ÅF: Interim Report, January-September 2006 - Strong growth and improved profits
For further information, please contact:
Jonas Wiström, President and CEO
+46 (0)8-657 11 15 / +46 (0)70-608 12 20
Viktor Svensson, Director, Corporate Information
+46 (0)8-657 12 01 / +46 (0)70-657 20 26
A few words from the President, Jonas Wiström
ÅF has recorded strong growth and increased profitability for the nine-month period and for the third quarter. This improvement is largely due to acquisitions and sustained strong performance in the industrial sector.
The integration of the companies acquired this year (with a total of just over 1,000 employees) is going well. The merger in May between Benima and ÅF's automation operations has created an expansive consulting company that is a market leader in automation and industrial IT. The acquisitions have significantly strengthened ÅF's offer, and paved the way towards a number of new contracts. The cost synergies have begun to feed through, and are expected to increase progressively in extent during the coming quarters.
The Infrastructure, Systems, ÅF-Benima and Inspection Divisions achieved a quarter on a par with or above expectations.
The Process Division improved its profits and operating margin to some extent compared with the preceding quarter. However, profitability remains unsatisfactory, and so intensive efforts will continue to be made to improve this situation.
Eero Auranne, formerly in charge of ÅF-Enprima, was appointed to lead the work of the Process Division after the end of the third quarter. Eero has long and wide experience of the international energy market.
With the acquisitions made, the continuing high level of business activity and our strong position on the market, I believe that the ÅF Group is well placed to continue to grow and improve its profitability.
Corporate acquisitions and collaborations during the third quarter
In July, ÅF acquired the Swedish IT consulting company, Combra, with 60 employees in Stockholm, Uppsala and Lund. Combra specialises in embedded systems for the telecommunications, medical technology and high-tech industries.
In August, ÅF acquired the Swedish technology consulting firm, JämtTeknik vid Storsjön AB, with 65 employees in Östersund, Sollefteå, Trollhättan and Gothenburg. JämtTeknik specialises in integrated logistics support (ILS) and consulting assignments for the defence industry.
ÅF's new share issue
A review of ÅF's new share issue on 18 August 2006 showed that 3,216,292 new B shares, equivalent to 99.5% of the B shares offered, were subscribed through subscription rights. In accordance with the procedure described in the prospectus, the 15,872 unsubscribed shares (0.5 percent of the total) were allocated to those shareholders who wished to subscribe for B shares without the support of subscription rights. The issue was, thus, fully subscribed, providing ÅF with almost SEK 290 million in the third quarter.
Significant events during the third quarter
ÅF was commissioned to carry out an extensive pulp project by the South African pulp and paper group, Sappi. The value of the order for ÅF is around SEK 90 million. ÅF (through the Process Division) won the project in conjunction with its joint-venture partner Murray & Roberts.
ÅF was part of the project group which won the architectural and design competition for a new university hospital to be located within the existing Karolinska Sjukhuset and Karolinska Institutet hospital complex in the Stockholm suburb of Solna. The competition was organised by Locum on behalf of Stockholm County Council.
Significant events after the close of the reporting period
Eero Auranne has been appointed Divisional Manager for the Process Division. He took up the post on 9 October, becoming a member of the ÅF Group's senior management team at the same time. In his previous position, Eero was a member of the management team for the Process Division. He has a great deal of experience from the international energy and process industries, including 20 years with Fortum, where he served as Managing Director of Fortum Service and Vice President of the Fortum Group.
The following have been appointed to serve on AB Ångpanneföreningen's Nominations Committee:
- Gunnar Svedberg, Chairman of Ångpanneföreningen's Foundation for Research & Development (also Chairman of the Nominations Committee)
- Carl-Erik Nyquist, Chairman of AB Ångpanneföreningen
- Erik Sjöström, Skandia Liv
Sales and earnings
Net sales amounted to SEK 2,140 million (corresponding period 2005: SEK 1,683 million), an increase of 27 percent. SEK 446 million of sales originate from acquisitions made this year. For the third quarter, sales totalled 746 million (SEK 466 million), and, of this figure, SEK 237 million relates to acquisitions made during the year.
Operating profit was SEK 111 million (SEK 77 million). SEK 34 million of the operating profit was contributed by companies acquired this year. The operating margin was 5.1 (4.6) percent. For the third quarter, operating profit amounted to SEK 37 million (SEK 14 million), and the operating margin was 4.9 (3.1) percent. Of the operating profit for the third quarter, SEK 19 million derives from this year's acquisitions.
Capacity utilisation, in terms of invoiced-time ratio, was 72.4 (71.9) percent. For the third quarter, capacity utilisation rose to 72.9 (71.8) percent.
Profit after net financial items was SEK 102 million (SEK 73 million). The profit margin was 4.7 (4.3) percent. Third-quarter figures were SEK 30 million (SEK 13 million) and 4.0 (2.7) percent respectively.
Net financial items were SEK -9.6 million (SEK -4.3 million) and SEK -7.1 million (SEK -1.9 million) in the third quarter. The deterioration in net financial items was due to loans taken out in the spring to finance corporate acquisitions.
Profit after tax was SEK 61 million (SEK 52 million). For the third quarter, profit after tax amounted to SEK 15 million (SEK 11 million).
The Group's tax for the period January-September totalled SEK 41 million. This relatively high tax expense was the result of a cautious valuation of the deficits arising in overseas companies during the period.
Earnings per share, before dilution, were SEK 4.67 (SEK 4.35). Earnings per share, before dilution, for the third quarter were SEK 1.05 (SEK 0.93).
Infrastructure Operating margin 9 mths: 7.7% (6.9%)
The Infrastructure Division offers infrastructure consulting services in four sectors; telecoms, installations, infrastructure planning and electrical power systems.
The Infrastructure Division's market continued to be good during the third quarter. Particularly noteworthy was the high level of activity in the largest business area, Installations, with a staff of over 500. Installations is enjoying strong demand in the wake of high levels of activity in the construction and property sector. The other business areas in the division, Electrical Power Systems, Infrastructure Planning and Telecoms, also reported brisk demand during the quarter.
Infrastructure has consolidated its position through the acquisitions of Ingemansson and JämtTeknik (the latter in the third quarter). The integration process is proceeding according to plan and the results continue to be good. The acquisitions are part of the strategy of growing through acquiring consulting companies that complement and strengthen the division's offer by adding specialist expertise in niche areas.
The acquisitions have added more than 200 highly skilled members of staff to the division, taking the total number of employees in the Nordic region to over 1,000.
During the quarter, Infrastructure was commissioned by WPD Scandinavia to plan and develop wind farms. In addition, the division forms part of a project group preparing a tender for the new university hospital to be built within the current Karolinska Hospital complex in Solna. The tender will be ready by the end of 2007.
Process Operating margin 9 mths: 0.4% (4.6%)
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 the energy market.
Market trends remained positive during the quarter, especially in the energy sector. The main driving forces have been the rise in the consumption of electricity and the expansion of capacity for electricity supply in the Nordic region, Eastern Europe and Russia.
In the forestry sector, the market has remained stable. Growth in this sector is fuelled by the development of new processing facilities, notably in South America and Southeast Asia. During the quarter the division secured an order valued at around SEK 90 million from the South African pulp and paper group, Sappi. The Process Division also won an order to oversee the construction of new plant at a combined district heating/power station in Bulgaria.
The division's earnings are, however, still not satisfactory. The main reason for this is that the invoiced-time ratio in engineering operations outside Sweden remains low. After the end of the quarter, Eero Auranne took over as Divisional Manager and efforts to steer the division back to profitability will be intensified.
Inspection Operating margin 9 mths: 11.3% (12.0%)
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.
After a somewhat weaker development than expected during the first half-year, rising demand led to a recovery in the division's growth and earnings during the third quarter.
The operating margin in the third quarter was 17.5 (16.3) percent.
Demand was particularly strong for services within testing - with undertakings for the Swedish nuclear power and oil refining industries accounting for much of this work. The division also benefited significantly from a sharp increase in interest among clients in advanced testing technology as part of routine maintenance work.
During the third quarter of 2005, the Inspection Division acquired Force Technology Sweden AB's lift inspection business. It is now clear that, in line with expectations, the acquisition has generated additional profits and positive synergies with existing operations.
Systems Operating margin 9 mths: 5.3% (-0.3%)
The Systems Division offers services in the field of embedded systems, mechanical engineering and IT systems.
Market developments have been positive, and the division has won many new contracts during the quarter. A number of major companies have increased their investments in product development and R&D, boosting demand for the Systems Division's expertise, particularly in fields such as embedded systems and mechanical engineering. Operations in the IT systems sector, in which increased marketing has led to ÅF becoming more widely known as a player, have also seen an improvement in the market.
At the beginning of the quarter, the acquisition was completed of the embedded systems specialist Combra, with offices in Stockholm, Uppsala and Lund. The integration process is going well, and ÅF-Combra is making a positive contribution to the division. Work with the embedded systems markets in Gothenburg and Malmö has also begun to reap dividends, with a number of new assignments. ÅF-Combra has made a particularly positive contribution in the form of new development assignments for Sony Ericsson's mobile phones.
New contracts during the quarter include a telematics development project for Autoliv. The Systems Division was also awarded a development and test project for medical technical equipment for GE Healthcare.
ÅF-Benima Operating margin May-Sept: 8.9%
The division offers services within automation and industrial IT, and is a leader in its field in the Nordic countries. ÅF-Benima is a new division, established when Benima was acquired in May.
As of 1 May, Benima and ÅF's resources in automation have been consolidated into a new division. The Division employs around 1,000 people in Automation and Industrial IT.
ÅF-Benima has enjoyed a good level of capacity utilisation with a strong order book in the third quarter, thanks above all to the strong performance of the Swedish and Nordic industrial sectors.
During the third quarter, the process of bringing operations together under the same roof continued at many of the 40 or so locations in the Nordic region where the division has a presence. This coordination process has been extremely valuable and helped create new business opportunities. The integration of IT systems and shared facilities, etc. is expected to be complete by the end of the year.
During the third quarter, a number of new industrial orders were won. Among these, ÅF-Benima received an order from Iggesund Paperboard to upgrade a cardboard machine.
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 September 2006 totalled SEK 23 million (SEK 27 million).
Cash flow and financial status
Cash flow was SEK -70 million (SEK -115 million).
The substantial cash flow from investing activities of SEK -556 million (SEK -37 million) was the result of acquisitions made during the year, which added more than 1,000 new members of staff to the ÅF workforce. These acquisitions had a negative impact of SEK 547 million on cash flow. The similarly large cash flow from financing operations was SEK 464 million (SEK -63 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 207 million net, and paid out dividends of SEK 30 million to shareholders.
The Group's cash and cash equivalents totalled SEK 172 million (SEK 60 million). Equity per share was SEK 65, and the equity/assets ratio was 47 percent. At the beginning of the year, equity per share was SEK 49 and the equity/assets ratio was 48 percent.
At the end of September, the Group's level of net loan debt (cash and cash equivalents minus interest-bearing liabilities) totalled SEK 184 million (SEK 207 million).
At the end of the reporting period ÅF class B shares were trading at a price of SEK 112.25, an appreciation in value of 4 percent since the start of the year. The Stockholm Stock Exchange's (OMXSPI) all-share index rose by 10 percent during the same period.
Next reporting date
The ÅF Group's summary of the annual report for 2006 will be published on 22 February 2007.
Stockholm, Sweden - 9 November 2006
AB Ångpanneföreningen (publ)
The full report including tables can be downloaded from the following link: