UPDATED: Akka Completes its Capital Increase. More Restructuring

/ February 12, 2021/ Aerospace, Akka, Automotive, Financials, France, Germany

Akka had a busy end of the year: it completed its capital increase and unveiled a restructuring plan for its two largest geographies.

Akka Accelerates its Restructuring

Earlier, Akka had announced the lay-off of 800 employees in Germany (we assume in the former MBTech). The company is now considering making 900 positions redundant in France. As a result, the restructuring plans will impact Akka’s profitability in H2 2020. The company will be loss-making this year, having suffered from high COVID-19 costs (both partial unemployment and bad debts for EUR 46m) in H1. In total, Akka will be heavily loss-making in 2020, its first time since it floated.

UPDATE: Akka announced in February 2020 that it had provisioned EUR 80m for its restructuring plans in France and Germany. The amount is very significant for a company this size.

The restructuring plans showed a change in Akka’s HR strategy. Earlier in 2020, the company had ruled out redundancies. However, Akka no longer expects an improvement in the aeronautics sector any time soon. The company is reducing its bench, mostly in Toulouse, but also in Le Havre and Paris. In Germany, the situation is different: demand from German OEMs and suppliers has slightly improved but remains low. Akka is reducing its exposure to traditional ER&D activities and is shifting its portfolio and resources toward digital (connected car, EV, AV).

Digital Is Now The Priority

The headcount reductions (7-10% of the global headcount) are far below the expected revenue for full-year 2020 (~23%). Akka tries to retain most of its engineering staff and is accelerating on digital training. The company expects to res-skill 3,000 engineers by the end of 2022. Digital now represents a quarter of its activity, with EUR 500m in revenues.

Digital remains the priority of the company: Akka estimates digital accounted for EUR 500m. Data Respons is playing a central part in deploying digital offerings across Akka’s geographies, starting with Germany and France. Akka’s challenge will be to reach the 10% pre-COVID organic that Data Respons enjoyed.

Akka Completes its Capital Increase and Secures its Future

Meanwhile, Akka completed its EUR 200m capital increase. Thanks to the capital increase, Akka’s net debt will be stable sequentially in H2. The company will meet its covenants and is now financially safe. With most of its restructuring funded in 2020, Akka now faces a more stable outlook.

The Hard Work Begins

The time for hard work begins. The company wants to streamline its organizational structure: it will reduce the number of management layers in France and Germany (respectively four and seven). Along with reducing costs, Akka to regain commercial flexibility and be closer to clients. The company also has bold overhead reduction ambition. Akka wants to halve its overheads to 1% of revenues.

Accelerate Sector Diversification

The company also wants to regain commercial momentum and reduce its dependency on the automotive and aerospace sector. Akka has not detailed how it will shift its client base. Akka cannot fund any significant acquisition with its high net debt: the company will need to rebalance its client base toward train or pharma engineering, all organically. In short, Akka must un-do its 25 years of efforts concentrating on automotive and aerospace.

Finally, Akka wants to move “legacy” work offshore. The company is marginally present offshore. Akka has approximately 1.5k engineers offshore across India, Romania, Morocco, and Turkey. This represents around 7% of its headcount). The transformation of Akka is only starting. We expect that Akka will continue to suffer in Germany in 2021, be overall stable in France, and resume growth in international markets, led by Data Response. The US, with its exposure to aerospace and Boeing, is the big question mark.

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