Interim Report January-June 2020
For further information:
Jonas Gustavsson, President and CEO, +46 70 509 16 26
Juuso Pajunen, CFO, +358 10 33 26 632
Stable results in a challenging quarter
“It has been a challenging quarter in many ways and I am proud of how quickly we have managed to adopt to the situation. Despite the lower sales in the quarter, we reported stable results and strong cash flow thanks to extensive measures”, said Jonas Gustavsson, President and CEO.
Second quarter 2020
– Net sales amounted to SEK 4,808 million (5,393)
– EBITA, excl. items affecting comparability, was SEK 383 million (481)
– EBITA margin, excl. items affecting comparability, was 8.0 percent (8.9)
– EBITA totalled SEK 360 million (405)
– EBITA margin was 7.5 percent (7.5)
– EBIT (operating profit) amounted to SEK 331 million (392)
– Basic earnings per share: SEK 1.88 SEK (2.59)
January-June 2020
– Net sales amounted to SEK 10,063 million (9,782)
– EBITA, excl. items affecting comparability, was SEK 858 million (870)
– EBITA margin, excl. items affecting comparability, was 8.5 percent (8.9)
– EBITA totalled SEK 834 million (732)
– EBITA margin was 8.3 percent (7.5)
– EBIT (operating profit) amounted to SEK 742 million (705)
– Basic earnings per share: SEK 4.35 SEK (4.94)
COMMENTS BY THE CEO JONAS GUSTAVSSON
As expected, the second quarter was affected by uncertainty and the impact of the ongoing Covid-19 pandemic. Our main focus continues to be the health and safety of our employees, while maintaining high delivery capacity for our clients all around the world via digital remote working.
Net sales declined during the quarter, primarily related to the automotive industry, which has heightened our need to reposition within this segment. We have taken extensive measures to mitigate the impact on our operations, with a focus on efficiency and cost savings. Despite the decline, we delivered stable results and a strong cash flow, which has strengthened our balance sheet. Towards the end of the quarter, we noted a slight recovery and stabilisation in demand. Given the uncertainty we see in the market and the ongoing repositioning, we expect to see continued limited growth in certain segments in the third quarter.
During quarter we have shifted our focus in portfolio towards strategically important growth segments such as infrastructure and the process industry, as well as the food and pharma industry.
Performance for the second quarter
Net sales for the quarter amounted to SEK 4,808 million (5,393), a decrease of 11 percent. The decrease was mainly driven by the automotive segment, where volume decreased by about 40 percent as several key clients drastically reduced or periodically halted operations. The drop in sales was also impacted by the ongoing repositioning within the Energy Division and a recently completed EPC+ project.
Despite the decline in volume, we were able to report stable results and a strong cash flow for the quarter due to the extensive measures taken. Excluding items affecting comparability, EBITA was SEK 383 million (481), corresponding to an EBITA margin of 8.0 percent (8.9). Net debt/EBITA excluding the effect of IFRS 16 and items affecting comparability amounted to 2.0.
Extensive measures
AFRY was quick to introduce extensive measures in response to the Covid-19 pandemic in the first quarter. With the previously announced efficiency programme of SEK 120 million and additional activities implemented during the quarter, we succeeded in reducing total costs by approximately SEK 500 million through a combination of short-term and permanent savings. We have now begun a process for evaluating our offering to the automotive industry in order to provide even more value-adding services. This will result in a more resilient and stable business, with a higher share of project deliveries and less on-site professional services. This will also reduce the weight of the automotive segment in the total AFRY portfolio.
About 1,900 of our employees were affected by various short-term work allowance solutions during the quarter. We have also laid off about 200 employees mainly due to the situation in the automotive segment. The total cost of the restructuring in the automotive segment amounted to SEK 23 million during the quarter. We will continue with our repositioning work in the automotive segment in the second half of the year, with the aim of ensuring that the remaining business has a stronger position with improved profitability.
We are actively reviewing our strategic position and increasing operations in the segments where we see good recovery and long-term stable demand. This has strengthened our portfolio in the Infrastructure and Process Industries divisions. A stable and favourable trend in the Nordic public sector, primarily in road and rail, is contributing to developments and the persistently stable bioeconomy sector, where AFRY holds a world-leading position.
Performance in the divisions
In the Infrastructure Division, demand was generally good during the quarter. Developments in transport infrastructure and water continued to be stable and have generated good growth, especially in the Nordics. However, developments in the buildings segment and our operations in Central Europe declined somewhat. Several of the division’s projects are of societal importance and are being prioritised even in the current circumstances, and the division now accounts for about 40 percent of AFRY’s total net sales.
The Industrial & Digital Solutions Division was impacted by the negative trend in the automotive industry, where volume declined by approximately 40 percent during the quarter. We took extensive measures in response to the falling demand, including short term work allowances and redundancies. There was a slight recovery in the second quarter, albeit from low levels. Based on this situation, we have initiated a repositioning of the automotive segment which will reduce AFRY’s total exposure to the automotive segment. Meanwhile, we have noted strong growth in the food and pharma industry.
The Process Industries Division had a solid performance in the quarter with limited impact from the Covid-19 pandemic. We noted continued good growth in our core markets and major projects continue as planned. However, the division has noted a shift in client behaviour that entails longer decision-making processes, which has impacted growth in some markets.
The Energy Division’s ongoing repositioning is proceeding as planned, which helped increase stability and boost the earnings trend. Due to the prevailing pandemic, several projects have been delayed or paused, but many projects were resumed in the quarter, especially in hydro and renewable energy and transmission & distribution. In the latter part of the quarter, we noted increased activity in the market and the quarter ended with a strong order intake.
The Management Consulting Division noted strong demand in energy consulting operations. However, ongoing uncertainty related to Covid-19 continued to affect our transaction-related services, resulting in a negative impact on earnings. There was an increase in activity towards the end of the quarter, however.
A long-term, sustainable recovery
This Covid-19 pandemic has made us keenly aware of the need for a long-term sustainable recovery and extensive stimulus measures are ongoing. This is expected to benefit AFRY as we have broad exposure to areas such as infrastructure but also to stable bioeconomy segments.
In the spring, we entered new partnerships to increase our contribution to sustainable development. We have partnered with “The 1.5°C Business Playbook” to adapt our climate strategies to the 1.5°C goal, and together with the Gapminder Foundation we will work to promote a more fact-based conception of the world linked to UN’s global goals.
We have delivered exciting projects for our clients during the quarter, and I would particularly like to highlight our assignment for SunPine in Sweden, as the engineering partner for their new production plant for renewable fuel. We also won an order for an end-to-end solution to build a production line for Oatly, who is taking the next step in its global expansion and starting production in Singapore, and entered an agreement with Lund Municipality for a new innovation project.
Outlook
Towards the end of the quarter we noted some market recovery and stabilisation but there is great uncertainty about the pandemic’s continued impact on our operations and the macroeconomy. We therefore continue to focus on cost optimisation and flexibility in all our operations. We have a good financial position, and cash flow for the quarter was strong. This ensures that the company will continue to be in a good position going forward and will be well placed operationally and financially when the situation has stabilised.
I would like to take the opportunity to thank all our employees for their considerable commitment, flexibility and strong client focus throughout the first half of 2020.
ÅF Pöyry AB (publ), SE-169 99 Stockholm, Sweden
Visitors’ address: Frösundaleden 2, 169 70 Solna, Sweden
Tel. +46 10 505 00 00 Fax +46 10 505 00 10
www.afry.com / info@afry.com
Corporate ID number 556120-6474
This report has not been reviewed by the company’s auditors.
This information fulfils ÅF Pöyry AB’s (publ) disclosure requirements under the provisions of the EU’s Market Abuse Regulation and the Swedish Securities Markets Act. This information was released, through the agency of the above-mentioned contact person, for publication on 14 July 2020, at 08.00 CET.
All assumptions about the future that are made in this report are based on the best information available to the company at the time the report was written. As is the case with all assessments of the future, such assumptions are subject to risks and uncertainties, which may mean that the actual outcome differs from the anticipated result.
This is a translation of the Swedish original. The Swedish text is the binding version and shall prevail in the event of any discrepancies.
The full report including tables (pdf) is available for download.
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