AB Ångpanneföreningen (publ): Interim report January-September 2004 - Excellent prospects for the end of 2004
A few words from the President, Jonas Wiström
The improvements in results which ÅF has recorded for the nine-month period is due, above all, to growth in sales and increased invoiced-time ratio. The third quarter is seasonally weak, as a result of the low attendance rate during the summer period. ÅF increased its profits for the third quarter compared with the same quarter last year, excluding capital gains.
To improve our profit potential, we are in process of transforming ÅF into a more focussed, efficient and distinct consultancy company.
Our earlier assessment, that the market for technical consulting services will move from stabilising to improving towards the end of 2004 still stands. Incoming orders were good in September. The upturn in business activity is clear today, even though it is less strong than the corresponding recovery in the 1990s.
The infrastructure market and the processing industry are areas showing particularly strong trends. Continued restraint is notable in IT/Product Development, and this has contributed to serious profitability problems in the Systems Division. But our assessment is that, as a result the measures taken, the operation will begin to show a notable improvement in results from and including next year.
Significant events during the third quarter
ÅF acquired the Norwegian technical consulting companies, Lars Myhre AS and Berg-Nilsen & Reinertsen AS. This purchase gives ÅF around 100 staff members in Norway, and the Group is now one of the leading consulting companies in the Oslo area in installation technology. Lars Myhre and Berg-Nilsen & Reinertsen each have a staff of 20. The companies operate in the property and infrastructure markets in electricity, energy and heating, ventilation and sanitation engineering. Both companies are based in Oslo. ÅF has acquired 100 percent of the shares in both companies.
Per Göransson has been appointed Divisional Manager of ÅF's Pulp & Paper Division, which has a staff of almost 700 in Sweden, Finland, Germany, France, Spain and South Africa. Mr Göransson took up the post on 1 October. Per Göransson has been Divisional Manager for ÅF's Installations Division since 2002. He is 51 years old, and graduated in engineering from the Royal Institute of Technology in Stockholm.
Björn Qvist takes over as Divisional Manager for the Installations Division, with a staff of about 500 in Sweden and Norway, on 1 October. Mr Qvist - 47 years old, and a graduate of the Royal Institute of Technology in Stockholm - has been Regional Manager within the Division since 2002.
Sales and earnings
Net sales for January-September amounted to SEK 1,549 (1,426) million. Sales for the third quarter totalled SEK 460 (430) million.
Operating profit for the period January-September was SEK 51 (42) million. Operating margin was 3.3 (2.9) percent. Operating profit for the third quarter was SEK 12 (12) million, and operating margin 2.5 (2.9) percent.
Profits for the third quarter of last year included a capital gain of SEK 8 million, from the sale of the training company, ÅF-SIFU.
Invoiced-time ratio for the year (calculated as "capacity utilisation", the proportion of time charged to clients relative to the total time spent at work) was 69 (68) percent, with a figure of 68 (67) percent for the third quarter.
Profit after net financial items amounted to SEK 47 (35) million for the period January-September, and the profit margin was 2.5 (2.3) percent. For the third quarter, profits after net financial items were SEK 9 (11) million, and the profit margin was 2.0 (2.5) percent.
Earnings per share for the nine months totalled SEK 6.67 (4.58). For the third quarter, earnings per share were SEK 0.61 (1.20).
The current status in the Group's divisions
Energy & Environment Operating margin 9 months: 4.5% (3.8%)
The market for energy and environmental consulting services was fundamentally strong. Energy consulting operations reported an excellent third quarter, with major projects in district heating and district cooling. The environmental side experienced a weaker quarter, but with the bright spot that a couple of large projects were begun towards the end of the quarter.
Industry Operating margin 9 months: 4.8% (2.9%)
The market for the Industry Division continued to improve. The business areas Automation and IT reported an increase in invoiced-time ratio, as a result of higher demand for solutions for engineering and automation equipment. Business area Electric Power showed strong growth, but a somewhat poorer invoiced-time ratio.
Infrastructure Operating margin 9 months: 8.2% (3.9%)
The market for consulting services in infrastructure projects has remained strong. Demand for the Infrastructure Division's expertise in roads and railways was particularly satisfactory, with major assignments such as the "City Line" (Citybanan) double-track rail tunnel in Stockholm, and the "City Tunnel" rail project in Malmö. Demand in the telecoms area showed a slight improvement, with Defence and telecoms operators as important client categories.
Installations Operating margin 9 months: 3.3% (4.0%)
The market for construction and property consulting showed some slight signs of improvement towards the end of the third quarter. The sector is still depressed as a result of low new investment in commercial premises. The Installations Division has worked actively with greater focus on sales activities. Together with a definite increase in the number of assignments relating to rebuilds and renovation, this has enabled the Installations Division to maintain an acceptable level of capacity utilisation.
Inspections & Testing Operating margin 9 months: 9.4% (1.6%)
The market for all business areas within the Inspections & Testing Division - Inspection, Testing and Certification - is usually good in the third quarter. This year, however, demand was lower than expected from the highly-significant nuclear power industry.
Pulp & Paper Operating margin 9 months: 4.8% (2.2%)
The market for consulting services within the pulp and paper industry in Sweden was strong in the third quarter. The gratifying level of demand is due to relatively high levels of investment in Swedish pulp and paper mills. Demand has also been high in Spain and Germany. The operations in Finland and France have had a negative impact on results.
Systems Operating margin 9 months: -3.2% (-1.6%)
The market for IT and product development remains weak in the Stockholm area, which is a highly significant region for the Systems Division. The sector continues to suffer from serious overcapacity. The action programme implemented by Systems during the first half of 2004 is expected to result in a steady improvement over time. Towards the end of the period, there were signs of a slight increase in activity.
This interim report has been compiled in accordance with the recommendations and guidelines of the Swedish Financial Accounting Standards Council. The accounting principles and methods of calculation used are the same as those adopted in the most recent annual report, with the exception of the details provided for pensions costs, which have been reported in accordance with the Financial Accounting Standards Council's recommendation RR 29 relating to the remuneration of employees, which came into force on 1 January 2004. The changeover to the new rules has had a positive effect by increasing equity by SEK 1.6 million.
Gross investments in machines and equipment during the period January to September totalled SEK 31 (18) million.
Cash flow and financial status
Cash flow for the period amounted to SEK 40 (-44) million. Before shareholders' dividends and the amortisation of loans, cash flow was SEK 74 (-9) million.
The sale of certain of the Group's premises has had a positive effect of SEK 124 million on cash flow.
Cash flow for the third quarter was SEK -38 (-1) million before shareholders' dividends and the amortisation of loans.
The ÅF Group's liquid assets totalled SEK 133 (25) million at the end of the reporting period.
Equity per share at the end of the reporting period was SEK 66, and the Group's equity/assets ratio was 32 percent. These figures compare with SEK 59 and 31 percent respectively at the beginning of the year.
Real estate administration
In spring 2003, the Board of Directors resolved to sell seven of the ÅF Group's eight properties.
During the fourth quarter of 2003, the Härolden 1 property (3,500 square metres in size) in central Stockholm was sold to Humlegården HB, which accordingly took possession of the property at the beginning of 2004. The sale made a positive contribution to the ÅF Group's net profits of SEK 21.5 million during the first quarter of 2004.
The five remaining properties for sale were sold in January 2004 to Estancia Fastigheter AB. The sale had a positive impact of SEK 2.1 million on the ÅF Group's net profit for the second quarter.
The sole remaining property owned by the ÅF Group is Härolden 44 (10,700 square metres), the ÅF Group's head office on Fleminggatan in central Stockholm. The property, which has a book value of SEK 127 million, was valued at SEK 220 (240) million at the start of 2004 by Forum Fastighetsekonomi AB.
At the end of the second quarter, the price of the ÅF Group's B shares quoted on the Stockholm stock exchange was SEK 139, which represents a rise of 20 percent in value since the start of the year. The Stockholm all-share index (SAX) rose by just 10 percent over the same period.
Next reporting date
The ÅF Group's accounting report for the financial year 2004 will be presented on 15 February 2005.
Stockholm, 27 October 2004
AB Ångpanneföreningen (publ)
Jonas Wiström, President and CEO
The full report including tables can be downloaded from the following link: