Akka: 2019 Results in Line. No Visibility for 2020
Akka Slows Down in Q4 2019
Akka Technologies published its 2019 results, which were in line with expectations: revenues were EUR 1,802m, up 19.7%. The company’s organic growth (CC/CS) was below that of the market (+4.4%). Akka suffered in Q4 2019 (+1.8% at CC/CS), across its primary clients: automotive (a decline in EV spending among several automotive clients) and the impact of the Boeing 737 MAX on suppliers. As a result, North America (mostly aerospace) was down 1.2% in Q4 at CC/CSC. Germany (mostly automotive) grew slightly (+1.5%). The disappointment came from the two business units that have a diversified client base: France was flat (+0.3%) impacted by Renault, and Other International (+2.1% ) by an energy client in Switzerland.
Akka Had a Sound Financial Performance
Akka increased its EBIT margin by 70 bps to 6.7%, despite several one-off investments, e.g., the launch of a Strategic Customers Department within PDS Tech, and reorganization costs in Germany. North America is improving its profitability relatively quickly (+180 bps).
The good news came from FCF, which represented 5.5% of revenues, ahead of the 5% guidance. Akka’s net debt was down from EUR 369m at the end of H1 2019 to EUR 73m, thanks to new convertible bonds (EUR 175m) and the FCF performance.
Akka Suffers from Limited Client Diversification
Akka, for the first time in a long time, did not provide a guidance for 2020: the company is expecting to suffer in H1 due to automotive clients and the Boeing 737 MAX, along with Covid-19. We think Akka is paying the price for its lack of client diversification: automotive and aerospace represent respectively 33% and 31% of revenues. The company has two-thirds of its revenues exposed to a significant revenue decline. The acquisition of Data Respons, with its diversified client base, is good news. It will not be enough though to reduce the risk profile of Akka in 2020.