ÅF Group improves earnings despite the generally poor economic climate
- Net sales rose to SEK 491 million (Jan-March 2002: SEK 479.1 million).
- Capacity utilisation rose to 69% (66%)
- Profit after net financial items rose to a total of SEK 11 (6) million
- Profit per share, SEK 1.49 (0.95)
- Forecast of a positive cash flow and operating profit for 2003 stands firm.
A few words from the President, Jonas Wiström
The first quarter of 2003 has seen the implementation of plans for the extensive restructuring of the ÅF Group's business that were resolved last year. This has meant that, in all, some 200 employees have left the company through redundancies and early retirement. In order to achieve our prime objective of reversing the negative trend in earnings and restoring profitability to the ÅF Group this year, most of the funds earmarked for this restructuring process in the 2002 annual accounts have been used.
Simultaneously with the reorganisation, capacity utilisation has increased by almost three percentage points, a satisfying development that explains the increase in profits compared with the first quarter last year. The improvement in capacity utilisation (the proportion of time charged to clients relative to the total time spent at work) is a consequence not only of shedding non-invoicing staff, but also of a tremendous sense of commitment among ÅF Group employees.
We remain cautious with regard to the continued weak state of the economy, the current situation on the market and the risk of persistent pressure on prices in certain segments of the market. As we see nothing to suggest that there will be any significant change in the situation during the rest of the year, we are directing our efforts towards capturing new shares of the technical consulting market and making the ÅF Group profitable once more.
Significant events during the first quarter
The ÅF Group's French subsidiary Chleq Froté has signed an agreement with packaging manufacturer Emin Leydier that is worth around SEK 65 million. The project is expected to accrue in volume during the second quarter this year and is due for completion in 2004.
The ÅF Group has signed separate framework agreements with Sweden's National Road Administration and the Swedish Rescue Services Agency, each for a period of two years, with the option of a further 12-month extension at the end of this initial period.
As part of a strategic partnership and product development agreement with Siemens Medical Solutions, the ÅF Group has negotiated the transfer to its staff of 16 former Siemens employees and taken over a development environment in Stockholm with unique skills in medical X-ray technology.
Sales and earnings
Net sales rose by almost 3 percent to SEK 491 million (corresponding figure for first quarter 2002: SEK 479 million).
Operating profit was SEK 14 (9) million. The operating margin rose to 2.8 (1.9) percent, while capacity utilisation increased to 69 (66) percent.
Group consolidated profit after net financial items totalled SEK 11 (6) million, yielding a profit margin of 2.2 (1.3) percent.
Earnings per share were SEK 1.49 (0.95).
Utilisation of financial provisions for restructuring operations
The accounts for 2002 included an item for SEK 85 million under the heading of "Provisions for restructuring", which was earmarked for the costs involved in terminating the contracts of administrative staff, managers and consultants. For the most part, this restructuring process has taken place during the first quarter of 2003. After the completion of mandatory local negotiations in accordance with Swedish legislation on codetermination at work, the costs involved in terminating employment contracts have been calculated individually for each employee concerned. The relevant amount has then been released from the provisions for restructuring and transferred to the company with which the employee has been employed, where it has subsequently been entered as a liability on the balance sheet.
At the end of the first quarter a total of SEK 11 million remained in the provisions for restructuring.
The current status in the ÅF Group's five divisions
Industry & Systems
Following the latest contraction in the market for industrial and IT consulting services in 2002, the situation has remained more or less stable so far in 2003. However, competition remains keen, there is still a great deal of pressure on prices and lead times continue to be short in many market areas. On a more positive note, demand for product development and production development assignments has increased, which suits our skills in Industry & Systems well.
Pulp & Paper
After a period of decline, demand for consulting services from the pulp and paper industry in Sweden and Europe is now starting to show signs of stability and there are even suggestions of a slight upturn in business. Pulp & Paper reports an increase in the number of enquiries relating to major projects, and clients will be making some important investments decisions during the spring and autumn. First-quarter earnings were, however, affected negatively by low levels of work for the Group's French subsidiary, Chleq Froté.
After the levels of activity in property maintenance and the construction industry in Sweden dwindled during the third and fourth quarter of 2002, the market now seems to have stabilised, albeit at a relatively low level. Installations has experienced reduced numbers of consulting assignments for new construction, but increased activity in connection with rebuilds, renovations and property maintenance projects. At the same time demand for consulting services in conjunction with energy efficiency projects has increased.
Energy & Environment
Orders for consulting services in Energy & Environment rose month by month to finish the first quarter at an acceptable level. Demand for consulting and expert advice within Energy & Environment is expected to increase as a result of new EU directives relating to the energy performance of buildings. At the same time, escalating electricity prices are expected to fuel interest in a more rational use of energy and alternative energy sources, while an increase in the number of environmental criteria that industry must comply with may also raise demand.
ÅF-Data improved its result in a relatively austere market during the first quarter thanks, above all, to reduced costs and a slight increase in earnings.
Incoming orders for ÅF-Infrateknik have been relatively good during the first quarter. Within the area of telecoms ÅF-Infrateknik has succeeded in compensating for the weaker demand from tele-operators with an increased number of assignments from the Swedish armed forces. Demand for services in Traffic Technology, Urban & Rural Planning and Transportation Management has either remained stable or shown signs of a slight rise.
ÅF-Kontroll improved sales and profits, and is continuing to win new shares of the market. Considering the new recruitments made and the training activities undertaken during the reporting period, invoicing reached a satisfactory level. Historically the first quarter is the "low season" for inspection and control services.
The cautious recovery in the training market which began at the end of 2002 continued during the first three months of 2003. An improved order situation and reduced costs contributed to improving ÅF-SIFU's first-quarter earnings.
This interim report has been compiled in accordance with recommendation RR20 (Interim Reports) issued by the Swedish Financial Accounting Standards Council. Among the new recommendations that have come into effect at the beginning of 2003, those with the most significant impact on the accounts of the ÅF Group are RR22 (Presentation of Financial Statements) and RR 25 (Segment Reporting) which has affected the external accounting.
Gross investments in machines and equipment during the first quarter totalled SEK 11 (11) million.
Cash flow and financial status
The cash flow for the first quarter was a negative one of SEK -29 (-34) million. This figure does, however, include SEK 13 million for the amortisation of a loan. The utilisation of SEK 17 million of the restructuring reserve has had a negative influence on the cash flow.
The ÅF Group's liquid assets, including current investments, totalled SEK 40 million, compared to a figure of SEK 69 million at the end of 2002.
Equity per share at the end of the reporting period was SEK 58, and the Group's equity/assets ratio was 30 percent. These figures compare with SEK 57 and 30 percent respectively at the end of 2002.
Real Estate and Finance Administration
According to an evaluation of the Group's properties carried out by Forum Fastighets AB at the end of 2002, the market value of this real estate was assessed at SEK 411 (460) million. Book value as per March 31 2003 was SEK 269 (273) million.
The ÅF Group's properties, 95 percent of which are offices, are used primarily by the Group's consulting businesses. The vacancy ratio at the end of the reporting period was 5 percent. The Group currently owns 33,000 square metres of real estate.
At the end of the reporting period the ÅF share was valued at SEK 89, which represents a 3.3 percent fall since the start of the year. By way of compariosn, however, it should be noted that the Stockholm Stock Exchange's all-share index (Sax) fell by 7.5 percent during the same period.
Prospects for the future
Our objective of achieving a positive cash flow and operating result for 2003 as a whole stands firm.
The ÅF Group's interim report for the period January-June will be presented on August 20.
The Annual General Meeting of Shareholders takes place on May 7 at 17.00 (5 pm) at AB Ångpanneföreningen's head office at number 7 Fleminggatan in central Stockholm.
Stockholm, May 7 2003
AB Ångpanneföreningen (publ)
President and CEO
The full report including tables can be downloaded from the enclosed link.