the thing to remember. We are also happy about that we have increased hourly fees and lower project adjustments, contributing in a positive way to the earnings for the quarter.
However, nominally, it may look... It looks significantly lower than last year, but as we like to point out, we are impacted by very significant calendar effect. It actually impacts with roughly SEK 185 million in Q2, and that's due to the Easter holiday that was in this quarter. So if I last quarter said this is a good quarter, but not as good as it looks, I would like to say this is a good quarter despite what the numbers look like. Overall, we see a good market in our countries with a stable market development going forward. To, moving over to the next slide, slide number three, highlighting a few projects and things that have happened during the quarter.
We have acquired M&R Engineering in Belgium, which will increase our business in the private building sector in Brussels. We're really happy about that. We've also won large number of projects, to highlight a few, we have been awarded the project to plan and design the encapsulation plant for spent nuclear fuel in Oskarshamn for the Swedish authorities. That's something that we're really happy about. We have also won projects to plan and design three major city districts in Amsterdam, in the Netherlands. That's important for us, and we're happy about that. And for our export business, we have been chosen to advise on construction of a power plant in Rwanda. That was a small sample of the many projects that we have won.
With that, we move over to slide number four, and I hand over to Jonas to walk you through the numbers.
So starting with the headlines of Q2, adjusted for the calendar effect and last year's extraordinary items, EBITA increased with SEK 23 million. If you look at the reported numbers, EBITA is SEK 312 million, which is SEK 160 million less than last year. But there's a significant calendar effect there impacting the decline, and that's SEK 184 million. So EBITA is actually up SEK 35 million. Net sales decreased, but once again, that's the calendar effect. We'll talk more about that. We have a very strong financial position. Net debt a little bit north of SEK 2 billion at a net debt to EBITA of 1.2. Let's move to page five to look at the details, starting at the top line.
So we had 26 fewer working hours this quarter than last year. And that is the main driver of the negative organic growth that we have. So that almost explain why we have a negative. Also, what is impacting the organic growth in the quarter is slightly higher absence than last year, but is almost 2%. And a lot of that is related to additional vacation also in conjunction with Easter. We also have less sub-consultants than we had last year, and that is also a negative contribution. So there's really nothing structural in demand. We see strong demand in good or strong demand in most markets, which is accommodating for organic growth.
In addition to the organic growth, we have an acquired growth of 1% and a currency effect of 2%. Moving on to page six, looking at profitability or profit. EBITA came in at SEK 312 million. Though if we adjust for the calendar effect and if we also adjust for last year's extraordinary item, it's SEK +23 million. We had last year the extraordinary cost for the Grontmij integration of SEK 12 million. So, the improvement and the calendar effect is SEK 35 million, but deduct SEK 12 million of extraordinaries and you're down to 23. So it is an improvement. Now, what about calendar effects and how it impacts profits? I'd like to highlight also 2014, which you can see on this chart.
Similar situation here, we also have the Easter in Q2, but not to the full extent and not as much as we have this year in terms of calendar effect. At that point in time, it was - 18 hours, now we have - 28 hours. Also, at that point in time, one hour was much less of impact than it is now due to the size of the group. So, very much a calendar effect impacting EBITA. Moving over to page seven, the development, the difference by business area. And we've done this calendar just to make it easier to follow what's happening on operational performance. So looking at last year, we had SEK 462 million in EBITA.
We have Finland contributing positively a lot, SEK 22 million, and the same, Central Europe, and in particular, Germany, contributing with SEK 60 million to the improvement compared to last year. Looking down at Sweden, Western Europe, positive development, compared to last year. And then we have Norway and Denmark with negative contribution. And Norway, if you look at the numbers, nominally, it looks like a massive decline, but it is really the calendar effect. It's -56 hours. In Norway, there's a prolonged absence in conjunction with Easter, and that is normal. So that's close to 50% of the decline. On top of that, there's a little bit less billing ratio on staff and a little bit less use of sub-consultants.
Denmark, impacted by some cost for restructuring related to one division and also lower performance in one of the divisions. Then obviously, the calendar effect, as we talked about, and that takes us to SEK 312 million. Moving to page eight, financial position. We are basically developing in line with the plan and also the seasonal effect that we see. If you compare to last year, we're down around SEK 500 million in net debt. It is up against Q1, but that's the normal seasonal pattern, as you can see. Net debt to EBITA at 1.2, strong financial position, significant disposable liquid assets also. So, strong position, that is. And with that, moving over to Tomas, markets.
Markets, and essentially, we've said, what we are trying to illustrate on the coming, few slides. Sweden, a strong and stable, market in essentially all segments. That's, what we said for a number of quarters now, and, we don't see, any type of change in that. Then we have a number of-- moving on to slide number 10, we have a number of countries with, strong and stable markets, that is, Norway, Denmark, Germany, Belgium, and U.K. The same caveat as before on, on the U.K., on Brexit referendum, or the Brexit, negotiations drive some kind of uncertainty. However, and I think this is important to clarify, we haven't seen any effect of that so far. It's more of a, uncertainty on the market.
Slide number 11, we have Finland and the Netherlands, where we see improving markets, and Finland still has solid demand for tech services, and in the Netherlands, we see an improvement on the market, but still the public market, and in particular, I would say, municipalities lagging behind the private market. So, essentially a good market. To understand, moving on to slide number 12, to understand how we think about the future, the easiest way is to look at our history. We have a very clear focus on Northern Europe, and that's where we'll, we'll continue to build the, the group. We think it's important to have local, local market leadership, and we will work towards that goal with continued organic growth and also acquire growth.
So we have a stated aspiration to acquire companies going forward. Right now it's customer focus, internal efficiency, and less people that we spend our efforts on, and that's what we focus on. So finally, moving on to the summary. This is a solid performance on a good market, despite how it may look, nominally. We are happy about increases in fees and that we have lower project adjustments in the quarter. But you have to remember the massive calendar effect that we are influenced by this quarter. Overall, good market with stable, stable development. And with that, we open up for questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A queue. This will only take a few moments. If you wish to cancel your request, please press the hash key. Once again, please press star one if you wish to ask a question. Our first question comes from the line of Johan Dahl. Please ask your question.
Yes, thanks. Hi, Tomas and Jonas. Could you just, you know, dwell a bit on the organic growth on the group? You know, looking at the first half, I guess, organic growth is just about flat. If you strip out some price increases from that, I guess it's negative in volume terms. If you compare that to the market at the moment, the spread between sort of the volume development in investments in your relevant markets and what you're actually delivering in terms of volume organic growth appears very large. You know, how do you feel about that, or what initiatives are you doing going forward to remedy that situation?
Hi, Johan. Let me start, and then Jonas will perhaps add to that. I think you need to be a little bit more granular than looking at the overall group. Because if you look at the group, we have units where we are deliberately shrinking, where we have taken active measures to stop doing really unprofitable businesses. That is mainly in Denmark and the Netherlands. So we have areas where we have shut down unprofitable operations. We also have an element of that in Norway, where we closed the Alta office earlier this year. So we have an element of deliberately shrinking. On the other hand, you have elements of really high growth. For example, Germany, we have double-digit organic growth in addition to our acquired growth.
And then we have mainly, I would say, Sweden, where we have a strong market, but a growth on the low side. I would say that I find that a bit disappointing. I would think about two things in connection with that. The first one is that we know that when we integrate large organizations, that happened when we integrated Vectura. It also happened when we integrated Grontmij. There seems to be a tendency, and you know, this is you know not perfect in any way, but there seems to be a tendency that we miss out a little bit on the recruitment.
And then, since there's a clear lag on recruitment until that transforms into growth, I would say Sweden is a little bit on the low side. We have taken action on that, so we are recruiting, and maybe you may have—if you are in the target demography in Sweden, you may have received the recruitment mails last month. But we have had a recruiting campaign, and we're stepping up our recruitment efforts, and we will continue them with that during fall. We see that there's an opportunity to grow more, but there's a clear competition for talent in Sweden right now. And it would be really easy to hire a lot of people, but what we're trying to be careful with is trying to hire the right people.
We think that there will be an improvement. We think long term, 4%-5% is absolutely possible, but don't expect any quick changes from where we are now. Would you like to add to that, Jonas?
I think it's just repeating what I said earlier, we have more absence in addition to the nominal calendar effect, we have less use of sub-consultants. So, you know, structurally, the market is accommodating, and there's a war for talent for sure, but we're well positioned, don't extrapolate the quarter.
In addition to that, you have to be a little bit more nuanced. Sweden does 11.2% in a quarter with massive calendar effect. That's fantastic, so they're performing extremely well. We are increasing fee levels in Sweden. That's extremely good. This is a margin, and I think we could have grown more in Sweden as well.
So looking ahead now, I mean, how much are you investing into actually, you know, getting growth back? i.e., how will it impact sort of cost going forward?
... You know, it's not really about money, it's about management attention. And we've had a lot of attention on securing business as usual, making sure we capture the synergies of Grontmij, and also focusing on profitable business. It's more about investing management time on organic growth. And the low organic growth in terms of FTEs that you see now is more, you know, what we did last year. There's a time like this, organic growth, we expect it to pick up, but don't expect it to be 5% structurally, in a quarter or so. It will take some time to gradually pick up.
Thanks.
Thanks, Johan.
Your next question comes from the line of Victor Lindberg. Please ask your question.
Okay, thanks. So, following up on Johan's question relating to price increases and volume, the other side of that coin is that you probably see wage increases, or you have to increase the salaries when attracting new talent. How is that trending for you now? Has that changed, or do you anticipate it will change going forward now in light of the growth ambitions that you have and the lack of talent in the market?
There's a clear competition for talent. However, we have, since a couple of years, a more structured approach to salary increases and how we approach salaries in general. So we have a more positive development in the ratio between fee and salary that we've seen for some time now, but we're still catching up from, you know, previous trends, maybe four, five, six years ago. But it's not a big concern to us.
So currently, the trend is we have higher price increases than we have salary increases at this point.
So you can more than compensate for this right now?
That's, that's what we do at least, right now.
Mm-hmm. Need to clear the question on the sub-consultants in the quarter. Maybe I missed that when you went through the formal presentation. But how, in this quarter, how much did this hold back growth rates? And looking into the second half of the year, do you have any major project completions or sub-consultants that will go out of the numbers that we should be aware about, aware of now, today?
So it's the impact on the quarter is around -1% on the growth, on the organic growth, the one that's contributing negatively to the volume. And the outlook for the second quarter is quite difficult to predict, so I'll pass on that one.
All right. Final question from me then-
I think the general comment is that the biggest project is normally infrastructure, and it's a good infrastructure market, the way we see it. There's lots of infrastructure investment planned and being procured right now.
That's comforting to hear. Finally from my side is, look, it seems you're focusing a bit more internally now after this major merger. Would you say this is holding you back from looking at acquisitions both in the Nordic space and also in your new markets? Or is this something that is going on a constant basis without any slowdown at all? Adding to that, how is the pipeline? If you could comment on that as well.
I would say it held us back during the integration. Right now, we may appear as more introvert than before, but the nature of acquisitions is that they are very introvert until they happen. And we have a, you know, continuously a number of conversations going, and we've had more time to spend on that this year than we had last year.
I think on a general note, what you're seeing now is not what we're doing now. What you're seeing now is what we were doing 12-18 months back.
Yeah.
So, our focus is clearly on growth.
All right. Thanks.
And now our next question comes from the line of Henrik Nilsson. Please ask your question.
Hi, afternoon, all. Looking at your underlying development, I mean, I know you stopped reporting synergies from Grontmij, but if we... I still think you have some of that coming through, right? So if we adjust for that calendar and acquisitions, at least on my numbers, it seems like the underlying profit is essentially flat in the past two quarters. I think two questions here then. Is that conclusion relatively correct? And if so, what would you say is the main explanation for why you're not able to drive underlying profit growth at the moment?
I would say firstly, that your conclusion is mainly wrong. Yes, there are some marginal additional synergies from Grontmij trickling in, but in the quarter, they're quite marginal. So, the SEK +23 million you see in improvement is mainly operational, and it's mainly coming from positive development of prices, and lower product adjustments.
Okay. Very well. Thank you.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the hash key. There are no further questions at this time. Please continue.
Very good. If there are no further question, we would like to wish you a pleasant afternoon, and as always, we are open to answer questions if you reach out to me or Johan. So thank you very much.
That does conclude our conference for today. Thank you for participating. You may all disconnect.