AFRY AB Earnings Call Highlights Margin and Backlog Gains

AFRY AB Class B ((SE:AFRY)) has held its Q4 earnings call. Read on for the main highlights of the call.

AFRY earnings call: improving fundamentals despite growth headwinds

AFRY AB’s latest earnings call painted a cautiously upbeat picture: while sales are still under pressure and restructuring costs weigh on reported earnings, the company is clearly stabilizing operationally. Profitability improved, cash generation remained strong and the balance sheet strengthened, all backed by a growing order backlog and recovering utilization rates. Management acknowledged persistent headwinds from weak markets, FX and a tough calendar, but argued that the groundwork is now laid for margin expansion, particularly from 2026 onward.

EBITA Margin Improvement Signals Stabilizing Profitability

AFRY reported a higher EBITA margin excluding items affecting comparability in Q4 2025, rising to 8.7% from 8.3% a year earlier, with EBITA excl. IAC totaling SEK 577 million. This margin uplift came despite negative organic growth and headwinds from currency and calendar effects, suggesting that cost actions and a more disciplined project mix are starting to pay off. For investors, the combination of stable margin progression and ongoing restructuring underpins AFRY’s ability to defend earnings even while revenues are under temporary pressure.

Growing Order Backlog Underpins Revenue Visibility

Order backlog climbed to SEK 20.4 billion, up 5.4% year-on-year on a currency-adjusted basis. The increase spans all three divisions, providing broader near‑term revenue visibility and indicating that AFRY is securing enough new work to offset softer markets in some segments. While management cautioned that the timing of backlog conversion into invoicing can vary by project type and size, the enlarged backlog nevertheless points to a solid pipeline that can support future growth once macro conditions become more supportive.

Utilization Rebound Breaks a Multi‑Year Negative Trend

Utilization improved to 72.8% in Q4, up 0.5 percentage points year-on-year and marking the first year-over-year increase in 14 quarters. This is a critical KPI for AFRY given its 2028 target of 74% full-year utilization and the leverage this metric has on margins. The rebound suggests that resource planning, capacity adjustments and portfolio refocusing are starting to lift productivity. Management aims to add roughly two percentage points from mid‑2025 levels over the coming years, which, if achieved, would be a key earnings driver.

Robust Cash Flow and Leaner Balance Sheet Enhance Flexibility

Operating cash flow in Q4 was in line with the record level seen in Q4 2024, supporting AFRY’s deleveraging efforts. Available liquidity stood at SEK 4.4 billion, while net debt fell below SEK 4 billion, bringing leverage down to 2.5x net debt/EBITDA. This strengthened balance sheet gives the company financial flexibility to continue restructuring, invest selectively and maintain shareholder returns. For equity investors, the combination of strong cash generation and lower leverage reduces risk and supports the case for future capital deployment once the restructuring phase matures.

Scale Maintained with Full‑Year Revenue and Earnings

On a rolling 12‑month basis, AFRY posted net sales of SEK 25.8 billion and EBITA just below SEK 1.9 billion, underlining the company’s substantial scale even in a challenging environment. These figures show that, despite negative organic growth in the latest quarter, the group continues to operate at a sizeable revenue base with solid absolute earnings. Maintaining this scale while conducting restructuring and portfolio reshaping is a central part of AFRY’s strategy to emerge leaner but still relevant across its core markets.

Strategic Contract Wins and Market Recognition Strengthen Positioning

AFRY highlighted several strategic contract wins, including the MEPCO paper machine project, a framework agreement with Vattenfall covering nuclear, hydro and wind services, and work on the Lotschberg railway tunnel. These wins reinforce AFRY’s positioning in energy, infrastructure and industrial segments and validate its technical capabilities. External recognition supports this narrative: in the ENR 2025 rankings, AFRY was placed #6 in the overall industry and energy categories, #3 in hydro, entered the top‑10 in solar and maintained a market-leading position in pulp & paper. Such visibility can support pricing power and client retention over time.

Restructuring and Efficiency Measures Start to Show Early Benefits

The company continued to roll out a high‑paced restructuring program and simplify its group structure, targeting a leaner, more efficient organization. Management reported early signs of better operational efficiency and higher utilization, driven by tighter planning, improved resource management and rightsizing initiatives. While these actions carry near-term costs, the expectation is that they will improve profitability and competitiveness from 2026 onward, with a relatively short payback profile on the restructuring spend.

Employer Attractiveness and Lower Attrition Support Execution

AFRY’s ability to retain key talent appears intact despite the transformation. The company was again recognized by Universum as one of Sweden’s most attractive employers, and group attrition has declined since 2022, remaining stable through the restructuring period. For a knowledge‑intensive consultancy business, this is strategically important: lower churn limits recruitment and onboarding costs, preserves client relationships and helps ensure that restructuring does not erode the company’s delivery capacity or technical depth.

Stable Dividend Underlines Confidence in Financial Health

The Board proposed an unchanged dividend of SEK 6 per share for 2025. Maintaining the payout despite negative organic growth and restructuring costs signals management’s confidence in AFRY’s cash generation and balance sheet strength. For income‑focused investors, the steady dividend provides a degree of return visibility while the company works through its transformation and navigates a weaker macro backdrop.

Sales Growth Under Pressure from Weak Markets

Despite operational improvements, AFRY’s top line remains under pressure. In Q4, adjusted organic growth was negative 4.3%, and total reported growth was -6.2%, with net sales of SEK 6.6 billion. The decline reflects softer demand in some markets, deliberate capacity reductions and portfolio reshaping. For investors, this underlines that the current phase is less about rapid expansion and more about consolidation and margin protection, with growth expected to follow once end‑markets stabilize and the backlog converts.

Currency and Calendar Headwinds Weigh on Reported Numbers

AFRY quantified significant external headwinds from foreign exchange and calendar effects. For the full year, FX and calendar reduced net sales by about SEK 700 million and EBITA by roughly SEK 190 million. A particularly weak calendar subtracted SEK 128 million from EBITA, and in Q4 alone, currency movements shaved around SEK 20 million off EBITA. These factors obscure some of the underlying operational progress, but they are largely non‑structural in nature, implying potential relief as the calendar normalizes and FX effects evolve.

Restructuring Costs Depress Short‑Term Earnings

Restructuring charges booked as items affecting comparability reached SEK 161 million in Q4, with SEK 192 million recognized year‑to‑date under the program. Management now expects total restructuring costs to end up at the upper end of the previously guided SEK 200–300 million range, with most tied to personnel redundancies. While these costs will continue to weigh on reported results in the near term, they are intended to unlock savings and higher margins over the medium term, with an anticipated payback of about a year once fully implemented.

Transportation & Places Division Faces Market Weakness

The Transportation & Places division was a clear weak spot in the quarter, posting declining net sales and a margin drop. The deterioration was driven by capacity adjustments and soft markets in parts of the division, particularly where demand has lagged or project activity has slowed. Restructuring measures were put in place late in the quarter, limiting their immediate benefit to Q4 margins. Investors will watch this unit closely for signs that the adjustments are taking hold and that profitability can be restored as markets improve.

Industry Division: Softer Sales, Better Margins

In the Industry division, AFRY reported negative sales growth in Q4 amid mixed market conditions and continued macro and geopolitical uncertainty. Some pulp & paper segments remained soft, which weighed on volumes. However, restructuring efforts supported profitability, leading to improved margins despite the revenue decline. This pattern — weaker top line but stronger earnings quality — mirrors the broader group trend and suggests that AFRY is prioritizing efficiency and project selectivity over pursuing growth at any cost.

Price Pressure and Lower Average Pricing Temper Upside

Management noted ongoing price pressure in certain segments and said that average price development is lower than earlier in the year, even though underlying pricing remains positive overall. This indicates that competitive dynamics and client budgets are constraining AFRY’s ability to fully pass on cost inflation or capture higher margins on new contracts. For shareholders, it means that future earnings upgrades will depend not only on volume and utilization gains, but also on the company’s success in defending pricing in key markets.

Capacity Reductions Weigh on Near‑Term Revenues

AFRY’s strategic decision to adjust capacity and reshape its portfolio had a tangible impact on Q4 sales, reducing volumes and pressuring reported growth. These actions are designed to align the business with priority markets and improve long‑term profitability, but in the short run they translate into lower invoicing. The trade‑off is deliberate: management is trimming exposure to weaker or less profitable segments to create a more focused and resilient earnings profile over the coming years.

Backlog Conversion Timing Remains an Area of Uncertainty

While the enlarged order backlog is a clear positive, management emphasized that its translation into near-term invoicing is uneven. The backlog contains a mix of small and large projects, each with its own timeline and ramp‑up profile, making it difficult to predict the exact quarterly contribution to revenues. AFRY expects visibility to improve as the project portfolio matures, but investors should not assume an immediate, one‑to‑one lift from backlog growth into near‑term sales.

Guidance and Outlook: 2026 Set to Capture Restructuring Upside

AFRY guided that total restructuring costs will likely finish at the upper end of the SEK 200–300 million range, with the bulk of savings tied to personnel reductions and an expected payback period of around 12 months. The company reiterated that 2025 from a calendar and FX standpoint will remain challenging, with full‑year headwinds of roughly SEK 700 million on net sales and SEK 190 million on EBITA already quantified. However, the 2026 calendar is expected to have a small positive effect on EBITA, especially in Q4, reversing part of the SEK 128 million negative calendar hit seen in 2025. Alongside the improving utilization trajectory, a strong order backlog, Q4 net sales of SEK 6.6 billion, an EBITA margin of 8.7% and a solid balance sheet with SEK 4.4 billion in liquidity and leverage at 2.5x, AFRY’s outlook is framed as one of gradual margin improvement and earnings growth, with 2026 earmarked as the year when restructuring benefits should become clearly visible.

In summary, AFRY’s earnings call conveyed a story of a company working through cyclical and self‑imposed headwinds while steadily improving its underlying operations. Profitability, cash flow and balance sheet metrics are moving in the right direction, backed by a growing backlog and better utilization, even as sales and some divisions remain under pressure. With restructuring nearing its peak cost and savings expected to kick in over the next year or two, investors are being asked to look through the current turbulence toward a leaner, more profitable AFRY that appears better positioned for the next upturn in its core markets.