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Sweco

Annual Report Feb 14, 2017

2977_10-k_2017-02-14_7efb67a6-ea85-416c-933d-d762f9c94d29.pdf

Annual Report

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14 February 2017

THE STRONGEST QUARTER TO DATE CONCLUDES A RECORD YEAR

OCTOBER - DECEMBER 2016

  • Net sales increased to SEK 4,421 million (4,350), acquired growth was 1 per cent
  • EBITA excluding extraordinary items increased to SEK 478 million (390), margin 10.8 per cent (9.0)
  • EBITA increased to SEK 395 million (200), margin 8.9 per cent (4.6)
  • EBIT increased to SEK 378 million (179), margin 8.6 per cent (4.1)
  • Profit after tax increased to SEK 276 million (86), corresponding to SEK 2.30 per share (0.75)

JANUARY - DECEMBER 2016

  • Net sales increased to SEK 16,531 million (11,389), acquired growth was 42 per cent
  • EBITA excluding extraordinary items increased to SEK 1,482 million (991), margin 9.0 per cent (8.7)
  • EBITA increased to SEK 1,336 million (740), margin 8.1 per cent (6.5)
  • EBIT increased to SEK 1,249 million (681), margin 7.6 per cent (6.0)
  • Net debt decreased to SEK 1,558 million (1,688)
  • Net debt/EBITDA decreased to 1.0 times (1.8). Net debt/EBITDA pro forma and excluding extraordinary items was 0.9 times (1.2)
  • Profit after tax increased to SEK 931 million (439), corresponding to SEK 7.78 per share (4.36)
  • The Board of Directors proposes a dividend distribution of SEK 4.30 per share (3.50)

COMMENTS FROM PRESIDENT AND CEO TOMAS CARLSSON:

Sweco is ending a record year with its strongest quarter to date. EBITA excluding extraordinary items is up 35 per cent for the full year and 23 per cent for the quarter, compared with last year's pro forma. The improvement is mainly due to synergies from the Grontmij integration.

Synergies are estimated to be 20 per cent higher and realised in half the time relative to initial estimates, while extraordinary items are expected to be 11 per cent lower. Close to 90 per cent of the synergies and essentially all extraordinary items were realised by the end of the quarter. With the integration largely completed, this is the last report in which we will comment on the Grontmii integration in detail.

Our focus forward is on Sweco's further development. With a strong financial position and as the market-leading architecture and engineering consultancy in Europe. Sweco is well positioned for continued value-creating growth. Our strategy for the future is to repeat our history. Sweco's operational model remains focused on customers, internal efficiency and having the best people in our business. We will continue to expand our Northern European footprint, through acquisitions and organic growth.

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.

SWECOX

PROFIT AND OPERATIONS

OCTOBER-DECEMBER

Net sales increased 2 per cent to SEK 4,421 million (4,350). Organic growth was 1 per cent.

EBITA excluding extraordinary items increased by SEK 88 million. All business areas increased EBITA year-on-year. Sweden in particular contributed positively with an improvement of SEK 62 million, resulting in an EBITA margin of 13.8 per cent. Denmark also contributed strongly with an improvement of SEK 16 million, improving the EBITA margin from 7.7 per cent to 12.5 per cent.

In total, synergies from the Grontmij integration contributed approximately SEK 69 million to EBITA (17) 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.

The billing ratio increased 0.6 percentage points to 75.3 per cent (74.7). The improved billing ratio essentially corresponds to realisation of synergies, predominantly through reduction of administrative staff.

Calendar effects had an impact of +1 working hour, producing a positive year-on-year effect on sales and EBITA of SEK 10 million.

Extraordinary transaction-, integration- and restructuring-related items associated with the Grontmii acquisition totalled SEK-83 million (-190) and are reported in the Group-wide segment.

EBITA was SEK 395 million (200).

Amortisation of acquisition-related intangible assets amounted to SEK 22 million (20). EBIT amounted to SEK 378 million (179).

Net financial items improved to SEK-5 million (-23) mainly due to positive exchange gains on currency hedging derivatives.

Profit after tax increased to SEK 276 million (86).

Earnings per share increased to SEK 2.30 per share $(0.75)$ .

Key ratios, pro forma Actual
Oct-Dec 2016
Actual
Oct-Dec 2015
Actual
Full-year 2016
Pro forma
Full-year 2015
Net sales, SEK M 4,421 4,350 16,531 15,998
Organic growth, %
EBITA, excl. extraordinary items, SEK M 478 390 1.482 1.100
Marain, % 10.8 9.0 9.0 6.9
Number of full-time employees 14,765 14,621 14,653 14,552
Billing ratio 75.3% 74.7% 74.9% 74.2%
Normal working hours 493 492 1.979 1.968
Net debt/EBITDA excl. extraordinary items 0.9 1.2
Key ratios, Actual Actual
Oct-Dec 2016
Actual
Oct-Dec 2015
Actual
Full-year 2016
Actual
Full-year 2015
Net sales, SEK M 4.421 4.350 16.531 11.389
Acquisition-related growth, % 64 42 18
EBITA, excl. extraordinary items, SEK M 478 390 1,482 991
Marain, % 10.8 9.0 9.0 8.7
EBITA, SEK M 395 200 1,336 740
Margin, % 8.9 4.6 8.1 6,5
Profit after tax, SEK M 276 86 931 439
Earnings per share, SEK* 2.30 0.75 7.78 4.36
Number of full-time employees 14,765 14.621 14,653 10,188
Not dobt/FRITDA 1 n 1 R

* 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 SEK million Actua

PRO FORMA, JANUARY-DECEMBER

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 to SEK 16.531 million (15.998). Organic growth was 3 per cent.

Synergies contributed approximately SEK 222 million (17) to EBITA.

Calendar effects had a positive impact of 11 hours and contributed SEK 67 million to sales and profit compared with last year. Adjusted for calendar effects, organic growth remained essentially unchanged at 3 per cent.

EBITA excluding extraordinary items totalled SEK 1.482 million (1.100). Extraordinary items totalled SEK-146 million (-319) and are reported in the Group-wide segment.

The billing ratio increased to 74.9 per cent (74.2).

ACTUALS, JANUARY-DECEMBER

Net sales increased 45 per cent to SEK 16,531 million (11,389). Acquisition-based growth was 42 per cent and is almost exclusively attributable to the Grontmijacquisition.

Extraordinary items were SEK-146 million (-250) and EBITA thus totalled SEK 1,336 million (740).

Amortisation of acquisition-related intangible assets increased to SEK 92 million (57). The increase is primarily a result of the Grontmij acquisition and impacted EBIT, which totalled SEK 1,249 million (681).

Net financial items amounted to SEK-33 million (-41). Profit after tax increased to SEK 931 million (439).

Earnings per share increased to SEK 7.78 per share $(4.36)$ .

EXAMPLES OF NEW PROJECTS

In Poland, Sweco has signed two contracts with the Regional Water Management Authorities, in Wrocław and Szczecin to provide consulting services for the Odra-Vistula Flood Management Project. The project, which is being co-financed by the World Bank, aims to improve flood protection for people living in the area. The

EBITA by quarter and rolling 12 months SEK million. Actua

combined value of the contracts is approximately SEK 265 million.

In Sweden, Sweco has been commissioned by BillerudKorsnäs for construction management of a new board machine and structural engineering for redesign of the existing pulp mill at Gruvön. The result will be a packaging facility that contributes to reducing fossil dependency and climate impact, while improving food safety. The new board machine will have an annual production capacity of 550,000 tonnes, making it one of the largest in the world. According to BillerudKorsnäs, the entire investment totals SEK 5.7 billion. Sweco has a leading role in nearly all major and recent forest industry projects in the Nordics, including the expansion of SCA's Östrand and Södra Cell's Värö and Mörrum mills in Sweden and Metsä Fibre's Äänekoski mill in Finland.

During the quarter, the Gävleborg Region in Sweden commissioned Sweco to modernise Gävle hospital. The result will be a hospital that meets today's high standards for attractive care facilities, modern technology and patient security. Sweco's experts in areas ranging from architecture to structural and building services will participate in the project. The hospital is scheduled to begin operations in 2021. Sweco has extensive experience in healthcare projects throughout Europe, with recent examples including New Karolinska Hospital and Sahlgrenska University Hospital in Sweden, Kajana Central Hospital in Finland, Rigshospitalet and Glostrup in Denmark and the Charité University Hospital in Germany. In January Sweco announced that it will provide planning services for the new radiotherapy building at Klinikum in Stuttgart. further reinforcing Sweco's strong position in the health care and hospital market.

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, with signs of improvement.

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 events are risks to the development.

There is uncertainty following the EU referendum ("Brexit") in the UK and potential consequences to the general European economy may impact Sweco.

Sweco does not provide forecasts.

EVENTS DURING THE QUARTER

On 19 October Sweco announced that it would acquire Jo. Franzke, a German architectural firm with 44 emplovees. The acquisition was finalised and consolidated in Sweco's accounts as of 31 December.

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

On 25 October the Enterprise Chamber of Amsterdam (Ondernemingskamer) issued a decision on a statutory buy-out procedure and ordered all remaining Grontmij N.V. shareholders to transfer their shares to Sweco. The payment and transfer of the outstanding shares was finalised in November, whereafter Sweco holds 100 per cent of the shares.

During the quarter, Sweco divested its operations in China. This divestment had no significant impact on Group profit and position.

EVENTS AFTER THE QUARTER

On 11 January Dariush Rezai was announced as the new president of Sweco Denmark, starting 1 April 2017 at the latest.

On 6 February Sweco announced that it is acquiring the Finnish business of Karves Yhtiöt Ltd and the total share capital of its subsidiaries Karves Suunnittelu Ltd and Karves Energia & Valvonta Ltd. The companies have more than 50 employees. Sweco is thereby further strengthening its offering and presence in the Finnish market.

ACQUISITION OF GRONTMIJ

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

The acquisition has proved to be a perfect match and has created value for all stakeholders - customers, employees, shareholders and society in general. It has contributed to the best yearly performance to date and Sweco now holds a leadership position in seven Northern European countries. With the integration mainly

completed, focus forward will be on continuous operational improvements and profitable growth.

Consequently, this is the last quarterly report in which Sweco will comment on the integration. Going forward, synergies and integration costs will not be reported separately.

One year after closing. Sweco conducted a thorough review of the integration plan. The updated estimate was presented in the third quarter report and shows outperformance against all previously communicated key financials.

The updated financial estimates are:

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

The annual run rate of cost synergies at the end of the fourth quarter was approximately SEK 263 million, an increase from SEK 250 million at the end of third quarter 2016. Cost synergies made a positive contribution of approximately SEK 69 million (17) to EBITA during the fourth quarter and SEK 222 million (17) 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 a lower price. The new central IT organisation has been implemented. Local IT integrations in Sweden, Denmark and the Netherlands have been completed. IT integration in Belgium 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 have been realised
  • 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

SWECO

Country-specific operational improvements (approximately 30 per cent of cost-saving potential): 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 ongoing. Reductions in the Dutch consultant organisation commenced during fourth quarter 2015. Measures taken in the Netherlands involved a downsizing of operations during 2016, with sales and profitability expected to stabilise from 2017

A total reduction of approximately 200 positions is expected within the Group due to integration and restructuring. Notice has been given in most cases, and 192 of these employees have left the Group by the end of the period.

Extraordinary items totalled SEK-83 million in the fourth quarter and -146 million for the full year. To date, total extraordinary items for the entire acquisition amount to SEK-396 million. All extraordinary items are reported in the Group-wide segment.

While the short-term cost synergies have now been largely realised, 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.

Sweco continues to work towards the vision of becoming Europe's most respected knowledge company in the fields of consulting engineering, environmental technology and architecture.

CASH FLOW AND FINANCIAL POSITION

Group cash flow from operating activities totalled SEK 1,165 million (1,140). Net debt decreased to SEK 1,558 million (1.688).

The net debt/EBITDA ratio was 1.0 times (1.8). Pro forma and adjusted for extraordinary items, the net debt/EBITDA ratio was 0.9 times (1.2).

Available cash and cash equivalents, including unutilised credit lines, totalled SEK 2.138 million (2.229) at the end of the reporting period.

INVESTMENTS, JANUARY-DECEMBER 2016 Investments in equipment totalled SEK 213 million (179) and were primarily attributable to IT investments. Depreciation of equipment totalled SEK 219 million (168) and amortisation of intangible assets totalled SEK 134 million (75).

Purchase consideration paid to acquire companies and operations totalled SEK 175 million (3,368) and had a negative impact of SEK 152 million (-1.246) on Group cash and cash equivalents. Purchase consideration received for the divestment of companies and operations totalled SEK 10 million (6) and had a positive impact of SEK 7 million (2) on Group cash and cash equivalents. Repurchases of Sweco shares totalled SEK 126 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.

ACQUISITION-RELATED INTANGIBLE ASSETS Acquisition-related intangible assets will be amortised pursuant to the following schedule, based on acquisition to date:

2016 Actuals
2017 Estimate
2018 Estimate
2019 Estimate

SEK-92 million SEK-62 million SEK-54 million SFK-28 million

BUSINESS AREAS

PRO FORMA ACCOUNTS, OCTOBER-DECEMBER

Business areas are reported on a pro forma basis following the new organisation as of 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, OCTOBER-DECEMBER

EBITA increased by 29 per cent to SEK 273 million and the EBITA margin improved 2.8 per cent points to 13.8 per cent. The improvement to EBITA is mainly due to lower project write-downs, a positive calendar effect, an increased fee level and synergies realised within administrative overhead.

Organic growth was 3 per cent during the quarter. The calendar effect of +8 hours had a positive year-on-year impact of SEK 23 million on net sales and EBITA.

The Swedish market remains strong. There is strong demand in the construction and real estate sector, particularly in the larger cities. 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 the energy generation market is weak.

IN BRIEF

Net sales and profit Actual
Oct-Dec 2016
Actual
Oct-Dec 2015
Actual
Full-year 2016
Pro forma
Full-year 2015
Net sales, SEK M 1,974 1,921 7.148 6.838
Organic growth, %
Currency, % Ω
EBITA, SEK M 273 211 852 672
EBITA marain, % 13.8 11.0 11.9 9.8
Number of full-time employees 5.605 5,527 5.482 5,375

SWECO NORWAY

SALES AND PROFIT, OCTOBER-DECEMBER

Organic growth was 4 per cent during the quarter. There was no year-on-year difference in the number of available working hours.

Operating profit improved by SEK 6 million. The defined benefit pension plan was closed during the quarter and replaced with a defined contribution plan. Administrative staff was reduced and the office in Alta was closed. Taken together, these actions had a positive impact on EBITA of SEK 4.5 million.

The Norwegian market is good, but demand is distributed unevenly. Markets in the Oslo region and within public infrastructure remain strong. The private commercial construction market is muted due to low oil prices, while the residential and public construction market is good with strong demand. The markets in southern and western Norway are challenging, while the eastern and northern areas are experiencing moderate growth.

IN RRIFF

Actual Actual Actual Actual
Net sales and profit Oct-Dec 2016 Oct-Dec 2015 Full-year 2016 Full-year 2015
Net sales. SEK M 535 508 2.059 1.991
Organic growth, % 4
Currency, % -8 -5
EBITA, SEK M 58 52 195 161
EBITA margin, % 10.9 10.2 9.5 8.1
Number of full-time employees 1,346 1,323 1,344 1,326

SWECO FINLAND

SALES AND PROFIT, OCTOBER-DECEMBER

EBITA increased by SEK 6 million and the margin improved 1.5 per cent points to 8.6 per cent. The profit improvement is mainly attributable to an increased billing ratio and an increased number of own consultants.

Revenues from own consultants increased organically due to an increased number of employees and an improved billing ratio. However, net sales decreased to SEK 469 million (488). The decline is primarily due to lower revenues from sub consultants and a negative calendar effect. Calendar effects of -6 hours had a negative vear-on-year impact of approximately SEK 5 million on net sales and EBITA.

The Finnish market remains challenging. The Finnish economy has basically had zero GDP growth since 2011 although there are signs of improvement. The demand for Sweco's services is stable with positive signs in 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 Actual Actual Actual
Net sales and profit Oct-Dec 2016 Oct-Dec 2015 Full-year 2016 Full-year 2015
Net sales, SEK M 469 488 1,785 1.663
Organic growth, % -5 17
Currency, % 0
EBITA, SEK M 41 35 138 89
EBITA marain, % 8.6 7.1 5.4
Number of full-time employees 1,936 1.909 1.984 1,913

SWFCO DENMARK

SALES AND PROFIT, OCTOBER-DECEMBER

EBITA increased to SEK 44 million (28) and the EBITA margin improved 4.8 per cent points to 12.5 per cent. The profit improvement is primarily due to an improved billing ratio, higher average fees and a positive calendar effect. Calendar effects of +7 hours had a positive year-on-year impact of SEK 4 million on net sales and EBITA.

Focus during the year has been on improving profitability and reducing unprofitable business. Consequently, net sales in the quarter decreased compared to last year, primarily due to lower revenues from sub consultants.

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 larger cities. The infrastructure market is stable with a weaker demand in road construction. Demand in the water and energy sector is stable with growth in the international water segment exceeding growth in the domestic market.

IN BRIEF
Net sales and profit Actual
Oct-Dec 2016
Actual
Oct-Dec 2015
Actual
Full-year 2016
Pro forma
Full-year 2015
Net sales, SEK M 352 365 1,376 1,350
Organic growth, % -4 11
Currency, % 0
EBITA, SEK M 44 28 98 39
EBITA margin, % 12.5 7.7 7.1 2.9
Number of full-time employees 1.037 1.094 1.077 1.109

SWECO NETHERLANDS

SALES AND PROFIT, OCTOBER-DECEMBER

Sales decreased to SEK 434 million (450). The decline is primarily due to the ongoing restructuring of the Dutch operations, which impacts both organic and acquired growth. A calendar effect of -8 hours had a negative year-on-year impact of approximately SEK 6 million on net sales and EBITA.

EBITA was essentially unchanged. Focus has been on turning around and restructuring the business. The positive impact on profitability has vet 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 crises. The first signs of market stabilisation are visible, particularly within private building construction. Sweco Netherlands delivers services primarily in the areas of public infrastructure, energy, water and public sector buildings. These markets typically lag behind the private construction market and the market remains challenging overall.

Sweco Netherlands introduced a new decentralised customer-focused organisational model in late 2015 and implementation continued throughout 2016 with staff reductions within administration and the consultant organisation.

IN BRIEF

Net sales and profit Actual
Oct-Dec 2016
Actual
Oct-Dec 2015
Actual
Full-year 2016
Pro forma
Full-year 2015
Net sales, SEK M 434 450 1,746 1,831
Organic growth, % $-11$ -0
Acquisition-related growth, % -4 -3
Currency, %
EBITA, SEK M 27 24
EBITA marain, % $-0.1$ -0.3 1.5 1.3
Number of full-time employees 1,503 1.618 1,504 1,666

SWECO WESTERN FUROPE

SALES AND PROFIT, OCTOBER-DECEMBER

EBITA increased to SEK 30 million (25) and the margin improved 1.2 per cent points to 7.1 per cent mainly due to higher average fees and an increased number of own consultants. Net sales decreased by SEK 7 million primarily due to negative currency effects and a negative calendar effect. Calendar effects of -3 hours had a negative year-on-year impact of approximately SEK 2 million on net sales and EBITA.

Demand for Sweco's services in the UK remained good throughout the fourth guarter. The infrastructure market is good and the energy and water markets are stable. Although there are no tangible signs of a slowdown, there is uncertainty about market development following the EU referendum ("Brexit"). 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 generally stable within all market segments. The private and public building markets are improving. The industry market and the public infrastructure markets are good.

Demand is stable in Turkey, while the market in Bulgaria is slow due to delays in EU-funded projects.

IN BRIEF
Net sales and profit Actual
Oct-Dec 2016
Actual
Oct-Dec 2015
Actual
Full-year 2016
Pro forma
Full-year 2015
Net sales, SEK M 421 428 1,580 1.594
Organic growth, % 0 14
Currency, % -7 -4
EBITA, SEK M 30 25 105 83
EBITA margin, % 7.1 5.9 6.6 5.2
Number of full-time employees 1.734 1.653 1,704 1,618

SWECOX

SWECO CENTRAL EUROPE

SALES AND PROFIT, OCTOBER-DECEMBER

Sales increased to SEK 297 million (262) due to double-digit organic growth in Germany and equally strong acquisitive growth, whereas sales from the other countries decreased. A calendar effect of -11 hours had a negative year-on-year impact of approximately SEK 4 million on net sales and EBITAt.

EBITA increased to SEK 26 million (19) and the EBITA margin improved 1.5 percentage points to 8.9 per cent. Improved profits in the existing German business and the acquisition of Ludes during the second quarter mainly contribute to the improvement.

The German market is good overall and is developing positively. The health care and commercial markets are good. Demand is strong 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 third quarter and are expected to increase. The Czech market remains challenging, although there is solid demand for Sweco's services. The Polish market is developing positively and shows good investments in energy, transportation and water.

IN BRIEF

Net sales and profit Actual
Oct-Dec 2016
Actual
Oct-Dec 2015
Actual
Full-year 2016
Pro forma
Full-year 2015
Net sales, SEK M 297 262 1,052 951
Organic growth, %
Acquisition-related growth, % 14 $\overline{\phantom{a}}$
Currency, %
EBITA, SEK M 26 19 58 49
EBITA margin, % 8.9 7.4 5.5 5.1
Number of full-time employees 1,511 1,364 1,457 1,402

SWECO

OTHER INFORMATION

PARENT COMPANY, JANUARY-DECEMBER 2016

Parent Company net sales totalled SEK 538 million (355) and were attributable to intra-group services. Profit after net financial items totalled SEK 488 million (464). Investments in equipment totalled SEK 31 million (36). Cash and cash equivalents at the end of the period totalled SEK 570 million (13).

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 APMs 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 Class B share was SEK 180.20 at the end of the period, representing a 45 per cent increase during the year. The Nasdaq Stockholm General Index increased by 9 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 119,554,270: 10.533.731 Class A shares and 109.020.539 Class B shares.

BOARD PROPOSALS TO THE AGM

Dividend: The Board of Directors proposes that the dividend to be increased to SEK 4.30 per share (3.50). not to exceed a dividend amount of SEK 521 million $(421)$ .

2017 share savings scheme: The Board of Directors proposes that the 2017 AGM resolve to implement a longterm share savings scheme for up to 100 Sweco Group senior executives and other key employees. The proposal is otherwise essentially identical to last year's proposal.

2017 share-based incentive scheme: The Board of Directors also proposes that the 2017 AGM resolve to implement a share-based incentive scheme for employees in Sweden. The proposal is otherwise identical to last year's proposal.

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).

ANNUAL GENERAL MEETING

The 2017 annual general meeting will be held at 3:00 PM on Thursday, 27 April at Näringslivets Hus, Storgatan 19, Stockholm. Sweco's 2016 annual report will be available for shareholder perusal at Sweco's headquarters, Gjörwellsgatan 22, Stockholm, and on the company's website, www.swecogroup.com, approximately three weeks prior to the AGM.

SEASONALITY

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 Interim report January-March 11 May 2017 20 July 2017 Interim report January-June Interim report January-September 27 October 2017 Year-end report 2017 13 February 2018

Stockholm, 14 February 2017

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

This report has not been audited.

KEY RATIOS, ACTUAL

Key ratios 1) Oct-Dec 2016 Oct-Dec 2015 Full-year 2016 Full-year 2015
Profitability
EBITA margin, % 8.9 4.6 8.1 6.5
Operating margin (EBIT), % 8.6 4.1 7.6 6.0
Profit margin, % 8.4 3.6 7.4 5.6
Revenue growth 2)
Organic growth, % $\mathbf{1}$ 8 3 6
Acquisition-related growth, % $\ensuremath{\mathnormal{1}}$ 64 42 18
Currency, % 0 $-2$ 0 0
Total growth, % $\overline{c}$ 70 45 24
Debt
Net debt, SEK M 1,558 1.688
Interest-bearing debt, SEK M 2,451 2,232
Financial strength
Net debt/Equity, % 28.7 34.4
Net debt/EBITDA, x
Equity/Assets ratio, %
1.0
39.3
1.8
39.0
Available cash and cash equivalents, SEK M 2,138 2,229
-of which unutilised credit, SEK M 1,245 1,685
Return
Return on equity, % 18.0 12.9
Return on capital employed, % 16.8 13.2
Share data 3)
Earnings per share, SEK 3) 2.30 0.75 7.78 4.36
Diluted earnings per share, SEK3) 2.26 0.74 7.65 4.30
Equity per share, SEK 3,4) 45.37 40.98
Diluted equity per share, SEK 3,4) 44.47 40.49
Number of outstanding shares at reporting
date
119,554,270 119,537,510
Number of repurchased Class B and Class C
shares
2,429,549 1.557.320

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

CONSOLIDATED INCOME STATEMENT AND COMPREHENSIVE INCOME STATEMENT

Income Statement
SEK M Oct-Dec 2016 Oct-Dec 2015 Full-year 2016 Full-year 2015
Net sales 4,421 4,350 16,531 11,389
Other income O O 0
Other external expenses $-1.096$ $-1,170$ $-4.052$ $-2,877$
Personnel expenses $-2,863$ $-2,911$ $-10,875$ $-7,581$
EBITDA 461 269 1,605 931
Amortisation/depreciation and
impairments
-66 -69 $-269$ $-190$
EBITA 395 200 1,336 740
Acquisition-related items 1) $-17$ $-20$ $-87$ -60
Operating profit (EBIT) 378 179 1,249 681
Net financial items $-5$ $-23$ $-33$ -41
Profit before tax 373 156 1,216 640
Income tax $-97$ $-70$ $-285$ $-200$
PROFIT FOR THE PERIOD 276 86 931 439
Attributable to:
Parent Company shareholders 275 85 930 438
Non-controlling interests 0 1 1
Earnings per share attributable to Parent
Company shareholders, SEK 2)
2.30 0.75 7.78 4.36
Average number of shares 2)
Dividend per share, SEK 2)
119,600,937 113,453,746 119,598,820
4.30
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
Oct-Dec 2016 Oct-Dec 2015 Full-year 2016 Full-year 2015
Profit for the period 276 86 931 439
Items that will not be reversed in the income statement
Revaluation of defined benefit pensions, net after tax 1,3) 24 $-30$ 45
Items that may subsequently be reversed in the income state-
ment
Revaluation of Grontmij NV holding, net after tax 2) 12
Translation differences, net after tax $-12$ $-65$ 38 $-92$
Translation differences transferred to profit for the period 5
COMPREHENSIVE INCOME FOR THE PERIOD 266 45 940 410
Attributable to:
Parent Company shareholders 266 45 939 409
Non-controlling interests ſ 0
$1)$ Tax on revaluation of defined benefit pensions -4 -8 5 -16
2) Tax on revaluation of Grontmij NV holding Ο -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
SEK M Oct-Dec 2016 Oct-Dec 2015 Full-year 2016 Full-year 2015
Cash flow from operating activities before
changes in working capital and tax paid
498 263 1.677 952
Tax paid $-26$ $-15$ $-196$ $-157$
Changes in working capital 384 648 $-316$ 345
Cash flow from operating activities 856 896 1.165 1.140
Cash flow from investing activities $-109$ $-1.000$ $-401$ $-1.440$
Cash flow from financing activities $-320$ 584 $-428$ 707
CASH FLOW FOR THE PERIOD 427 480 336 407
Balance sheet
SEKM 31 Dec 2016 31 Dec 2015
Goodwill 6,098 5,752
Other intangible assets 346 416
Property, plant and equipment 616 639
Financial assets 219 157
Current assets excl. cash and cash equivalents 5,650 5.068
Cash and cash equivalents incl. short-term investments 892 544
TOTAL ASSETS 13,820 12,575
Equity attributable to Parent Company shareholders 5,424 4,899
Non-controlling interests 10 9
Total equity 5,435 4,907
Non-current interest-bearing liabilities 1,515 1,985
Other non-current liabilities 833 715
Current interest-bearing liabilities 936 246
Other current liabilities 5,102 4,722
TOTAL EQUITY AND LIABILITIES 13,820 12,575
Pledged assets 22
Contingent liabilities 706 704
Changes in equity
SEKM
Jan-Dec 2016 Jan-Dec 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 4,907 1,874 14 1,888
Comprehensive income for the period 939 940 409 410
Transfer to shareholders $-418$ $-1$ $-419$ $-318$ $-1$ $-319$
Issue in kind 1,800 ٠ 1,800
Preferential rights issue $-2$ $-2$ 1,062 1,062
Acquisition of non-controlling interests $\Omega$ O 0 $-12$ -4 $-16$
Non-controlling interests in acquired companies -1 $-1$
Divestments of non-controlling interests 1 0 N
Buy-back of treasury shares $-126$ $-126$ $-14$ $-14$
Sales of treasury shares 3 3 17 17
Share-based incentive schemes 125 125 76 76
Share savings schemes 5 5 5 5
EQUITY, CLOSING BALANCE 5,424 10 5,435 4,899 9 4,907

SWECO*

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, Ludes Generalplaner GmbH and Jo, Franzke Architekten 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 160 employees. Purchase consideration totalled SEK 175 million and had a negative impact on cash and cash equivalents of SEK 152 million. The acquisitions impacted the consolidated balance sheet as detailed in the table below. Of the unsettled purchase price commitment of SEK 4 million, SEK 2 million refers to conditional contingent consideration. During the period the acquired companies contributed SEK 112 million in sales and SEK 10 million in operating profit (EBIT). If all of the companies had been owned as of 1 January 2016 they would have contributed approximately SEK 148 million in sales and about SEK 6 million in operating profit. The table also includes revaluation of the Grontmij acquisition, which has an impact on intangible assets of SEK 87 million, property, plan and equipment with SEK-18 million, financial assets with SEK 28 million, non-current liabilities of SEK -70 million and current liabilities of SEK-18 million.

Acquisitions, SEK M
Intangible assets 236
Property, plant and equipment $-14$
Financial assets 28
Current assets 315
Non-current liabilities $-85$
Deferred tax -5
Other current liabilities $-300$
Total purchase consideration 175
Unsettled purchase price commitment -4
Cash and cash equivalents $-19$
DECREASE IN GROUP CASH AND CASH EQUIVALENTS 152

DIVESTMENT OF SUBSIDIARIES AND OPERATIONS

During the period, Sweco divested Grontmij Hubei Engineering Consulting Co.Ltd and businesses within Sweco Nederland BV and Park Frederiksoord B.V. with an aggregate total of 45 employees. The businesses contributed SEK 7 million in sales and SEK-4 million in operating profit. The divestments had a positive impact on profit of SEK 3 million and a positive impact on the Group's cash and cash equivalents of SEK 7 million. The divestments impacted the consolidated balance sheet as detailed below.

Divestments, SEK M
Property, plant and equipment
Current assets Ō
Non-current liabilities -3
Current liabilities -3
Non-controlling interests
Capital gain recorded on divestment
Total purchase consideration 10
Cash and cash equivalents in divested companies -5
INCREASE IN GROUP CASH AND GROUP EQUIVALENTS

ACQUISITION-RELATED ITEMS

Acquisition-related items
SEK M
Oct-Dec 2016 Oct-Dec 2015 Full-year 2016 Full-year 2015
Intangible assets capitalised on acquisition,
amortisation
$-22$ $-20$ $-92$ -57
Revaluation of purchase price
Profit/loss on sale -ი
ACQUISITION-RELATED ITEMS $-17$ -20 $-87$ -60

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Group's financial assets measured at fair value totalled SEK 16 million (13). 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.

SWECOX

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 04
Actual
2016 03
Actual
2016 02
Actual
2016 01
Actual
201504
Pro forma
2015 03
Pro forma
2015 02
Pro forma
2015 01
Pro forma
2014 04
Net sales, SEK M
Sweco Sweden 1,974 1,481 1,935 1,758 1,921 1,390 1,795 1,732 1,768
Sweco Norway 535 457 568 499 508 401 551 531 521
Sweco Finland 469 408 477 432 488 375 408 392 417
Sweco Denmark 352 334 361 330 365 320 331 334 328
Sweco Netherlands 434 434 455 423 450 445 465 471 496
Sweco Western Europe 421 365 396 398 428 389 393 384 362
Sweco Central Europe 297 290 244 221 262 220 245 224 258
Group-wide, Eliminations, etc. $-61$ -44 -66 $-45$ $-73$ -36 $-68$ $-44$ $-43$
TOTAL GROUP 4,421 3,723 4,370 4,018 4,350 3,504 4,120 4,024 4,107
EBITA, SEK M
Sweco Sweden 273 129 280 170 211 91 186 184 223
Sweco Norway 58 40 68 29 52 24 44 40 58
Sweco Finland 41 35 42 21 35 27 10 17 $\overline{3}$
Sweco Denmark 44 27 23 4 28 18 -8 $\pmb{0}$ $-5$
Sweco Netherlands $\mathbf 0$ -4 12 18 $-1$ 12 0 14 21
Sweco Western Europe 30 18 33 23 25 22 23 13 20
Sweco Central Europe 26 18 11 3 19 $\overline{7}$ 11 12 19
Group-wide, Eliminations, etc. $-77$ $-12$ $-9$ $-40$ $-170$ $-63$ $-79$ $-23$ $-58$
EBITA 395 252 462 228 200 138 187 257 281
Extraordinary items 3) 83 15 12 36 190 59 70 $\mathbf{1}$ 58
EBITA excl. extraordinary items 478 266 474 263 390 197 257 258 339
EBITA margin, %
Sweco Sweden 13.8 8.7 14.5 9.7 11.0 6.6 10.4 10.6 12.6
Sweco Norway 10.9 8.8 12.0 5.8 10.2 6.1 8.0 7.5 11.0
Sweco Finland 8.6 8.6 8.8 4.8 7.1 7.3 2.5 4.2 0.8
Sweco Denmark 12.5 8.0 6.5 1.2 7.7 5.6 $-2.3$ 0.1 $-1.4$
Sweco Netherlands $-0.1$ $-0.8$ 2.7 4.4 $-0.3$ 2.6 0.1 2.9 4.2
Sweco Western Europe 7.1 5.0 8.4 5.9 5.9 5.7 5.8 3.4 5.5
Sweco Central Europe 8.9 6.2 4.7 1.1 7.4 3.1 4.3 5.4 7.4
EBITA margin 8.9 6.8 10.6 5.7 4.6 3.9 4.5 6.4 6.8
Extraordinary items 3 ) 1.9 0.4 0.2 0.9 4.4 1.7 1.7 $0.0\,$ 1.5
EBITA margin excl. extraordinary 10.8 7.2 10.8 6.6 9.0 5.6 6.2 6.4 8.3
items
Billing ratio, % 75.3% 74.6% 75.1% 74.5% 74.7% 74.1% 74.8% 73.2% 73.8%
Number of normal working hours 493 518 490 478 492 519 469 488 486
Number of full-time employees 14,765 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-December 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 7.148 6.838 852 672 11.9 9.8 5.482 5,375
Sweco Norway 2,059 1.991 195 161 9.5 8.1 1,344 1,326
Sweco Finland 1,785 1.663 138 89 7.7 5.4 1.984 1.913
Sweco Denmark 1,376 1,350 98 39 7.1 2.9 1,077 1,109
Sweco Netherlands 1.746 1.831 27 24 1.5 1.3 1.504 1.666
Sweco Western Europe 1,580 1,594 105 83 6.6 5.2 1.704 1,618
Sweco Central Europe 1.052 951 58 49 5.5 5.1 1.457 1.402
Group-wide, Eliminations, etc. 1) $-216$ $-221$ $-138$ -336 $\overline{\phantom{a}}$ $\overline{\phantom{a}}$ 101 142
TOTAL GROUP 16,531 15,998 1,336 781 8.1 4.9 14,653 14,552

$^{10}$ 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
Oct-Dec
Actual 2015
Oct-Dec
Growth.%
Oct-Dec
Actual 2016
Jan-Dec
Pro forma 2015
Jan-Dec
Growth, %
Jan-Dec
Net sales 4,421 4,350 2% 16.531 15,998 3%
Currency effects $0\%$ -53 0%
Net sales currency-adjusted 4,421 4.355 2% 16.531 15.945 4%
Acquisitions/divestments $-43$ $-17$ $1\%$ $-120$ $-64$ $0\%$
Comparable net sales currency-adjusted 4.378 4.338 $1\%$ 16.411 15.881 3%
Revenue growth, actual Actual 2016
Oct-Dec
Actual 2015
Oct-Dec
Growth.%
Oct-Dec
Actual 2016
Jan-Dec
Actual 2015
Jan-Dec
Growth, %
Jan-Dec
Net sales 4,421 4.350 2% 16,531 11.389 45%
Currency effects $0\%$ $-20$ $0\%$
Net sales currency-adjusted 4,421 4.355 2% 16.531 11.370 45%
Acquisitions/divestments $-43$ $-17$ $1\%$ $-120$ 4.546 42%
Comparable net sales currency-adjusted 4,378 4.338 $1\%$ 16.411 15.916 3%

PARENT COMPANY INCOME STATEMENT AND BALANCE SHEET

Parent Company income statement, SEK M Full-year 2016 Full-year 2015
Net sales 538 355
Operating expenses $-600$ -399
Operating loss $-63$ -44
Net financial items 551 508
Profit/loss after net financial items 488 464
Appropriations 10 $-20$
Profit/loss before tax 499 444
Tax -86 $-61$
PROFIT/LOSS AFTER TAX 413 383
Parent Company balance sheet, SEK M 31 Dec 2016 31 Dec 2015
Intangible assets 75 81
Property, plant and equipment 54 50
Financial assets 6,346 6,348
Current assets 2,572 1,911
TOTAL ASSETS 9,047 8,390
Equity 4.626 4.619
Untaxed reserves 12 23
Non-current liabilities 1,379 2,083
Current liabilities 3.030 1.665
TOTAL EQUITY AND LIABILITIES 9,047 8,390

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