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Press release

Press release

ÅF - Interim report January - September 2007: Continued improvement in earnings

For further information:
 
Jonas Wiström, President/CEO          +46 (0)70-608 12 20
Viktor Svensson,
Director, Corporate Information          +46 (0)70-657 20 26
 
Q3 2007
  • Net sales totalled SEK 844 million (Q3 2006: SEK 746 million)
  • Operating profit totalled SEK 65 million (SEK 37 million)
  •  Profit after tax rose to SEK 45 million (SEK 15 million)
  •  Earnings per share, before dilution, amount to SEK 2.65 (SEK 0.98)
  •  
    Q1-Q3 2007
  •  Net sales totalled SEK 2,744  million (Q1-Q3 2006: SEK 2,140 million)
  •  Operating profit totalled SEK 224 million (SEK 111 million)
  •  Operating profit, excluding other operating income, totalled SEK 224 million (SEK 92 million)
  •  Profit after tax rose to SEK 152 million (SEK 61 million)
  •  Earnings per share, before dilution, amount to SEK 9.18 (SEK 4.34)
  •  
    A few words from the President, Jonas Wiström
     
    ÅF continues to grow, profitability is improving, and we can report our best third-quarter performance to date. Our operating margin rose to 7.7 percent (4.9 percent). The state of the economy remains strong, and ÅF is capturing new shares of the market.
     
    It is also a source of great pleasure to report that we are continuing to attract the best consultants. In October, in a poll among professional engineers in Sweden, ÅF was voted the consulting industry's most attractive employer. (Source: Career Barometer, Universum).
     
    ÅF is growing particularly strongly in the expansive energy sector. A new and highly significant step in our expansion in this area was taken in the third quarter with the acquisition of the Swiss energy consulting company Colenco, which has 250 employees and clients in more than 40 countries. As a result, ÅF can now offer clients access to more than 750 highly qualified energy and environmental consultants on an international market.
    Across the board, ÅF's various divisions are developing in line with, or better than expectations.
     
    Corporate acquisitions and disposals, Q3 2007
     
    ÅF acquired 100 percent of the shares in the Swiss energy consulting company Colenco, which employs 250 members of staff in Europe and Asia. The takeover has made ÅF one of the largest independent consulting companies in the energy sector, with a position as a world leader in nuclear power.
     
    Colenco is an international energy consulting concern with its headquarters in Baden, Switzerland. The company has a 250-strong workforce, 180 of whom have Switzerland as their base. Colenco has offices in eleven countries and is currently engaged in projects in more than 40 countries. The company's main areas of activity are nuclear power, hydropower, electrical networks and conventional power plants. The acquisition of Colenco reinforces ÅF's market position in Europe, the Baltic region, Russia, South-East Asia and South Asia.For financial data relating to the acquisition of Colenco, you are referred to page 11 in this interim report.
     
    At an extraordinary meeting of shareholders held on 14 August 2007, a resolution was upheld to approve the sale of the subsidiaries ÅF-CTS Oy and ÅF-Chleq Froté S.A to purchasers that include the management of each of the respective companies. The sales are part of a strategy to realign the operations of the Process Division.
     
    Important events during Q3 2007 and after the close of the period
     
    ÅF won a major order from Banverket, the authority responsible for rail transport in Sweden, in conjunction with the Stockholm City Line rail link. The value of the order for ÅF's part is estimated to total approximately SEK 200 million. The consulting contract consists for the most part of three technical assignments: Tomteboda freight yards, the double-track tunnel and new commuter stations, and a risk and safety management assignment.
     
    ÅF has been engaged by the pulp and paper company Portucel as the principal consultant in a major project to extend the integrated pulp and paper mill at Viana in Portugal.
    The contract is worth in excess of SEK 30 million for ÅF.
     
    In August the Board of Directors of ÅF formulated the following overall financial objectives for the Group:
     
    -   ÅF shall be the most profitable among the closest comparable companies in the industry and achieve an operating 
        margin (EBIT) of at least 10 percent over a business cycle.
    -   ÅF shall have net debt. The net debt shall not exceed 40 percent of equity.
     
    The previous formulation for the Group's growth target, which specifies that ÅF shall attain sales of at least SEK 5 billion by 2010, remains unchanged.
     
    In conjunction with the first conversion opportunity for the ÅF co-worker convertibles programme for 2005/2008, a new issue has been made of a total of 523,608 of a possible 660,644 class B shares. This gives a 3.1 percent dilution of the share capital and a 2.2 percent dilution of the votes. The new number of shares in ÅF now totals 16,892,534, of which 804,438 are class A shares, and 16,088,096 are class B shares.
     
    Sales and profits
    Net sales for the full nine-month reporting period totalled SEK 2,744 million, an increase of 28 percent on the figure for January-September 2006 of SEK 2,140 million. Sales in the third quarter amounted to SEK 844 million (SEK 746 million), an increase of 13 percent.
     
    Operating profit for the period was SEK 224 million (SEK 111 million), and the operating margin was 8.2 percent (5.1 percent). For the third quarter, operating profit was SEK 65 million (SEK 37 million), and the operating margin was 7.7 percent (4.9 percent).
     
    When comparing these results with those from 2006, it is important to bear in mind that the figures for the first quarter of 2006 were positively affected by a capital gain of SEK 19 million following the sale of the software company PX Business Solutions. If the profits from this sale are excluded from last year's figures, operating profit at this stage of the year totalled SEK 92 million and the operating margin was 4.3 percent.
     
    Capacity utilisation for the period was 75.1 percent (72.4 percent). For the third quarter, capacity utilisation was 74.3 percent (72.9 percent).
     
    Profit after net financial income/expense was SEK 220 million (SEK 102 million) with a profit margin of 8.0 percent (4.7 percent). For the third quarter, profit after net financial income/expense totalled SEK 64 million (SEK 30 million), and the profit margin was 7.5 percent (4.0 percent).
     
    Profit after tax amounted to SEK 152 million (SEK 61 million). For the third quarter, profit after tax was SEK 45 million (SEK 15 million).
     
    Earnings per share before dilution amounted to SEK 9.18 (SEK 4.34). For the third quarter, earnings per share before dilution were SEK 2.65 (SEK 0.98).
     
    Cash flow and financial position
     
    Cash flow over the full nine-month period was negative: SEK -124 million (Jan-Sept 2006: SEK -70 million). Before dividends, borrowings and amortisation, cash flow was SEK -47 million (SEK -534 million).
     
    Cash flow for the third quarter was negative, SEK -188 million (SEK -88 million).
     
    The Group's liquid assets totalled SEK 134 million (SEK 172 million).
     
    Equity per share totalled SEK 74, and the equity/assets ratio was 49 percent. At the beginning of the year, equity per share was SEK 67 and the equity/assets ratio was 48 percent. 
     
    The Group's net loan debt (cash and cash equivalents minus interest-bearing liabilities) at the close of the third quarter totalled SEK 211 million (SEK 184 million).
     
     
    Investments
     
    In addition to investments in corporate acquisitions, gross investments for the period January-September 2007 totalled SEK 29 million (Jan-Sept 2006: SEK 23 million).
     
    Divisional performance
     
    Engineering Division                                  Operating margin Q3: 8.6% (9.7%)                                                                                                                     Operating margin 9 mths: 9.2% (8.9%)
     
    The Engineering Division, which offers services within automation, industrial IT and mechanical engineering, is a leader in its field in the Nordic countries.
     
    The sustained strong state of the industrial market led to another quarter with high levels of capacity utilisation for the Engineering Division, with particularly brisk demand in the energy and mining sectors.
     
    During the third quarter co-workers with high levels of expertise in certain selected specialist fields and spheres of industry have been brought together in so called "Competence Centres". It is anticipated that this new approach to working will further improve our prospects for performing more advanced projects and consulting assignments in the future.
     
    Activity remained very strong in the nuclear power sphere. The division enjoys a strong position in this market in Sweden, but is also acquiring international commissions: the third quarter saw assignments related to nuclear power facilities in both Finland and France.
     
    Several assignments were also registered from biofuel plants in Sweden. One example was a contract from Biobränsle i Norrköping AB, appointing the division as principal consultant for a new factory for processing rapeseed into biofuels.
     
    Infrastructure Division                                Operating margin Q3: 5.1% (4.9%)                                                                                                                       Operating margin 9 mths: 9.8% (7.7%)
     
    The Infrastructure Division offers infrastructure consulting services in the following business areas: Communications & Maintenance, Installations, Infrastructure Planning, Electric Power and Sound & Vibrations.
     
    The market remained good for all of the Infrastructure Division's business areas in the third quarter, with demand being driven by factors such as the major investment programmes that are being undertaken to improve and expand the Swedish road and rail network. ÅF is involved in important undertakings for the City Tunnel rail project in Malmö and the City Line rail link in Stockholm.
     
    Recently the Infrastructure Division has also noticed an increase in demand for highly qualified services relating to wind power and hydropower. 
     
    For the division's largest business area, Installations, demand continues to be fuelled by the prolonged boom in the construction and property markets together with an ever-growing interest in energy consulting services. For example, ÅF has been contracted to carry out energy declaration inspections for the entire portfolio of properties held by the property company AB Bostäder in Borås. Installations has also been commissioned by IBM to undertake a systems engineering project for the extension of IBM's server halls in Stockholm. The project places great demands on operational reliability and accessibility, with special focus on a dependable electricity supply and the effect on operations of cold weather.
     
    Inspection Division                             Operating margin Q3: 20.7% (17.5%)
                                                                 Operating margin 9 mths: 14.8% (11.3%)
     
    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.
     
    Demand for the services of the Inspection Division was relatively strong during the third quarter. The division continued to capture new shares of the market and consolidated its position in the expansive nuclear and petrochemical industries.
    New local offices were opened in Uppsala and Kalmar, and the recruitment of new staff continued across the board, particularly for the Testing business area.
    The division has been commissioned by Hitachi to perform technical inspections of all the pressure equipment at Öresundsverket's gas-fired power station. Parallel with this, in another project at the same site, Inspection staff are involved in testing the power station's pipelines for Koch de Portugal.
    During the third quarter the division also won an international assignment to perform technical inspections for Metso Power in conjunction with the construction of an evaporation plant at the Celbi pulp mill in Portugal.
     
    Process Division                                             Operating margin Q3: 5.8% (0.3%)
                                                                          Operating margin 9 mths: 6.1% (0.4%)
     
    The Process Division offers consulting services for every aspect of an industrial process and possesses world-leading expertise in certain specialist areas of the pulp and paper industry and in the energy sector.
     
    Demand has remained very strong in all energy-related sectors. In the forest industry demand was particularly high with regard to chemical pulp projects.
     
    During the third quarter ÅF acquired the Swiss energy consulting company Colenco with 250 employees. Colenco is currently active in the areas of nuclear power, hydropower, conventional power plants, electrical networks and environmental projects in more than 40 countries. Operations were consolidated in the third quarter and immediately made a positive contribution to the division's profits and operating margin. The acquisition has reinforced ÅF's market position in Europe, the Baltic region, Russia, South Asia and South-East Asia.
     
    The positive change in operating margin for the Process Division as a whole owes much to the acquisition of Colenco and the disposal of underperforming business operations.
     
    Process won a number of major orders in the third quarter, including project planning and project management assignments for the Illisu hydro-electric power plant in Turkey. The division was also appointed principal consulting partner for an extensive capacity expansion project at Portucel's integrated pulp and paper mill at Viana in Portugal. The brisk inflow of orders has meant that the level of orders currently on the books is now historically high.
     
    Systems Division                                            Operating margin Q3: 8.7% (2.4%)
                                                                          Operating margin 9 mths: 7.8% (5.3%)
     
    The Systems Division offers services in the field of embedded systems, mechanical engineering and IT systems.
     
    The market for the Systems Division remained strong throughout the third quarter, particularly in telecommunications. The division's leading-edge skills in product development, test systems and product care are perfectly attuned to current business trends.
     
    One growing trend is for clients to request that environmental expertise be factored into their product development activities. To meet this need, the Systems Division has established the EcoDesign Center, a network to facilitate clients' access both to the division's core competences and to ÅF's extensive expertise within the field of environmental consulting services.
     
    Organic growth remained high. The division recruited a further 25 new members of staff in the third quarter to bring the total of new recruits so far this year to 125. In line with the strategy laid down previously, the average age of the division's co-workers has been significantly reduced over recent years as a result of this resolute process of new recruitment.
     
    Among new assignments in the third quarter is ongoing development work on a multimedia project for Sony Ericsson. Systems also won a development assignment from Bombardier for a new control computer for trains, and a fleet management development project for Scania.
     
    Parent Company
     
    Parent company sales totalled SEK 144 million (SEK 142 million) and related primarily to intra-group services. There was a loss after net financial income/expense of SEK 17 million, as opposed to a profit of SEK 8 million for the corresponding period in 2006.


    Bank overdraft facilities for the parent company amount to a total of SEK 300 million, of which SEK 127 million were utilised as per 30 September 2007 (30 Sept 2006: SEK 13 million). Gross investment in machinery and equipment for the period January-September 2007 amounted to SEK 4 million (Jan-Sept 2006: SEK 7 million).
     
     
    Accounting principles
     
    This interim report has been prepared in accordance with IAS 34 ("Interim Financial Reporting").
     
    The report has been drawn up in accordance with International Financial Reporting Standards (IFRS), as well as statements on interpretation from the International Financial Reporting Interpretations Committee (IFRIC) as they have been approved by the European Commission for use in the EU, 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 report has been drawn up using the same accounting principles and methods of calculation as those in the Annual Report for 2006 (see Note 2, page 52).
     
    The parent company has implemented the Swedish Financial Accounting Standards Council's Recommendation RR 32:06, which means that the parent company shall apply all the IFRS and related statements approved by the EU as far as this is possible while continuing to apply the Swedish Annual Accounts Act in the preparation of the legal entity's accounts. 
     
    Risks and uncertainty factors
     
    The significant risks and uncertainty factors to which the ÅF Group is exposed include business risks linked to the general economic situation, the propensity of various markets to invest, the ability to recruit and retain qualified co-workers and the effect of political decisions. The Group is further exposed to a range of financial risks such as currency risk, interest-rate risk and credit risks. No significant risks are considered to have arisen over and above those risks described on pages 36-38 in ÅF's annual report.
     
    ÅF shares
     
    The ÅF share price was SEK 175 at the close of the reporting period, which represents a rise of 20.7 percent since the beginning of the year. The Stockholm Stock Exchange all-share index (OMXSPI index) grew by 4.6 percent during the same period.
     
    Next reporting date
     
    The summary of the ÅF Group's annual report for 2007 will be published on 19 February 2008.
     
    The Board of Directors and the President/CEO confirm that this interim report gives a true and fair view of the operation, performance and position of the company and the Group, and describes the significant risks and uncertainty factors to which the company and the companies comprising the Group are exposed.
     
    Stockholm, Sweden - 9 November 2007
    AB Ångpanneföreningen (publ)
     
    Jonas Wiström,
    President & CEO
     
    The information in this interim report is that which ÅF is required by Swedish law to disclose under the terms of the Swedish Securities Exchange and Clearing Operations Act and/or the Financial Instruments Trading Act. The information was released for publication on 9 November 2007.
     
    The full report including tables can be downloaded from the following link: