Good start for newly acquired companies
- Net sales amounted to SEK 1,394 million (figure for corresponding period in 2005: SEK 1,217 million)
- Operating profit rose to SEK 74 million (SEK 62 million)
- Profit after net financial items was SEK 72 million (SEK 60 million)
- Profit after tax totalled SEK 46 million (SEK 41 million)
- Earnings per share were SEK 3.71 (SEK 3.42)
A few words from the President, Jonas Wiström
The first six months of 2006 have seen the ÅF Group take a big step forwards on the European technical consulting market. We have successfully completed three major acquisitions (Enprima Oy, Ingemansson Technology AB and the Benima companies), adding a further 900 or so employees to our workforce - which equates to growth of approximately 35 percent for the Group as a whole. These acquisitions have been well received by the client market and the companies' activities are being integrated into the rest of the ÅF Group's operations even more quickly than anticipated. It is particularly gratifying to note that, in terms of earnings, so far these new acquisitions have met or exceeded my expectations.
On the whole I am pleased with the way earnings are developing for four of the ÅF Group's five divisions. The Process Division, however, has still not lived up to our expectations. The division has been forced to endure the effect of some significant write-downs in fixed-price projects (approx. SEK 20 million during the first half of the year) and capacity utilisation has been low, particularly in Germany and France. It is, however, important to note that the profitable automation operations (400 employees) were transferred to the new ÅF-Benima Division on 1 May: this must be borne in mind when making comparisons with previous figures. The new divisional management team is carrying out a major restructuring programme to improve the profitability of the organisation as soon as possible.
The Infrastructure Division with almost 1,000 employees is continuing to capture new shares of the market and reported a good first-half result. The Systems Division won a number of new contracts and continued to improve its earnings: the division's operating margin for the first six months of the year rose to almost 7 percent. Earnings for the Inspection Division were in line with expectations, and the newly-formed ÅF-Benima Division got off to a good start.
The beginning of August saw the completion of a preferential rights issue, which, now that it has been fully subscribed, will generate approximately SEK 290 million net for the ÅF Group in the third quarter. This effectively restores our financial strength and flexibility after the acquisitions during the first six months of the year.
Acquisitions and business collaborations
ÅF acquired the technical consulting operations of Benima with approximately 500 employees in around 30 offices in the Nordic countries. Benima was sold by Teleca AB. The acquisition cost totalled SEK 525 million, of which SEK 412 million was paid in cash and SEK 113 million in the form of a non-cash issue to Teleca AB. SEK 481 million of the acquisition costs relate to intangible assets, of which the sum of SEK 445 million has preliminarily been classified as goodwill. Operations were consolidated in the ÅF Group with effect from 1 May 2006. Benima has contributed SEK 87 million to the Group's sales and SEK 7 million to operating profit during the second quarter.
ÅF acquired the energy consulting company Enprima Oy with approximately 270 employees in around a dozen offices in Europe and Russia. Enprima was sold by Fortum Power & Heat Oy, Powest Oy, BE&K International Inc and the management of Enprima. The acquisition cost totalled EUR 26 million. However, Enprima brought with it cash and cash equivalents valued at EUR 11 million. SEK 130 million of the acquisition costs relate to intangible assets, of which the sum of SEK 121 million has preliminarily been classified as goodwill. Operations were consolidated into the ÅF Group with effect from 24 April 2006. Enprima has contributed SEK 63 million to the Group's sales and SEK 3 million to operating profit during the second quarter.
Significant events during the second quarter
The board of directors proposed a preferential rights issue of approximately SEK 300 million (maximum 4,500,000 class B shares) in order to restore the financial flexibility of the ÅF Group and create the right conditions for possible future acquisitions following the purchase of Enprima Oy (Q1), Ingemansson Technology AB (Q1) and the Benima-companies (Q2).
The extraordinary meeting of shareholders convened on 15 June 2006 voted for the board's proposal for a preferential rights issue of approximately SEK 300 million (maximum 4,500,000 class B shares).
Following this, and with the powers given to it by the shareholders' meeting, the board then confirmed the conditions for the new issue: 1:4 and SEK 93 per share, which means that, once it is fully subscribed, the new issue will generate approximately SEK 300 million for the ÅF Group before the payment of costs related to the share issue itself. Svenska Handelsbanken AB guaranteed to subscribe to any shares not taken up by shareholders with or without the support of subscription rights up to a total of SEK 232 million.
Significant events after the second quarter
By 18 August 2006 it was clear that subscriptions with the support of subscription rights had been received for 3,216,292 new class B shares: this corresponds to 99.5 percent of the total number of B shares offered in the issue. In accordance with the principles which had previously been laid down in the prospectus for the issue, the remaining 0.5 percent of the B shares issued but not taken up (a total of 15,872 shares) was subsequently allocated to shareholders who had expressed their interest in subscribing for the shares, but who did not have the support of subscription rights. As a result, the issue has been fully subscribed and in the third quarter the ÅF Group will receive a cash inflow of SEK 300 million before deductions for the cost of the issue.
In June, via its Systems Division, the ÅF Group acquired the IT consulting company Combra with 60 employees in Stockholm, Uppsala and Lund. The purchase price was approximately SEK 30 million, of which SEK 15.2 million was paid in cash and the remainder in the form of a new issue of 117,155 ÅF shares. The terms of the acquisition also allow for the payment of an additional purchase price, based on the way that earnings develop over the next three years.
Sales and earnings
Net sales for the period amounted to SEK 1,394 (1,217) million, with sales for the second quarter totalling SEK 771 (634) million.
Operating profit was SEK 74 (62) million. The operating margin was 5.3 (5.1) percent. Second-quarter figures were SEK 30 (37) million and 3.9 (5.9) percent respectively.
Capacity utilisation was 72 (72) percent for the first six months and 74 (72) percent for the second quarter.
Profit after net financial items was SEK 72 (60) million, with a profit margin of 5.1 (4.9) percent. Second-quarter figures were SEK 29 (36) million and 3.7 (5.7) percent respectively.
Profit after tax was SEK 46 (41) million for the first six months and SEK 15 (25) million for the second quarter.
Taxes for the period January to June totalled SEK 26 million, which corresponds to 36 percent of pre-tax earnings. This relatively high tax cost is the result of a cautious evaluation of the losses in foreign companies during the period.
Earnings per share were SEK 3.71 (3.42). Earnings per share for the second quarter were SEK 1.18 (2.00).
Divisional performance, Q2 2006
Infrastructure Operating margin 6 mths: 8.8% (8.1%)
The Infrastructure Division offers infrastructure consulting services in four sectors; telecoms, installations, infrastructure planning and electrical power systems.
The market has remained good during the second quarter. The level of activity in the building and construction sector has been especially high, and this has been of particular benefit to the largest business area (Installations). Other business areas have also reported that demand has continued to be strong.
Orders from the defence industry and the telecommunications industry have risen after several years of sluggish demand. At the same time, the electric power companies are working hard to rehabilitate the electricity grid in Sweden in order to be able to guarantee uninterrupted supplies after a long period of low levels of investment. This work is also generating new orders for the division.
Infrastructure Planning has also enjoyed a good influx of orders, thanks to ongoing investments in the road and rail network. Rising oil prices and increased environmental awareness have fuelled an upsurge in interest in solutions for public transport and other forms of transportation in the future. This too has resulted in a number of interesting projects.
Today, the division is represented in some 40 towns and cities in Sweden and Norway, and the order books are looking good in all of these locations. The newly acquired operations of Ingemansson Technology have had a positive effect on earnings and helped strengthen all business areas. The company was consolidated on 1 February 2006.
Process Operating margin 6 mths: 0.5% (5.8%)
The Process Division offers consulting services for all aspects of an industrial process. The division has a world-leading position in certain niches in the pulp and paper industries, and in energy-intensive industries.
The second quarter has been a period of far-reaching change for the Process Division. On 1 May the division's workforce was considerably reduced when 400 employees specialising in electrical engineering and automation assignments were transferred to the newly created ÅF-Benima Division. At the same time, the division acquired 270 new employees as a result of the takeover of Finland's leading technical energy consulting company, Enprima Oy.
Despite the relatively good market conditions, capacity utilisation has been less than satisfactory, especially in France and Germany, where it has been particularly low. The highest figures have been recorded by the division's Swedish operations, where the invoiced-time ratio has been rising gradually throughout the second quarter. Another important explanation for the poor result is the large write-downs in fixed-price projects. These totalled almost SEK 20 million during the first six months of the year, SEK 12 million in the second quarter alone.
With effect from 1 August, a far-reaching reorganisation programme has been initiated in order to boost profitability as quickly as possible. One of the aims of the new organisation is to make it clearer where the responsibility for sales and marketing issues lies. The new structure will improve access to shared resources for the division's Energy, Pulp & Paper and Supplier Services business areas. This will facilitate the work of costing, planning and following up projects.
At the end of the second quarter the Process Division was awarded a major contract by the German Siemens company with regard to calculations for the nuclear power plant at Oskarshamn on the Swedish east coast.
Inspection Operating margin 6 mths: 8.1% (9.9%)
The division works with technical inspections, chiefly in the form of periodic inspections, testing and certification. Major clients include the engineering and nuclear power industries.
While the Inspection Division has continued to feel the effects of a somewhat weaker market, towards the end of the second quarter there was a marked increase in demand from the oil refining industry, the forest industry and the nuclear power sector.
There has also been a general increase in activity in the railway sector, particularly in the wake of an increased focus on safety and the fact that rolling stock has begun to become a little elderly. One major assignment during the second quarter related to train maintenance services for EuroMaint.
The majority of projects from the nuclear power industry have focused on improving safety and output. Demand for the services of the Testing business area has risen steeply following new investments not only in Sweden, but also in Finland, where a new nuclear power plant is being built west of Helsinki. During the second quarter our joint venture company ÅF-TÜV Nord signed a three-year agreement with the Forsmark nuclear power plant relating to design and construction inspection services. Forsmark is a new client, and work on the assignment is scheduled to begin during the autumn.
Systems Operating margin 6 mths: 6.7% (1.4%)
The Systems Division offers services in the field of IT systems, embedded systems and mechanical engineering.
The market for the Systems Division has rallied somewhat during the second quarter, especially in telecommunications, medical technology and the automotive industry. Between April and the end of June the division received new orders from Autoliv, ABB, Alfa Laval, Ericsson and Volvo, to name but a few.
To meet the demands of an increasingly expanding market which is generating many new enquiries, the recruitment of new employees has remained one of the focuses of our attention. Our stated objective is to recruit 100 new employees during 2006, and with a total of 48 new recruits in the first six months we are well on target. One or two key positions in Embedded Systems have been filled by competent new co-workers in the Gothenburg and Malmö/Lund areas.
Since the end of the reporting period, the division has continued to expand through organic growth, most recently with the acquisition of the IT consulting company Combra. This adds a further 60 employees to the workforce and reinforces the division's position as one of the leading suppliers of services for product development and embedded systems.
ÅF-Benima Operating margin 6 mths: 7.9% (-)*
ÅF-Benima is a new division formed after the acquisition of the Benima companies. The division offers services within automation and industrial IT, and is a leader in its field in the Nordic countries.
The good market conditions have improved even further during the past quarter. High levels of activity among clients have increased the demand for skilled personnel, and ÅF-Benima is well equipped to meet these requirements. For this new division, this has meant new assignments and an increase in the scope of ongoing projects, not least in the ore-fields of northern Sweden.
The second quarter saw a significant number of substantial orders for the company. In Denmark ÅF-Benima won a major order from the German Linde-KCA company to modernise one of Novo Nordisk's factories. This order will require the recruitment of new resources in Denmark during the current quarter. In Taiwan ÅF-Benima has been asked to modernise the IT system at one of the sheet steel warehouses of the China Steel company. The division also won an automation order for a new waste incineration plant operated in southern Sweden by Sydvästra Skånes avfallsaktiebolag (SYSAV).
Internally, work has focused on integrating operations with those of the rest of the ÅF Group. Parallel with this integration work, much effort has been invested in sales work, and in paving the way towards a secure future by identifying markets which are less susceptible to the vagaries of the economic cycle.
*The Benima companies and the automation consulting operations that were transferred to them were consolidated in the new ÅF-Benima Division with effect from 1 May 2006.
This interim report has been drawn up in accordance with IAS 34 ("Interim Financial Reporting").
The interim report has been drawn up in accordance with International Financial Reporting Standards (IFRS), the interpretations of the current standards adopted by the EU and the International Financial Reporting Interpretations Committee (IFRIC), 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 accounting policy and calculation methods adopted for this interim report are the same as those used for the Annual Report for 2005 (see Note 2, page 52).
The accounting principles applied to the parent company have been amended with effect from 1 January 2006 to comply with the provisions of Chapter 4, §14, a-e of the Swedish Annual Accounts Act.
Gross investment in machinery and equipment for the period January to June 2006 totalled SEK 16 million (SEK 21 million).
Sales for the parent company totalled SEK 99 (74) million, with a profit after net financial items of SEK 13 (48) million. Cash and cash equivalents totalled SEK 24 (74) million and gross investment in machinery and equipment for the period January to June 2006 was SEK 6 (8) million.
Cash flow and financial status
Cash flow was SEK 17 (-61) million. Cash flow from operating activities was SEK 82 (33) million.
Cash flow for the second quarter was SEK 4 (7) million.
Group liquid assets totalled SEK 260 (115) million. Equity per share was SEK 57 and the equity/assets ratio was 33 percent. At the beginning of the year, equity per share was SEK 49 and the equity/assets ratio was 34 percent.
The Group's level of net loan debt (liquid assets minus interest-bearing liabilities) totalled SEK 390 (104) million at the end of the first half of the year. The preferential rights issue during the summer is expected to generate approximately SEK 290 million in liquid assets during the third quarter.
At the end of the reporting period ÅF class B shares were trading at a price of SEK 126, an appreciation in value of 15.0 percent since the start of the year. The Stockholm Stock Exchange's (OMXSPI) all-share index rose by 2.2 percent during the same period.
Capital Market Day
On September 21, from 14.00 (2 p.m.) onwards, the ÅF Group will be hosting its annual ÅF Group Capital Market Day at the Hotel/Restaurant J at Nacka Strand (venue: Fabrikörsvillan) in Stockholm.
For more detailed information and registration, please contact the ÅF Group's Director of Corporate Information, Viktor Svensson. Phone +46 (0)8-657 12 01 or send an e-mail to
Next reporting date
The ÅF Group's interim report for the period January-September 2006 will be presented on 9 November 2006.
Stockholm, Sweden - August 23, 2006
AB Ångpanneföreningen (publ)
President and CEO
(This report has not been subjected to the scrutiny of the company's auditors)