Europe Has Entered its Second Lockdown. A Look at Financial Implications

/ November 1, 2020/ ÅF Pöyry / AFRY, Akka, Alten, Financials, France, News, Sweden

Europe Has Entered its Second Lockdown

Europe has now entered its second lockdown. The lockdowns have different restrictions levels and different lengths. The UK and France are running for the full month of November. Officials in the two countries have, however, warned the lockdown might last longer, until Christmas at least.

The Lockdown’s Impact on ER&D Services Will Be Mixed.

Most ER&D vendors expected a sequential pick up in calendar Q4. We think that this sequential improvement will be limited. Among Europe’s top three pure-plays, we expect that AFRY will decline by 10-15% at cc/cs in Q4, Alten by 15-20%, and Akka by 20-25%.

ER&D vendors have, for now, avoided massive lay-offs. Most of them have divested units with no hopes of recovery, e.g., AFRY made 170 positions redundant, mostly in its Swedish automotive unit. And so has Alten. Only Akka, which is in major turmoil, will make significant lay-offs. The company is accelerating its restructuring plan, from previously 800 (4% of its headcount).

Most European governments have maintained their furlough schemes. Under these schemes, temporary unemployed works get a varying percentage of their wages. We, therefore, expect European ER&D vendors to mitigate revenue decline by decreasing their wage costs. Nevertheless, their margins will be under pressure. Akka will have a slightly positive operating margin for the full-year. Alten will take a hit in H2 2020 sequentially (H1: 5.5%). And AFRY’s EBITA margin will be close to 7%, we think.

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