Significantly improved profits excl. capital gains
- Net sales rose to SEK 3,114 million (2005: SEK 2,269 million)
- Operating profit totalled SEK 168 million (SEK 226 million)
- Operating profit excl. other interest income totalled SEK 149 million (SEK 90 million)
- Profit after tax totalled SEK 108 million (SEK 204 million)
- Earnings per share before dilution were SEK 7.77 (SEK 17.15)
- The Board proposes a shareholders' dividend for 2006 of 3:00 (2:50) SEK per share
- Net sales rose to SEK 973 million (2005: SEK 586 million)
- Operating profit totalled SEK 57 million (SEK 150 million)
- Operating profit excl. other interest income totalled SEK 57 million (SEK 14 million)
A few words from the President, Jonas Wiström
ÅF grew its business by almost 40 percent in 2006 and improved earnings by 65 percent compared to the year before, excluding capital gains following the sale of the Group's properties in 2005 and the sale of a minor business operation in 2006.
The improved result is due first and foremost to the robust state of health in industry and the economy and the successful integration of the companies acquired by ÅF during the year. All of the acquisitions made in 2006 (involving a total of approximately 1,000 employees) delivered results on a par with or better than anticipated.
We advanced our positions in the market in 2006, especially within the fields of Industrial Automation and Energy. Capacity utilisation (the proportion of time debitable to clients relative to the time that all the Group's employees spend at work) rose by 1.5 percentage points to 73 percent for the year as a whole, and was in excess of 74 percent for the fourth quarter.
At the same time we strengthened our position as an attractive employer. In Universum's 2006 survey of some 4,000 engineering graduates, ÅF was ranked in fourth place among Swedish companies of all categories in the league table of "ideal employers".
The outlook for 2007 is positive. At present there is nothing to indicate that the economy is about to slow down, and the prospects look good for all the divisions to grow and improve their earnings. This is particularly true of the Process Division, which after fine-tuning its strategy has set its sights on significantly better profitability.
Today ÅF stands on a sound financial footing and we are determined to continue to seize the initiative in the process of structural change that is taking place in the industry. The aim is to continue to grow, particularly in the Nordic countries, Eastern Europe and Russia.
Sales and profits
Net sales for 2006 rose by 37 percent to SEK 3,114 million (2005: SEK 2,269 million): of this figure, SEK 783 million was attributable to corporate acquisitions made during the year. Fourth-quarter sales totalled SEK 973 million (corresponding period 2005: SEK 586 million), with SEK 337 million of this amount deriving from businesses acquired in 2006.
Operating profit for the year totalled SEK 168 million (SEK 226 million). SEK 71 million of the operating profit derived from acquisitions made in 2006. If the figure for "other operating income" is excluded, operating profit was SEK 149 million (SEK 90 million). These figures are equivalent to operating margins of 5.4 percent and 4.8 percent respectively (compared to 9.4 percent and 4.0 percent in 2005).
Fourth-quarter operating profit was SEK 57 million (SEK 150 million), and the operating margin was 5.9 percent (20.7 percent). If the figure for "other operating income" is excluded, operating profit was SEK 57 million (SEK 14 million) and the operating margin was 5.9 percent (2.3 percent). A total of SEK 37 million in the fourth-quarter results derived from businesses acquired in 2006.
Capacity utilisation was 72.9 percent (71.5 percent) for the year as a whole, and 74.1 percent (70.5 percent) for the fourth quarter.
Profit after tax was SEK 108 million (SEK 204 million) for the year and SEK 47 million (SEK 152 million) for the fourth quarter.
ÅF's tax bill for the year totalled SEK 50 million (SEK 18 million), equivalent to a tax rate of 32 percent. This relatively high tax expense was the result of that fact that it has not been deemed possible to utilise certain of the deficits arising in overseas companies during the period.
Earnings per share, before dilution, were SEK 7.77 (SEK 17.15) for the year as a whole. If the figure for "other operating income" is excluded, EPS was SEK 6.74 (SEK 5.69). The equivalent figures for the fourth quarter - again before dilution - were SEK 2.87 (SEK 12.79) and SEK 2.84 (SEK 1.37) respectively
Significant events during the fourth quarter
ÅF was contracted by TeliaSonera to assume technical responsibility for Skanova's "joint-financed base-station sharing" service. ÅF won the role of technical project leader thanks to its status as an independent technical consulting company with extensive skills within the field of telecommunications.
ÅF won an order for supervising the construction of a new flue gas desulphurisation plant at the Maritsa East 2 district-heating power station in Bulgaria. The new plant will reduce emissions of sulphur dioxide to a level that meets EU requirements.
ÅF signed a 2-year framework agreement with the Swedish Defence Materiel Administration (FMV) for "service production for mobile command centres". Procurement negotiations concerned eight possible areas of technology: ÅF won contracts for four of these areas, including Integration and System Safety.
Significant events after the end of the reporting period
ÅF acquired the Estonian technical consulting company Automaatika with 20 employees. The company was consolidated into the ÅF Group (Engineering Division) with effect from 1 January 2007. Automaatika offers consulting services for automatic solutions for industrial processes.
Infrastructure Operating margin 12 mths: 8.1% (7.3%)
The Infrastructure Division offers infrastructure consulting services in four sectors: telecoms, installations, infrastructure planning and electrical power systems.
The market remained strong in all four of the division's business areas. This was particularly true of the largest of the business areas, Installations, which works with clients in the construction and property sectors. It was also gratifying to see a dramatic improvement in earnings for the Telecoms business area over the year.
In all essentials, the integration of businesses acquired during 2006, among which the largest were Ingemansson Technology and Jämtteknik, was concluded on schedule by the end of the year, making the division even more competitive as a supplier of consulting services to major infrastructure projects in the Nordic countries.
Major orders won by the division in the fourth quarter include projects for the Swedish Defence Materiel Administration (FMV), TeliaSonera and an assignment in conjunction with the Citybanan rail link in Stockholm.
Process Operating margin 12 mths: 0.9% (3.5%)
The Process Division offers consulting and project-management services for process industries, particularly the energy and pulp & paper industries.
Earnings for the Process Division were disappointing in 2006, although there was some improvement in the fourth quarter. The reasons behind this poor performance were comparatively high losses in fixed-price projects and continuing problems with profitability in relation to mechanical construction and design assignments for the pulp and paper industry outside Sweden.
Since the division was put under new management in the fourth quarter a clear strategy has been devised, supported by organisational change and new processes, to minimise the risks involved in fixed-price projects. The organisation is focusing firmly on just two sectors: Energy and Pulp & Paper.
Within the Energy segment the division will concentrate its marketing activities to Sweden, Finland, the Baltic states and Russia. The prospects are good for establishing and developing ÅF as the market leader in energy consulting operations in these markets.
Pulp & Paper operations will continue worldwide, but the division will fine-tune its offer to correspond more closely to client requirements. The focus will be firmly on expertise in specialist consulting and on project management, while the resources the division currently has within the field of mechanical construction and design will be sold or reorganised. The costs for this change of strategy are estimated at around SEK 11 million: funds for this were earmarked in the fourth quarter.
As part of this new strategy, 130 employees specialising in mechanical constructions and design (in Sweden) were transferred from the Process Division to the Engineering Division on 1 January 2007.
Among contracts won by the Process Division in the fourth quarter were two major assignments relating to project engineering work on power stations in Russia and Latvia.
Inspection Operating margin 12 mths: 9.7% (10.5%)
The Inspection Division works with technical inspections, chiefly in the form of periodic inspections, testing and certification. Major clients include the engineering and nuclear power industries.
On the whole, the market for technical inspections has been good during 2006.
After a somewhat more sluggish start to the year than anticipated, the Inspection Division enjoyed a strong second half, with particularly good demand for services within testing. To ensure the availability of sufficient resources to meet this demand, a large number of testing engineers were recruited during the fourth quarter.
The division has noted a steady increase in demand from the energy sector. In the fourth quarter, for example, the division won a contract with Göteborg Energi, the municipal energy company in Gothenburg, to carry out technical inspections of the city's district-heating grid. Undertakings for the Swedish nuclear power industry also increased in scope and size during the year.
Systems Operating margin 12 mths: 5.5% (0.6%)
The Systems Division offers services in the field of embedded systems, mechanical engineering and IT systems.
The market for IT and product development grew gradually stronger throughout 2006 fuelling increased demand and generating many enquiries from clients for assistance from the System Division. All areas of the market have developed positively, particularly Telecommunications and Life Science.
The significant improvement in the division's earnings can be explained chiefly by the strong market and the success of internal programmes to make business operations more effective. The division also worked actively with recruitment and succeeded in its plans to employ a total of 100 new members of staff during the course of the year.
The integration of the IT consulting company Combra and its 65-strong workforce acquired in June has proceeded smoothly, with shared premises and joint sales activities producing the desired positive effects. Combra has reinforced the division's position with clients such as Ericsson and Sony Ericsson, not least via its office in Lund.
In the fourth quarter the division won an extended and expanded contract with a leading telecom supplier for the development and management of a test system for GSM base stations, and its services were also engaged by Alfa Laval for a product development assignment.
Engineering (formerly ÅF-Benima) Operating margin May-Dec: 8.8% (-)
The division, which offers services within automation and industrial IT, is a leader in its field in the Nordic countries. Engineering is a newly formed division, following the acquisition of Benima in May 2006.
Engineering has enjoyed a high level of capacity utilisation with a good inflow of orders throughout the second half of the year, thanks above all to the strong performance of the Swedish and Nordic industrial sectors. Business has been particularly brisk in fields such as Energy and Pharmaceuticals. For example, the division won a major contract from the Ringhals (Sweden) nuclear power plant in the fourth quarter and the contract for technical calculations for the Oskarshamn (Sweden) nuclear power plant was extended.
By the end of the fourth quarter, most of the process of integrating ÅF and Benima had been completed. A new management and organisational structure are in place and staff now work together under the same roof at many of the 40 or so locations where the division has a presence. This coordination process has been extremely valuable and helped to create new business opportunities.
With effect from the beginning of 2007 the operations of the newly acquired Estonian technical consulting company Automaatika with 20 employees were consolidated into the Engineering Division, at the same time as 130 personnel in Sweden were transferred from Process to Engineering.
This consolidated interim report has been prepared in accordance with IAS 34 ("Interim Financial Reporting").
The report has been drawn up in accordance with International Financial Reporting Standards (IFRS), as well as statements on interpretation from the International Financial Reporting Interpretations Committee (IFRIC), as they have been approved by the European Commission for use in the EU, and in accordance with the Swedish Financial Accounting Standards Council's Recommendation RR 31 ("Interim Reporting for Groups"), and the relevant references to Chapter 9 of the Swedish Annual Accounts Act. The report has been drawn up using the same accounting principles and methods of calculation as those in the Annual Report for 2005 (see Note 2, page 52).
The parent company has implemented the Swedish Financial Accounting Standards Council's Recommendation RR 32:05 ("Reporting for Legal Entities"), which means that the parent company shall apply all the IFRS and related statements approved by the EU as far as this is possible while continuing to apply the Swedish Annual Accounts Act in the preparation of the legal entity's accounts. As a result, ÅF amended its accounting principles with effect from 1 January 2006 by applying IAS 39 ("Financial Instruments") in the parent company accounts to comply with the provisions of Chapter 4, §14, a-e of the Swedish Annual Accounts Act.
Cash flow and financial position
The cash flow for the year was SEK 15 million (SEK 67 million). Cash flow for the fourth quarter before the amortisation of loans was SEK 86 million. The corresponding figure for 2005 was SEK 48 million, excluding the extensive sale of the Group's properties that took place during that year.
The substantial cash flow from investing activities of SEK -565 million was the result of acquisitions made during the year, which added approximately 1,100 new members of staff to the ÅF workforce. These acquisitions had a negative impact of SEK 552 million on cash flow. The similarly large cash flow from financing operations was SEK 459 million. To finance its acquisitions, ÅF made a new issue during the summer, which provided the Group with SEK 287 million. ÅF also borrowed SEK 202 million net, and paid out dividends of SEK 30 million to shareholders.
The ÅF Group's liquid assets totalled SEK 258 million (SEK 242 million) at the end of the reporting period. Equity per share was SEK 67 (SEK 49) and the Group's equity/assets ratio was 47 percent (48 percent).
The Group's level of net loan debt (cash and cash equivalents minus interest-bearing liabilities) totalled SEK 97 million.
Gross investment in machinery and equipment for the period January to December 2006 totalled SEK 40 million (SEK 44 million).
Parent company sales totalled SEK 188 million (SEK 147 million), yielding a profit after net financial items of SEK 1 million (SEK 172 million).
At the end of 2006, the ÅF share price had risen to SEK 146.25, equivalent to an appreciation in value of approximately 36 percent during the year. The Stockholm Stock Exchange's (OMXSPI) all-share index rose by approximately 24 percent during the same period.
The Board of Directors proposes a shareholders' dividend for 2006 of SEK 3:00 per share (SEK 2:50 per share).
Reporting dates for financial information 2007
The ÅF Group will publish financial information on the following dates in 2007:
Interim report January-March 2007 8 May
Interim report January-June 2007 21 August
Interim report January-September 2007 9 November
Annual General Meeting
The Annual General Meeting of Shareholders will take place take place at 17.00 (5.00 pm) on 8 May at AB Ångpanneföreningen's head office at number 7 Fleminggatan in Stockholm, Sweden. A formal call to the meeting will be issued via an advertisement placed in a national Swedish daily newspaper.
The ÅF Group's Annual Report for 2006 will be despatched by post to shareholders who have indicated their interest. It will also be available at the ÅF Group's offices from 12 April.
Stockholm, 22 February 2007
AB Ångpanneföreningen (publ)
President and CEO