AFRY Gets its Energy Division Back to Organic Growth
AFRY: the Energy Division Has Completed its Portfolio Transformation and Is Back to Growth
AFRY finally brought its Energy Division back to organic growth. After several years of revenue decline, the company enjoyed a +5.2% yoy cc/cs growth in Q1 2021, despite the pandemic, travel restrictions impacting its hydro business, and a slow-down in thermal and renewables and one lesser working day. AFRY enjoyed solid growth in nuclear engineering in Nordics and Central Europe. The company had been on a portfolio transformation journey of its Energy Division, away from conventional energy. Moreover, we expect the improvement to last. Indeed, the Energy Division usually engages in multi-year programs.
Process Industries and Management Consulting Continue to Do Well
Along with Energy Division, AFRY’s other small business units enjoyed solid organic growth. Process Industries Division was up by +5.8% during the quarter, in line with full-year 2020 (+5.2% at cc/cs). The pulp industry continues to drive spending to small OPEX expenses. CAPEX investments remain on hold. Overall, clients are turning to sustainability projects. This is good news for planet Earth!
Management Consulting Division, which offers consulting services around both the energy and process industries, benefited from this momentum. Revenues were up by +16.5% organically.
Large Business Units Will Now Benefit from Favorable Comps
AFRY’s next challenge is to get its two large business units (Infrastructure and Industrial & Digital Solutions) back to growth. The infrastructure Division is the company’s large unit. Over the past two years, it has moved from a growth engine delivering 5-10% organic growth to a low single-digit decline. In Q1 2021, revenues were down by 3.0% at cc/cs. The unit suffered from the commercial real estate client sector. AFRY is shifting its commercial focus to growth areas, transportation (e.g., railways), sustainability and smart transportation, and water utilities. Clients are investing in digital (e.g., BIM) and sustainability, precisely where AFRY is focusing. We think AFRY’s efforts should pay off in the next quarters. Easier comps from Q2 onward will help too.
Finally, the situation of Industrial & Digital Solution is different. Back in 2019, automotive accounted for ~60% of the division’s revenues, with heavy exposure to staff augmentation. Staff aug still represent two-thirds of the business unit. However, the unit will now benefit from a declining automotive revenue mix and easier comps. In short, the division has hit bottom and can only get better. This is not fully satisfactory. However, AFRY now has three units, albeit small, very decently growing. AFRY’s organic growth will, therefore, accelerate.