ÅF: Interim report January - September 2005 - Operating profit up 48% to SEK 79 million
A few words from the President, Jonas Wiström
I am pleased to report that all of the ÅF Group's divisions recorded improved operating earnings and operating margins for the first nine months of the year. We have profited from the upswing in the market for technical consulting services and have won market share in a number of areas, most notably infrastructure, technical inspections and testing, as well as internationally in the process industry.
Meanwhile work has continued on building a much more cohesive, efficient and international ÅF, providing the basis to open up considerable potential for further earnings growth.
We believe that our market as a whole will remain strong for the rest of this year, with the sole exception of parts of the process industry in the Nordic region. Our market for infrastructure consulting services remains strong, and the market for technical inspections and testing is stable.
The sale of the Group's property portfolio (a total of eight properties) was completed in the third quarter with the sale of our head office in Stockholm to GE Real Estate. The strategy is to use the proceeds of the sale primarily to develop ÅF's core business, which generates a higher return than our property activities.
If we are to grow at a quicker rate than the market and retain the initiative, we will need to step up our acquisition activity in the coming years. Given its strong financial position and strong market position, ÅF is well placed to achieve this ambition.
Significant events during the third quarter
ÅF-TÜV Nord AB (in which ÅF-Kontroll owns a 50% stake) entered into a framework agreement with the Swedish nuclear power plant operator Ringhals AB relating to technical inspections and testing services. The agreement runs for five years with an option to extend for a further two years, and has an estimated order value of SEK 100-150 million.
ÅF was commissioned by energy company E.ON to perform detailed planning work relating to natural gas pipelines between Linköping and Norrköping in Sweden. ÅF was also commissioned to perform preliminary planning of natural gas pipelines between Västerås and Grycksbo.
ÅF entered into a long-term co-operation agreement with property company MKB as part of MKB's procurement of technical management services. The agreement runs for five years with an option to extend for a further three. The order is worth around SEK 18 million.
Acquisitions and disposals
ÅF has sold its head office in Stockholm (Härolden 44, 10,700 square metres) to GE Real Estate with effect from October 2005. The sale was based on an underlying property value of SEK 285 million and is expected to translate into a positive effect of around SEK 130 million on ÅF's net profit for the fourth quarter.
ÅF Kontroll has acquired Force Technology Sweden AB's lift inspection business with effect from 1 October. The acquisition has added 15 new employees to the ÅF workforce (in Sundsvall, Stockholm, Västerås, Karlstad, Gothenburg and Jönköping) and includes all ongoing contracts, amounting to SEK 12 million a year.
Sales and profits
Net sales for the period January to September amounted to SEK 1,683 million (corresponding period 2004: SEK 1,572 million). Sales for the third quarter totalled SEK 466 (460) million.
Operating profit for the period was SEK 78.5 (53.0) million. Operating margin was 4.7 (3.4) percent. Third-quarter profits were SEK 14.9 (8.9) million and the operating margin for July to September rose to 3.2 (1.9) percent.
Invoiced-time ratio for the first nine months of the year (calculated as "capacity utilisation", the proportion of time charged to clients relative to the total time spent at work) was 71.9 (68.5) percent, with a figure of 71.8 (68.3) percent for the third quarter.
Profit after net financial items amounted to SEK 74.2 (48.9) million for the period. The profit margin was 4.4 (3.1) percent. For the third quarter, profits after net financial items totalled SEK 13.1 (6.5) million and the profit margin was 2.8 (1.4) percent.
Earnings per share, before dilution, amounted to SEK 8.71 (7.59), with a figure for the second quarter of SEK 1.87 (0.64).
Infrastructure Operating margin Jan-Sept: 7.0% (5.1%)
The market for infrastructure consulting services remained strong. Demand was particularly brisk in the Swedish road and rail sectors, where extensive upgrading and expansion are under way. The largest business area, Installations, noted moderate growth in demand from the construction and property sectors, while there was clear growth in demand for consulting services for energy-efficient property management.
Process Operating margin Jan-Sept: 4.7% (2.4%)
The Process Division noted a slight slowdown in a couple of its domestic markets in the third quarter, especially in the pulp and paper industry. Activity was significantly lower in Finland in the wake of the paper strike earlier this year. Russia, South America and Asia are currently the markets showing the greatest interest in investment. The energy market is more stable, with increased investment in both production and distribution.
Systems Operating margin Jan-Sept: -0.3% (-7.2%)
The Systems Division (IT/product development) recorded a small loss for the third quarter and so also for the first nine months. In September the invoiced-time ratio improved, and the division reported a profit. As the new management settled in during the third quarter, it also began to pave the way for positive earnings growth through a sharper focus on sales and recruitment in key areas.
ÅF Kontroll Operating margin Jan-Sept: 12.3% (9.4%)
ÅF Kontroll posted growth of almost 20% and increased profitability in all three of its business areas: inspections, testing and certification. The improvement is due largely to better use of resources and more efficient administrative systems. ÅF Kontroll won a five-year contract from the Swedish nuclear power plant operator Ringhals during the third quarter, and acquired Force Technology Sweden's lift inspection business with effect from 1 October.
This interim report for the Group has been drawn up in accordance with IAS 34 "Interim Financial Reporting".
The company's Annual Report for 2004 includes a description of the accounting principles that are affected by the transition to the International Financial Reporting Standards (IFRS). For a description of the accounting principles applied by the company in its interim report for the third quarter of 2005, you are referred to the section "Convergence with International Financial Reporting Standards (IFRS)" in the Annual Report for 2004. It states there that IFRS will be applied with effect from 2005, and that the comparison figures in respect of 2004 have been recalculated in line with the new principles, with the exception of those which apply to financial instruments. Under the transitional rules for IFRS, the new principles apply to financial instruments solely in those parts of the accounts which relate to 2005. In conjunction with the transition to IAS 39, the cash flow model will be applied to hedge accounting with effect from 2005. This hedge accounting model has not had any effect on the income statement during the first nine months of the current year. The effect on the balance sheet has been negligible as the fact that the majority of payments are made in local currency means that foreign exchange risks are limited.
Transition to IFRS 2005: the effects on income statements, balance sheet and equity are explained in the appendix to this Interim Report.
Gross investments in machinery and equipment during the period January to September 2005 totalled SEK 27 (31) million.
Cash flow and financial status
Cash flow was SEK -115 (+40) million. Before dividends and the amortisation of loans, cash flow was SEK -51 (+74) million. (There was a positive effect on cash flow for the period January to September 2004 of SEK 124 million from property sales.)
Cash flow for the third quarter of 2005 before dividends and the amortisation of loans was SEK -53 (-38) million.
The Group's liquid assets amounted to SEK 60 (133) million.
Equity per share was SEK 72.50. The Group's equity/assets ratio was 38 percent. At the start of the year, equity per share was SEK 66 and equity/assets ratio was 30 percent.
Real estate administration
In spring 2003, the Board of Directors resolved to sell the ÅF Group's properties: a total of eight premises in all. The sale in September 2005 of the property officially designated as Härolden 44 marked the end of this process. The sale was based on a property value of SEK 285 million and is expected to have a positive effect of around SEK 130 million on the net profits reported by the ÅF Group in the fourth quarter of 2005. The liquidity released by the sale will be used in the first instance to develop and expand the core activities of the ÅF Group.
At the end of the third quarter, ÅF "B" shares were being quoted at SEK 199, which represents a rise of 51 percent since the start of the year. The Stockholm Stock Exchange's SAX all-share index has risen by 23 percent over the same period.
Next reporting date
The ÅF Group's summary of the annual report for 2005 will be published on 22 February 2006.
Annual General Meeting
The Annual General Meeting of shareholders in the ÅF Group will take place at the ÅF Group's head offices (Fleminggatan) in Stockholm on 27 April 2006.
Stockholm, Sweden - 9 November 2005
AB Ångpanneföreningen (publ)
President and CEO
The full report including tables can be downloaded from the following link: