ÅF: Interim Report January-March 2005 - Good growth and improved results
A few words from the President, Jonas Wiström
The ÅF Group's profits and profit margin have shown an improvement, compared both with the preceding quarter and with the corresponding period in 2004. Underlying the results is a slight improvement in the market for technical consulting services, at the same time as ÅF's structural changes are beginning to take effect. In general, we are now receiving enquiries for larger and more extensive assignments, and are making better use of internal synergies, both on the cost and earnings sides. The invoiced time ratio rose by 4.5 percentage points compared with the same quarter of last year.
We have gone some way towards creating a clear and more coherent ÅF, and our overall judgement is that we are in a strong position to improve our results, despite the fact that keen competition in combination with ever more stringent requirements on suppliers continues to keep prices in check.
We met our immediate objective for the first quarter of reversing the losses in the Systems Division. This was made possible by the commitment of our staff, the continuing support of our satisfied clients and a dramatic reduction in the division's fixed costs. Our target is to continue to improve results, quarter by quarter. Johan Olsson, with almost 25 years experience of IT and the telecoms sector, has been appointed Divisional Manager.
ÅF's financial status is strong, and this enables us to participate in the consolidation of the technical consulting sector. Our strategy of investing internationally remains in place, since the majority of our clients now belong to global groups. In the first quarter, just over 15 percent (2004: 8 percent) of sales derived from ÅF offices outside Sweden.
Significant events during the first quarter
ÅF was commissioned by the Swedish National Rail Administration to carry out the project planning work for systems directly related to the rail track in the tunnel through the Hallandsåsen Ridge. The assignment focuses mainly on work on electrics, signals and telecommunications.
ÅF was commissioned by Scania to plan parts of Scania's upgrade of its Engine Development department in Södertälje. The assignment extends over a broad spectrum of consulting and engineering skills in fields such as building and construction, air treatment, process media and electric power.
ÅF received an assignment from the Myllykoski Group, Finland, to plan the refurbishment of two the Group's paper mills in Germany.
Johan Olsson has been appointed as the new manager for the Systems Division and will take up the post on 7 June 2005. Born in 1956, Johan is an engineering graduate of the Swedish Royal Institute of Technology (KTH) and comes to the ÅF Group from HiQ International. Johan started work with HiQ in 1995, where he has served as a member of the senior management team since 1999. Previously he was employed by Ericsson between 1983 and 1995.
In the annual Knowledge Company Barometer survey carried out in Sweden on the initiative of ISI Wissing, the ÅF Group came top in the categories of both "Best Technical Consultants" and "Best IT Consultants". The aim of the survey is to find out how senior managers (in companies with more than 50 employees) perceive the knowledge companies they come into contact with.
ÅF acquired the remaining 11 percent of the shares in CTS Engineering Oy, thereby becoming sole owner. The shares were paid for partly by a cash settlement of SEK 4 million, and partly through SEK 5 million in newly issued B shares in AB Ångpanneföreningen. That part of the purchase sum in excess of CTS's equity has been recorded as goodwill.
Sales and profits
Net sales amounted to SEK 583.4 (541.8) million.
Operating profit was SEK 25.8 (19.7) million. The operating margin was 4.4 (3.6) percent.
Results for 2005 have been negatively affected by impairment of goodwill of SEK 2.0 million.
The result for 2004 was affected positively by a capital gain of SEK 21.5 million from the sale of the Härolden 1 property, and negatively by structural measures totalling SEK 25.4 million, attributable chiefly to measures in the Process and Systems Divisions.
The invoiced time ratio was 71.5 (67.0) percent.
Profit after net interest income/expense was SEK 24.5 (18.5) million.
The profit margin was 4.2 (3.4) percent.
Earnings per share amounted to SEK 2.83 (3.33).
The current status in the Group's divisions
Infrastructure Operating margin 3 months: 8.3% (6.6%)
The market for infrastructure consulting services remained strong in the first quarter. At the same time as the division was aided by major investments in roads and railways - an area in which ÅF is taking market share - it also benefited from a modest but marked upturn in the construction and property markets in Sweden, where ÅF is the market leader in solutions for a variety of technical installations.
Process Operating margin 3 months: 5.6% (0.0%)
The market for consulting services for the pulp and paper industry and for energy-intensive industries remains good. Thanks to some large ongoing projects invoiced time ratio for Engineering activities (project planning, project management, implementation and commissioning) was relatively high. Consulting & Process (advising on early project stages) showed an improvement in capacity utilisation towards the end of the quarter. Geographically, Sweden was the most profitable market during the quarter. Finland, Germany and Spain also made positive contributions to results, while the French operation had a negative effect on profits.
Inspections & Testing Operating margin 3 months: 3.7% (2.0%)
The markets for all areas of Inspections & Testing's operations - Inspections, Testing and Certification - tend always to be sluggish in the first quarter of the year. It was only towards the end of the period that demand began to pick up - particularly with regards to services related to testing. A number of major projects were launched in March, for example, in respect of Scanraff's refinery in Lysekil. At the end of March, Inspections & Testing signed a substantial agreement with EuroMaint.
Systems Operating margin 3 months: 2.6% (-12.3%)
Last year's extremely negative results for the Systems Division were transformed during the first quarter into a weak positive result. The reason for this was twofold: there was a slight increase in demand for services in the Embedded Systems and Mechanical Engineering areas, but the improvement also owed something to reductions in the workforce and in overheads in general. Advance planning continues to be very short-term in a number of areas, and there are still profitability problems in certain local offices.
This interim report for the Group has been drawn up in accordance with IAS 34 "Interim Financial Reporting", which corresponds to the requirements of the Swedish Financial Accounting Standards Council's recommendation RR 31 "Interim Reporting for Groups".
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). It states there that IFRS will be applied with effect from 1 January 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.
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-March 2005 totalled SEK 12.3 (7.3) million.
Cash flow and financial status
Cash flow was SEK -68 (+21) million. Before the amortisation of loans, cash flow was SEK -15 (+28) million. There was a positive effect on cash flow for the first quarter of 2004 of SEK 45 million from property sales.
The Group's liquid assets amounted to SEK 107 (114) million.
Equity per share was SEK 69. The Group's equity/assets ratio was 34 percent. At the start of the year, equity per share was SEK 66, and equity/assets ratio 30 percent.
Real estate administration
In spring 2003, the Board of Directors resolved to sell the ÅF Group's properties. Seven of the Group's eight properties were sold during 2003 and 2004.
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, which is for sale and has been recognised in the accounts among current assets. The property, which has a book value of SEK 130 million, was valued at SEK 225 million at the end of 2004 by Forum Fastighetsekonomi AB (2003: SEK 220 million).
At the end of the first quarter, the price of ÅF's B shares was SEK 143, which represents a rise of 8.3 percent since the start of the year. The Stockholm Stock Exchange's SAX all-share index rose by 5.5 percent in the same period.
The next reporting date
The ÅF Group's interim report for the period January to June 2005 will be published on 19 August 2005.
Stockholm, Sweden - 28 April 2005
AB Ångpanneföreningen (publ)
President and CEO
The full report including tables can be downloaded from the following link: