Spotlight on Akka’s activities in Germany
This week, Akka presented its H1 2018 results. Much of the discussion during the presentation revolved around two topics: its US strategy and its activities in Germany. This blog reflects our takeaways on Akka in Germany:
Purchase of the remaining 35% stake in MBtech
Akka purchased the remaining 35% stake in MBtech, now called Akka Automotive, ahead of its 2019 deadline. With this move, Akka wants to simplify the governance of its German operations, which under the JV structure, have suffered from long processes, and delayed decision-making.
Akka now wants to accelerate the transformation of MBtech from its captive legacy into a P&L-focused organization. The company has therefore refrained from signing a framework agreement with the former owner of MBtech, Daimler, and is incentivizing its salesforce to drive new sales. With the simplified structure, Akka wants to further improve its utilization across its different Germany units, with MBtech making use of Gigatronik’s expertise.
Akka’s German operations, which include MBtech, Gigatronik, and several smaller automotive engineering entities, improved their financial performance in H1 2018. CC/CS growth was +3.5%, well below France (+8.7%) and other international operations (+11.0%).
On the bright side, Germany’s adjusted operating margin (before corporate costs) was 7.3%, in line with the French operations (7.4%), and below of those of other international markets (9.5%). Akka is still finding that profitability has higher potential outside of France, and believes it can achieve an adjusted profit margin in the range of 10%-12%, 200 bps higher than in France (8% to 10%).
Automotive’s long-term future
Akka estimates it has three to five years of sustained growth ahead. The growth will come from its existing OEM clients, with Daimler in need of digitalizing its design processes, as much as bringing disruption to the way Daimler designs its vehicles.
Not interested in Opel’s R&D operations
Akka also reiterated it was not interested in purchasing parts of the Opel’s R&D operations that the OEM is planning to divest to Segula Technologies, mainly for the type of skills that Opel was going to bring. Akka wants to make further acquisitions in automotive, targeting the US market. The company has a leverage of 2 (Altran: 4.2) and says it can access EUR 780m in funding. If needed, Akka can also raise its capital.
High dependence on automotive in Germany
Akka continues to be automotive-centric in Germany, while conducting some work with Airbus. To my great surprise, and despite the newsflows about the German OEMs, the German automotive ER&D market seems to exiting its phase of restructuring and back to be accelerating. This is great news for Akka, Bertrandt, AVL, and EDAG: Akka therfore has the opportunity to diversify its client base in the country, before the end of the growth cycle. The trouble is that Akka is not going that way.