AFXXF (AFXXF) Q3 2026 Earnings Report, Transcript and Summary

Good morning, and a warm welcome to Afry's presentation of our Q3 results. I am Linda Palsson, President and CEO, and I will, together with Bo Sandstrom, present our numbers. And after the presentation, we will open up for Q&A. Afry delivered stable results for the third quarter with improvement in several of our key metrics. The order backlog remains strong and amounted to SEK 22.1 billion. Total sales growth was 1.9% with positive contribution from the company, AMC, that we acquired in the second quarter. Organic sales declined 1.5%, marking a lower rate of decline that we have seen in recent quarters. We continue to build on the operational improvements we have achieved over the past year. Our EBITA margin improved to 6.8%, supported by the utilization rate, which increased to 72.9%. And as we said in Q2, our focus has shifted to organic growth across the organization. And this will be key to translating the improvements into a sustainable profitability uplift. So let me now walk through the performance of each global division, starting with Energy. Here, we continue to see strong demand across all segments. Long-term market trends are favorable. They're supported by electrification, grid expansion and fossil-free energy production. And in August, Afry Management Consulting was recognized by Forbes as one of the world's best management consulting firms, and that was for the fifth year in a row. And increasing the share of advisory services remains a key priority in our unlocking Afry strategy. Our strong reputation and position in the market is an important enabler for continued growth in this area. So Energy reports solid sales growth in the quarter, driven by strong demand across our segments and was supported by a high level of material sales. With stronger order backlog, we see good opportunities for growth in this division. Moving over to Industry. In the industrial sector, market conditions remained mixed with strong growth opportunities in some areas and softer demands in other. In the Life Science segment, we continue to strengthen our position. In Germany, which is one of our growth markets, we have established a local team and hired dedicated senior leadership within the Life Science sector. Germany is one of Europe's largest life science markets, and we see strong growth opportunities driven by the need for modernization, capacity expansion and a more sustainable and digitalized production. And by strengthening our local presence, we can better leverage Afry 's broad engineering capabilities to support clients across the full life cycle and capture this market potential. During the quarter, total sales growth was 5.5% for the division, while organic growth was slightly negative. The EBITA margin was higher than last year and the AMC acquisition and the project closings contributing positively to both sales and profitability in the quarter. And from that, moving on to Transportation and Places. Here, the market for transportation was stable. At the same time, opportunities within the real estate market were mainly driven by defense-related investments, health care and data centers. During the quarter, we also established Architecture as a separate segment in the division. This builds on the launch of Afry Architects that we did in the beginning of the year, which brought our architecture and design expertise together under one brand. It strengthened our ability to engage early in projects to support clients across the full life cycle and to simplify collaboration across segments. If we look at the results for the quarter, the performance in the Transportation business was solid. This was, however, offset by continued weak results in the real estate business. Turning to some of our new client projects in the quarter. All these assignments reflect long-term trends that underpinned our strategy and drive demand for our services, including electrification, the energy transition and modernization of critical infrastructure. So in Switzerland, we have been awarded a contract by Swiss Grid to support the modernization of the transmission grid. This type of project is an example of the strong investment activity we see in power network and grid resilience across Europe, areas where we have a leading expertise. The second example is North Star H2, where we have been selected by Uniper to lead engineering for one of Sweden's most promising Power-to-X projects. This project aligns closely with our focus on supporting the energy transition by also strengthening Europe's domestic e-fuel production. And finally, the ongoing need to modernize and maintain critical infrastructure remains an important driver in our Transportation and Places business. And in Stockholm, we will deliver detailed design for the renovation of the Liljeholmen bridges, a vital transport link in the city. Recruitment is a key priority as we focus on driving organic growth. Our efforts spans engineering, advisory and project management disciplines aligned with areas where we see strong growth opportunities. And in addition to growing capacity in core markets, we are also scaling capacity in our global delivery centers to further improve access to skilled resources. We also have dedicated programs for onboarding and capacity development. Examples include our future energy program for recent graduates and our Nuclear Academy, enabling employees to develop expertise in the growing sector. We are also harmonizing our employer brand to create a more consistent presence globally in our markets. And building on our strong employee reputation evidenced by external rankings, this makes us well positioned to continue to attract and retain talent. Together, these efforts support our growth ambitions and long-term capability needs. So let me give you a brief update on our work with AI. As shown before, this picture summarized our approach to AI at a high level. We are gradually building the capabilities, tools and governance needed to integrate AI in both internal process and in client deliveries. In this work, we prioritize use cases with the potential to create value across multiple segments. And to bring this a bit more to life, I would like to share a practical example with you. So we have started applying AI in conceptual design. This is the early stage where engineers develop and shape solutions. In this case, the AI-powered solution reviews contents as we create it, checking hundreds of documents and flag questions for our engineers to address early in the process. Deep sector expertise and judgment remains critical, but AI can significantly reduce the time spent on manual reviews. So this opportunity goes beyond productivity gains because by freeing up time, it enables our engineers to explore more alternatives to develop new ideas and to solve client challenges that goes beyond today's project scope. This example comes from our Life Science segment. It's a good example of a scalable AI solution developed by our own teams that has the potential to create value across A3. And with that introduction, I would like to hand over to Bo for the financials.

Thank you, Linda, and good morning, everyone. I will, as usual, cover the financials for Q3 2026. Quarter 3 showed net sales of SEK 5.8 billion and EBITDA, including IAC of SEK 392 million. Adjusted organic growth remains in negative territory at minus 1.5%, but a step less negative than seen in previous quarters. With positive total growth in Q3, we are now on rolling 12 months at SEK 25.3 billion on net sales. And with the quarterly EBITDA higher than last year, rolling 12-month EBITA margin increased marginally to 7.4%. The order backlog continued to develop favorably and is reported at SEK 22.1 billion, an improvement of 8% to last year, the same level of improvement as reported in Q2. As in last quarter, all divisions improved their respective backlog year-over-year with relatively small movements sequentially. In Q3, with a net sales of SEK 5.8 billion, we report total growth of plus 1.9% and adjusted organic growth of negative 1.5%. Whereas the organic growth continues to be pressured by the restructuring agenda from past quarters, we see a first step of improvement in the quarter. Total growth that turned the trend already last quarter has now moved into positive territory, mainly driven by the AMC acquisition. The market price pressure in some segments seen since the latter part of 2025 is still visible in Q3. This is particularly evident for some segments within Industry and Transportation and Places. Structural effects in Q3 relate largely to the acquisition of AMC completed in Q2 2026, in combination with 2 months related to the acquisition of Veta in Q3 2025, net of smaller noncore divestments completed in the beginning of this year. The negative adjusted organic growth in Q3 was the least negative since Q1 2025, with positive sequential movements in Global Divisions Energy and Industry. Global Division Energy improved the organic growth step-by-step from the low levels during the end of last year. The organic growth in Q3 was supported by a high level of material sales. Global Division Industry that since the beginning of last year has been in significant negative growth, stepped up materially in Q3, supported by continued positive trending on utilization and several positive project closings. As the effects of the restructuring efforts will completely phase out in the beginning of next year, we aim at moving into positive territory for the division. Transportation and Places remained at a similar level as in Q2 as a consequence of capacity adjustments in the end of 2025, combined with the continued weak real estate market. As seen throughout this year, we will face pre-restructuring comparisons also in the fourth quarter. We reported utilization of 72.9% for Q3, as in last quarter, close to 1 percentage point higher than last year. And again, we see improved year-over-year utilizations for all divisions. This is the fourth consecutive quarter where we report an improvement to last year, and it is a continued important step for our strategic efforts to improve operational efficiency in Afry. We will continue our focus on improving this metric to be one of the main drivers of profitability improvement over time. Since the low mark of 72% of rolling 12 a year ago, we're now close to 73% and well on our way to 74% being the set ambition in the 2028 road map. EBITDA is reported at SEK 392 million with only marginal positive calendar effects and no items affecting comparability. The EBITA margin was at 6.8%, an increase of 0.4 percentage points to last year, also when considering calendar effects. Group costs were in line with last year as we are continuing to balance driving a large change agenda with driving efficiency gains related to support functions. Continuing with the EBITA margin development by Global division. Global Division Energy, supported by improved utilization and a positive backlog development continued to report a strong EBITDA margin at around 10%. Industry has a strong quarter and a margin more than 1 percentage point better than last year. The margin uplift is supported by the high-margin AMC acquisition, but also by positive project closings in the quarter. The margin in Transportation and Places remained pressured from restructuring effects and a soft real estate market. The year-over-year decline remains, but clearly a smaller decline than we saw in Q1. Following a very strong operational cash flow in Q2, the third quarter showed a more modest operational cash flow. While Q2 was SEK 500 million better than last year, Q3 was SEK 350 million lower than last year. Part of it related to phasing effects from last quarter, while the remainder was related to a lower level of advanced payments. Available liquidity decreased to SEK 3.9 billion and net debt increased to SEK 4.8 billion. As stated last quarter, we remained on leverage at 3x for Q3. And we continue to expect to close the year at or below our financial target of 2.5x at end of year as significant restructuring costs are phased out of the EBITDA component in Q4. And with that, I leave back to you, Linda.

Thank you so much, Bo. So to summarize the quarter, we delivered stable results with improvement in key metrics. And looking ahead, our priorities are clear. We will drive profitable growth by continuing to win new projects, build a strong order backlog and most importantly, deliver to our clients every day. So to support delivery and organic growth, we will increase recruitment and scale capacity in our global delivery centers while maintaining our cost discipline and strong focus on efficiency. We will also continue to advance our digital and AI initiatives. And with a strong platform for growth in place, these priorities support our ambition to deliver profitable growth to achieve our targets for 2028. And with that, I would like to open up for Q&A.

Thank you Linda and Bo. So now we will open up for questions. [Operator Instructions] And today, we're going to start with Julia Sundvall from ABG.

A few questions from my side. And I would like to start with the group EBITDA margin that was mostly driven by the industry improvements. And you say it's because of the AMC acquisition and several project closings. Are you able to quantify like is it some one-off effect with the project closing? Or what's the margin on the AMC acquisition and so on? Just to get some more flavor on the margin.

Yes. I'll comment on those. Well, the AMC acquisition is a high-margin acquisition for us. The details are actually disclosed in the report, Julia. So you can look at the details. But to give you a view, it is an entity that is typically operating on between 10% and 15% EBITDA margin. So that typically comes on top, also providing some support for the overall margin for the group. In relation to the positive project closings, that is like you imply, it is more of a one-off characteristics in the specific quarters. When we don't disclose the exact amount, but we still point at it, then we are typically talking about kind of between SEK 10 million and SEK 20 million in effect. And that is an effect both then supporting the top line and the EBITDA in the specific quarter.

And then I have a question on the hourly rate. You comment that you have some weak pricing development in Transportation and Places and Industry. Is it energy that's driving the pricing improvements? Or can you give some more flavor what you see in the market?

Yes. We have very different in that sense, theoretical price development in the different divisions. Energy has a good price development. But then if you actually dive into it, you can find some mix effects depending on our improvements in the Asian market with a different pricing profile. But energy, in general, holding very stable ground on pricing as do parts of the industry segments and the transportation, part of Transportation and Places. Just like we said in Q2, when we talk about pricing pressure, we typically talk about automotive, specifically on the industrial side, where we continue to see a quite tough market. And we talk about places on the Transportation and Places side, just like we pointed out in Q2.

And then one last question from my side. On the operating cash flow, you talked about it's due to the lower advanced payments. Is this a timing effect that will reverse in Q4? Or is it more of a permanent trend?

No, it's -- advanced payments -- it's a very specific item for us when we have large -- typically large projects, they sometimes have advanced payment structures. And we -- the advanced payment perspective is more related to a quite high level of advanced payments in Q3 last year. That's part of the explanation part. So it's not considered to be -- we shouldn't consider that to be a negative phasing effect going into next year or a positive one, or a next quarter or a positive one on that side either.

Then we have the next question from Jesper Stugemo from Handelsbanken.

A few questions from me, if I may. First on net recruitment here. When do you believe you can turn to a positive net recruitment? Is it more in like 2 to 3 quarters? And how do you balance growth ambitions versus margin protection going forward?

Yes. Good question. No, everything that we do aim to be in the right place in the end of our strategy period, meaning in the end of 2028. So we are now gradually ramping up our ambition. And it goes actually across, as we said in the beginning, across advisory, engineering and project management. And we see it actually across the divisions and several of our geographies. So it is a wide competence need that we stand for until the end of 2028. Of course, we do that to protect the margin, but the margin starts actually with the projects that we sell and that we include in the order backlog. So now it's to meet those as sold levels with the expertise and competence that we need to execute on those projects. But it's a gradual ramp-up, and we say that we will have a net growth of 2,000 to 3,000 employees by the end of 2028.

And coming back to price and price pressure, do you still see that you have a positive yield between price and salary increases?

I think we discussed that quite a bit kind of last couple of quarters. And at that -- when we closed Q2, we were not actually in the point where we had a clear positive spread on that yield. And I would say that nothing has changed from a Q3 perspective on that end. We have some segments really supporting our price development, but we also have some segments where we're experiencing clear and still are expecting clear price pressure and are reasonably upholding the yield that you're referring to, but not particularly moving in the right direction yet on that.

And could you give some more flavor perhaps on the utilization rate in Energy and Transportation and Places given the slightly softer margin development there?

Yes. I think what we are experiencing is a very stable development for all divisions on utilization. From a year-over-year, as you're well aware, we don't report utilization development by division externally, but we typically comment on it. And we can -- for different quarters, it can be a bit different in which division that are taking the most -- the biggest step forward for different reasons. I would not particularly link the margin development that we see in a specific division to the utilization development that we experienced in Q3. It is quite stable all across the divisions in Q3. And there are other reasons why EBITDA margin is behaving as it does rather than utilization development.

[Operator Instructions] Then we have the next question from Dan Heimer from SEB.

Maybe circling back a little bit to that comment on the 2,000 to 3,000 additional employees by 2028. That's close to 15% more employees compared to what you have today. So to me, at least, it sounds you're quite confident on demand, your order book and your ability to deliver on that. You had a little bit of a step change in organic growth compared to Q2 where you took a step back. So would you say that you're more confident now on your ability to deliver organic growth compared to where you were 3 months ago?

Yes. As we said, we're working all the way towards the end of 2028, but we have so many supporting KPIs now driving in the right direction. So yes, this is why we now increase the ambition.

Very clear. And then maybe on Transportation & Places, you've taken out 500 employees there compared to last year. And despite that you're losing almost 50 bps on the margin, organic growth also deteriorated a little bit further compared to the previous quarters. I'm being mindful that it's a small quarter and it's a lot of vacation, of course. But do you plan to implement further measures here? Or do you see a sign of a market that's getting better? Or how do you address that weakness, which I guess is particularly in the real estate part?

Yes. As we said, the story for this division is really two-folded, where we see the stable demand from transportation that we have seen, yes, for a long time now, and we actually see that, that is supported by governal investments and so on. So -- and actually, the project within that sector could be 10 to 15 years. So it's a really sort of slow-moving part of our business, but stable on the transportation side. If we then look at the places side and the facility side, we do see some positive signals, not yet fully materialized, but the signals we see are very much linked to what we also started talking about last quarter. They are linked to data centers, to hospitals, to defense-related buildings and so on. So we see more and more positive signs in that direction.

Sounds good. And then maybe a final one, if I may. Looking at your leverage, you expect that typical deleveraging to occur here in Q4. And yes, just how you think about the leverage situation as we leave this year, did the acquisition of AMC. Can you give some thoughts on your M&A pipeline and also your willingness to execute on M&A given that acquisitions will likely be needed to reach your sales targets?

Yes. I won't say much about our M&A pipeline, but just reiterating that we are in a phase where we're still quite conservative in relation to M&A, although we're nurturing situations that come across if they are from a strategic perspective, important enough to do so. But then linking to the leverage development, we were quite confident following Q2 that we would deleverage in Q4 to the extent that we will be at or below our financial target at the end of the year, and we practically reiterate that. We don't expect -- we expect normal seasonality in Q4, which normally implies a strong operational cash flow in Q4. And that is then also supported by a significant restructuring costs from Q4 last year, leaving the EBITDA component, rolling 12. So we're quite comfortable that to end the year at or below our financial target of 2.5.

Thank you, Dan. And that was all the questions we had today.

Thank you so much for joining us here today, and see you again in Q4.