ÅF’s Organic Growth Accelerates Sharply in Q2 to +6% after a Flat Q1
ÅF had a solid Q2, with CC/CS revenue growth of +6.9%, and reported growth of +11.7%, and reached revenues of SEK 3,608m (~USD410m). The company had a strong performance in its Infrastructure Division, which was up 15.8% at CS, one additional working day, and fewer vacations due to the Easter holidays being spread over Q1 and Q2 2018. ÅF’s EBITA margin was 10.2%, up 150 bps, thanks to savings, ÅF restructuring costs impacting Q2 2017, and the calendar effect.
The Q2 performance came after a flat performance in Q3 2018 (+0.3% at CC/CS). Over H1 2018, CC/CS revenue growth was 4.1%, an inch below market growth, but still solid.
Infrastructure Division is now clearly ÅF’s large division with SEK 1,535m (~USD 174m) in revenues and is its most profitable (EBITA margin of 11.4%). The division is back to high growth (+19.5% in Q2 2018 on a reported basis) after a short, weak performance in H2 2017, due to lack of large deals. This is excellent news.
Performance in other Divisions was less stellar:
- In Industry Division, the second largest division, with revenues of SEK 1,144m (~USD 130m), growth was flat (+0.5% at CS, to SEK 1,144m). Industry Division continues to transition its portfolio towards more “end-to-end solutions,” expand outside of Nordics and move away from staff augmentation to projects
- Digital Solutions Division was up 4.7% at CS. The division’s growth was constrained by recruitment. The immediate priority is to increase the share of revenues from project services (15% of revenues)
- Finally, the Energy Division had a CS growth of +3.5%, thanks to the extra working day. ÅF is gradually transforming Energy Division towards grids, heat and power networks, and nuclear refurbishment and decommissioning. The good news is that revenues are not declining anymore but flat (+0.3% at CS in H1 2018).
ÅF is shifting its service portfolio in three of its four divisions. In the short-term, its priority is to continue with high M&A activity. The company continues to be comfortable with its net debt level (SEK 2,825m, ~USD 320) in spite of its net debt/EBITA ratio being 2.2, somewhat below the 2.5 ÅF‘s guidance. Meanwhile, ÅF is still looking for a “platform” acquisition that would make it change of scale.