Pöyry completes its recovery in 2018
We looked at the 2018 results of Pöyry, its last financials before its acquisition by ÅF. The results confirmed that Pöyry has succeeded in its recovery: its 2018 revenues were up 10.9% in 2018, to EUR 580m, and its adjusted EBIT margin was 7.5%, up 250 bps. Pöyry now has a net cash position of EUR 104m.
Pöyry is progressing on clearing out its past and accelerated in 2018 the closing its “problematic cases,” most of these being project disputes at an arbitration level. The closing has positive and negative aspects: this year, they were positive resulting in Pöyry’s EBIT margin being than its adjusted EBIT margin.
From an operational perspective, Pöyry has significantly improved its operations.
Its Management Consulting Business Group (BG), which serves both the energy and industry markets in the Nordics, grew by 7.0% during the year thanks to the industry sector. The BG is small (revenues of €70m) but very profitable: its adjusted EBIT margin was 14.7%, up 360 bps, thanks to higher margins in digital consulting and success fees on past assignments.
Energy BG had a dynamic 2018, with growth reaching 17.8% to EUR 144m, thanks to good demand in desalination projects, with revenues somewhat inflated by several Engineering-Procurement-Construction-Management (EPCM) contracts. We were guessing these EPCM contracts include pass-through revenues to the client and that they carry minimal margins. And indeed Energy BG’s EBIT of Energy BG was relatively low to 8.1%, but up 200 bps.
At a strategic level, Energy BG brings a business that doubles the size of ÅF’s Energy Division (to approximately USD 350m in revenues), bringing scale outside of the Nordics. This is good news, as ÅF had struggled in the past in its non-Nordics operations, for lack of scale, in Europe, Asia, and Brazil.
Industry BG is where Pöyry has its roots, especially in the process industry, with strength in pulp and paper. The BG’s revenues were EUR 217m, up 8.6%, and its adjusted EBIT margin was 11.6, up 260 bps.
Market conditions are good in Nordics and improving in Brazil. Demand is strongest from the bio industry. Pulp and paper is doing well. Industry BG will strengthen ÅF’s own Industry Division, which is in recovery mode.
Infrastructure, Water, and Environment (IWE) is a BG is that ÅF will need to turn around. IWE had a 9.4% growth in 2018, to EUR 149m, and its adjusted EBIT margin improved y 240 bps, to a still low 5.9%. IWE did well in Nordics but suffered in Central Europe: the BG is currently trying to re-balance its service portfolio and is focusing on the water sector.
ÅF’s Infrastructure Division, which is high growth (+10.6% in 2018 at CC/CS) and profitable (with an adjusted EBIT of 10.8%), should be able to absorb IWE. But, we are still trying to understand why IWE BG has struggled, and what the profile of this unit is.
In 2018, Pöyry’s order backlog was good and increased by 19.6% to EUR 536m in 2018, a B2B ratio of 92% (2017: 86%). Pöyry has increased visibility on its revenues than in the past thanks to momentum in mid-sized deals. Still, the company highlighted it was a bit disappointed by its order intake/booking level in 2018, with large deals delayed in H2 2018 but likely to be finalized in H1 2019.
With its significant backlog, Pöyry will help transform the profile of ÅF, which still is a staff augmentation business in its Industry Division and Digital Solutions Division. This is good news as it will accelerate ÅF’s transformation in these two units.