SWECO AB (publ) (SWEC-A) Q2 2026 Earnings Call Transcript

Hello, everyone, and thank you for joining us for this presentation of Svekos Q2 report. Åsa Bergman, Svekos president and CEO, is here together with Jan Alde, Svekos CFO, to take us through the results of the second quarter. And after their presentation, there will, of course, be an opportunity for you to ask questions. questions. So with that said, please Osa.

Welcome everyone to Sweco's Q2 presentation. Before we present the result for the second quarter, let me give you a quick overview of Sweco. Sweco is Europe's leading architecture and engineering consultancy with operations in eight geographical business areas across 14 markets in Europe. We are a well diversified business operating across three different segments. with a good balance of private and public clients. The foundation for Sveco'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 Sveco's success. Let's start with the summary of the second quarter of 2026. It was a solid second quarter in a continued mixed market, characterized by broad organic growth, higher average fees, a strong billing ratio and continued acquisition activity. Net sales increased by 9% to 8.6 billion SEC and organic growth amounted to 3% adjusted for calendar effects. EBITDA increased to 864 million SEC, corresponding to an EBITDA margin of 10.1%, and EBITDA increased by 7% adjusted for calendar effects. The positive development was supported by higher average fees and an improved billing ratio, as well as positive contributions from recent acquisitions. We also continued to execute on our M&A agenda by announcing two new acquisitions during the quarter. Moving over to the operational highlights. Overall, we delivered a solid second quarter. Seven out of eight business areas reported organic growth and six out of eight increased EBITDA. We continued to navigate the market well, increasing both order backlog and orders received. We also maintained a strong focus on efficiency, reflected in an increased billing ratio of 75.9%. The solid operational trend continues across several business areas with three reporting double-digit margins. I would also like to highlight the strong EBITDA improvements in the quarter from Circo Sweden and the Netherlands. Overall, we are pleased to see that we continue to make progress across our business areas. Turning then to the market overview, demand for our services remained broadly unchanged compared with previous quarters. Demand was good in energy, infrastructure, water and environment. We also continue to see growing demand related to security and defense across several of our markets. At the same time, residential and commercial buildings, as well as parts of the industry segment, remained weak. While the geopolitical and macroeconomic environment is uncertain, Sveco benefits from a diversified business model, a strong local presence, and a clear European focus. Trends related to sustainability, demographic shifts, digitalization and AI, as well as security and defense, are driving demand for Sveco services across our core segments.

With that, I welcome RCFO Jan Alde to walk you through the numbers. thank you also start with the summary of the q2 so net sales was 8.6 billion sick with a calorie adjusted organic growth rate of three percent and with the cry growth of five percent giving a total sales growth of nine percent versus last year calendar effect was five more working hours versus last year. EBITDA increased 7% or 53 million sec adjusted for the calendar effect. EBITDA margin came in at 10.1% versus 9.6% last year and a net debt to EBITDA ratio of 0.8 times at the end of June which is the same as last year. Then let's look at net sales. So organic growth of 3% was driven by higher average fees and higher billing ratio. We saw organic growth in seven out of eight BAs. Germany and Central Europe had the strongest organic growth rate at 7% driven by higher average fees and FTE growth in an overall stable market. The growth in Finland was still low but we saw a somewhat improved demand situation within the public and commercial building segments. Denmark was impacted by lower investment in the pharmaceutical industry however they have been able to compensate this by strong growth in other segments and hence showed an organic growth in Q2. The UK reported negative growth rate of 3% due to less subconsultants and less ftes while the overall market was stable please note that the growth in both finland denmark and the uk was negatively impacted by lower ftes due to ongoing efficiency improvements and measures taken to adapt the organizations to current market conditions sweden norway and the Netherlands, all reported organic growth rates of 4% versus last year. Then we look at the EBITDA. So EBITDA increased by 7% versus last year adjusted for calendar effect. The quarter was negatively impacted by restructuring and integration costs in Sweden and Finland of 30 million, which is 18 million higher than last year adjusting for this ebitda for the group increased by 10 percent versus last year the ebitda improvement was driven by higher average fees improved billing ratio and contributions from acquisitions while higher personnel and other operating expenses had a negative impact the reported ebit margin was 10.1 percent versus 9.6% last year and the calendar effect in Q2 affected the result positively in Sweden and Norway. Now let's look through the performance by BA. Sweden continued to improve its underlying EBIT margin as the positive calendar effect and the negative effect of restructuring and integration cost in sweden was almost the same the ebitda margin in norway was unchanged adjusting for their calendar effects denmark reported improved margins from already high levels and the netherlands reported a strong margin improvement versus last year the ebitda margin in belgium was lower but uh than last year but they continued to perform at a high level. The EBITDA margin in Germany and Central Europe was lower, while the margins in Finland and the UK were roughly in line with last year. Then let's have a look at the EBITDA bridge. So starting with Sweden, where the result was 10% higher than last year, driven by higher average fees higher billing ratio and positive contributions from the pe acquisition please note that the sweden booked 26 million thick of restructuring and integrals integration cost in q2 excluding this ebitda improved by 20 percent versus last year the restructuring integration costs were mainly related to optimizing the organizational structure in sweden and drive efficiencies the cost related to the pe integration was minor as the integration is now completed the result in norway was 7 million sec higher than last year driven by positive fx effects and the higher result in finland was due to 8 million sec less restructuring and integration cost compared to last year but also due to a higher billing ratio the result in netherlands was 34% higher than last year, driven by higher average fees, higher billing ratios, as well as contributions from the acquisitions made last year. Denmark and Belgium delivered EBITDA improvements while the result in the UK was stable. The result in Germany and Central Europe was slightly lower due to higher personnel costs and less positive project adjustment versus last year. The calendar effect was five million sorry five more working hours versus last year corresponding to a positive year-on-year impact of 60 million sec overall the integration of the acquisitions made in made last year and also this year are progressing well and we expect synergies to continue to materialize during the quarter sorry during the year now let's look at the financial position So cash flow from operating activities was 911 million SEC compared to 680 million SEC last year. M&A cash outflows was 176 million SEC and dividend paid was 1,355,000,000 SEC. The net debt position at the end of June was 2.9 billion sick, slightly higher than last year, while our net debt to EBITDA ratio was 0.8 times, same as last year. Hence, our leverage is well below our target and we remain financially very strong to pursue an active M&A agenda. Then lastly, look at the calendar. So the calendar effect for 2026 is that we expect to have seven hours more than 2025. And in Q3, we expect one hour more than the same quarter last year. And by that, I hand back to you, Osa. Thank you, Jan.

During the second quarter, we announced two new acquisitions. In Finland, we announced the acquisition of Platom, a specialist consultancy providing technical advisory services across the full life cycle of nuclear operations. The acquisition strengthens Sveko's position in Finland, making us the leading nuclear consultancy in the country. It also strengthens our European capabilities in this growing sector. We also announced the acquisition of CityWise Sverige AB, adding approximately 250 experts within structural engineering, building services, project management and transport infrastructure. The acquisition further strengthens Sveko's position and geographical footprint in Sweden. After the quarter, we also announced the acquisition of Stein engineers in Germany. Stein are experts within water and wastewater infrastructure, including sewer system rehabilitation, structural engineering, pipejacking and inspection of engineering structures. The acquisition further strengthens Sweco's position in the growing water segment. Acquisition is a key growth driver for Sweco, and during the second quarter, we announced two new acquisitions. All in all, we completed five acquisitions to date, and by the end of July, CityWise will also be completed. during the quarter we secured several significant client projects that contributed to a stronger order book these projects underscores the breadth of our offering and the continued demand for our expertise in resilience sustainability and infrastructure across europe some examples from the quarter and the rest you find in the report as as always sveco was selected to provide planning and design and design consulting for a new railway section between Möndal and Landete Airport in Sweden forming part of one of country's largest infrastructure investments. During the quarter Sweco was also commissioned to plan and design a new emergency hospital campus in Helsingborg which will be one of Sweden's largest healthcare properties project in modern time. In Norway, Sweco was awarded a framework agreement related to flood protection, supporting climate adaptation, and critical infrastructure resilience across the country. Finally, Sweco was selected for the planning of Rail Nordica in Finland, a strategic railway project aimed at strengthening cross-border logistics, security of supply, and military mobility across northern Europe. I would also like to take the opportunity to give you a quick update on how Sveco is using AI to maximize business benefits. We see AI as an ongoing structural transformation of our industry and an opportunity to strengthen our market position. We have worked with incorporating AI in Sveco's operations since 2023 and see the development as a natural technological leap for us as consultants. Like CAD and BIM once did, we now use AI to create value for our clients and improve our own efficiency. Our AI approach is focused on three overarching business benefits. Individual productivity, allowing every employee to work smarter, creating immediate effects throughout Sweco by large-scale use of AI. process automation um which is about creating structural efficiency by automating and reshaping workflows within our core business and the third part is about accelerating digital innovation developing and delivering it solutions as integrated components in projects and thereby creating client value. Also, let's not forget in this, as Europe's facing a significant shortage of engineers with major infrastructure investments planned while facing deficits of roughly 2 million STEM experts, we are already today using AI as a mechanism for closing this gap. To summarize then, Sweco delivered solid second quarter, characterized by broad-based growth, higher efficiency, and improved profitability. Looking ahead, our priorities remained unchanged. First, we continue to position Sweco in attractive growth segments while we see continued long-term demand building on a solid foundation. second we continue to execute our ai strategy with the opportunity-based approach i just talked about supporting both our experts and our clients third acquisitions remain an important part of our growth strategy we will continue to evaluate opportunities across our core markets while maintaining a strong focus on successful integration and value creation from recent acquisitions and finally we remain committed to operational efficiency and continued margin improvement strong billing ratio disciplined execution and efficient resource allocation will remain key priorities going forward with a strong market presence diversified portfolio and a solid financial standing VEKO is well positioned to continue transforming society together with our clients.

Thank you, everyone. Thank you, Åsa, and thank you, Jan. And it's now time to open up for questions. So please, Sharon, if you could give us the instructions. Thank you.

To ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. If you wish to ask a question via the webcast, please type it into the box and click submit. We will now go to our first question. One moment please. And the first question today comes from the line of Julia Sunval from ABG Sundal-Kolia. Please go ahead.

Hi, Åsa and Jan. So I have a few questions. And my first First question is on the utilization rate. It rose some in the quarter, but how should we think forward? How much headroom do you think is left?

Hi, Julia. First of all, it's an area where we have focused quite a long time, and we are really pleased to see that we are continuing to move in the right direction. And it's really hard to say where the limits are in this. So, I mean, the only thing I can give you is that we will continue to work on the efficiency as it is as important as it has always been.

Yeah, OK. And moving on, on the average fees, you have had a positive momentum for quite some time.

Will you be able to lift the price further in a mixed market or is the momentum from now, is it sustainable or how do you view it? i mean we have shown um we have shown in the past that we have been able to to meet the salary inflation and cost inflation with uh the fee increases and the increase is just to remind us that it's both about how what prices we put on the market and how we execute our projects so intention is to continue to focus on this and ensuring that we can meet the cost inflation and including then salary inflation into the future.

Yeah, that sounds good. And looking at both the utilization rate and the prices and kind of bridging it to your financial targets, going forward, how do you think you should work with these two components to reach a financial target of the margin?

I mean, I think it's fair to say that it depends on where you're looking at, Feco. So on the overall level, of course, we work with both and among others when it comes to different levers for creating the result. But it's also about which country you look at. Some needs to work more on their efficiency and some countries need to work with the price expansion. so it depends on how both how the the how far they have come with you know having this broad project portfolio that we're aiming for with the Sveco model and making sure that we actually cover all the sectors cover all the kind of clients and have this balanced project portfolio in place so we will work with both and it depends on which business areas you're looking into yeah perfect sounds reasonable uh moving on to acquisitions you have done you have started you're quite good do you have any update on how the integration is going on the large ones

hi julia jan here um i would say the um the integrations are progressing well and you see the comments that we make that we see good contributions from acquired companies into our P&L. So yeah, overall progressing.

Is there some dilution effect in any BAs?

Yeah, I would say overall the margins of the acquired companies as they come through the P&L, I would say, are almost in line with the group with some variations between the BAs. But overall, I would say they are quite close to the group average from a margin point of view.

Okay, perfect. And just a large question on the order stock that you say it's coming up in the quarter. Just wondering how is your visibility of the order backlog and can you say anything about the Julia, as also was said, we see that the order book is developing well.

I believe you have seen also the orders that we have announced. I would say one of the key aspects of our strategy is to make sure that we remain very price disciplined. And that's also why we continue to see price expansion in our P&L. I think that's all I can comment on.

Okay, that's super. Thank you.

Thank you.

Thank you, Julia.

Your next question today comes from the line of Daniel Jorberg from Handelsbanken. Please go ahead.

Thank you, operator. And hi, Osa and Joan. And congrats to another strong quarter. I just wanted to ask a little bit on, you had some $25 million in extraction charges and $5 million in integration costs in Q2 here, and now we hope closed the device as well.

Can you possibly give some indication on what we should expect here for Q3 and Q4 with regards to similar levels or any input would be great? just to clarify then you were asking about the restructuring and integration charges that we have taken and how we see them going forward yes correct yeah i mean if we start with the q2 then as i said we took in total 30 million of restructuring and integration costs i would say the vast majority of that was a restructuring cost related to Sweden we took some integration cost I would say minor integration cost related to the PE acquisition in Q2 and we took some integration cost rates to the FinPEC integration in Finland I would say going forward on starting maybe with integration and going forward, I would say, as I said, the PE integration is complete. So you shouldn't expect more integration costs there. On the FIMPIC case, there will be some integration costs coming through in the remainder of 26. When it comes to the restructuring costs, I mean, I would say, you know, we continuously adapt our organizational structure as the market situation develops that's why you uh and also to drive you know efficiency uh improvement actions um so um i think it's difficult to you know we don't normally provide forecast on on restructuring so i think it's just a you know it's part of our business model that when needed we adapt our our organization uh for the market efficiency for the for the market situation yeah yeah that's fair May I ask you, on Finland, you saw some improvement in public, and you've taken some nice orders.

So my question is, should we expect this mainly to be, you know, Sveco-related, either to take market share, or is it so that we have the trough in Finland now behind? And if so, can you also use some historical temporary layoffs, you know, to bring back people quite fast, if so?

I think, yeah, you know, first of all, I think, you know, the points we have here is related to that we have taken some orders and that we are growing our order backlog. Or we see the orders received in the back end of this quarter positive in Finland. I think it's too early to say if this is a start of some market expansion that we don't have any proof points of yet. And then, as you said, we have this temporary layoff situation that we can manoeuvre. So, of course, but mainly, of course, it's about making sure that we can, you know, focus on growing the order backlog continuously and working with our own efficiency and also working with recruitment ahead. and you know so so too early to tell if this is the start of something positive on the Finnish market perfect and if I may a last question from my side would be a little bit on your stronghold in data center build specials special entities there and I think you do this from your UK business can you tell us little bit on how important this is and the trends is it like growing still or is it like flattening out and do you work with a lot of suppliers or names you know like Microsoft and others or is it only a few hyperscalers and so first of all I I would say that that the exposure for us is that it's limited by by the breadth of our business but with that said data center is on your question a growing area and i am and and i mean for for in in my in our perspective this is a long-term trend and we work with um you know a broad range of different uh stakeholder clients in this and of many reasons i i can't outline them uh but um and we worked with we we work with them locally of course distributing the design and the resources in our different business areas but as the clients are mostly located from the UK we have strong client relationships from our UK business and that is the reason to why we work with leading and heading the client relationships and the projects from the Seco UK. Mostly we work with data centers in early planning, permitting and pre-design and those kind of areas but also with the full scope so to say.

Thank you so much for the input and have a great summer and good luck and feel free, both of you. Thank you, Don.

Have a nice summer.

Thank you. Your next question comes from the line of Dan Heimer from SEB. Please go ahead.

Hi, Oss and John. My side as well. Maybe starting off on Germany, if we adjust for the project adjustments last year, would you say you're around par in terms of profitability in Germany versus last year and also if you can share a few words on the strategy on how to lift germany towards the next level now and maybe we can add uk to the mix also how to get that into more group standards in terms of margins thank you and yeah hi and first of all i would like to say that um i mean we we have a positive really positive outlook for the german market i think i mean it's fair to say that we see it as an attractive market and as you know we're also

focusing on finding the right M&A targets with this example now that we signed early this week. What we see in this quarter is that we see a somewhat lower EBITDA margin compared with last year. And this is mainly related to the accounting practices for the addenda projects that we have talked about before. I mean, since we had a difficulty in our German business back in the days, we implemented really strict procedures when it comes to accounting. And so it's more of a seasonal effect when it comes to the agenda work that you see now in Germany, rather than any material changes in the underlying business. So all in all, we are having a good position and we are winning good contracts. and so this is is really related to the addendums in in in germany when it comes to uk on your your second question and we have repositioned ourselves on the market and we are moving in the right direction so that is a continued work step by step to strengthen our portfolio both when it comes to clients and when it comes to projects in UK. And work really disciplined with our projects. And I mean, that will continue to pay off.

Just to get it right, to get to the next level, so to speak, I mean, double-digit margins in Germany, what would it require? Would it be more density and you're getting a little bit more of market share in Germany? What's sort of the big lever to take it from, yeah, to where it is from today to the next level in the next few years?

I mean, it is a continued work. I mean, exactly in line with what we have done so far. I would, I mean, and also getting a bit more stability with the results over the yearly cycle, meaning that this agenda work that I refer to needs to be, you know, focused on a bit more in the organization. So it's a bit about operational excellence. market position-wise and looking at the orders we're winning on the German market, we are in good shape. But there is always room to, of course, improve. So it's no rocket science. It's more about continue to work with the Sweco model and being very diligent when it comes to how we deliver and execute our projects.

Thank you for that, Carla. And the final one is following up on the M&A pipeline. I think you discussed earlier that you really picked up in terms of bolt-on acquisition. But despite the earnings growth you have right now and have had for the last few quarters, your net debt EBTA rate is unchanged compared to last year. And seasonally, of course, your net debt will probably come down now, depending on what you do.

So thinking a little bit on capital allocation, how is the M&A pipeline in terms of larger acquisitions as well? do you think you will land something there in the coming quarters or what's your thinking because you have a quite good financial position which is quite an opportunity here as as we have you know as as we have done for quite many years we work really actively in all our countries now to find good opportunities for us to buy we have an M&A strategy in place meaning that we know what we would like to buy in all countries and we are staying active on all sizes of acquisitions if we think it's the right fit for us culturally but also competence wise and and as you know it takes two to tango so this is really about timing as a timing um situations for us and that is all i can say thank you so much for that i think i'll jump back into the line and i wish you all a good summer Thank you.

Thank you.

Thank you.

Thank you. Your next question today comes from the line of Johan Dahl from Danske Bank. Please go ahead.

Yes, thanks. Good morning, everyone. Firstly, just a question on the sort of market environment. I think in the first half, you've grown sort of 2% to 3% organically, slightly below sort of long-term trend, I would argue. and you've been fairly optimistic when speaking about the sort of order backlog. I'm just curious to hear sort of, do you think that looking at your order backlog, sort of is it a correct reflection that it represents growth of 2% to 3% or do you anticipate somewhere that that order backlog actually is better or alternatively worse than these 2% to 3%?

It's a good question, of course. I mean, we still have the intention to grow around 5% over economic cycle, as you know. So, of course, we would like to see a little bit more organic growth coming through. But this is also about, you know, what kind of projects we have in our portfolio. And so, yeah, we focus on this and we aim for a bit higher organic growth. Doesn't really answer your question, Johan, but, you know.

I'm just curious if you see some sort of inflection point. I mean, you obviously don't have to guide when that is, but, you know, is this what the market allows right now, sort of 2% to 3% growth, or are you seeing something else in your order book?

I mean, it's fair to say if you look back, the last, I would say, two years at least, that we have, or more than that, we have operated in a mixed market with a lot of, how to say, changes that has put really demand on us to maneuver the market. And that goes for most of our markets, and depending on market position, of course. So I think parts of what you see when it comes to organic growth is related to that, you know, your ability to maneuver this mixed market and the changes in the market. So the better you are at that and has been, the more organic growth you can, of course, achieve. But let's see ahead.

We will continue to maneuver and we will continue to kind of push for more organic growth. thanks a lot for that detail and secondly just on on the margins and i'll you know i hate to go into much detailer but i mean in in the second quarter you improved margins what was it 50 bits right year over year and i think that the calendar effect alone was slightly more than that and and also you know the billing ratio was so quite substantially so basically what i'm asking is is there any sort of headwinds that you're experiencing on margins that we have not talked about today um you know such as cost inflation on certain either on on wages or on on sort of

admin or whatever that that sort of prevents both the calendar and the billing ratio showing in your reported numbers uh hey joan i i think i think first of all you know we if you if you exclude the restructuring integration cost that we have taken you know a lot of and part of that of course stemming from a lot of the acquisitions we've done if you would adjust for that i think the underlying margin do show uh an improvement uh quarter over quarter um um and and of course as we as we do these acquisitions um you know you um you know the you you have to it will take some time uh to uh harvest the the synergies from that and that can you know normally take one to two years um of course when we do these acquisitions we do that with a long-term growth in mind um so i think we have to so as we step up or let's say we stepped up the acquisition levels last year um and we have a you know continuous good level of acquisitions this year but of course short term that has an impact on the margin, but I think long-term it will support our margin journey.

That makes a lot of sense, but that also implies that the acquisitions made in the LTM period is margin dilutive. I thought you sort of talked about it being close to the group average, but certainly if they are dilutive, that explains probably a lot of the deviation, I would guess.

Yeah, I mean, as I said, And if you look at, let's say, the gross margin that you achieve, I think they are trending very well in line with our financial plan for the acquisitions. And overall, they are, sort of say, keeping up in a good level. But you still have certain costs that takes some time or synergies that take some time to work through. so just a final one on CitoVice, is that going to be red numbers as you consolidate that in the second half here is something perhaps you want to flag for having a sort of short term negative contribution yeah I mean short term yes they will be margin dilutive so but I think we have a good track record of turning around these type of businesses. We have done a very good job, I think, on the project acquisition to get the synergies and quickly turn around that business. We have, let's say, confidence to do the same. But you have to like short term, there will be a margin dilution. You know, now we have that acquisition approved by local authorities. We hope to close that by end of July. That means that we can now work to plan the integration, plan how we, you know, that company will look going forward. But again, that will take some time before we can do the same thing there and turn around that business. Understood.

Excellent. Best of luck with that. Thanks so much for taking my questions.

Thank you. Thank you. As a reminder, if you would like to ask a question, please press star 1 and 1 on your telephone keypad. If you wish to ask a question via the webcast, please type it into the box and click Submit. We will now go to the next phone question. One moment, please. And the question comes from the line of Johan Longfist Sunden from D&B Carnegie. Please go ahead.

Hey, Ossan, Johan. Thank you for taking my questions.

Hi, Johan.

Actually, just one from my side, and it's a little bit tied towards what Dawn asked before on margins in Germany and accounting of the add-on contracts that you refer to. Can you please help us? How much visibility do you have that those kind of add-on contracts or addendum contracts that you refer to really will take place in H2 this year as we saw in H2 last year?

I mean, it's contract that we have, it's contract that we work with, but the addendas are not signed. So, of course, we have comfort in the orders that we have and the contracts that we work with. Otherwise, we would have flagged something else. Yeah, because if I remember H2 last year, you were pretty clear that the margin step-up is kind of a structural step-up in margins and not a one-off thing. so that you're not saying that we should retest that assessment no but with that said i i don't want to give give the like clear forecast because of course until you have things in your in your financials you don't have them in your financials and that is also why i refer to when i got the question regarding what is the next step for for for our german business it's really about making sure that we can create more a little bit more stability of the result over the yearly cycle. But I have great confidence in the German business.

And as an outsider what could trigger you not being able to book this kind of extra contract in H2?

It would be if we can't really get the clients to agree on certain things in the project or that we are kind of overexposed or have worked too much in some projects in relation to the contracts that we have.

Fair enough. Thanks for the caller. That was actually the only question I had.

Thank you. There are currently no further phone questions. I will now hand the call over to Anna.

Thank you. There are no questions in the chat. So with that, we thank you for joining and wish you all a nice summer. Thank you very much, everyone.

Thank you.