Afry AB (AFRY) Earnings Call Transcript & Summary

So dear all, welcome to this quarter 4 presentation and webcast from Afry. My name is Jonas Gustavsson, CEO of 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. So again, a warm welcome to this webcast presentation. So let's jump into the numbers, as you have seen today then. Our quarter 4 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 4 of our divisions is doing very well also from the margin development. And this is really driven from what we see the ongoing transformation in society. There's a lot of interesting investments in the industrial sector. And again, just looking here in Sweden, up in the northern part of Sweden, there's a fantastic market for a lot of investment, and we are extremely well positioned. So well, a good performance and a good underlying market. Then the result as such was affected by a lower margin in our infrastructure. And I could imagine there's a few questions 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. But we also have had in this period higher group common costs, investment in digital, the implementation of ERP. We have gathered empty office spaces under 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. But 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. We have SEK 80 million is targeting Infra to -- and this is -- I will have a slide later on then because this is a part of the improvement program we have in the infrastructure, and SEK 20 million will be targeted on group costs. What is also good when you look on 2021 is that we have then done 8 acquisitions, adding up to SEK 1.2 billion. And if you look on the margin impact, they have a positive margin on Afry's total. So net sales, as you see then, SEK 5.5 billion, SEK 495 million in EBITA, equal to 9% as such. And then just a few words of 2021. We're happy that we are back about SEK 20 billion, because 2020, we were shrinking as an effect of the pandemic, and EBITA, SEK 1.7 billion and an EBITA margin, 8.5%. So for sure, the year had 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 then, I mean, in general, we see that there is a lot of investment, driven from sustainability. And so this has solid and strong underlying demand in society. But if you just look on the Industrial segment, I would say that we have a really, 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 digitalization. So electrification, digitalization 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. Then Infrastructure, where Afry is positioned? We have seen a bit sluggish market over the last, I would say, 6 months, at least. A bit pandemic effect, and we have had a bit more volatility, for example, in the real estate segment. But 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. And then, 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. But of course, now we all believe, and cross our fingers, that the pandemic will fade away. And then, of course, there is other parts to look into, inflation as such then, that we need to maneuver in. But 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 until we were -- since we were before the pandemic. So we have a stronger order backlog since 2 years. So it looks very promising. And some of the products that we have been booking, we have a really interesting -- we are -- we have announced a good project to [indiscernible]. We have also took a -- booked a big design assignment for the Swedish Transport Administration, for the Eastlink. 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. And the last one, also very much driven from sustainability and assignment by Renewcell to digitalize textile recycling processes in Sweden. And this is, of course, just a selection. So the important is that we have stronger order backlog now than we had for 24 months. Now the cost programming, as we also indicated and told you, looking on the -- during the fall then and actually starting off the 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, where SEK 80 million to infrastructure. And we will execute that with the highest of pace. The planning is ongoing. The plan is to take the one-off cost, approximately SEK 100 million, in conjunction with the quarter 1. And we expect to get the full run rate in the second half year. We will for sure implement that as fast as we can. And again, SEK 80 million is focusing to the Infrastructure. And then we also have SEK 20 million where we will lean out group, the way we work between group and the different country platform, so to say. Because now when you look on Sweden, Finland, Norway, Denmark, Switzerland, we start to have an interesting volume on the countryside. So we believe that we can make our overall structure a bit more lean, and the target is the SEK 100 million out then. And again, then for the Infrastructure division, it's a part of the plan because we started already last year then. And of course, any new organization is not a 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. So we have reorganized Infra. It's country driven now. And 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. So that's how this new kind of governance will work. And we believe that's a strong and powerful way of doing it. And that is actually the precondition to simplify and to delayer and to drive SG&A efficiency and cost optimization. But then 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 systematic drive our products, the bid phase, but also the execution, the pricing. And we are also looking on near and off-shoring as one part of the whole. So cost program in Infra is one part, but of course, we are looking on all these other parts. And this is something that we will, for sure, have a strong focus and follow closely throughout this year. And then just to highlight also that we have also, as of 1st of January then, we are operating with 6 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 digitalization. And then our remaining 5 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. But 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. And 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 segment. But again then, 6 divisions, decentralized model, still having the capability to drive big projects across Afry. And then just highlight AFRY X. It's been a development for Afry. So what we have done is pooling the competence we have in software development, IoT, AI and cybersecurity and also service design. It's SEK 1 billion and 800 super-skilled employees into digital. And 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. So it's an exciting journey to be followed moving forward. So 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. So let's start from the net sales development. So 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, and organic growth, 8.2%. If we adjust for the calendar FX, it's 6.9%. So these are definitely numbers that we are proud and happy with. This is mainly driven by the very strong development within Industry and Digital Solutions, Process Industries and Management Consulting. These are actually growing on adjusted organic growth basis double digit. Then we have Energy, who 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 the fourth quarter. Then we have Infra who has been basically 0 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're on higher levels than compared to a year ago, and that applies to all of our divisions. So we are consistently on a better order stock situation no matter how you see it or how you measure it. So 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. Then if we go forward talking about the EBITA. We delivered a 9% margin compared to 10% previous year, SEK 495 million compared to SEK 490 million. So on an absolute level, it is a stable development, but not reaching our ambitions. And then especially, if we compare that one with the salary accounting method, we had SEK 31 million positive comparables compared to previous year when we adjust for that one. And the salary accounting method delivered exactly as we had expected during the quarter. Then if we look a bit under the hood, I think that it's very clear to say that we have a strong, strong development within the Industrial segments. We have all industry and digital solutions, process industries, energy and management consulting as divisions delivering double-digit margins. Then we have Infra who 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 '21, but also we have restated previous periods. This one, we have treated as an item affecting comparability to about the mix-up between operational results and changes in accounting tools. Then we have some restructuring expenses, related mainly to Infra, where we have gone to the country-based organization. On the -- 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. But 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 higher-margin positions also via M&A. Then finally, the final component impacting our EBITA 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 closedown and started to take the hits like Denmark, and then it progressed to 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. So for example, our Norwegian operations where we have advanced 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. So with these months, 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 EBITA bridge, I think that the green ones quite well understood from this solid market position, solid market conditions in the Industrial segments. Infrastructure, we have been talking about. So 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 until basically early December. So comparable was maybe a tougher one when we are checking the EBITA development. But 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 results. 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 3 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 of 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. And empty premises, wherever we have room to improve our office space usage, we will continue using those ones. AFRY X as a monetary value, we were guiding to about 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. So it is on an accelerated pace compared to our original. So with all of these impacts, we have 4 solid divisions. We have Infra with a very strong program, as you have also seen coming with the restructuring. And then we have Group Common, which is currently at SEK 71 million quarterly average from '21. And if we look now forward, what is happening in that part? 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 we will report it under that one. So the Group Common operations that we are working on comes, obviously, with the lower rate in the future '22. And 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. Then if we go further, a couple of words on the next slide, on the organic growth. As stated, we have 3 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 comparable previous year. And there, we have been able to catch up with the automotive, but then food and 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. And 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 on the larger projects. But 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, but double-digit growth both in percent margin it is obviously something that I can be happy of. And then 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. And 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 are -- we have a good plan going forward to improve. Then 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. And we got a bit of, on the net debt, positives from the reduction of pension liabilities in some of our operating countries. So all in all, 1.9, going forward, gives us a solid positive. They continue on our growth journey. And 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 annual general meeting a dividend of SEK 5.5 per share. That is a 10% increase compared to last year. If we look our EPS, we are at 10%. If we at 10% or 9.97%, including now the IFRS changes in the cloud computing, where if following the same IFRS rules, we have grown 20% EPS, we are growing 10% dividend. Then if we take that IFRS change out, the comparable numbers are somewhat 17%, and we are still giving a 10% increase in the dividend. So 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. So before just finalizing, I just want to highlight we are welcoming 2 new members to the group executive management team. Per Kristian on the left side here, Head of AFRY X, who you -- we have communicated. We -- he started in April last year, having a background from IBM and Hitachi. Really exciting journey with AFRY X. And then Henrik Tegnér, who has joined us now as Head of Strategy and Sustainability. So for sure, it also highlights that digitalization and also sustainability continue to be, if anything, more important than ever for Afry moving forward. So 2 super strong new members for group management at Afry. So just finalizing then before we go to Q&As then. So I mean, our focus. First of all, if you look what Juuso said, our divisions, industry and digital, Process Industry, 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, 4 quarters in a row, about 10% in Energy. So full speed and 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. And I think the acquisition of the Vahanen team, the new organizational structure and all the improvements we will put into infrastructure, I am confident that we will see an improved margin and that we are getting back to growth in Infra. Then AFRY X, 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 will look on. And 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. And then, of course, the big implementation of ERP, that we will continue with. And as Juuso also said, it follows to launch the plan we have. And then just to highlight, and for sure, the key will be to attract talents because 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. So the way we can continue to build on our brand, on our position, being driven from sustainability and digitalization will be key for us. So this is what we will for sure focus on moving forward. So with that said, I am opening up for question. And I know, Ebba, that you are prepared to help us with the questions.

Yes. Yes, I am. [Operator Instructions] And I think Johan Sundén was the quickest. So we take a question from Johan at Carnegie.

Perfect. And then a few questions from my side. First, regarding Infrastructure business, and you highlighted a few initiatives that should help improve margins going forward. But is this near-shoring initiative, is it the best way to deal with the -- your -- that business is in nature, quite local. Is it not a risk that you see that's saving you through the crisis by doing this kind of initiative? Isn't that a risk that you lose more than you gain in the long term?

Yes. I can be quick on that. I think near-shoring 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 under. But we see also for the large project, that is one area was not only to secure cost efficiency, but also to secure competence. So I would say this near and off-shoring product 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. So it's not a quick fix. We have been working with that for a while, but we intend to ramp it up. But it's one part of it. So I think we -- this, we are in good control of. And it's not just that, Johan. So -- and we have been doing it for quite some time, but we will increase the pace, if anything.

Yes. That's good to know. And when you say SEK 80 million specifically for the Infrastructure business in cost saving, that's pure cost savings. Then as you highlighted a few other initiatives that can be on top of that, such as pricing and systematic, better sales and excellent processes, et cetera, is that the right way to think about it or...

Absolutely. And we have tried to be as clear as possible because I could imagine that you first read and you said, okay, they have one program, which is cost SEK 80 million, which is not true. So the way to see it, and you know it, SEK 8 billion revenue, SEK 80 million, everything equal, less 1% unit. But we know and Juuso said that we are on [ 7.5% ]. So that's not enough. So what we are doing now, it's a pretty -- 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 account, how the bid phase, the product execution. So it is a program. And one part of that program for sure is SG&A efficiency and the cost-out. But 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. So 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. But 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. And 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 paid 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're 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 valuation are so high and the risk could be really high. So that's probably not the area that we could or should go in. So for sure, I would say that we are looking on balanced portfolios because we also like 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. So when we look on 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. And that could also be that we are buying several small ones, that we are building our journey. But right now, we are in an extensive look for what kind of profile of companies would fit the journey for Afry moving forward. But 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 and paper. So when you can mix that service and recurring revenue with the strong position we have in a few verticals, I truly believe that Afry is and can be a really strong player in digitalization. But we are not getting crazy. But we are, for sure, challenging to make sure that we can get some companies helping us in that journey.

And 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. So 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. So places where we want to go is exactly like Jonas says. Pulp and 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.

And just a final follow-up there. The companies that you've 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 we have proof of that strategy working?

Yes. 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. So 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. So I would say, yes, we have seen evidence that, that model works for us when we do it the right way.

Thank you, Johan. And we take the next questions from Johan Dahl at Danske Bank.

Just on the -- a question on the Group Common cost there. I think, Juuso, 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. How has that impacted results from a net perspective in '21? And sort of what are you seeing here for '22?

Yes. So basically, if we step back on and start from the AFRY X we guided in November, that it is run rate SEK 50 million, accelerating towards SEK 100 million. And that is still the place that if we are looking forward, we are expecting to see. And that one basically means roughly SEK 100 million compared and -- but at the same time, like I hinted, we were rather, round it, SEK 30 million in Q4. And taking into the investments from earlier year, mainly in Q3, we are already close to that SEK 100 million annual run rate levels. Then if we look forward on 2022, I said we have SEK 71 million, including this AFRY X investments in our books at the moment quarterly. So roughly, what does it make? SEK 284 million, or as losses in Group Common. We are expecting that including the AFRY X investments, we are [indiscernible] in the same ballpark. So that would mean, round it, the SEK 300 million, round it SEK 280 million all in all. So that is, give or take, the place. One part of this one what -- which is very good to remember always in Group Common is that this is partly an allocation game. And if we step 2 -- take 2 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. And now that we are going back into the SEK 21 billion levels, we are now at the SEK 20 billion. And if you calculate 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. Then that one, of course, alters the allocations at one point of time and brings back the stability in Group Common at the same time. So like for like, as said, round it SEK 300 million, probably south of it rather than north of it, is our expectation on this part going for '22. And that includes the AFRY X investment part.

So 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 X is obviously the biggest component in that. But at the same time, there are items that are not visible in the EBITA 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 a lot of synergies in recruitment. And we have consolidated that one in -- under Group Common who never reach their efficiency gains on that part. So now the people are reported as FTEs under Group Common while their expenses are on an activity-based costing allocated back to division. So that is an EBITA 0 impact on Group Common while then you see the FTEs in there. And when we have taken this type of consolidations, in many of our core countries, you see an overly accelerated FTE development compared to the EBITA. So we have -- we don't have 200 employees more in AFRY X, but we do have more employees in Group Common. But still, going back to that one, the EBITA impact is not equivalent to 200 employees on Group Common.

Okay. 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 sized, but I appreciate it's difficult to compare exactly. But on another question, on those cloud computing accounting standards, what do you see going forward for that? Will you continue to treat this as a one-off or -- and will 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 SEK 421 million is SEK 40 million. So this is already in a highly declining pace. Obviously, as we are approaching the end of the development part of the cloud base of Afry, this is not only ERP. This includes all the other things we have communicated that we have done during the past couple of years. So it may still have a minor, minor impact during the first half of '22. And should that one occur, we will treat it as an item affecting comparability. But then I would say that we start to be off that cycle totally.

Okay. Thank you, Johan. We take the next questions from Dan Johansson at SEB.

A couple of questions from me as well. Maybe I'll start with Infrastructure. And 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 then with a little bit better market ahead? And also, what are you seeing in terms of the market now going into 2022? In terms of public investments, the green deal investments, is it something coming out there? Perhaps now with restrictions you're seeing, is that sort of a trigger for a better market?

Yes. Thanks a lot. Well, yes, we have seen that. I will say that if you look on projects in the Nordics in general that, for 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. And then I would say, on top of that, we have had the pandemic. So for Afry with the stop and go on lockdown, it has had an impact on projects as such. And then we probably saw this also beginning of 2020, that the competition and the structure changed a bit. And if you go back a couple of years, at Afry, we had the [indiscernible], a big project, and we had the big project in Norway. And when they went away, we had a volume of medium-sized projects. So I think it has changed a bit for us. And that's also the reason why we now have a clear program on looking on what segment are we operating in, on what margin and the position and the execution, as we said. So right now, I think also -- I also want to say that the way we see infra market, because they are done in real estate, in transportation and water environment, it is still a very national or even local market. So with this new country-driven-based organization, we are, to a larger extent, focusing on making sure that the country organization can excel in the geographical focus area, so like Finland, Norway, Switzerland, Denmark. And then Sweden is a bigger part of us. So there's been quite a lot of changes that we are implementing now that I'm confident that will bring us to the level that we think we should because we have a fantastic business. And 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. And if you add then digitalization and electrification, it is an interesting market for us.

And perhaps a question on inflation as well then. A big, 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, I’ve seen 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? And how understanding are your customers today for price increases in this type of environment? I guess everyone has the same issues there.

Yes. Yes. If you start with what we see at the current, we do not see salary inflation at the moment. And I think you can see it on 4 of our divisions delivering the highest margin for a long period. But of course, we follow it closely. And I think when you see our position and segments, of course, we are using our pricing components as much as we can. And 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 the inflation have been hitting the material to be used in those big utility projects. And that have had an impact on the product. But so far, we have been able to carry the inflation. And in general, we have not seen a salary inflation impacting us as such. Then if you look on the tradition, we have normally been very good at carrying the inflation, salary cost through pricing to our clients. So that's the situation as it is now. But for sure, we are keeping a good eye on it.

Thank you, Dan. Next questions, we take from Erik Elander at Handelsbanken.

Yes. So 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 3 years to get to 10% margin in Energy, will it take the same time for Infrastructure? And 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. So how long should we expect it then to take for Infrastructure to go from 7.4% to 10%?

Yes. I still stick to that, Erik, that it will not take 3 years. That's our strong belief. And of course, now it's 3 months after November. And it's been a rougher December -- end of the quarter than we expected. But I would say -- I strongly believe that we -- during 2022, then we'll see improvement in Infra, of course, also driven from the fact that we are taking the activities on the cost base. Because, of course, the macro environment, we need to adjust to, and the sales, we can really impact, and cost, we basically own. So 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 have talked about. And then our strong belief is that we will see a gradual improvement on the Infra margin, not taking 3 years to get back to the 10%. So 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. Interesting. I wish the best of luck in executing on that. That will be interesting to follow. My last question, if I may, is regarding the -- what is it called? Yes, the Omicron thing. So you had some sick leave in Q4, meaning you had the 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 Q4? Do you expect it to be more than in Q -- no, in Q1, I mean, do you expect it to be more in Q1 than in Q4 in absolute terms?

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. So for example, Norway went into early lockdown and quarantine rules than Sweden, for example. And then it came to Sweden. So by that, it is also -- and then, of course, now, Erik, we have seen Denmark. And we -- in Sweden, we opened up society. There are different rules now from quarantine and testing. So 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 -- so 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 1? 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. And Erik, feeling also in Sweden, even though we have people sick, feeling is that it is going down and we are now early February. So with all that said, we just wrote as clear as we can that it probably will have an impact in quarter 1. I hope it will not be as much as in quarter 4. But we don't really know. So that's the truth. But I -- from my feeling, but maybe it is the spirit because we start to feel and hope that the pandemic will fade away, that the feeling is better than it was in November feel.

Thank you, Erik. And I see that we might have a follow-up question from Johan Dahl at Danske Bank.

Now just on the topic of ERP and efficiency in the group, it was highlighted at the Capital Markets Day as an important lever to get you guys to 10% margin. We've addressed some of the costs associated with that project today. But can you just talk about how you see these efficiencies coming through possibly '22, '23 and when that will be fully realized? If you can just comment some sort of outlook there.

Yes. I can start, and then, Juuso. But I mean, for sure, implementing a new ERP system in conjunction with the pandemic and so on is maybe not the kind of best. But as we also said, the decision was made even in 2017, that we had no other choice by doing it and then [indiscernible]. So step-by-step, we have gone live with the system. And of course, when you go live, that part of the system, that part of our section that uses it, there's a learning period to start to get used to it. But then I think we have seen that when people start to understand the system, it will give us a lot of benefits, especially when you connect the system to our CRM system that we have implemented. But we have some steps ahead of us, Johan, country by country, when people will start to implement and use the new system. And 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. So I will say we still have -- 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.

Yes, yes. Basically, you described it well. So 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. Then we need to remember that what are the gains that we are looking for. The big, big improvement in there is coming from the cooperation and shared project execution. And that one, you gain leverage little by little as you implement the system. So 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. And that one should definitely help, for example, in Infra on better and better delivering projects. And then also across sharing resources, let's take the civil engineer, that is used in Infra, that is used in industrial offerings, that is used in energy offering. So this type of a work, we can do better and better. And those type of synergies start to be visible little by little at the end of this year, give or take. And 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, then you deliver better and better revenue numbers. And that one, of course, comes then partly that we need to grow, which I think we have demonstrated we are able of doing it. And then partly, it comes on the back-end 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. But 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. So summarizing, it's a good question because over the last 2 years, we have implemented a new CRM system and new HR system and also new ERP system. And 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. So there we have, with the integrated system landscape, a completely different opportunity. But 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 Afry a completely different platform for efficiency and growth moving forward. So Ebba, that's all the questions?

Yes, yes. There's no more questions. Yes.

All right. So then I would like to thank all of you for listening in to this webcast. And let's hope that when we meet next time, spring, that we have a different pandemic situation. And there is also a spring time when we will meet, a bit lighter outside. So then we are back to present the numbers for the first quarter. But thank you so much for listening in and thank you also for the questions. And stay safe, and have a fantastic weekend. Thank you so much.