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Sweco

Quarterly Report Oct 28, 2016

2977_10-q_2016-10-28_f69835d3-2c4e-4250-82ee-657cb6b6e253.pdf

Quarterly Report

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INTERIM REPORT JANUARY-SEPTEMBER 2016 SWECO AB (PUBL)

28 October 2016

STRONG PERFORMANCE AND INTEGRATION AHEAD OF PLAN

JULY - SEPTEMBER 2016

  • Net sales increased to SEK 3,723 million (2,024), acquired growth was 77 per cent
  • EBITA excluding extraordinary items increased to SEK 266 million (139), margin 7.2 per cent (6.9)
  • EBITA increased to SEK 252 million (109), margin 6.8 per cent (5.4)
  • EBIT increased to SEK 228 million (94), margin 6.1 per cent (4.7)
  • Profit after tax increased to SEK 166 million (61), corresponding to SEK 1.38 per share (0.61)

JANUARY - SEPTEMBER 2016

  • Net sales increased to SEK 12,111 million (7,039), acquired growth was 69 per cent
  • EBITA excluding extraordinary items increased to SEK 1,004 million (601), margin 8.3 per cent (8.5)
  • EBITA increased to SEK 941 million (541), margin 7.8 per cent (7.7)
  • EBIT increased to SEK 871 million (501), margin 7.2 per cent (7.1)
  • Profit after tax increased to SEK 655 million (354), corresponding to SEK 5.47 per share (3.67)
  • Net debt increased to SEK 2,315 million (1,741)
  • Net debt/EBITDA decreased to 1.6 times (1.8). Net debt/EBITDA pro forma and excluding extraordinary items was 1.4 times

COMMENTS FROM PRESIDENT AND CEO TOMAS CARLSSON:

This was another record-breaking quarter for Sweco, with the highest third quarter profit to date. EBITA improved 35 per cent year-on-year, pro forma and excluding extraordinary items, due mainly to synergies from the Grontmij-acquisition.

One year has passed since the closing of the Grontmii-acquisition and we have conducted a thorough review of status against the initial integration plan. We will overachieve the initial financial estimates. Synergies are now estimated to be 20 per cent higher, extraordinary items 11 per cent lower and full impact realised in half the time. The acquisition is expected to be EPS-accretive as early as 2016, one year earlier than initially estimated.

Overall, the market for Sweco's services is good. The Swedish market is strong. The markets in Norway, Denmark, Western Europe and Central Europe are generally good. The markets in Finland and the Netherlands remain challenging.

SWECO>

PROFIT AND OPERATIONS

PRO FORMA, JULY-SEPTEMBER

Pro forma reporting facilitates analysis of developments in operational activities on a like-for-like basis, assuming that Grontmii had been part of Sweco since the beginning of 2015.

Net sales increased 6 per cent to SEK 3,723 million (3,504). Organic growth was 3 per cent.

Compared with last year's pro forma, EBITA excluding extraordinary items increased by SEK 69 million. Five of seven Business Areas increased EBITA year-on-year.

Synergies from the Grontmij-integration contributed approximately SEK 66 million to EBITA and included reduced costs for shared IT and head office functions, reduced costs for overhead in Sweden, and operational improvements in Denmark and the Netherlands.

Calendar effects had a negative impact of 1 working hour, producing a negative year-on-year effect on sales and EBITA with SEK 5 million.

The billing ratio increased 0.5 percentage points to 74.6 per cent (74.1). The improved billing ratio essentially corresponds to realisation of synergies, predominantly through reduction of administrative staff.

ACTUALS, JULY-SEPTEMBER

Net sales increased 84 per cent to SEK 3,723 million (2,024). Acquisition-based growth was 77 per cent and is almost exclusively attributable to the Grontmijacquisition.

EBITA, excluding extraordinary items, increased to SEK 266 million (139).

Extraordinary items related to transaction, integration and restructuring associated with the Grontmiiacquisition totalled SEK-15 million (-30) and are reported in the Group-wide segment.

EBITA was SEK 252 million (109).

Amortisation of acquisition-related intangible assets increased by SEK 11 million, with the increase primarily attributable to the Grontmii acquisition. This impacted EBIT which amounted to SEK 228 million (94).

Financing cost increased due to increased net debt. Net financial items amounted to -9 (-4).

Profit after tax increased to SEK 166 million (61).

Earnings per share increased to SEK 1.38 per share $(0.61)$ .

Key ratios, pro forma Actual
Jul-Sep 2016
Pro forma
Jul-Sep 2015
Actual
Jan-Sep 2016
Pro forma
Jan-Sep 2015
Actual
Oct 2015-
Sep 2016
Pro forma
Full-year 2015
Net sales. SEK M 3.723 3.504 12.111 11.649 16.461 15,998
Organic growth, % 3 4 4
EBITA, excl. extraordinary items, SEK M 266 197 1.004 711 1,393 1.100
Marain, % 7.2 5.6 8.3 6.1 8.5 6.9
Number of full-time employees 14.468 14.339 14,615 14,531 14,568 14,552
Billing ratio 74.6% 74.1% 74.7% 74.0% 74.7% 74.2%
Normal working hours 518 519 1.486 1.476 1.978 1.968
Net debt/EBITDA excl. extraordinary items 1.4 1.3 1.2
Key ratios, Actual Actual
Jul-Sep 2016
Actual
Jul-Sep 2015
Actual
Jan-Sep 2016
Actual
Jan-Sep 2015
Actual
Oct 2015-
Sep 2016
Actual
Full-year 2015
Net sales, SEK M 3.723 2.024 12.111 7.039 16,461 11.389
Acquisition-related growth, % 77 n 69 0 18
EBITA, excl. extraordinary items, SEK M 266 139 1.004 601 1,393 991
Marain, % 7.2 6.9 8.3 8.5 8.5 8.7
EBITA, SEK M 252 109 941 541 1.141 740
Marain, % 6.8 5.4 7.8 7.7 6.9 6.5
Profit after tax. SEK M 166 61 655 354 741 439
Earnings per share, SEK* 1.38 0.61 5.47 3.67 6.27 4.36
Number of full-time employees 14,468 8.547 14,615 8.691 14,568 10,188
Net debt/EBITDA 1.6 1.8 1,8

* In view of the preferential rights issue conducted during 04 2015, historical share data is restated pursuant to IAS 33.

Net sales by quarter and rolling 12 months

PRO FORMA, JANUARY-SEPTEMBER Net sales increased to SEK 12,111 million (11,649). Organic growth was 4 per cent.

Synergies contributed approximately SEK 153 million to EBITA.

Calendar effects had a positive impact of 10 hours and contributed SEK 57 million to sales and profit compared with last year. Adjusted for calendar effects organic growth was 4 per cent.

EBITA excluding extraordinary items totalled SEK 1,004 million (711). Extraordinary items totalled SEK-63 million (-129) and are reported in the Group-wide segment.

The billing ratio increased to 74.7 per cent (74.0).

ACTUALS, JANUARY-SEPTEMBER Net sales increased 72 per cent to SEK 12,111 million (7,039). Acquisition-based growth was 69 per cent.

Extraordinary items were SEK-63 million (-60) and EBITA thus totalled to SEK 941 million (541).

Amortisation of acquisition-related intangible assets due to the Grontmij-acquisition increased to SEK 70 million (37). The increase impacted EBIT, which totalled SEK 871 million (501).

Net financial items amounted to -28 (-17). Profit after tax increased to SEK 655 million (354).

Earnings per share increased to SEK 5.47 per share $(3.67)$ .

EXAMPLES OF NEW PROJECTS

Sweco Belgium has been commissioned by the Flemish waterway company Waterwegen en Zeekanaal NV to design and project-manage transport route improvements on the Seine-Scheldt rivers. Sweco will design solutions to broaden and deepen existing waterways, raise bridges and modernise several locks and will provide expertise in civil design, project management and urban planning. The project is valued at approximately SEK 48 million.

In Germany, Sweco designed the winning proposal for a so-called "Lego bridge" to be built across road A46 in the city of Hagen. Both construction time and costs are

EBITA by quarter and rolling 12 months SEK million, Actu

reduced due to a completely prefabricated frame structure consisting of reinforced concrete and steel elements. The result will be a modern high-quality bridge, which can be built in only two months.

After the quarter, Region Gävleborg in Sweden commissioned Sweco to modernise Gäyle hospital. The result will be a hospital that meets today's standards for attractive care facilities, modern technology and patient security. Sweco's experts in areas ranging from architecture to construction and building services engineering will participate in the project. The hospital is scheduled to begin operations in 2021.

MARKET

Overall, the market for Sweco's services is good.

The Swedish market is strong. The markets in Norway, Denmark, Western Europe and Central Europe are generally good. The markets in Finland and the Netherlands remain challenging.

OUTLOOK

Demand for Sweco's services predominantly follows the general economic trend in Sweco's markets, with some time lag.

The Northern European GDP development is solid and the development is stable compared to last year. Political uncertainty, the global macro-economic situation and financial market developments are risks.

There is uncertainty following the EU referendum ("Brexit") in the UK. With Sweco's UK operations representing around 4 per cent of total Group revenue, the direct impact of a potential slowdown in the UK is limited. However, potential consequences to the general European economy may impact Sweco.

Sweco does not provide forecasts.

FVENTS AFTER THE QUARTER

On 19 October, Sweco announced the intention to acquire Jo. Franzke, a German architectural firm with 40 employees.

The acquisition is in line with Sweco's strategy to leverage the footprint in Germany and Northern Europe for further bolt-on acquisitions.

On 25 October, the Enterprise Chamber of Amsterdam (Ondernemingskamer) decided on a statutory buy-out procedure and ordered all remaining shareholders of Grontmij N.V. to transfer their shares to Sweco. The payment and transfer of the outstanding shares are expected to be finalised in November whereby Sweco will hold 100 per cent of the shares.

ACQUISITION OF GRONTMIJ

Grontmij, with approximately 6,000 employees in 9 countries, was acquired on 1 October 2015. Sweco is now the leading engineering and architecture consultancy in Europe.

In 2014 Grontmij had annual sales of approximately SEK 6.0 billion and EBITA of approximately SEK 203 million.

One year after closing, Sweco conducted a thorough review of the integration plan. The updated estimate shows outperformance against all key financials communicated earlier.

The updated financial estimates are:

  • Annual cost synergies totalling SEK 300 $\bullet$ million. Previously estimated at SEK 250 million $(+20$ per cent)
  • Realisation of full run rate at the start of 2018. $\bullet$ Previously estimated at 90 per cent within 4 vears of acquisition (2 years earlier)
  • Extraordinary items totalling SEK-400 million. Previously estimated at SEK-450 million (-11 per cent)
  • Acquisition will be EPS-accretive in 2016. Previously estimated at within 2 years of acquisition (1 year earlier)

The acquisition of Grontmij creates value for all stakeholders - customers, employees, shareholders and the society in general:

  • A nearly perfect match: geographically, $\bullet$ operationally and culturally
  • Value creation through cost savings: SEK 300 million in annual cost synergies and operational improvements
  • Strengthened customer offer: Sweco now has the broadest and deepest technical expertise in Northern Europe, with unique opportunities

to take on the industry's largest, most complex projects

Increased opportunities for employees: expanded international expertise network and areater resources improve development opportunities for Sweco's current and future employees

Sweco has completed around 100 acquisitions during the past 10 years. The acquisition of Grontmij is fully in line with Sweco's growth strategy and vision to be Europe's most respected architecture, engineering and environmental consultancy.

The integration is progressing well and in most areas faster than originally planned. Focus is mainly on profitability improvements and facilitating joint business opportunities.

All former Grontmij countries have operated under the Sweco brand since second quarter 2016.

The annual run rate of cost synergies at the end of the third quarter was around SEK 250 million, an increase from SEK 210 million at the end of second quarter 2016. Cost synergies made a positive contribution of approximately SEK 66 million to EBITA during the third quarter and SEK 153 million year-to-date.

Cost synergies are found in four main areas and have the following status:

  • IT (approximately 30 per cent of cost-saving potential): All major supplier contracts have been renegotiated to lower cost. The new central IT organisation has been implemented. The local IT integrations in Sweden and in Denmark have been completed. IT integration in the Netherlands is underway. The IT integration is largely expected to be completed during the first half of 2017
  • Head office (approximately 20 per cent of costsaving potential): The new head office organisation is operational. Reductions in staff and management functions are completed and full-cost savings will be realised before yearend 2016
  • Overhead costs within business area Sweden (approximately 20 per cent of cost-saving potential): The new organisation for administrative support has been implemented and staff reductions are completed. Grontmij's Stockholm operations, with approximately 275 employees have moved to Sweco's premises. Further co-location in Sweden is underway and will be completed over the next years when it is operationally and economically favourable
  • Country-specific operational improvements (approximately 30 per cent of cost-saving po-

SWECO

tential): The new administrative support organisation in the Netherlands and Denmark is implemented. A new decentralised, customerfocused organisational model is implemented in the Netherlands. The divestment of ancillary operations and restructuring of unprofitable units is underway. Reductions in the Dutch consultant organisation commenced during fourth quarter 2015. Measures taken in the Netherlands involve a downsizing of operations during 2016 while sales and profitability are expected to stabilise from 2017

A reduction of approximately 200 positions is expected within the Group due to integration and restructuring. Notice has been given in most cases, and approximately 180 of these employees have left the Group by the end of the period.

Accumulated extraordinary transaction, integration and restructuring items totalled SEK-313 million at the end of the period, of which SEK-15 million arose during the third quarter and SEK-63 million year-to-date. All extraordinary items are reported in the Group-wide segment.

Additional value creation can be achieved in the longer term through increased customer focus and internal efficiency as well as organic and acquisition-based growth in Sweco's new home markets.

OTHER INFORMATION ON THE GRONTMIJ ACQUISITION Sweco currently holds 97.36 per cent of all Grontmij shares. The statutory squeeze-out procedure for the remaining shares is expected to be finalised in November, whereby Sweco will hold 100 per cent of the shares (reference to page 4 "Events after the quarter"). Approximately SEK 97 million of the cash component remains to be paid in conjunction with the squeeze-out. In conjunction with the initiated statutory squeeze-out procedure, 100 per cent of the shares were consolidated in the Group accounts. As a consequence, the remaining consideration is reported as a liability and is included in net debt.

CASH FLOW AND FINANCIAL POSITION Group cash flow from operating activities totalled SEK 309 million (244) during the first nine months of the year. Interest-bearing net debt totalled SEK 2,315 million $(1,741)$ .

The net debt/EBITDA ratio was 1.6 times (1.8). Pro forma and adjusted for extraordinary items, the net debt/EBITDA ratio was 1.4 times.

Available cash and cash equivalents, including unutilised credit lines, totalled SEK 1.552 million (625) at the end of the reporting period.

INVESTMENTS, JANUARY-SEPTEMBER 2016 Investments in equipment totalled SEK 140 million (127) and were primarily attributable to IT investments. Depreciation of equipment totalled SEK 164 million (113) and amortisation of intangible assets totalled SEK 102 million (43).

Purchase consideration paid to acquire companies and operations totalled SEK 154 million (32) and had a negative impact of SEK-136 million (-27) on Group cash and cash equivalents. Purchase consideration on the divestment of companies and operations totalled SEK 9 million (6) and had a positive impact of SEK 9 million (2) on Group cash and cash equivalents. Repurchases of Sweco shares totalled SEK 114 million and had the same effect on Group cash and cash equivalents.

During the period, dividends totalling SEK 418 million (318) were distributed to Sweco AB shareholders.

BUSINESS AREAS

PRO FORMA ACCOUNTS, JULY-SEPTEMBER

Business Areas are reported on a pro forma basis following the new organisation since 1 October 2015. Pro forma reporting facilitates analysis of developments in operational activities on a like-for-like basis, assuming that Grontmij had been part of Sweco since the beginning of 2015.

SWECO SWEDEN

SALES AND PROFIT, JULY-SEPTEMBER

Since 1 January, Grontmij Sweden's operations are fully integrated in corresponding divisions within Sweco Sweden.

Organic growth was 6 per cent during the quarter. Improvement to EBITA mainly came from synergies realised within administrative overhead, increased fee level and improved billing ratio. There was no year-on-year difference in the number of available working hours.

The Swedish market remains strong. There is strong demand in the construction and real estate sector. The infrastructure market is also strong, supported by major public investments. The industrial market is stable and the market for IT-related services is developing positively. The market for power transmission services is strong, while other energy sectors are weak.

IN BRIEF

Actual Pro forma Actual Pro forma
Net sales and profit Jul-Sep 2016 Jul-Sep 2015 Jan-Sep 2016 Jan-Sep 2015
Net sales, SEK M 1.481 1,390 5.174 4.916
Organic growth, % υ
Currency, %
EBITA, SEK M 129 91 579 461
EBITA margin, % 8.7 6.6 11.2 9.4
Number of full-time employees 5,327 5.196 5.441 5.325

SWECO NORWAY

SALES AND PROFIT. JULY-SEPTEMBER

Organic growth was 6 per cent during the quarter. There was no year-on-year difference in the number of available working hours.

Operating profit improved with SEK 16 million. The profit improvement is mainly attributable to improved billing ratio and lower project write-downs. Positive currency effects increased net sales and profit by 7 per cent when translated into the Group accounts.

The Norwegian market is good and has stabilised. However, the Norwegian economy is in transition and demand is distributed unevenly. Markets in the Oslo region and within public infrastructure remain strong. The private construction market is good with strong demand within the industry. The markets in southern and western Norway are challenging, while the eastern and northern parts are experiencing moderate growth.

IN BRIEF

Actual Pro forma Actual Pro forma
Net sales and profit Jul-Sep 2016 Jul-Sep 2015 Jan-Sep 2016 Jan-Sep 2015
Net sales, SEK M 457 401 1,525 1484
Organic growth, %
Currency, % -4
EBITA, SEK M 40 24 137 109
EBITA margin, % 8.8 6.1 9.0 7.3
Number of full-time employees 1,330 1,318 1,343 1,327

SWECO2

SWECO FINLAND

SALES AND PROFIT, JULY-SEPTEMBER

Organic growth was 2 per cent. Revenues from own consultants increased organically thanks to increased number of employees and improved billing ratio. At the same time, revenues from sub consultants decreased during the quarter, resulting in net organic growth of 2 per cent. There was no year-on-year difference in the number of available working hours.

Operating profit improved with SEK 8 million. Of the EBITA improvement, approximately SEK 4 million are of one-off nature and consists of compensation in recently settled court cases. The remainder of the improvement comes from growth of own consultants and improved billing ratio.

The Finnish market remains challenging. The Finnish economy has basically had zero GDP growth since 2011. Despite this, the demand for Sweco's services is stable with positive signs on the building market in the Helsinki region. Demand for construction and real estate-related services is satisfactory, while the infrastructure and industry markets remain challenging.

IN BRIEF

Actual Pro forma Actual Pro forma
Net sales and profit Jul-Sep 2016 Jul-Sep 2015 Jan-Sep 2016 Jan-Sep 2015
Net sales, SEK M 408 375 1,317 1,176
Organic growth, % 10
Currency, % Ω
EBITA, SEK M 35 27 98 54
EBITA margin, % 8.6 7.3 7.4 4.6
Number of full-time employees 2,008 1,903 2,000 1.914

SWECO DENMARK

SALES AND PROFIT, JULY-SEPTEMBER

Net sales increased compared to last year, primarily due to a favourable exchange rate development. There was a negative calendar effect of 1 hour, which had a negative year-on-year impact of less than SEK 1 million on net sales and profit.

Operating profit increased to SEK 27 million (18), primarily due to higher average fees, lower project write-downs and overhead cost reductions.

The market in Denmark is generally good and is developing positively. The construction and real estate sector is developing well and is particularly strong in the bigger cities. The infrastructure market is stable with a weaker demand in road construction. Demand in the water and energy sector is stable.

Continued measures are being taken to sustainably improve the profitability of the Danish operations.

IN BRIEF
Net sales and profit Actual
Jul-Sep 2016
Pro forma
Jul-Sep 2015
Actual
Jan-Sep 2016
Pro forma
Jan-Sep 2015
Net sales, SEK M 334 320 1,024 985
Organic growth, % $-2$
Currency, % 6
EBITA, SEK M 27 18 54
EBITA marain, % 8.0 5.6 5.3
Number of full-time employees 1,048 1,097 1,090 1.115

SWECO NETHERLANDS

SALES AND PROFIT, JULY-SEPTEMBER

Sales decreased to SEK 434 million (445). The decline is primarily due to the ongoing restructuring of the Dutch operations, with impact both on organic and acquired growth.

Operating profit decreased to SEK-4 million (12). The restructuring of the Dutch operations has lowered the overall cost base, which provides the fundament of a turnaround. However, the positive impact on profitability still remains to materialise through sales growth and improved staff utilisation.

The market in the Netherlands has been challenging for several years due to the country's real estate and financial crisis. The first signs of stabilisation of the market are visible, particularly within private building construction. Sweco Netherlands delivers services primarily in the areas of public infrastructure, energy, water and public sector buildings. This market typically lags behind the private construction market, and remains challenging overall.

Sweco Netherlands introduced a new customer-focused and decentralised organisational model during the end of 2015 and the implementation continues in 2016. The business is being restructured and staff reductions within administration and the consultant-organisation are ongoing.

Eugene Grüter was appointed new president of Sweco Netherlands effective 1 September. He has broad, top-level executive experience from the consulting engineering and construction industries, having worked at Royal HaskoningDHV and Royal BAM Group.

IN BRIEF

Net sales and profit Actual
Jul-Sep 2016
Pro forma
Jul-Sep 2015
Actual
Jan-Sep 2016
Pro forma
Jan-Sep 2015
Net sales, SEK M 434 445 1,312 1,380
Organic growth, % $-5$ -4
Acquisition-related growth, % -4 $-2$
Currency, % Ò.
EBITA, SEK M -4 12 27 26
EBITA marain, % $-0.8$ 2.6 2.1 1.9
Number of full-time employees 1.473 1.645 1.504 1,682

SWECO WESTERN FUROPE

SALES AND PROFIT. JULY-SEPTEMBER

Net sales decreased to SEK 365 million primarily due to negative currency effects from the GBP depreciation, which reduced net sales and profits in the UK when translated into the Group accounts. Negative calendar effects of 6 hours had a negative year-on-year impact of approximately SEK 4 million on net sales and profit. Operating profit decreased to SEK 18 million (22) mainly due to negative calendar effects.

The demand for Sweco's services in the UK remained good throughout the third quarter. The infrastructure market is good, while demand varies in the energy and water markets. Although there are no tangible signs of a slowdown, the EU referendum ("Brexit") brings uncertainty about the market development. While it is too early to determine the consequences, the private construction market is expected to be more exposed than the market for publicly financed projects.

The market in Belgium is in general stable within all market segments. The private and public building markets are improving. The industry market and the public infrastructure markets are good.

IN BRIEF

Net sales and profit Actual
Jul-Sep 2016
Pro forma
Jul-Sep 2015
Actual
Jan-Sep 2016
Pro forma
Jan-Sep 2015
Net sales, SEK M 365 389 1,159 1,167
Organic growth, % ت
Currency, % -8 -6
EBITA, SEK M 18 22 75 58
EBITA margin, % 5.0 5.7 6.5 5.0
Number of full-time employees 1.705 1.630 1.694 1.606

sweco*

SWECO CENTRAL FUROPE

SALES AND PROFIT, JULY-SEPTEMBER

Sales increased to SEK 290 million (220), due to strong organic growth in Germany and the acquisition of Ludes.

Operating profit increased to SEK 18 million (7). Improved profits in the existing German business and the acquisition of Ludes are the main contributors to the improvement.

The German market is good overall and is developing positively. The construction and real estate market is good. Demand is solid in the transport and environmental sector due to public investments, while the energy market remains challenging.

The Lithuanian market is experiencing weak development due to delayed EU investments in public infrastructure, water and environment. The EU investments were initiated gradually during the quarter and are expected to increase. The Czech market remains challenging, although there is solid demand for Sweco's services. The Polish market is improving and shows good investments in energy, building and water. Demand will be supported once the new round of EU funding becomes fully available.

IN BRIEF

Actual Pro forma Actual Pro forma
Net sales and profit Jul-Sep 2016 Jul-Sep 2015 Jan-Sep 2016 Jan-Sep 2015
Net sales, SEK M 290 220 755 689
Organic growth, % 10
Acquisition-related growth, % 16
Currency, %
EBITA, SEK M 18 32 29
EBITA marain, % 6.2 3.1 4.2 4.3
Number of full-time employees 1,482 1.406 1,438 1,415

SWECO

OTHER INFORMATION

PARENT COMPANY, JANUARY-SEPTEMBER 2016

Parent Company net sales totalled SEK 389 million (261) and were attributable to intra-group services. Profit after net financial items totalled SEK 26 million (49). Investments in equipment totalled SEK 14 million (29). Cash and cash equivalents at the end of the period totalled SEK 284 million (3).

ACCOUNTING PRINCIPLES

Sweco complies with the International Financial Reporting Standards (IFRS) and interpretive statements from the International Financial Reporting Interpretations Committee (IFRIC), as adopted by the EU. This interim report was prepared in accordance with IAS 34, Interim Reporting; the Swedish Annual Accounts Act; and the Swedish Financial Reporting Board's RFR 2, Reporting for Legal Entities.

The Group applies the same accounting and valuation principles as those described in Note 1 of the 2015 annual report. In this interim report, amounts in brackets refer to the corresponding period of the previous year. Because table items are individually rounded off, table figures do not always tally. The interim report comprises pages $1 - 17$ ; interim financial information presented on pages 1-17 is therefore part of this financial report.

DEFINITIONS

As of third quarter 2016 Sweco follows the new guidelines from ESMA (European Securities and Markets Authority) regarding APMs (Alternative Performance Measures). In brief, these are measures of historical or ongoing operating results and financial performance that are not specified or defined in IFRS. The presentation of non-IFRS financial measures is limited as an analytical tool and should not be used as a substitute for our key ratios pursuant to IFRS. Sweco believes that the APM's will enhance the investor's evaluation of our ongoing operating results, aid in forecasting future periods and facilitate meaningful comparison of results between periods. The non-IFRS financial measures presented in this report may differ from similarly titled measures used by other companies. A complete list of all Sweco's definitions can be found on our website: http://www.sweco.se/en/IR/definitions/.

Key ratio calculations that cannot be obtained directly from the income statement and balance sheet can be found on page 17 (revenue growth) and page 16 (EBITA excluding extraordinary items).

THE SWECO SHARE

The Sweco share is listed on Nasdag Stockholm. The share price of the Sweco B share was SEK 176.8 at the end of the period, representing a 21 per cent increase during the quarter. The Nasdaq Stockholm General Index increased by 10 per cent over the same period.

The total number of shares at the end of the period was 121,983,819: 10,533,731 Class A shares, 110,550,088

Class B shares and 900,000 Class C shares. The total number of outstanding shares was 119,624,270: 10.533.731 Class A shares and 109.090.539 Class B shares.

RISKS AND UNCERTAINTIES

Significant risks and uncertainties affecting the Sweco Group and the Parent Company include business risks associated with the general economic trend and investment spending in various markets, the capacity to attract and retain skilled personnel and the effects of political decisions. The Group is also exposed to various types of financial risks, such as foreign currency, interest rate and credit risks. No significant risks are deemed to have arisen apart from the risks detailed in Sweco's 2015 annual report (page 90, Risks and Risk Management).

SEASONALITY

The number of normal working hours in 2016, based on the pro forma 12-month sales-weighted business mix as of Q3 2015, is broken down as follows:

2016 2015
Quarter 1: 478 488 $-10$
Quarter 2: 490 469 $+21$
Quarter 3: 518 519 -1
Quarter 4: 493 492 $+1$
Total: 1,979 1,968 $+11$

The number of normal working hours in 2017, based on the 12-month sales-weighted business mix as of September 2016, is broken down as follows:

2017 2016
Quarter 1: 506 478 +28
Quarter 2: 464 490 -26
Quarter 3: 511 518 -7
Quarter 4: 490 493 -3
Total: 1.971 1.979 -8

FORTHCOMING FINANCIAL INFORMATION

Year-end report 2016 14 February 2017 Interim report January-March 11 May 2017 Interim report January-June 20 July 2017 Interim report January-September 27 October 2017

Stockholm, 28 October 2016

Tomas Carlsson President and CEO, Member of the Board of Directors

FOR FURTHER INFORMATION, PLEASE CONTACT: Tomas Carlsson, President and CEO Phone +46 8 695 66 60 / +46 70 552 92 75 [email protected]

Jonas Dahlberg, CFO Phone +46 8 695 63 32 / +46 70 347 23 83 [email protected]

SWECO AB (publ) Org. nr. 556542-9841 Gjörwellsgatan 22, Box 34044, 100 26 Stockholm, Phone: +46 8 695 60 00 Email: [email protected] www.swecogroup.com

SWECOX

AUDITOR'S REPORT

This is the Auditor's review report on interim financial information, prepared in accordance with IAS 34 and chapter 9 of the Swedish Annual Accounts Act.

INTRODUCTION

We have reviewed the interim report of Sweco AB (publ) for the period 1 January 2016 through 30 September 2016. The board of directors and the President and CEO are responsible for the preparation and presentation of the interim financial statements in accordance with IAS 34 and the Swedish Annual Accounts Act. Our responsibility is to express an opinion on the interim financial statements based on our review.

FOCUS AND SCOPE OF REVIEW

We conducted our review in accordance with International Standard on Review Engagements (ISRE) 2410, Review of Interim Financial Information Per-formed by the Independent Auditor of the Entity. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review has a different focus and a substantially smaller scope than an audit conducted in accordance with International Standards on Auditing and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

CONCLUSION

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim financial information is not prepared, in all material respects, in accordance with IAS 34 and the Swedish Annual Accounts Act and, for the Parent Company, in accordance with the Swedish Annual Accounts Act.

Stockholm, 28 October 2016 PricewaterhouseCoopers AB

Michael Bengtsson Authorised public accountant Auditor in charge

KEY RATIOS, ACTUAL

Key ratios 1) Jul-Sep 2016 Jul-Sep 2015 Jan-Sep 2016 Jan-Sep 2015 Oct 2015-
Sep 2016
Full-year 2015
Profitability
EBITA margin, % 6.8 5.4 7.8 7,7 6.9 6.5
Operating margin (EBIT), % 6.1 4.7 7.2 7.1 6.4 6.0
Profit margin, % 5.9 4.5 7.0 6.9 6.1 5.6
Revenue growth 2)
Organic growth, % 4 3 4 6 6
Acquisition-related growth, % 77 0 69 0 18
Currency, % $\overline{3}$ $-2$ $-1$ 0 0
Total growth, % 84 $\mathbf{1}$ 72 6 24
Debt
Net debt, SEK M 2,315 1.741 1.688
Interest-bearing debt, SEK M 2,767 1.833 2,232
Financial strength
Net debt/Equity, % 45.0 87.9 34.4
Net debt/EBITDA, x 1.6 1.8 1.8
Equity/Assets ratio, % 37.8 29.8 39.0
Available cash and cash equivalents, SEK M 1.552 625 2,229
-of which unutilised credit, SEK M 1,100 533 1.685
Return
Return on equity, % 20.8 30.2 12.9
Return on capital employed, % 18.0 20.7 13.2
Share data 3)
Earnings per share, SEK 3) 1.38 0.61 5.47 3.67 6.27 4.36
Diluted earnings per share, SEK3) 1.36 0.61 5.39 3.62 6.17 4.30
Equity per share, $SEK^{3,4}$ 42.87 18.17 40.98
Diluted equity per share, SEK3,4) 42.04 17.94 40.49
Number of outstanding shares at reporting 119,624,270 104,524,697 119,537,510
date
Number of repurchased Class B and Class C
2,359,549 1,442,769 1,557,320
shares

1) Key ratio definitions are available on Sweco's website. Key ratios in this table refer to the consolidated accounts (not pro forma).
2) See page 17 for details on Sweco's calculation of revenue growth.
3) Histori

swEco 爸

CONSOLIDATED INCOME STATEMENT AND COMPREHENSIVE INCOME STATEMENT

Income Statement Oct 2015-
SEK M Jul-Sep 2016 Jul-Sep 2015 Jan-Sep 2016 Jan-Sep 2015 Sep 2016 Full-year 2015
Net sales 3.723 2,024 12,111 7,039 16,461 11,389
Other income 0 0 0 0
Other external expenses $-987$ $-549$ $-2,955$ $-1,707$ $-4,126$ $-2,877$
Personnel expenses $-2,417$ $-1,326$ $-8,012$ $-4,670$ $-10,923$ $-7,581$
EBITDA 319 149 1,143 662 1,412 931
Amortisation/depreciation and $-67$ $-41$ $-202$ $-121$ $-271$ $-190$
impairments
EBITA 252 109 941 541 1,141 740
Acquisition-related items 1) $-23$ $-14$ $-70$ -39 $-90$ -60
Operating profit (EBIT) 228 94 871 501 1,051 681
Net financial items $-9$ $-4$ $-28$ $-17$ $-52$ -41
Profit before tax 219 90 843 484 999 640
Income tax $-53$ $-29$ $-188$ $-130$ $-258$ $-200$
PROFIT FOR THE PERIOD 166 61 655 354 741 439
Attributable to:
Parent Company shareholders 166 61 655 353 740 438
Non-controlling interests 0 0 O
Earnings per share attributable to Parent
Company shareholders, SEK 2)
1.38 0.61 5.47 3.67 6.27 4.36
Average number of shares 2)
Dividend per share, SEK 2)
119,624,270 99,429,369 119,598,114 96.108,914 118,062,022 100,445,122
3.50

1) Acquisition-related items are defined as amortisation and impairment of goodwill and acquisition-related intangible assets, revaluation of additional purchase price, and
profit and loss on the divestment of companies

Consolidated income statement and other comprehensive
income, SEK M
Jul-Sep
2016
Jul-Sep
2015
Jan-Sep
2016
Jan-Sep
2015
Oct 2015-
Sep 2016
Full-year
2015
Profit for the period 166 61 655 354 741 439
Items that will not be reversed in the income statement
Revaluation of defined benefit pensions, net after tax 1,3) $-1$ $-21$ $-31$ 21 $-7$ 45
Items that may subsequently be reversed in the income state-
ment
Revaluation of Grontmij NV holding, net after tax 2) 12 12 12
Translation differences, net after tax 63 $-2$ 50 $-27$ $-15$ $-92$
Translation differences transferred to profit for the period 4 4 5
COMPREHENSIVE INCOME FOR THE PERIOD 227 55 674 364 720 410
Attributable to:
Parent Company shareholders 225 55 672 363 718 409
Non-controlling interests 0
$1)$ Tax on revaluation of defined benefit pensions 8 9 -8 -16
2) Tax on revaluation of Grontmij NV holding -3 -3 -3

$^{\overline{3})}$ Revalued annually. Reviewed quarterly in the event of material changes to actuarial assumptions.

swEco

CONSOLIDATED BALANCE SHEET, STATEMENTS OF CONSOLIDATED CASH FLOW AND CHANGES IN EQUITY

Cash flow statement Oct 2015-
SEKM Jul-Sep 2016 Jul-Sep 2015 Jan-Sep 2016 Jan-Sep 2015 Sep 2016 Full-year 2015
Cash flow from operating activities before
changes in working capital and tax paid
358 193 1,179 689 1,442 952
Tax paid $-35$ $-27$ $-170$ $-142$ $-185$ $-157$
Changes in working capital 7 $-119$ $-700$ $-303$ $-52$ 345
Cash flow from operating activities 330 47 309 244 1,205 1,140
Cash flow from investing activities $-53$ $-335$ $-292$ $-440$ $-1.292$ $-1,440$
Cash flow from financing activities $-146$ 298 $-108$ 123 476 707
CASH FLOW FOR THE PERIOD 131 10 $-91$ $-73$ 389 407
Balance sheet
SEKM 30 Sep 2016 30 Sep 2015 31 Dec 2015
Goodwill 5,979 2.131 5,752
Other intangible assets 366 101 416
Property, plant and equipment 640 412 639
Financial assets 183 364 157
Current assets excl. cash and cash equivalents 5,981 3.540 5.068
Cash and cash equivalents incl. short-term investments 452 92 544
TOTAL ASSETS 13,601 6,640 12,575
Equity attributable to Parent Company shareholders 5.129 1,971 4,899
Non-controlling interests 10 10 9
Total equity 5.139 1.981 4,907
Non-current interest-bearing liabilities 2,552 1,368 1,985
Other non-current liabilities 747 289 715
Current interest-bearing liabilities 215 465 246
Other current liabilities 4,948 2,536 4,722
TOTAL EQUITY AND LIABILITIES 13.601 6,640 12,575
Contingent liabilities 631 236 704
Changes in equity
SEKM
Jan-Sep 2016 Jan-Sep 2015
Equity at-
tributable to
Parent
Company
shareholders
Non-
controlling
interests
Total equity Equity at-
tributable to
Parent
Company
shareholders
Non-
controlling
interests
Total equity
Equity, opening balance 4,899 9 4,908 1,874 14 1,888
Comprehensive income for the period 674 675 363 364
Transfer to shareholders $-418$ $-1$ $-419$ $-318$ $-1$ $-319$
Acquisition of non-controlling interests $-12$ $-3$ $-15$
Preferential rights issue $-2$ $-2$
Divestments of non-controlling interests $\mathbf{1}$ $-1$ $-1$
Buy-back of treasury shares $-114$ $-114$
Sales of treasury shares 3 17 17
Share-based incentive schemes 83 83 44 44
Share savings schemes 4 4 3 3
EQUITY, CLOSING BALANCE 5,129 10 5,139 1,971 10 1,981

SWECOX

ACQUISITIONS, DIVESTMENTS, ACQUISITION RELATED ITEMS AND FAIR VALUE OF FINANCIAL INSTRUMENTS

ACQUISITION OF SUBSIDIARIES AND OPERATIONS

During the period Sweco acquired Petro Team Engineering AB, Sletten AS and Ludes Generalplaner GmbH and expanded its participation in Par 2 Ontwikkeling B.V. to 100 per cent (previously owned 50 per cent). Sweco also acquired operations within Altenia Oy. The acquired businesses have an aggregate total of 116 employees. Purchase consideration totalled SEK 154 million and had a negative impact on cash and cash equivalents of SEK 136 million. The acquisitions impacted the consolidated balance sheet as detailed in the table below. Of the unsettled purchase price commitment of SEK4 million, SEK 2 million refers to conditional contingent consideration. During the period the acquired companies contributed SEK 67 million in sales and SEK 7 million in operating profit (EBIT). If all of the companies had been owned as of 1 January 2016 they would have contributed approximately SEK 102 million in sales and about SEK 3 million in operating profit. The table also contains revaluation of the Grontmij-acquisition that mainly affects intangible assets with SEK-33 million and current assets with SEK +37 million.

Acquisitions, SEK M
Intangible assets 101
Property, plant and equipment
Financial assets 4
Current assets 344
Non-current liabilities $-9$
Deferred tax $-4$
Other current liabilities $-283$
Total purchase consideration 154
Unsettled purchase price commitment $-3$
Cash and cash equivalents $-15$
DECREASE IN GROUP CASH AND CASH EQUIVALENT 136

DIVESTMENT OF SUBSIDIARIES AND OPERATIONS

During the period Sweco divested businesses within Sweco Nederland BV and Park Frederiksoord B.V. with an aggregate total of 38 employees. The businesses contributed SEK 5 million in sales and SEK 0 million in operating profit. The divestments had a positive impact on profit of SEK 0.5 million and a positive impact on the Group's cash and cash equivalents of SEK 9 million. The divestments impacted the consolidated balance sheet as detailed below.

Divestments, SEK M
Property, plant and equipment
Current assets
Non-current liabilities
Non-controlling interest
Capital gain recorded on divestment
Total purchase consideration
Cash and cash equivalents in divested companies
INCREASE IN GROUP CASH AND GROUP EQUIVALENTS

ACQUISITION-RELATED ITEMS

Acquisition-related items
SEK M
Jul-Sep 2016 Jul-Sep 2015 Jan-Sep 2016 Jan-Sep 2015 Oct 2015-
Sep 2016
Full-year 2015
Intangible assets capitalised on
acquisition, amortisation
$-23$ $-12$ $-70$ $-37$ $-91$ -57
Revaluation of purchase price -
Profit/loss on sale ÷ -5 -5
ACQUISITION-RELATED ITEMS $-23$ -14 $-70$ -39 -90 -60

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Group's financial assets measured at fair value totalled SEK 15 million (302). The derivative instruments are forward currency contracts, the fair value of which are determined based on listed prices for forward currency contracts on the balance sheet date (Level 2). The fair value of unlisted financial assets is determined through market valuation techniques (observable market inputs) such as recent transactions, listed prices of similar instruments and discounted cash flows. In the event no reliable inputs are available for determining fair value, financial assets are reported at acquisition value (Level 3). There were no transfers between levels during the period.

swECo Y

QUARTERLY REVIEW PER BUSINESS AREA

Sweco has restated historical figures to reflect the new Sweco Group organisational structure, effective as of 1 October 2015. Grontmij is included pro forma as if the acquisition had taken place on 31 December 20131).

Quarterly summary 2) Actual
2016 03
Actual
2016 02
Actual
2016 01
Actual
2015 04
Pro forma
2015 03
Pro forma
2015 02
Pro forma
2015 01
Pro forma
2014 04
Net sales, SEK M
Sweco Sweden 1.481 1,935 1,758 1,921 1,390 1,795 1,732 1,768
Sweco Norway 457 568 499 508 401 551 531 521
Sweco Finland 408 477 432 488 375 408 392 417
Sweco Denmark 334 361 330 365 320 331 334 328
Sweco Netherlands 434 455 423 450 445 465 471 496
Sweco Western Europe 365 396 398 428 389 393 384 362
Sweco Central Europe 290 244 221 262 220 245 224 258
Group-wide, Eliminations, etc. $-44$ $-66$ $-45$ $-73$ $-36$ $-68$ -44 $-43$
TOTALT GROUP 3,723 4,370 4,018 4,350 3,504 4,120 4,024 4,107
EBITA, SEK M
Sweco Sweden 129 280 170 211 91 186 184 223
Sweco Norway $40\,$ 68 29 52 24 44 40 58
Sweco Finland 35 42 21 35 27 10 17 3
Sweco Denmark 27 23 4 28 18 $-8$ 0 $-5$
Sweco Netherlands $-4$ 12 18 $-1$ 12 0 14 21
Sweco Western Europe 18 33 23 25 22 23 13 20
Sweco Central Europe 18 11 3 19 $\overline{\phantom{a}}$ 11 12 19
Group-wide, Eliminations, etc. $-12$ $-9$ $-40$ $-170$ $-63$ $-79$ $-23$ -58
EBITA 252 462 228 200 138 187 257 281
Extraordinary items 3) 15 12 36 190 59 70 $\mathbf{1}$ 58
EBITA excl. extraordinary items 266 474 263 390 197 257 258 339
EBITA-margin, %
Sweco Sweden 8.7 14.5 9.7 11.0 6.6 10.4 10.6 12.6
Sweco Norway 8.8 12.0 5.8 10.2 6.1 8.0 7.5 $11.0\,$
Sweco Finland 8.6 8.8 4.8 $7.1\,$ 7.3 2.5 4.2 0.8
Sweco Denmark 8.0 6.5 1.2 7.7 5.6 $-2.3$ 0.1 $-1.4$
Sweco Netherlands $-0.8$ 2.7 4.4 $-0.3$ 2.6 0.1 2.9 4.2
Sweco Western Europe 5.0 8.4 5.9 5.9 5.7 5.8 3.4 5.5
Sweco Central Europe 6.2 4.7 1.1 7.4 3.1 4.3 5.4 7.4
EBITA-margin 6.8 10.6 5.7 4.6 3.9 4.5 6.4 6.8
Extraordinary items 3 ) 0.4 0.2 0.9 4.4 1.7 1.7 0.0 $1.5\,$
EBITA-margin excl. extraordinary
items
7.2 10.8 6.6 9.0 5.6 6.2 6.4 8.3
Billing ratio, % 74.6% 75.1% 74.5% 74.7% 74.1% 74.8% 73.2% 73.8%
Number of normal working hours 518 490 478 492 519 469 488 486
Number of full-time emplovees 14.468 14.804 14.589 14.621 14.339 14.707 14.557 14.565

1)Pro forma information is based on the consolidated income statements for fourth quarter 2014 and the first three quarters of 2015 for Sweco and
Grontmij, respectively. Sweco and Grontmij both apply IFRS. Financial pro Sweco's accounting policies as described in Sweco's 2015 annual report. Grontmij's financials have been adjusted to correspond with Sweco's income statement presentation. Pro forma information is only intended to describe a hypothetical situation and has been prepared solely for illustrative purposes.

2) Pro forma information excludes Grontmij's French activities which were divested during 2015 and reported by Grontmij as Assets held for sale.
Group-wide, Eliminations, etc. includes Group functions, the operations in Ch

3) Extraordinary items include Sweco's and Grontmij's extraordinary items to the extent they are part of Sweco's definition of EBITA. All extraordinary items are included in Group-wide.

swEco

PERIOD REVIEW PER BUSINESS AREA

Number of full-time
January-September Net sales, SEK M EBITA, SEK M EBITA-margin,% employees
Business area Actual Pro forma Actual Pro forma Actual Pro forma Actual Pro forma
2016 2015 2016 2015 2016 2015 2016 2015
Sweco Sweden 5.174 4.916 579 461 11.2 9.4 5.441 5.325
Sweco Norway 1,525 1.484 137 109 9.0 7.3 1,343 1,327
Sweco Finland 1,317 1.176 98 54 7.4 4.6 2,000 1.914
Sweco Denmark 1.024 985 54 11 5.3 1.1 1,090 1.115
Sweco Netherlands 1.312 1.380 27 26 2.1 1.9 1.504 1.682
Sweco Western Europe 1.159 1,167 75 58 6.5 5.0 1.694 1.606
Sweco Central Europe 755 689 32 29 4.2 4.3 1.438 1.415
Group-wide, Eliminations, etc. 1) $-155$ $-148$ $-61$ $-166$ $\overline{\phantom{a}}$ $\overline{\phantom{a}}$ 105 147
TOTAL GROUP 12,111 11.649 941 581 7.8 5.0 14,615 14,531

1)Group-wide, Eliminations, etc. includes Group functions, the operations in China, and Grontmij's real estate operations. All extraordinary items are included in Group-wide.

REVENUE GROWTH

Revenue growth, pro forma Actual 2016
Jul-Sep
Pro forma
2015
Jul-Sep
Growth.%
Jul-Sep
Actual 2016
Jan-Sep
Pro forma
2015
Jan-Sep
Growth, %
Jan-Sep
Net sales 3,723 3.504 6% 12.111 11.649 4%
Currency effects 83 2% -58 0%
Net sales currency-adjusted 3,723 3.587 4% 12,111 11.591 4%
Acquisitions/divestments $-41$ $-17$ 1% $-77$ -46 0%
Comparable net sales currency-adjusted 3.683 3.570 3% 12,033 11.544 4%
Revenue growth, actual Actual 2016
Jul-Sep
Actual 2015
Jul-Sep
Growth.%
Jul-Sep
Actual 2016
Jan-Sep
Actual 2015
Jan-Sep
Growth, %
Jan-Sep
Net sales 3,723 2.024 84% 12,111 7.039 72%
Currency effects 57 3% -36 $-1\%$
Net sales currency-adjusted 3,723 2.081 79% 12.111 7.003 73%
Acquisitions/divestments $-41$ 1.463 77% $-77$ 4.563 69%
Comparable net sales currency-adjusted 3.683 3.544 4% 12,033 11.566 4%

PARENT COMPANY INCOME STATEMENT AND BALANCE SHEET

Parent Company income statement, SEK M Jan-Sep 2016 Jan-Sep 2015 Full-year 2015
Net sales 389 261 355
Operating expenses $-447$ $-278$ -399
Operating loss $-57$ -17 -44
Net financial items 83 66 508
Profit/loss after net financial items 26 49 464
Appropriations $\overline{\phantom{a}}$ $-20$
Profit/loss before tax 26 49 444
Tax $\overline{\phantom{a}}$ $-61$
PROFIT/LOSS AFTER TAX 26 49 383
Parent Company balance sheet, SEK M 30 Sep 2016 31 Dec 2015
Intangible assets 78 81
Property, plant and equipment 44 50
Financial assets 6,287 6,348
Current assets 1,707 1,911
TOTAL ASSETS 8,117 8,390
Equity 4,209 4,619
Untaxed reserves 23 23
Non-current liabilities 2,258 2,083
Current liabilities 1.628 1.665
TOTAL EQUITY AND LIABILITIES 8,117 8,390

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