Sweco Profitable Despite Write-Down in Germany

/ February 15, 2021/ Financials, Sweco

Sweco Was Profitable in Q4 despite the Write-Down

Swedish infrastructure engineering Sweco remained profitable despite a one-off write-down in Germany. Its EBIT margin in Q4 reached 4.8% to SEK 298m. The EBIT margin was more than halved (Q3 2019: 10.5%), impacted by the SEK 290m write-down.

Q4 2020 revenues showed the impact of the write-down in Germany as well. They were down by 9% yoy at cc/cs. Excluding the one-off write-down effect, revenues of Sweco were still down by 5%. The company suffered, like AFRY, from delayed projects in the private building and real estate sectors, manufacturing sectors, and in the UK (due to the lock-down there).

Sweco Relies on a Decentralized Model

The priority of Sweco is to transform its German operations and implement a better management and governance model, along with diversifying its client base in the country. The transformation will take several years, Sweco acknowledged.

Sweco typically relies on a fine between rolling out its operational model and a decentralized structure, where geographies and agencies have responsibility for operations. This is precisely the operation model of Alten and in IT services of CGI. However, both Alten and CGI, while handling a lot of responsibility at the lowest level, monitor their operations closely. Does Sweco monitor its operations closely, like Alten and CGI? We think so, despite the glitch in its German operations.

We believe that Sweco has implemented a balanced model with a diversified client base, with transport infrastructure, building & urban districts, and water, energy & industry, each representing approximately a third of revenues. The public sector (44% of revenues) is an attractive client base for its resiliency and sustainability investment.

Sweco Is Suffering in Germany and the UK

Sweco’s business model strategy seems to work best with geographies, where it has scale. The company has double-digit EBITA margins in its two largest geos: Sweden and Finland. It has the lowest margins in its smallest geos: the UK and Germany/Central Europe. No doubt, will Sweco be focusing on these two geographies for the next quarters.

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