A record year in which ÅF strengthened its positions
In an uncertain market, 2015 was a good year for ÅF from several perspectives. Profit for the full year and fourth quarter were ÅF’s highest ever. Strategic acquisitions and reorganisation made ÅF even stronger for the future. We exceeded the growth target of EUR 1 billion in net sales that was set five years ago. And compared to the rest of Europe profitability was top class and cash flows remained strong.
Continued weak growth in Europe and the great uncertainty prevailing in the economies of the rest of the world, including developments in China, make it more difficult than ever to assess the future. This uncertainty has been reinforced by geopolitical tensions, especially regarding Russia and the Middle East.
In the sectors in which ÅF operates – energy, industry and infrastructure – low energy prices in Europe have meant a continued low level of investment in the energy sector. A number of planned nuclear power investments in Sweden have also been either shelved completely or pushed forward indefinitely. The manufacturing industry has seen large variations between different industries. For example, the automotive, pharmaceutical and pulp industries performed strongly, while the mining and steel industries have grappled with a market suffering from overcapacity. The market has been very weak in the oil and gas industry due to sharply falling prices.
Infrastructure investments remained at high levels in Scandinavia. The needs are still great and can be expected to persist going forward.
Improved profit in all divisions
All divisions improved their operating profit with better or largely unchanged operating margins and increased net sales during the year. The good outcome is a result of both organic growth and strategic acquisitions. It is also the result of our ability to divert resources and adapt operations to changing realities.
We implemented a reorganisation at mid-year that affected the Industry and Technology Divisions when the acquired company LeanNova was moved to the Industry Division. The reorganisation had several purposes. One was to refine the Technology Division so it can fully focus on digital solutions, and another was to enable development of a knowledge base that is transferable to all industries. This has made the division’s client offering clearer and more in-depth and specialised.
A third purpose was to take advantage of synergies in the Industry Division and create a very strong offering in automotive production and product development. The acquisition of LeanNova made ÅF the leading, most comprehensive supplier of development services to the automotive industry in the Nordics, and placed us in the international marketplace at the same time. We now have the expertise to do everything from joining systems together to developing a complete car.
In the energy area, we see good future opportunities for expansion in hydropower across divisional and country borders. That was the reason for a further reorganisation at year-end in which we pooled our hydropower expertise in the International Division.
For the Industry Division the year began with a weak market but ended on a stronger note. This was helped by our strong automotive offering, which met with success on the international automotive markets with new client agreements in Sweden, China and the UK. With the acquisition of PRC Engineering we also took ÅF up the value chain in the growing pharmaceutical industry and improved the opportunities for internationalisation.
The market was strong for the Infrastructure Division and it grew faster with better profitability than the industry in general. Operating profit for the division was the best ever and we further strengthened our market position. Over the last five years, the division has grown from number eight in size in the Swedish market to being one of two market leaders today.
We also strengthened our presence in the fast-growing Norwegian infrastructure market, partly through the acquisition of Erstad & Lekven and partly through the agreement with Reinertsen to form a jointly owned company there. The agreement took effect on 1 February 2016 and is expected to add about SEK 500 million in sales.
The International Division is one of ten leading energy consultants in the world and continued to improve its profit during the year despite a weak domestic market in Europe. Restructuring in the division helped improve profit, as did a strong focus on emerging markets, which resulted in a growing number of projects outside Europe.
There was a change in management in the Technology Division in conjunction with the reorganisation. The reorganisation has already led to improved profit and we have seen strong demand for defence systems and from the automotive industry, and stable demand from telecom.
Favourable long-term market trends
ÅF has a long and impressive history of helping to build a better society, with
innovative solutions and trustworthy relationships that make for a more sustainable
society. This in turn requires that we have a good understanding of what is happening in our own and our clients’ business environments. Today we see several major trends that are influencing our clients and thus also influence us. Globalisation means that clients face fierce competition and are looking for solutions that can help increase the efficiency of production, logistics and product development, but that can also help make products and solutions more attractive from a sustainability perspective.
There is much left to do in all parts of the industry and in society in general, especially when it comes to “Industry 4.0”, the smart production method in which everything is connected, as well as in steering towards more efficient energy use. This digitalisation trend affects all industries and sectors. Intelligent solutions are becoming more common in everything from production and products to buildings and energy systems. Everyone is pulling in the same direction, namely towards the need for increased competitiveness in a globalised world and for a sustainable society.
The urbanisation that is occurring all over the world is also increasing the demand for a society that is organised in a sustainable manner, with well-functioning transport systems, safe and clean energy, clean air and water, energy efficient buildings and well-functioning public transport. Meeting these trends often involves large investments that require a long-term perspective. ÅF has ample evidence in its project operations that sustainability and profitable growth can go hand in hand. In the long term, we are convinced that they are not in the least incompatible. We consider it our primary task to develop solutions in partnership with our clients that will enable them to remain competitive and profitable in the future.
Another trend is the repositioning Another trend is the repositioning that is occurring among our industrial clients. They want to move up in the value chain by doing more for their clients and being less involved in the technological aspects of their businesses. These include car manufacturers and other client categories, such as the Swedish Transport Administration and power companies, who are increasingly procuring more of their technology needs externally. This is a development that benefits a company like ÅF that has the ability to offer end-to-end solutions in long term projects.
We are enjoying a growing interest in such long-term partnerships. We are doing more and more for existing clients and our ten largest clients have increased their share of sales over the last five years. This enables us to build trusting relationships and become a real partner for the future.