An Integrated AFRY: Repositioned around Digital and Sustainability
A More Integrated AFRY To Drive Organic Growth
AFRY recently unveiled its strategy: the company plans to become more integrated and positioned around digital technologies and sustainability. AFRY has suffered in the past few years of a lack of organic growth. In 2019, right before the pandemic, the company grew organically by 1.9%, underperforming most competitors. Then came 2020, and AFRY handled the crisis well, with an organic decline of only 6.4%. The company benefitted from its exposure to infrastructure engineering and process industrial automation. Meanwhile, in product engineering services, AFRY collapsed from its exposure to the Swedish automotive and truck industries.
The worse is now over, and AFRY has reconsidered how to resume organic growth. In the short-term, the company has resumed net recruitment. It is now looking at digital and sustainability to become more integrated and refresh its divisions’ offering portfolios.
Repositioned around Digital
In the digital space, AFRY has identified ~2,000 “digital” engineers, mostly in its product engineering services unit, Industrial and Digital Solutions division. AFRY’s priority is now to spread digital offerings across divisions. Unsurprisingly, the company has created a CoE named Digital X. Digital X aims to scale digital capabilities across AFRY, identify use cases, create IPs, invest with partners, and conduct M&As. No surprise here. The company will create digital delivery centers in nearshore and offshore countries to support onshore.
AFRY believes that its client base has been late in adopting digital technologies. It highlights its key target sectors, infrastructure (buildings and transportation), the “bio-industry,” i.e., process manufacturing (pulp & paper, and packaging) and energy (renewables and distribution), and food & life science are only starting their digital transformation journey.
A large part of AFRY’s digital push lies around digital manufacturing, with offerings such as digital twins, IT/OT integration, data collection and analytics, and asset monitoring and maintenance. The company also wants to address supply chain needs. We are guessing that AFRY will also stress its cloudification, OT security, UX capabilities. Meanwhile, AFRY is putting more emphasis on software, e.g., Ecologo and small acquisitions too. Although we are not big fans of ER&D vendors acquiring software products, we acknowledge the product strategy is limited in size.
Aiming to Triple Digital Revenues Within Five Years
AFRY has bold ambitions for its digital capabilities. The company wants to triple its digital revenues within five years, reaching 20% of the mix. This suggests AFRY currently derives ~USD 150m from digital revenues. We still need to understand a bit more mathematics. AFRY suggests it derives USD 75k in revenue per digital engineer. This is half the USD 150k per employee the company enjoys. We will investigate further.
The strategy of AFRY goes beyond digital: we will cover soon how AFRY is becoming more integrated around sustainability.