ÅF Pöyry Suffers from The Economic Conditions in Q3 2019

/ October 30, 2019/ ÅF Pöyry / AFRY, Financials, Finland, Sweden

ÅF Pöyry’s revenue growth (yoy, at CC/CS) continued to decelerate this quarter, declining from +8% in Q1 to +1% in Q3 2019, despite the positive impact of an additional working day (+90 bps on revenue growth during the quarter). The company suffered from the same issues as in Q2: a slowdown in the automotive sector from its largest automotive client, (impacting Industrial & Digital Solutions Division) and delayed decision-making in the Infrastructure Division in Denmark.

Despite tensions in Denmark resulting from the General Elections, and a soft architecture market overall in Nordics, Infrastructure Division continued to perform well, with revenues up 5.8% yoy at CC/CS to SEK 1,738m. Looking ahead, the Infrastructure Division will need to align Pöyry’s legacy infrastructure unit on its own financial standards.

Alongside Infrastructure Division, the recently-created Process Industry Division had a strong Q3 2019, with a CC/CS growth of 11.4% to SEK 770m, mostly thanks to the pulp & paper industry and move to bio-refinery in the chemicals sector. Legacy Pöyry strengthens considerably ÅF Pöyry’s footprint in the process industry.

The performance of the two other main divisions was disappointing.

Industrial & Digital Solutions, ÅF Pöyry’s second-largest unit continued to struggle (-2.5% at CC/CS), impacted by the automotive market and postponed decision-making in manufacturing. ÅF Pöyry had been working on its service portfolio for some time in the legacy Digital Solutions Division, moving away from professional services to project services. On to of this long-lasting transformation, the company has been hit for the past three quarters on its heavy client concentration and exposure to one automotive client (which represents, we estimate, ~15% of the division’s revenues). ÅF Pöyry remains confident about the growth potential of Industrial & Digital Solutions in the long-term, despite the mixed performance in the past years, in the context of a booming market.

Finally, Energy Division continued to suffer (-5.4% at CC/CS), impacted by project delays in Norway and Denmark in Transmission & Distribution and in Hydro. In the past, ÅF Pöyry had suggested its Nordics energy business was fixed and it needed to transform its international presence. The slowdown in Nordics in several segments is therefore bad news. ÅF Pöyry is now taking actions and wants to deploy Pöyry’s business model in its Energy Division: the company is streamlining sales, closing subsidiaries, moving out of unprofitable contracts. It is expecting Energy Division’s margin to start improving during 2020.

ÅF Pöyry made the right move with the acquisition of Pöyry: ÅF found in Pöyry a higher-growth business; at pro-forma numbers, revenue growth of ÅF Pöyry would have been +3.7% mostly organic. It also founded in Pöyry a source for cost savings: ÅF Pöyry wants to go beyond the initial cost savings it had identified at the time of the acquisition and will unveil next quarter new cost synergy objectives.

ÅF Pöyry ‘s share was down by 3.2% yesterday.

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