Sweco AB (publ) (SWECB) Earnings Call Transcript & Summary

Good morning, and welcome to this presentation of Sweco's Q3 Report. Sweco's President and CEO, Asa Bergman is with us this morning together with CFO, Jan Allde. Together, they will take us through the results of the third quarter, and they were presented earlier this morning, as you are aware. And after their presentation, we will open up for questions. So please, Asa.

Welcome, everyone to Sweco's Q3 presentation. Before we present the third quarter results, let me give you a quick overview of Sweco. Sweco is Europe's leading architecture and engineering consultancy with operations in 8 geographical business areas across 15 markets in Europe. We are a well-diversified business operating across 3 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 23,000 experts, our focus on organic and acquired growth as well as our efficient and decentralized operational model. With a strong financial track record and financial position, we are focused on continuing our growth journey and build on Sweco's success. With this, let's go into the presentation of Q3 2025. Sweco delivered a strong result in a mixed market. Net sales increased by 5% to SEK 7.1 billion, and the organic growth rate was 4%. EBITA increased to SEK 702 million, an increase of 19% with a margin of 9.8%. The positive development was driven by further improvements in average fees and billing ratio and a higher number of employees as well as improved cost control and realized synergies from previous acquisitions. We also maintained a high M&A activity, closing 5 acquisitions in the quarter, included the listed company Projektengagemang in Sweden. And after the quarter, we added another 3 in October. I will get back and give you an overview of these acquisitions later in the presentation. In alignment with our strategy, focusing on selective core markets in Europe, we also divested Sweco's Czech operations in the quarter. Altogether, a strong result and a positive performance in Q3, driven by price billing ratio and M&A synergies as we continue to deliver on our strategic priorities. Now let us go into more details from the quarter. In Q3, 7 out of 8 business areas reported positive organic growth and 7 out of 8 business areas reported EBITA improvements. We navigate successfully in a mixed market, improving both our order intake and order backlog during the quarter. The solid operational trend continues across most business areas with 3 reporting double-digit margins. Sweco Germany and Central Europe was the largest contributor to the EBITA improvements in the quarter, benefiting from efficiency improvement and positive project adjustments. We also continue to see improvements in the U.K. We have continued effects from the efficiency measures we have taken, resulting in future -- further improvements of our billing ratio. Overall, we are pleased that we continue to make consistent progress across our business areas. Let us now turn to the market overview. Overall, the demand for Sweco services was broadly consistent with previous quarters with some variations between segments and markets. Demand remained good in the energy and infrastructure and water and environment segments and with increases in security and defense. Certain areas of the building and real estate segments continued to be weak, while demand was somewhat healthier in the public buildings. We also saw continued weak demand in parts of the industry segment. This quarter demonstrates that our over -- our well-diversified business continues to be a strength for us and provide stability, resilience, the green transition -- resilience and the green transition, digitalization and AI and demographic shifts continue to be the key drivers for our business. With that, I will welcome our new CFO, Jan Allde to walk you through the numbers. Welcome, Jan.

Thank you, Asa, and it's also very nice to be here. So let's start with the summary. Net sales came in at SEK 7.1 billion, organic growth of 4%, acquired growth of 3% and a negative FX impact of 2%, giving a total growth of 5% in the quarter. We have the same number of working hours in Q3 as in last year, and EBITA increased by 19% or SEK 114 million to SEK 702 million. EBITA margin increased to 9.8%, and our net debt-to-EBITDA ratio stands at 0.9x. Looking at sales. So we see organic growth in 7 out of 8 BAs. Germany and Central Europe had the strongest organic growth at 13%, driven by positive project adjustments, higher average fees, higher FTEs and also a higher billing ratio. The U.K. and Netherlands also reported strong organic growth at 11% and 9%, respectively. Due to the recent acquisitions, the Netherlands also reported an 8% acquired growth. The organic growth in Sweden was flat in a stable but mixed market. The acquisition of Projektengagemang added 7% acquired growth in the quarter. All other BAs grew between 2% and 5%. So overall, the organic growth was driven by higher average fees, higher number of FTEs and a higher billing ratio. And looking at the EBITA, so it increased SEK 114 million or 19% versus last year. The EBITA margin increased to 9.8% versus 8.7% last year. Germany and Central Europe, Denmark and Belgium reported significantly improved and double-digit margins. Norway also reported higher margins, but from a low-level last year. The U.K. delivered 7% margin in another quarter of improvement, and the Netherlands and Finland was roughly in line with last year. So overall, the EBITA improvement was driven by higher average fees, higher billing ratio and FTE growth with higher personnel expenses had a negative impact. Regards to the calendar effect, we had the same number of working hours in Q3 this year as last year. So the group result was impacted by transaction and integration costs related to the acquisition of Projektengagemang of SEK 33 million, whereof SEK 28 million impacted the result in Sweden negatively. Excluding this, the result in Sweden improved by SEK 24 million. Germany and Central Europe, Denmark, Belgium and Norway all delivered significant EBITA improvement. The improvement in Germany and Central Europe was driven by positive project adjustments, higher average fees and a higher billing ratio. The improvement in Denmark was driven by lower operational costs and also less absence, while the improvement in Belgium was the result of higher average fees and higher billing ratio. We have also started to see a gradual positive impact from previous acquisitions coming through in Belgium and Denmark. And Norway was positively impacted by the higher average fees, but also some one-off costs last year. The Netherlands and the U.K. and Finland also reported higher EBITA. Let's look at the financial position. Cash flow during the first 9 months of the year was impacted by an increase in working capital, partly a seasonal effect and partly effect of the recent acquisitions. M&A cash flow for the whole period was SEK 739 million, and then we had a dividend of SEK 1,187 million. With regards to the net debt position, it now stands at SEK 3.1 billion at the end of Q3, and the net debt-to-EBITDA ratio was 0.9 versus 1.1 at the same time last year. Hence, our leverage is well below our target, and we remain financially very strong. And finally, let's take a look at the calendar effect for 2025. So in Q4, we expect 1 more working hours compared to last year, which means that the total impact for the year is 8 working hours less than in 2024. Please also note that we have included a table in the Q3 report showing the expected number of normal working hours per quarter in 2026 versus 2025. And by that, I hand back to Asa.

Thank you, Jan. Acquisitions are, as you know, one of Sweco's key growth drivers. And as I mentioned in the beginning of the presentation, we have accelerated the level of activities completing and announcing several new acquisitions during and after the quarter. We did 5 acquisitions in the quarter. In the beginning of the quarter, we announced 2 acquisitions, PROgroup and +ImpaKT in Luxembourg and Volantis in the Netherlands. In mid-July, we completed the acquisition of the listed company, Projektengagemang in Sweden, which adds over 600 experts to Sweco and strengthens our offering and footprint in Sweden. The integration is progressing well, and we are estimating significant synergies to be in beginning and realized gradually in 2026 and 2027. In August, Sweco also acquired OBOS design operations in Norway as a part of an asset transfer. We also added 3 new acquisitions after the quarter. Fimpec in Finland offers specialist expertise in renewable energy, hydrogen, bio and circular economy, forest industry, batteries and critical minerals and will add some 400 experts and SEK 577 million in net sales to Sweco Finland. The acquisition will strengthen Sweco's position as an advisory in the ongoing energy and industry transitions. The Belgium firm, assar architects is a leading architect firm specialized in large-scale public and private sector projects. The acquisition of assar significantly broadens Sweco architecture offering in Belgium and Luxembourg, adding 150 experts and around SEK 189 million in net sales. This makes Sweco the leading architecture company in Belgium. The company VHGM in the Netherlands is specialized in geothermal energy consulting and will add SEK 22 million in net sales and around 22 experts in Sweco. All-in-all, we have acquired 12 companies so far in 2025, representing some 1,500 experts and SEK 2 billion in annual revenues. Projects won during the quarter highlight Sweco's role in future-proofing societies and industries. In Sweden, Svenska Kraftnat has commissioned Sweco to renew power lines in the Jamtland region to enhance grid resilience and enable future wind power development. In Norway, we entered into a framework agreement with a public transport operator Sporveien to support sustainable transportation in the Oslo and Akershus area. In the Netherlands, Sweco will support the Dutch road and water management agency, Rijkswaterstaat to modernizing the country's primary infrastructure, enhancing safety, resilience and mobility to address climate challenges and such as sea level rise and flooding. In Finland, Sweco will be responsible for the overall design of the iconic Finnish food company, Fazer's future chocolate factory in Lahti, a factory designed to operate without direct CO2 emissions. With that, I will conclude with our key priorities and focus areas going forward. To summarize, Sweco delivered a strong third quarter. The quarter demonstrates the strength of Sweco's well-diversified business and operating model as we continue to successfully navigate in a mixed market. We consistently execute on our key priorities, improving efficiency and margins and build on the strong pipeline of acquisitions. Going forward, we will remain focused on further improving efficiency and margins and capturing growth opportunities in the currently mixed market situation. We will also continue to pursue attractive M&A prospects and to enhance Sweco's position in the planning and designing of a more competitive and resilient Europe. Thank you.

Thank you so much, Asa and Jan. We will now take your questions. And as said, you can ask them directly through the phone line or through the chat function. So please, Sandra, if you could give us the details of instructions.

[Operator Instructions] We will now take the first question from the line of Adela Dashian from Jefferies.

A few questions from me. If we start with the geographical mix here in the quarter, it's very obvious that your larger exposures to the Nordics, especially Sweden is what is lagging. And we now have another rate cut and I guess you could say maybe we've reached some sort of inflection point. Would you agree with that? Or do you still think that there is more way to go before Sweden and Denmark and other Nordic countries are on the same pace as the European recovery that's currently set in place?

So if you're referring to the profitability in Sweden, the result there was impacted by the costs related to the acquisition of Projektengagemang. And as I said, if you adjust for that, there is an underlying profit improvement in Sweden.

I just want to be clear, it's not the profitability I'm referring to. It's actually the organic growth, which was lower than the rest of the year.

Yes. And if I refer to the market situation, and what we see is the same picture as we are alluding to overall that we see no big shift in the market. This is more about the overall sentiment of the economy. So what we could wish for is really to see an uptick in the market so we can grow more organically in the Nordics going forward. What we have done the last years is really to maneuver the market in a disciplined way and also taking actions in the Nordic market to position ourselves in the right way. But to get into higher organic growth levels in the Nordic countries, we need to see some more tailwind going forward.

Got it. All right. And then maybe on the pricing benefits in several regions during the quarter. What's driving this? Is it a mix of the projects that you're involved in? Or is it an industry-wide phenomenon?

I mean we have a great focus regarding prices all the time. And so we focus country-by-country, project-by-project to make sure that we put the right prices out on the market, and that we cover for the salary cost increases. But it's what you're alluding to, it's a mix of what kind of prices we put out in the market, but also how we execute the project because the price element is a combination of how we price ourselves and also how we execute our projects. So we really get paid for all the work that we are doing. So we are consistently focused on this, and we will continue to do this.

Great. And then lastly, on the U.K., quite a strong acceleration in Q3 versus H1. What's your view on the U.K. market post the spending review in June and also ahead of the budget in November?

I would say that U.K. is coming from a low-level last year. And as we have talked about before, we have focused to reposition the U.K. market. So we kind of focus on the selective sectors and areas where we have a good market position and where we see that we can grow. With that said, it has always also to do with how the U.K. is operating their business. So we have focused to really turnaround the U.K., and that is what you see in the figures more than that the market has shifted in any way in U.K. So repositioning and executing our business in a better way.

We will now take the next question from the line of Raymond Ke from Nordea.

A couple of questions from me as well. First, starting off with Denmark, which has very impressive margins. Is there any element to this that is one-off in nature? Or yes, is there any seasonal about it maybe timing-wise that makes it stand out here in Q3 that should not be considered normalized?

Raymond, I would say the improvement you see in Denmark is, it's good operational improvements and with some lower operational costs, but we also had a little bit less absence in the quarter. And the third aspect, as we said, we do see gradually some positive impact from acquisitions they have done in the past with synergies coming through.

Got it. And you're right that you want to capture growth opportunities in the mixed market that you are working right now, which sounds great. Could you just help us understand a bit more where you think is the best way to execute on this vision in terms of where you see the most attractive growth opportunities right now?

Raymond, as I said, if you look at the big trends in Europe and the agenda of the E.U., but also everything linked to what is in there, Europe's competitiveness, the green transition, defense and security and resilience for Europe and then you link it to the critical infrastructure that needs to be in place. So we're talking about the segments that we refer to where we see good demand. So it's the infrastructure in all aspects. It's the energy area. It's the water segments. I would put out defense and security, as we have talked about a lot before, where we see an increased demand, and we will see an increased demand going ahead as well. We see data centers in Europe. So there is lots of areas. With that said, if I look back, what we have done since the market turned down is that we have -- and I know you know this, and we have talked about it before, but we have made sure that we are positioned right. We have repositioned us away from, for example, residential and the commercial real estate segments and areas also where we don't see growth. So the repositioning, but also to make sure that we continue to broaden our portfolio. So for example, if you look at the quarter and you see assar architects, they are one example where we fill a gap we kind of want to really grow the architect business in Belgium to take a strong market position there. There is expertise where we add on expertise. So it's a mixed picture where we're focusing our investments, but it's really about a clear picture of that we should have this broad and diverse portfolio, and that we will continue, of course. So yes, I hope that helps.

Very helpful. Yes, definitely. And just one final, maybe a smaller almost technical question, but the project adjustment in Germany that was positive and helped your margins there, how big was it, approximately?

Yes. The project adjustment we had in Germany certainly contributed to the strong EBITA margin that you saw in Germany in the quarter. It's important to remember, we always have project adjustments, positive and negative. So having a little bit of a longer look at the margins are always a good way to look at it.

But it's, for sure, a bit extra in this quarter as you have seen the margin.

Yes. But is there like any number you could maybe give us or a range perhaps?

It's really difficult because in Germany, I mean, it's part of their project portfolio, and so, I mean, if you look at the trend in Germany, they are executing their project in a better way. But maybe the main margin expansion is coming from those project adjustments, but that is really part of their business as usual. So we can't really -- it's really hard for us to specify it.

We will now take the next question from the line of Dan Johansson from SEB.

Good job in the quarter. It looks like the highest margin in the Q3 that I have experienced as a SEB analyst at least. Two questions from my side. On the higher billing ratio here in the quarter year-over-year, I think you face a bit more challenging comparative figures this quarter as you had a bit of a bump during H2 last year. So I'm a bit positively surprised that you continue to improve efficiency. So is there anything specific driving that continued good progress on efficiencies? Is there any specific countries or anything in particular that drives it this quarter?

No, it's a continued work in line with what we have talked about before, making sure that we stay efficient when it comes to our support functions, making sure that we really distribute and plan our workload in a good and efficient way. So we continue to take measures, and we are continuing to look into where we need and could do more. So it's the same kind of work that we continue to focus on it. And for sure, you are right that we are up against completely different figures last year. But of course, we know that as well. So it's really about within and I said it before, within Sweco, in some countries, we have really the best practice, and we try to look into that, and we try to implement ways of working structures, ways of working into the other business areas step-by-step. But it's -- and of course, it's also about how the project portfolio looks like in a business area, and also, how much projects we win and how the order backlog looks like. So again, to continue the expansion, I would wish for a little bit more tailwind in the Nordics.

Yes, that's all for that and thank you for the clarification. And maybe one more on the balance sheet, still quite strong, especially for being in Q3, and you had a high M&A activity here and typically have good cash flows in Q4. So it sounds like you're in a good position there. But operationally, do you need some time to digest and integrate the acquisitions you've done here? You've done a couple of midsized acquisitions here in several countries? So do you think you can continue to be active and add more businesses here in coming quarters?

Yes. Yes, for sure. I mean we have -- we worked as we always do with the M&A pipe, and we lean forward, and we will try to do or we will try to do the acquisitions that we want to. But as I said before, it takes 2 to tango. So it's more of a timing question. But you are right. Of course, we -- if I look back, we have a track record of acquiring companies on lower level and integrate them and take out the synergies and expand the value from there, and that we will continue to do. And I mean, we see the acquisitions really case-by-case locally and follow them and handling like that. But I mean, if we acquire quite many in one country, we also need to be a bit cautious to make sure that we consolidate and integrate with quality. But I mean, we haven't changed the strategy when it comes to M&As. So we will continue.

We will now take the next question from the line of Tom Guinchard from Pareto Securities.

A question on divestments here. Any other geographies or areas that you wish to leave?

No. We are focusing on the business areas that we have. And when it comes to Czech, it was a minor 150 employees in Czech, and they were -- our strategy is really to make sure that we can roll out the whole portfolio. So it was really about focus on that. So no, the geographical footprint we have is the footprint we plan to have. And we also see growth opportunities in those markets ahead.

Perfect. And just a question on the margin impact here in the German division or Central Europe, given the divestment. Do you have any sense of how much that impacted?

Yes. The impact -- financial impact of the divestments in Czech is really hitting the EBIT and not the EBITDA line. So it would be no impact on the EBITDA as it's reported.

[Operator Instructions] We will now take the next question from the line of Johan Lonnqvist Sunden from DNB Carnegie.

A couple of questions from my side as well. First one is related to the M&A side. And when you're a little bit curious to learn more about the synergy effect that you have started to realize from previous acquisitions. Can you give some color on what you have been able to realize and just to hear how the kind of integration work looks like given that you also have a couple of big transactions that are to be integrated over the coming 2 years?

Well, the impact or the comments that we made regarding that we are starting to see some synergies coming through, I think it's more in general nature and I don't want to attach specific numbers to that in the quarter. But you're saying that we do see some positive impacts, particularly then on Denmark and Belgium. And you see that in terms of efficiencies coming through. So I wouldn't really like to provide any figures. That was more meant to show that we do see that as a positive impact here coming through gradually.

And then if you, for example, take VK Architects and Engineering in Belgium then what Jan is referring to, what we do is that we fully integrate that company, and they were high performing when we bought them. And then, of course, that case is really to integrate and get the value out of the combination when we win greater projects on the market together. So that is -- it's not a synergy case in itself. So of course, it's a mix also in our portfolio of what kind of companies we buy. But for sure, in the quarter, you see the effect of Projektengagemang, which we have described in the report affecting us with costs mainly and will affect us in Q4 and in the first quarter next year, yes. But with that said, the integration is working as planned, and we will start to take out synergies of that integration in the beginning of next year. So it's as Jan said, it's hard to quantify as it's a mixed portfolio, and we have different cases with different volumes of synergies.

I understand. But is there any specific nature, I guess, given your explanation, the VK in Belgium is more like a revenue synergy case, while maybe other can be more on the cost side. Just curious to hear if there's any specific bucket that you can do more with than others?

I mean, when we focus, and of course, I fully understand that you want figures here. But I mean, we focus to really find the right expertise and to -- so it's the right expertise, the geographical footprint, sometimes the scale in a certain growth direction, so it's really a mixed picture. And so, it's not that we focus more or less on anything. It might be so that we have a case in front of us with the right expertise, high profitability levels. And then our job is to make sure that we can keep those profit levels when we integrate them into the Sweco. So it's more about, as I said, aiming for the right expertise, rolling up our project portfolio and making sure that we can grow in the right areas. And then the cases looks different each time.

And the kind of integration of the deals we are referring to that has happened in the past, are the synergy realization surpassing your initial expectations? Or is it just in line with your initial business case?

Yes, that is, of course, also a mixed picture, but we try to be strict and as strict and as prudent as we can. But of course, we have situations where we might face a situation when the market shifts and something happens on the market that we can't really excel, but a clear business case, a clear integration project with a strict follow-up. But of course, the most important thing is to select the right companies for the future that is complementary for us.

I understand. And just to follow-up on the other topic you mentioned, Jan. Any guidance for further integration costs for Projektengagemang in coming 2 quarters that we should be aware of?

Yes. I mean, so general comment on the P integration. So the integration is going well. And of course, we see clear synergies in terms of shared resources, shared offices and things like that. And of course, then we -- so we will, and we are planning to take, say, integrated related costs then in Q4, and also into 2026. But as Asa said, we see that we can offset those as we generate the synergies gradually over the next 2 years. So yes, there will be integration costs, but we cannot comment specifically on those right now.

Okay. I understand. But good to give some further guidance along the way on what kind of integration costs that will come. But we can get back to that in another forum. Just a final from my side also on the calendar tailwinds. You highlighted in the presentation that you have a calendar guidance for '26. Any kind of reason to believe that the tailwind that you highlight here should not materialize? Is there any impact from certain kind of union agreements that make the kind of theoretical calendar tailwind not materializing as it should, that we should be aware of?

No, not specifically.

No.

There are no further questions on the phone. I would like to hand back over for any webcast questions.

Thank you so much. And there are no further questions. So with that, we want to thank you for joining us. And I also want to remind you that we will publish our year-end report Q4 on February 11 next year. And with that, I wish you a pleasant day.

Thank you.

Thank you.