Sweco Achieves Best Organic Growth In Ten Years
Sweco Enjoyed its Best Organic Growth Despite Mild Growth in its Top One and Three Markets
In Q3 2022, Sweco achieved its best organic growth of the past ten years. Revenues were up 9% yoy organically, primarily thanks to price increases. Headcount growth, whether subcontractors or employees (+4.7%) also helped, to a lesser extent.
Sweco‘s performance is remarkable, as it suffered in Sweden and Finland, its top one and three geos, from lower-than-average growth (respectively 6% and 1%, organically). In those two countries, Sweco had high attrition leading to increased recruitment and onboarding (a common theme across Sweco). As a result, the billing rate was down. Sweden and Finland suffered, in addition, to delayed assignments to projects and large projects taking time to start. Also, it suffered from its proximity to Russia.
Elsewhere, the situation was excellent. Norway, Denmark, Netherlands, Belgium, and the UK grew by double digits. Client acceptance for price increases is high. Sweco continues to describe a good market, except for real estate. Most markets (e.g., infrastructure, water, energy) had good momentum, led by the broad theme of sustainability.
Sweco’s Billing Rate Fell, Due to High Attrition
Sweco’s billing rate fell to its lowest level in the past nine quarters, to 73.0, impacting its profitability. The company’s EBITA margin was down in six of its eight primary geographies. Overall, Sweco’s EBITA margin was down 1.7 pts to 7.1%.
Of course, the company has taken action. The company is reconsidering how it can accelerate employee assignment to projects. It is also exploring how to reduce training periods. Unsurprisingly, Sweco is working on lowering employee attrition, eventually increasing its billing rate.
Despite its HR issues, Sweco had an excellent performance in Q3. We think Sweco’s high growth should help it balance its age pyramid, lower its average wage rise, and increase gross margins. Attrition is indeed a key challenge for Sweco. Yet, the company has other levers to increase its profitability in the coming quarters while it tackles the attrition challenge.