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Edited Transcript of AF B.ST earnings conference call or presentation 28-Apr-20 12:00pm GMT

Q1 2020 AF Poyry AB Earnings Call

Stockholm May 12, 2020 (Thomson StreetEvents) -- Edited Transcript of AF Poyry AB earnings conference call or presentation Tuesday, April 28, 2020 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jonas Gustavsson

ÅF Pöyry AB (publ) - President & CEO

* Juuso Pajunen

ÅF Pöyry AB (publ) - CFO

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Conference Call Participants

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* Dan Johansson

SEB, Research Division - Equity Research Analyst

* Erik Elander

Handelsbanken Capital Markets AB, Research Division - Research Analyst

* Johan Dahl

Danske Bank A/S, Research Division - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Q1 report presentation 2020. (Operator Instructions) I also must advise you that this conference is being recorded today. And I would now like to hand the conference over to your first speaker today, Jonas Gustavsson. Thank you. Please go ahead, sir.

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Jonas Gustavsson, ÅF Pöyry AB (publ) - President & CEO [2]

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Thank you so much, and welcome all of you, to this webcast where we will present the result for quarter 1 for ÅF Pöyry. We are sorry about the delay of 5 minutes, but I hope we are now up and running and that you all hear me well, and that you can see the slides.

So moving into the quarter results of quarter 1, immediately to Slide #2, Page #2, we will show then the overall result for the first quarter. And as we have in the headline, we have seen a stable result during quarter 1. The combined company, which has interesting numbers, where we can see that the net sales amounted to SEK 5.2 billion, and the EBITA, SEK 474 million, corresponding to EBITA margin of 9%. The top line was shrinking, minus 3.1%, and then we have highlighted 3 main issues explaining why we had a negative growth. And that was, number one, effect from the stop in automotive supply chain during end of the quarter. We also have an ongoing repositioning of the Energy Division. Actually, to reposition Energy in those healthy markets and segments that we want to operate in, and here, we have taken a kind of top line hit. But actually, the underlying performance is improving. On top of that, we have the big EPC project in Philippines that was closed down or finalized, and that also, in the comparable number, affected quarter 1. So that's the major reason for the negative minus 3.1%.

If you look on the EBITA, SEK 474 million, and the 9% was actually solid from our side. You could always wish for more, but also including some effects in, especially, Industry and Digital Solutions, end of the quarter, I think the 9% shows a solid, stable performance in the overall quarter.

We had a solid cash flow development, and Juuso, our CFO, will comment more on that. And of course, we took a lot of measures to mitigate the effects from the corona crisis that we could see at end of the quarter, but of course, we will now feel them more in quarter 2, and we have taken a lot of measures to protect ourselves and make sure that we have solid operations also in the second quarter. But all over, a solid quarter 1.

And moving into the next slide. These are some of the things that we have done. Of course, you could say that basically, from 1 week to the other, we were going from the way we were before to, I would say, distance work using a lot of digital platforms for close to 17,000 employees across the world, and it has worked tremendously good. I'm deeply impressed in the way we have been able to manage operation across our company. That has worked very well, and it shows that we have a high level of IT matureness in the company.

We have now taken actions across different countries, especially in Sweden, using short-term work allowances, and we have now roughly 1,600 employees on different kind of short-term work allowance. Most of them centered around automotive because I guess you all know that on one Friday, end of March, all 3 big clients in Sweden decided to stop their operation due to interruptions in the supply chain and actually then we were kind of really affected from that. But then we have also taken actions in staff functions across the company to take out costs and make sure that we're moving into quarter 2 with as good cost structure as possible. So today, we have roughly 1,600 employees on short-term work allowance.

We have, of course, reduced costs standing across the company. And we, of course, now we'll -- and these are short-term savings, but we are also then, of course, increasing the ambitions down the road in our ongoing cost program of SEK 120 million that we announced in the fourth quarter that will help us also to ensure that we get sustainable savings in our company when we are coming to -- after the summer, for example.

We are continuing with the important investment program, but we have changed a bit in how we integrate that in order to make it more efficient, but we are still making sure that we get these essential IT platforms in place. And as you all know, we have done the Board proposing a withdrawal of the dividend and we have also renewed the credit facilities. So I think just within a few weeks, we took a lot of actions that is supporting our financial performance in quarter 1 but also moving into the second quarter. Juuso, he will come back to that. But of course, it is a good thing these days to have a big part of the cost structure being flexible. And here we can see just a rough overview that a lot of our cost is of course connected to personnel costs. So if you compare that to an industrial company where you maybe have 70% fixed cost, we have 70% of our cost basis and in different ways variable. And of course, now we are taking actions on the billable consultant side when they are affected from, for example, in automotive. But on top of that, we are now using all the tools we can in different countries to take out costs being prepared for a tougher market climate into second quarter.

If you look on the overall market, I will say that we started up the year in good pace. Quarter -- January, February, moving as we expected in a good pace. And then, of course, we saw the effects on the COVID-19 pandemic hitting us or affecting us in the end of the quarter. But if you look at the Infrastructure Division, with a lot of public business, we are seeing that the market is, in general, stable. For further areas like private buildings, where we can see some effect. But if you look on the overall volume, especially if you look on the Nordic but also including Switzerland, there's a big appetite to continue projects. So it's a good place to be.

Industry and Digital Solutions for sure, that's where we took the major hit in the end of the quarter. 10% of our total revenue, not more, but still 10%, is geared toward automotive industry. And here, we had 3 of our big clients in Sweden then that actually shopped operations, end of the quarter. They are now ramping up, but it's a slightly different volume than before. And we have then taken all the necessary actions to protect us.

At the same time, we have seen in Industry & Digital Solutions food and pharma and defense industry doing very well. So we also have growing business areas within the industry part. But of course, it's a bit overshadowed right now from automotive and the related supply chain.

Process Industries, basically no impact on the crisis so far, good performance, good operations across all the countries we're operating in. And I will say also, the Energy business, where we actually can see that the effects from the repositioning is starting to be seen. And I think the ongoing work is going even better than we hoped. But of course, we have seen some interruptions with sites that had to close down for a couple of weeks due to the quarantine rules. But in general, doing very well.

And then in Management Consulting, we can see the ongoing transition in energy and bio industry, also giving a good market also in the management consulting business.

But of course, when we are now looking into quarter 2, we can see that we will have negative effects of the COVID 19, especially, we can see it then in the automotive industry because that's where we have seen big interruption in operations end of quarter 1, but also into the first part of quarter 2.

We need to remember that ÅF Pöyry is exposed to a quite broad number of segments. And that has given us quite a good stability in crisis before, and we can see the same thing right now. 30% public business, 70% private and also to different industrial segments. And of course, the 10% in automotive have been weak for a few weeks here in end of the quarter, beginning of quarter 2. But in general, a good growth portfolio.

We are signing a lot of good interesting assignments. And I have to say that we have had, I would say, in general, at the same level of large, interesting projects signed during the first quarter as ever before. And I wouldn't say that we have seen any kind of product that has not been signed due to the COVID-19 crisis. Of course, there are some delays in decisions, but in general, especially on the public sector, pulp and paper, we have seen a good order intake during the quarter.

Now I will leave it over to Juuso, our CFO, who is sitting in Finland, who will comment a bit on growth impacted by the challenging market condition and the growth numbers. So Juuso, would you like to comment the slide?

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Juuso Pajunen, ÅF Pöyry AB (publ) - CFO [3]

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Thank you, Jonas. So now we are on Slide 8, growth impacted by challenging market conditions, and greetings from cloudy Helsinki. We have all learned to work from a distance across the group. What has happened basically, you can see that the total growth in compound operations is minus 3.1%. That is obviously not optimal. But then when we are thinking about where it is coming from and how it is coming from, we have positive growth in 3 out of our 5 divisions. And then we have 2 components that we have already known earlier. And if you take out, for example, our Q4 release, you have seen there the comments related to the repositioning of energy and the EPC project volumes. So we have had 1 major EPC project in Southeastern Asia. That was in the heavy implementation phase, and now it has been materially completed, and there we have a big delta between the materials and sub consulting delivered to clients compared to previous year. And then the other part is that we have divested a unit within the Energy, fully according to our plan within the repositioning program. So these have combined us to have a reduction in volumes in any case.

And then on top of that one, we have the automotive that has been clearly difficult segment. But at the same time, the Q1 2019 was still a difficult benchmark. As you may remember that the automotive segment issues that we have been repeating in the couple of past quarters started mainly in Q2 previous year in 2019. So Q1 2019 has still been a tough comparable period.

So if we look all in all, the growth, and we think about it, we have lost some SEK 200 million of volume. But at the same time, if we take the divestments and the materials and sub consulting components in total, this SEK 230 million is the total number, not only the EPC project impact. We can actually say that the underlying growth of our own engineers has been there. We have been able to sell more of our own people compared to sub consulting and material compared to earlier. And one positive component on that one is pricing. Our average prices have been having a positive swing upwards, which I'm extremely happy to report about. But then the counterpart of that one is always the salary inflation.

So going to next page, on Page #9, improved profitability. When we see the combined operations, it is absolutely positive that our EBITA margin is up from 8.6% to 9%. And despite the emerging global crisis that had had an impact on us in certain segments, especially during the last 2 weeks of March, we have been able to improve the relative margin, and we have been able to take a step towards our long-term target of 10%.

If we then see where we have been performing especially well, the Process Industries is taking a positive result, growing result with healthy growth numbers also in the top line. Energy has been progressing in the transformation and repositioning quicker than we have anticipated. Richard Pinnock, the Head of Division, has been taking really good measures and has been able to move forward to have a solid, stable portfolio of Energy offering.

Then our synergy program has been, from the previous year, obviously, we have gained the savings. We are happy to see that those ones are materialized at the bottom line. And we have taken some general cost tradings to cover the drop in volume already in March, but material part of the measures Jonas mentioned are having an impact in Q2.

Then if we think about the negatives, we are talking about especially challenging situation within automotive. But I will come a bit more onto the details when we go to the divisional slides.

Going forward to Slide #10. We can see the profitability per division and a bit of the bridge. So we can see that, also from profit perspective, we have Process Industries and Energy that are taking -- that are improving, that are improving in all measures. You can imagine what comes to the bottom line. Our difficulties and the most difficult segment has been Industrial & Digital Solutions, where basically, the automotive demand sharply declined, especially during March. But once again, taking off the difficult comparables of Q1 2019.

Infrastructure. We had an old case that we lost in court, which was a surprise to ourselves, and that has impacted us a SEK 12 million loss, both from top line and bottom line. And thus, Infrastructure is behind from previous year. And at the same time, in the commercial building segment, especially in the last week of March, we started to see some impact from COVID also. If we take calendar impact, we have only minor effects, 2 hours more from -- compared to 2019 in our average portfolio.

And then, finally, if we see the common group, it is SEK 34 million better than in previous year. And in there, you see the proof of the pudding and the synergy program that we have been implementing. Obviously, some parts of those ones are also visible in the division. But I would say that we have been quite successful on touching our cost structure, which, of course, we will continue doing going in the future.

Jumping into Slide #11, growth and profitability. So here, we can see the growth numbers, adjusted with calendar effects and now referring to the pro forma -- sorry, the combined operation numbers. Infra, 0.8 percentage points, not optimal. If we adjust for the loss of SEK 12 million, that's roughly 0.6 percentage points on top of that one, so we are in 1.4% corner, which is still below our ambitions. And something that, obviously, when we raise out from the COVID, we need to have a careful eye on that we can leverage the potential growth in the market also.

Industrial & Digital Solutions. While we can see that it's 8.5% down from growth perspective, it is good to understand that they are excluding automotive. We have solid growth numbers in other segments, and this is something that has a total operating portfolio, which we are keen to optimize and obviously then catch up with the automotive.

Process Industries, solid growth going forward. Underlying market is huge, but like with any industrial market, it is difficult to assess how the future looks like coming into Q2 and Q3. But at the same time, we have a solid order stock, and so far, a weak outlook.

Energy, driven basically by the repositioning that was explained earlier. And Management Consulting, taking new steps into markets where especially former ÅF has been strong in Sweden. And we would expect to see growth. Our difficulty is coming from the transaction -- asset transaction-related, success fees that basically drive totally up in March when the crisis broke out. And then some of the supporting services within that one, for example, due diligence have suffered a bit. But in the longer term, I would say that the outlook is huge, and this is the place that has a short order stock, takes on crisis quickly and then recovers also quickly because the more turmoil you have in the market, the more there is also a need for high-end, high-quality services like our Management Consulting is offering.

So all in all, I would say that we have been able to fare in a stable environment and taking the measures as needed, and we are fully prepared for the Q2, which will be difficult based on all that we know. Like, you have seen 1,600 employees on short-term work allowances and similar. It indicates that the Q2 will be still a turmoil. But like you saw in our cost structure, we have all the means to take on the crisis and to take temporary measures to ensure that we can protect both our profitability and balance sheet.

If we then go to Slide 12, on the net debt development, we have a very strong liquidity. We had a solid operating cash flow which puts the adjusted net debt-to-EBITDA to 2.3, which basically means that excluding items affecting comparability and acquisitions and divestments pro forma on rolling 12 months, we are 2.3, which is a fairly okay-ish number below our financial target. At the same time, what is really good and solid is that our clients are paying the invoices. We see and continue to see the solid cash inflow, and that's also within our type of a business where the cash conversion is fairly stable and high in importance for our liquidity.

Then if we see the net debt, it was reduced SEK 67 million. We have the operating cash flow. We had investments and acquisition-related items that were SEK 106 million negative. And then other impact of noncash-related items, roughly SEK 76 million, these are such as pension liabilities, which are highly technical balance sheet components, not including cash outflow. And then part of our loan structure is also in euro terms, which then, when converted to Swedish krone means that the value of the debt increases. But then it's important to remember that, at the same time, we have a material position in equity in euro terms, which then means that our gearings and our equity component is getting a positive swing from that one. So the value of our equity has also increased.

Then finally, our liquidity. We have some SEK 900 million of cash at hand. And at the same time, during March, we had renewed our revolving credit facility, adding from SEK 1 billion to SEK 1.5 billion. And at the same time, taking our only short-term loan that we have in our balance sheet is a bond maturing in May this year. And we have secured also repayment of that one with a committed term loan from our core banks of SEK 0.5 billion. So in total, these measures, we have also increased our liquidity and prepared to take any kind of short-term [term loan] that is available. And thus, our total available funding is almost SEK 4.6 billion, almost SEK 4.7 billion at the moment. So that is really positive.

Then on top of that, when our Board of Directors evaluated the situation and felt that it is important to keep the company balance sheet in a position that we can also react quickly no matter what happens, but also that we can accelerate upon needs and upon opportunity when the turmoil is over. So the dividend has been basically proposed not to pay. Obviously, we have the Annual General Meeting taking place couple of hours from now. So this is a proposal from all the directors.

So this is about the financials, moving to Slide #13. Handing over back to you, Jonas.

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Jonas Gustavsson, ÅF Pöyry AB (publ) - President & CEO [4]

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Thanks a lot, Juuso, for that run through of the financial situation. I have to say that I think in the current situation, we are with an extremely good management team, I have to say, where -- I mean part of the management team is coming from Pöyry. And you have your challenging times, you're also going through the turnaround, looking on the cost structure. We have Robert Larsson coming in from ABB that has been -- faces a lot of challenges. And I have to say, myself, being in Sandvik for the last 10 years, started with a financial crisis. I think we're well equipped for handling the crisis situation right now. I had a question from an investor, "Do you feel that it's a good experience to have that with you?" And I said, "Yes."

So now looking what we are doing, and we are trying to describe that with these 3 ways. Obviously, we have been reacting and adjusting when this crisis started to affect us in the first quarter. And of course, everything from protecting our employees, making sure that we could quickly go from working at the office to distance work using all the digital platforms we can. And then at the same time, very quickly, reacting on cost to make sure that we could protect quarter 1 and also moving into the quarter 2. And of course, I would say that we have a lot of gain from the ongoing kind of structured way we had on working with cost also from 2019.

Now moving in to quarter 2 and also looking into quarter 3, it is clear that the market is much more uncertain. We see effects already in automotive industry. So for sure, we are taking a lot of short-term measures to protect the quarter 2, where the -- where we will see effects on the crisis. And we will need both on the cost in general, but also to see how can we make it more flexible. So I think we will also use this crisis to rethink and use it in a way to maybe go faster into the structure that we were aiming at, the ÅF Pöyry infrastructure.

We are also of course looking on the strategic plan, where to play and how to win. And of course, now we have a fast forward repositioning in automotive industry, for example, but we see also other opportunities. So then depending on, of course, how this crisis will play out, we will move into end of the year. And as Juuso said, we will do everything we can from leveraging from a leaner structure and also our strong position in some segments and to be forward-leaning when the market is becoming more stabilized. Of course, we are a company looking for growth, potential M&As, we want to build our brand and attract the best people to our company. So to execute the strategy, I'm a firm believer that the need for sustainable solutions, digital new business model will maybe be even more relevant when the immediate crisis is over.

So I think our company is well positioned. We will maneuver this crisis as best as ever possible. And my belief is that we will come out stronger. But of course, now we are looking at different scenarios because nobody really knows how it will play out. But we are getting ourselves prepared by doing everything we can, short-term, protect cost balance sheet, as Juuso showed, to be ready then to accelerate when we see a stabilization in the market.

So with that, I will stay for now, and I will leave it back to the operator, and I will open over and we will now start the Q&A. And I will hand over to our operator, John.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Johan Dahl.

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Johan Dahl, Danske Bank A/S, Research Division - Analyst [2]

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I was just wondering where we stand right now at this point in time. Can you see anything regarding potential trough in your delivery towards your clients? Can you see it going forward right now? Or are there anything -- is there anything you can share with us here with regards to restart of projects, et cetera?

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Jonas Gustavsson, ÅF Pöyry AB (publ) - President & CEO [3]

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Well, Johan, in general, we have seen that except the automotive industry, where obviously, 3 big clients in Sweden, on the same day, we call it a bit a Black Friday, where they all closed down operations, I would say that most of our other projects have been continuing with some interruptions, Johan, due to the quarantine. We have had some sites globally that have been closing down. But I will say plus/minus, in general, it continues across right now. So we don't have any big interruptions in other segments, except automotive industry right now.

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Johan Dahl, Danske Bank A/S, Research Division - Analyst [4]

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I just thought there have been some communication out with regards to your clients in the whole vehicle, both commercial and automotive with regards to restarts. But can you see forward here when you think things will normalize?

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Jonas Gustavsson, ÅF Pöyry AB (publ) - President & CEO [5]

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Okay. Well, of course, we are also in close dialogue, and they are step-by-step restarting their, I would say, manufacturing operation. But then it's more a question then Johan, will they restart the volume of R&D projects to the same level as they had before. That's more a question, which we are following closely. I mean I think [Martin a Porta] are clearly saying that let's see what kind of demand situation we will have. He continues to say that it will go from a supply challenge to demand challenge.

So we know that they are step-by-step now starting up, and we have constant -- we have very close dialogues with them, how can we also support the automotive clients to become more flexible, agile and faster on the products that we have been working on.

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Johan Dahl, Danske Bank A/S, Research Division - Analyst [6]

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All right. Could you just help us also pencil in the sort of financial effects of the very big measures you're taking right now? For example, on the furloughs, are those consultants billable at all if you look on things right now?

And secondly, what sort of short-term cost savings that you referred to? How much can that amount to sort of in the very short term?

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Jonas Gustavsson, ÅF Pöyry AB (publ) - President & CEO [7]

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I will start and leave it then over to you to talk a bit. But of course, the 1,600 rough -- it's a combination, Johan, of billable consultants that we are then using all these short-term allowance as we can do to actually try to go with our clients. I mean -- so that's one thing. But on top of that, we have taken extensive measures then to also have people on staff functions and others on different kind of short-term because they're actually ramping down a lot of activities in the quarter then basically, to protect the top line what we have. So Juuso, I don't know if you want to talk a bit more about the effects, short-term?

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Juuso Pajunen, ÅF Pöyry AB (publ) - CFO [8]

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Yes. So basically, we have as it is, 1,600 employees, especially in automotive, but then also support function and in a minor component, some other segment. This is not a 100% layoff. But basically, we are talking about most of these employees are working at a certain percentage level. So there's still billable work and we have been able to push quite many to other assignments and so on. So the impact would not be if you just take your calculator, you take 1,600 times 3 months' times annual sales and that would be the loss. It is far less than that one we have. We have not disclosed the exact number, but these people are still materially working also. But at the same time, we have put them, what you say in Swedish, temporary layoff position, where you can decide now whether they are being working 1, 2, 3, 4 -- 1, 2, 3 or 4 days a week. And then obviously, we have similar structures in other countries. So then what we can say is that many of these are working.

And then obviously, when we take the staff functions, we are happy to say that, that is a direct bottom line savings. So -- but obviously, then we are also losing the top line from billable people. So in total, the impact will be material on our Q3 -- our Q2 numbers, both in the top line and in the bottom line. And the beauty of our business is and then the positive nature of this crisis that we are all in the same boat, is that there are pretty well tools available to make these type of temporary adaptation measures to be as little painful as they can be. And then on top of that one, we have the whole indirect spending categories. You can imagine that nobody has been traveling since mid-March anywhere. So these type of cost savings have been recurring as more or less to out of correlation. When your top line streams and then you have these restrictions in place, certain spending simply goes away. And that also factors into protect our profitability in Q2.

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Operator [9]

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(Operator Instructions) And we have another question, and this comes from the line of Erik Elander.

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Erik Elander, Handelsbanken Capital Markets AB, Research Division - Research Analyst [10]

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I was wondering, the infrastructure market seems to be very good. And you're right, it's in your report as well. And obviously, I heard that from other source as well. Despite this, you have grown organically by around 1% to 0% the past quarters, and margins have been declining year-over-year as well and net recruitment has been negative. What's behind this?

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Operator [11]

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Hello, speaker? I think the line of Jonas got disconnected.

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Juuso Pajunen, ÅF Pöyry AB (publ) - CFO [12]

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[Dip below] Jonas. Jonas is about to come back in. So if we -- Erik wait and let Jonas answer first. If you can repeat the question once Jonas is back.

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Erik Elander, Handelsbanken Capital Markets AB, Research Division - Research Analyst [13]

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Yes. Okay...

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Juuso Pajunen, ÅF Pöyry AB (publ) - CFO [14]

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Let's wait. Let me hear from Jonas. I would...

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Erik Elander, Handelsbanken Capital Markets AB, Research Division - Research Analyst [15]

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Okay. Sure. Yes, I'll repeat the question then.

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Juuso Pajunen, ÅF Pöyry AB (publ) - CFO [16]

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Yes, but let's wait Jonas is here, but...

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Erik Elander, Handelsbanken Capital Markets AB, Research Division - Research Analyst [17]

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Because I didn't hear anything of that. So just...

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Juuso Pajunen, ÅF Pöyry AB (publ) - CFO [18]

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Yes, because they dropped out. I trust -- I trust they are calling in back. So there has -- happening some kind of a technical error.

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Erik Elander, Handelsbanken Capital Markets AB, Research Division - Research Analyst [19]

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All right. But -- okay, I go then again.

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Juuso Pajunen, ÅF Pöyry AB (publ) - CFO [20]

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Yes. I'll confirm once -- immediately once Jonas is back in so that you can ask the question again. I think they didn't even hear it.

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Erik Elander, Handelsbanken Capital Markets AB, Research Division - Research Analyst [21]

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Okay. So Jonas is not on the line right now?

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Juuso Pajunen, ÅF Pöyry AB (publ) - CFO [22]

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Yes, they dropped out from the line. So Jonas is the same and so dropped out of the line apparently. I don't know if it's between Nokia and the Ericsson but Finland is up.

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Erik Elander, Handelsbanken Capital Markets AB, Research Division - Research Analyst [23]

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So is it just you and me speaking now?

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Juuso Pajunen, ÅF Pöyry AB (publ) - CFO [24]

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No, everyone else on the line can hear.

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Erik Elander, Handelsbanken Capital Markets AB, Research Division - Research Analyst [25]

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Okay.

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Juuso Pajunen, ÅF Pöyry AB (publ) - CFO [26]

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Jonas, are you there? Okay. Not yet. I'm deeply apologizing these kind of technical issues. I think we have had today a couple of too many. But we will sort this one out with the service provider also.

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Erik Elander, Handelsbanken Capital Markets AB, Research Division - Research Analyst [27]

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Yes, no worries. That stuff happens even to the best people.

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Juuso Pajunen, ÅF Pöyry AB (publ) - CFO [28]

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Yes, that's especially when it comes to IT. That's -- sometimes things are a bit volatile but.

Still not there. Okay. Let's talk about the question. Jonas will join when they get the technicalities up. So you are asking why Infra is not growing, basically, more than the 1%. Of course, when we take now this Q1 number, we need to put the SEK 12 million in the revenue, that would improve it a bit. We would be around 1.5, 1.5 -- 1.4, 1.5 percentage growth. But as you know, there appears to be more positive growth. And if you take the peer group, I can say that we have 2 impacts in the -- and the other 1 we have been referring earlier, still in last year that we had some difficulties in our Danish operations. And then at the same time, we have been evaluating some part of our Central European operations. So we can say that kind of the core of the core in our Infra, which is, especially Sweden, Norway and Finland, we are doing really well and other parts of the portfolio via assessing continuously and first, ensuring that we are on par with the performance that we would like to see. So that's definitely one component in there.

And then if you would go deeper into the numbers, you would see that we are maybe losing a bit more on the sub consulting and material part on the volume side than in our own employee contribution. But now all of this one, you need to also put into the context that there's 2 underlying factors. You can take the former Pöyry factor. If you go back to the Infrastructure Division numbers in the former Pöyry or then regional operations like they were called at some point of time, that was below the portfolio business. And obviously, we did not stop on trying to make them on the portfolio after the merger.

And then there's the acquisitions in Denmark that former ÅF made that has also -- we have been working on those ones to make them to be on the level they would need to be. So that's in a nutshell, the info.

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Erik Elander, Handelsbanken Capital Markets AB, Research Division - Research Analyst [29]

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Okay. Yes, because what I think here is that it's despite writing that the market is good in the infrastructure, the net recruitment is negative, i.e., quarter-over-quarter yield decline in terms of number of people. So you're not actually then recruiting into the strong demand that you referred to. So why is that?

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Juuso Pajunen, ÅF Pöyry AB (publ) - CFO [30]

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Now you are jumping to conclusions because the portfolio is consisting of various different markets and various different phases. So actually, where we see the strong demand, and where we are performing well, we are in net growing and we are growing in a quite positive manner. But at the same time, the places where we are not fully happy, we are stable or actually shrinking a bit. And that, in net, produces the lower growth numbers in total that we see at the moment.

So we are not losing in the recruitment market in the hot places, which is important for us that we are not losing there either. But at the same time, our portfolio is not, in all places, as solid as we would like to see it. And in those places, we need to take actions, and we need to be able to react on that part.

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Erik Elander, Handelsbanken Capital Markets AB, Research Division - Research Analyst [31]

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Okay. And then a second question regarding remote work. I mean it's obviously impossible to say how large part of the consultant's assignment that they can do remotely. But which one is most -- or less negatively impacted by the fact that you cannot meet the clients at the moment? And what parts of the business, in terms of business areas, is the most affected by the fact that you cannot meet other employees?

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Juuso Pajunen, ÅF Pöyry AB (publ) - CFO [32]

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So then, basically, it is not maybe a segment question, it is rather like a project life cycle question that in the early phases of a project life cycle, then we are talking about consulting, when we are talking about basic engineering, detailed engineering, kind of these type of assignments. It is easy to work from wherever you are.

The biggest issues are coming from the heavy, big information models that you need to be running, and then the limitation normally is your home broadband. And to make sure that our people can work with the heavy design softwares, we have basically made good type of arrangements in our offices, putting computers away from each other and making sure that we have very safe spaces to work with when your bandwidth from home is not enough, for example. And this is something that is very easy to do remotely no matter where you are.

Then if you go to the part of the openings that are more difficult to work remotely, then you see, for example, the automotive part and the Professional Services part of that one. When you are actually in the client side, working in a client factory, for example, as a mechanical engineer or other engineer, in those places, when the engineering is not -- or when the facility or the industrial facility is not working, then obviously, our guys can't work either. And this is normally work that you can't do off-site.

And then the third component that is impacted is on the construction sites. If you stop a construction site, then obviously, our guys who are in the site supervision order, CM part of the construction site, those ones also drop to be idle. So it depends rather on the life cycle of the project than the segment that how well you can work from distance.

Now Jonas is back.

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Jonas Gustavsson, ÅF Pöyry AB (publ) - President & CEO [33]

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Yes. So sorry about that. We tried to get in. Some technical problems. So maybe second time, so if there's any questions that was directed to me that I could -- I would be happy to answer. I know that we were out for a while, sorry about that.

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Juuso Pajunen, ÅF Pöyry AB (publ) - CFO [34]

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Quick recap. The questions were Infra growth, I explained on the situation in Denmark and how we are stabilizing the further part of the Infra that was below portfolio profitability, and also mainly explaining the Infra growth not being as high as it could be. But at the same time, in our core markets, Norway, Finland, Sweden, we are able to grow, and we are not losing in the recruitment game. And then the other part was working remotely question. So those were Erik's questions.

Do you have, Erik, further questions?

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Erik Elander, Handelsbanken Capital Markets AB, Research Division - Research Analyst [35]

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No, actually. Just to clarify the second question there is that the remote part of your consultants working, not from the office but from home is that it's not the big issue going forward for you. Is that correct?

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Jonas Gustavsson, ÅF Pöyry AB (publ) - President & CEO [36]

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That's correct.

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Juuso Pajunen, ÅF Pöyry AB (publ) - CFO [37]

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That's absolutely correct.

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Jonas Gustavsson, ÅF Pöyry AB (publ) - President & CEO [38]

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It is correct. And I would say that today, we are surprised how quickly we could start operating from home from different kind of environments. And I think we have very high performance in that. And just in Sweden, I would say, large majority of all our work is based from home work. So it has not affected us at all. It has been very positive.

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Operator [39]

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And your next question comes from the line of Dan Johansson.

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Dan Johansson, SEB, Research Division - Equity Research Analyst [40]

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A few questions from my side as well. I'll start with the first one. You mentioned price increases in your presentation. Could you say something about the magnitude? Is it perhaps in line with the wage inflation you're seeing or is it even above that?

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Jonas Gustavsson, ÅF Pöyry AB (publ) - President & CEO [41]

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Yes. I will leave that question to you, Juuso. If you take the pricing question.

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Juuso Pajunen, ÅF Pöyry AB (publ) - CFO [42]

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Yes. So basically, when we are talking about pricing, there's -- first, we need to remember that average prices coming from our geographical portfolio is coming from -- FX component is coming from the seniority structure. So the first answer is that as a combination of all of those ones, we see a very positive impact on the average fees.

Then the second part of that one is that, yes, we have a salary inflation, and that salary inflation is also driven by 2 different factors. There's the seniority structure or the underlying age pyramid actually. If you hire more seniors than juniors, then your average fee but also your average salary goes up. And then you have the normal inflation part, annual adjustments on the salaries. And those ones, we have been fairly good to balance in a manner that we are able to recruit and keep the attrition in place, in order. So then, as a result of those ones, you actually see that our underlying EBIT margin is slightly improving. We have gone from 8.6 to 9. It's not only kind of a question of salary inflation and increase in prices, there are also other components impacting. But in a nutshell, positive price increases are slightly lower salary inflation than the prices.

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Dan Johansson, SEB, Research Division - Equity Research Analyst [43]

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Okay. Perfect. Second question, in terms of revenues from your private clients, are you seeing already now an increased willingness to invest and perhaps start up projects a bit quicker, for example, within Infrastructure? Could you give some flavor on that?

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Jonas Gustavsson, ÅF Pöyry AB (publ) - President & CEO [44]

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I wouldn't say that we see any quicker. Maybe -- I mean from the immediate start of the COVID-19 crisis, it seems like a long time back, but actually only a few weeks back, we could foresee some clients are now interested on seeing how can we recover some of the products that took a stop immediately. So from that sense, I think more and more clients are starting to maneuver in a post immediate corona crisis situation. So that question, I will say, yes.

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Dan Johansson, SEB, Research Division - Equity Research Analyst [45]

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Okay. And the last question from my side. I mean you seemed to have a quite solid turnaround here in Energy. Are you satisfied with the current structure you have of the business? Are you seeing some further fine-tuning ahead here in the coming quarters?

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Jonas Gustavsson, ÅF Pöyry AB (publ) - President & CEO [46]

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We will see some fine-tuning ongoing. And I think Richard Pinnock and the team, they are executing in a very good way the strategy that we laid out. And discussed also in the Board, we have done some divestments. And now it will be continued fine-tuning in the coming quarter, and they are extremely motivated, and I'm so happy that they could see already the financial effects in the quarter from their repositioning. It gives -- it fuels a lot of energy into the Energy Division. So there will be continuous fine-tuning to find those growth pockets, those regions where we have a solid position. And I feel extremely proud and happy that after a few years actually, where we have been struggling in the ÅF structure, if you remember, to find a sole position anyway that the combined company now, AFRY and [Energy], we have a solid plan moving down the road, where we also need to maneuver in potentially also more -- there will be corona effects also into that. But so far, so good in the execution of a very solid strategy.

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Operator [47]

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(Operator Instructions) And we have a follow-up question from Johan Dahl.

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Johan Dahl, Danske Bank A/S, Research Division - Analyst [48]

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So just wondering, at what stage do you envisage that this current sort of pandemic will impact the structure of the industry? I guess some of your smaller competitors would have brutal problems. So are we there already? Or does it have to be more sort of extended this pandemic to -- for that to have effect?

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Jonas Gustavsson, ÅF Pöyry AB (publ) - President & CEO [49]

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That's a good question, Johan. I think what we are doing now is to spend a lot of time with our clients because of course, we want to feel that we are a company that they can trust that have a solid financial situation. We are willing to follow them through a crisis situation right now and become even stronger afterwards. And of course, we will keep a good eye on structural changes in the industry environment. So Johan, I'm not sure that we are there yet because obviously, there's a lot of people -- all companies are using everything they can to protect themselves. But we believe that it will be a partly different structure after the crisis also. But I'm not sure that we are there yet, Johan. But for sure, we are keeping a good eye on that. And we see some very interesting growth pockets as we have seen before, too, for the pharma, defense industry, the overall digitalization and of course, we want to be a strong partner also in automotive. So we -- let's see. But we are keeping a good eye on the Q1, that I can promise you.

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Juuso Pajunen, ÅF Pöyry AB (publ) - CFO [50]

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And maybe to add on that one that basically, if you take the industry in whole, also other companies, whether you are big or small, have the access to similar kind of stake reliefs as everyone. So if you think about Sweden or Nordics, they are quite okay, measures ongoing, maybe excluding Finland. But then what the smaller ones are kind of lacking then is most likely the access to funding that can alter also in the short to mid-term things. We, as a big player, we have far better access to any kind of funding than the smaller ones. That is something that we may see going forward as impacting the industry [as much]. Nobody knows.

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Operator [51]

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And we have another follow-up question from Erik Elander.

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Erik Elander, Handelsbanken Capital Markets AB, Research Division - Research Analyst [52]

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Yes. So it's a lot of talk about the public sector carrying the growth torch, so to speak, when the rest of the economy is slowing down due to the virus situation. And especially considering the strong public finances of the Nordic markets as well, have we actually seen that or have you actually seen a stronger order take -- intake from the public sector or is still this just rumors so far?

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Jonas Gustavsson, ÅF Pöyry AB (publ) - President & CEO [53]

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No. I think, Erik, I mean, it has not been that low, we've never been in this corona crisis situation. So I think we have seen a strong public sector driven from the demand also we went into this period, and it has continued. Now I think besides the fact that we have countries with good balance sheet in the Nordic, there is a strong need of underlying infrastructure projects. Like in Sweden, there's a lot of ongoing things. So I think it has continued on a strong level in all countries, I would say. Not -- and I think right now, it is on a high pace driven from the underlying demand, in general. That's what we can see right now.

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Juuso Pajunen, ÅF Pöyry AB (publ) - CFO [54]

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And then, Erik, you need to kind of put it into context as when you are talking about public sector procurement. You have the legislation in there that has not been overturned, then public sector will not materially bypass those processes, and we have been now depending how you measure 6 to 8 weeks into the crisis. So public sector's ability to materially change the cost quickly is not that great, especially when we talk about big infra projects and those ones. And then the second step is that the high ambition is to improve the employment situation by kicking off big projects, then you have a limited number of projects that you can kick off very quickly. Because to have the big employment impact, you need to start construction. And starting construction, it means that you need to have some part of the design already made. So that puts certain type of a bottleneck on quickly kicking off Infra projects.

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Jonas Gustavsson, ÅF Pöyry AB (publ) - President & CEO [55]

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And I would even add to that Juuso, that the whole infrastructure environment was growing on a quite high pace. Not that it cannot go up further, but I think, in general, we will not expect big increases. But it is a very solid and strong market. That's for sure.

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Operator [56]

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And no further questions have came through at this time. Please continue.

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Jonas Gustavsson, ÅF Pöyry AB (publ) - President & CEO [57]

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Okay. But then, again, I want to apologize for the interruption we have. It's a bit interesting to talk about the company that has a high level of digitalization capability where we have some challenges to handle the phone conference. We need to talk to our solution provider in that effect.

But to take that aside, I would say that quarter 1 was stable, and it has given us -- the activities that we have taken in quarter 1 fuels us into quarter 2. There's a tremendous amount of energy and good mood in the company. And I'm so happy with the acquisition of Pöyry, that we run together safely because we are much stronger in this crisis situation than we would have been as 2 different companies a year back.

The fact that we could take out the cost last year that we had a higher run rate on the synergy cost that we came in this year with some challenges before. But on the other hand, a lot of good things. The repositioning energy, the fact that we are implementing strong digital platforms, ERP system that in the core of the core of ÅF Pöyry, we have sustainable solutions, strong digital capability that -- where we believe that the demand will even be stronger. For sure, challenges in the short term, automotive, but we feel extremely energized to go through this crisis and come out as an even stronger company. That's for sure.

So thank you all for listening, and we wish you a good, safe, healthy day. Thank you here from Stockholm.

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Operator [58]

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Thank you. That concludes our conference for today. Thank you all for participating. You may now disconnect.