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The ÅF Group - Summary of the Annual Report for 2003

Improved earnings in a tough market
 
  • Net sales rose to SEK 1,995 million (corresponding figure
    for 2002: SEK 1,916 million)
  • Profit after net financial items totalled SEK 47 million
    (SEK -151 million)
  • Earnings after tax amounted to SEK 30 million
    (SEK -128 million)
  • Earnings per share SEK 5.24 (SEK -22.1)
  • The Board of Directors proposes a dividend for 2003 of SEK 2.60 (2.00) per share.
  •  
    A few words from the President, Jonas Wiström
     
    The market for technical consulting services has remained relatively subdued during 2003. That makes it all the more satisfying for the ÅF Group to be able to report improved earnings and a considerable improvement in cash flow. We have not only our reductions in costs to thank for this, but also a tremendous demonstration of solidarity and commitment from employees at all levels.
     
    We have now reversed the negative financial trend for the Group, although profitability still remains far from satisfactory. However, we have implemented measures that will pave the way for earnings to continue to develop in a positive direction. Today's ÅF Group is more cost-effective and presents a clearer profile to the market, at the same time as the new organisation improves our opportunities to derive full benefit from both our size and structural capital.
     
    Bolstered by the changes that have been made, the ÅF Group is now able to act with greater assertion and will adopt more of an external focus in 2004. One important aspect of this strategy will be to evaluate the potential for increased growth in Sweden and/or other areas of Europe.
     
    In the ÅF Group's opinion, the market for technical consulting services as a whole will remain unchanged or see only some slight improvement in 2004. While we are already beginning to notice the effects of an increase in orders and a greater willingness to invest areas such as the pulp and paper industry, we have prepared ourselves for yet another tough year, albeit one in which our aim is to achieve a substantial improvement in earnings.
     
    The passing of 2003 marked what was, in essence, the end of the work of slimming down and streamlining the ÅF Group's operations. In accordance with our plans, seven of the Group's properties have now been sold (with effect from January 2004). The net impact of this on earnings for the first six months of 2004 is estimated to be around SEK 25 million. The educational company ÅF-SIFU was sold in the second quarter of 2003.
     
    Important events in the fourth quarter
     
    The ÅF Group received an order worth approximately SEK 40 million from Stora Enso in conjunction with Stora Enso's decision to build a new paper machine for uncoated magazine paper at its Kvarnsveden paper mill in Borlänge, central Sweden.
     
    The Swedish National Rail Administration appointed the ÅF Group as consulting engineer responsible for electrical engineering, signalling and telecommunication systems in conjunction with the so called "City Line" rail project in Stockholm. Work began in December 2003. The ÅF Group has been carrying out infrastructure projects for the Swedish National Rail Administration since the early 1990s.
     
    The ÅF Group was commissioned by the County Council in Halland to work on the county hospital in Halmstad on the west coast of Sweden. Three buildings there will be demolished to be replaced by a new, 16,000 square-metre entrance hall and reception area. Consultant engineers from the ÅF Group will be responsible for planning the installations for the premises' heating, cooling, sprinkler and air conditioning systems, as well as the new wing's medical gases. The order is worth around SEK 5.5 million for the ÅF Group.
     
    The ÅF Group sold one of its central Stockholm properties to the Swedish property management company Humlegården. Access to the 3,500 square-metre premises (known officially as the Härolden 1 building) has been granted from the beginning of 2004. The sale is expected to add approximately SEK 20 million to the ÅF Group's first-quarter earnings in 2004.
     
    Important events after the end of the reporting period
     
    The ÅF Group has signed agreements for the sale of its properties in the Swedish cities of Malmö, Växjö, Norrköping, Luleå and Sundsvall to the property management company Estancia Fastigheter AB. The sale of the properties is expected to have a positive effect of approximately SEK 5 million on the net result of the ÅF Group for the second quarter of 2004.
     
    The ÅF Group has been awarded a major contract by Holmen Paper in conjunction with the decision to invest in a new paper line at the Fuenlabrada newsprint mill in Madrid, Spain. The project will be headed by the ÅF Group's Pulp & Paper Division via its subsidiary, Incepal S.A, which is based in San Sebastian, Spain. The order is the result of close cooperation between Pulp & Paper's offices and expertise in Spain, France and Sweden.
     
    A decision has been taken to split the ÅF Group's Industry & Systems division into two distinct units, Industry and Systems. To safeguard profitability in the Systems Division some 50 employees will be issued with notice of the termination of their employment. The reorganisation involves structural costs totalling up to SEK 25 million, and these will, of course, impact on profits for the first quarter of 2004.
     
    As part of the reorganisation, the New Markets division is to cease operation. ÅF-Data will henceforward become part of the Systems division, while ÅF-Kontroll and ÅF-Infrateknik will form their own separate divisions, namely Inspections and Infrastructure.
     
    Sales and earnings
     
    Net sales for the ÅF Group in 2003 amounted to SEK 1,995 million (2002: SEK 1,916 million). Sales for the fourth quarter rose to SEK 569 (553) million.
     
    Operating profit for year was SEK 53 million (compared to a loss of SEK 136 million in 2002), and the operating margin was 2.7 (-7.1) percent. Operating profit for the fourth quarter was SEK 11 million (as opposed to a loss of SEK 123 million for the corresponding period in 2002), and the operating margin was 1.9
    (-22) percent.
     
    Capacity utilisation during 2003 was 67.6 (66.4) percent, with a fourth-quarter figure of 65.8 (66.2) percent.
     
    Group consolidated profit after net financial items totalled SEK 47 million (as opposed to a loss of SEK 151 million in 2002). This yielded a profit margin of 2.3 (-7.9) percent. Profit after net financial items for the fourth quarter was SEK 12 million (as opposed to a loss of SEK 123 million for the corresponding period in 2002).
     
    Earnings per share rose to SEK 5.24 (-22.18). EPS for the fourth quarter was SEK 0.66 (-18.30).
     
    The current status in the Group's divisions
     
    Energy & Environment     Operating margin: 4.4% (2002: -1.2%)
     
    Energy & Environment reported fairly good demand for its services from the energy industry in 2003. Project planning of district-heating grids and a number of assignments in conjunction with power generation plants helped to keep the capacity utilisation rate up. As far as operations within the Environment sector were concerned, after a generally sluggish first half, demand did begin to show signs of picking up towards the end of the year. In the international arena things have gone well for the Energy & Environment division with a number of new assignments, chiefly within the aid and development sector.
     
    Industry & Systems     Operating margin: -1.7% (-4.1%)
     
    The market for IT and product development has, in general, been very barren, with 2003 showing no sign of any improvement. In and around Stockholm in particular, competition has been fierce and there has been a great deal of pressure on prices. This has added up to a very tough year, not only for IT & product development, but also within the field of industrial automation. The business that performed best in 2003 was electric power.
     
    Installations     Operating margin: 4.3% (6.6%)
     
    Installations felt the effects of falling demand in the construction sector during 2003. This manifested itself in fewer major projects at the same time as the number of new constructions also fell. However, the division managed to offset this by concentrating its efforts on sales work and by meeting the general rise in rebuilds and renovations. In addition Installations also scored successes with its consulting services for energy management and energy economisation in the property management sector.
     
    Pulp & Paper     Operating margin: 3.5% (-10.5%)
     
    Demand for consulting services from the pulp and paper industry was relatively weak in 2003. The Swedish market consisted chiefly of maintenance projects with relatively few major new investments. There was a slight improvement towards the end of the year, but as a rule it takes one or two quarters before major orders begin to impact on capacity utilisation rates. The improvement in profits within the division is the result of rationalisations and the closure of the loss-making business in England. Operations in Germany had a positive effect on earnings, while rather weak first-half results meant that the division's French operations had a negative impact.
     
    New markets     Operating margin: 6.7% (3.6%)
     
    ÅF-Data                                                         
     
    ÅF-Data reported an increase both in licence sales and in the utilisation of its consulting capacity in what nevertheless remains a weak market for business systems. This, together with reductions in the company's costs, explains the improvement in earnings. In the fourth quarter Matz Axelsson assumed the position as the company's new Managing Director.
     
    ÅF-Infrateknik                                        
     
    ÅF-Infrateknik was awarded three relatively large contracts within the rail sector during the second half of 2003. This has already paved the way for an improved utilisation of the company's consulting capacity with fewer peaks and troughs, even though the greatest effects of these orders will not make themselves felt until 2004. The overall situation within telecommunications remained fairly bleak despite signs of a slight upturn during the fourth quarter.
     
    ÅF-Kontroll                                                   
     
    ÅF-Kontroll captured new market share to report a very good year in 2003. Not only was capacity utilisation good in all areas - inspection, testing and certification - but reductions in the cost of administration also had a positive effect on earnings.
     
    Accounting principles
     
    This report has been compiled in accordance with the recommendations of the Swedish Financial Accounting Standards Council and statements issued by the Council's Emerging Issues Taskforce. New recommendations that came into force at the beginning of 2003 and which have had an effect on this report are RR22 (Presentation of Financial Statements) and RR 25 (Segment Reporting). In other respects, the principles and calculation methods used in this financial report remain unchanged from those used in previous years.

    Investments
     
    Gross investments in machines and equipment totalled SEK 42 (42) million. This figure excludes investments made in corporate acquisitions for January-December 2003.
     
    Cash flow and financial status
     
    The cash flow for the year was SEK 24 (-147) million. This figure includes a net change in loans totalling SEK 9 (-11) million, and a shareholders' dividend of SEK 11 (74) million.
     
    The cash flow for the third quarter was SEK 67.6 (6.2) million.
     
    The ÅF Group's liquid assets totalled SEK 92.5 (68.9) million at the end of the reporting period.
     
    Equity per share was SEK 59, and the Group's equity/assets ratio was 31 percent. These figures compare with SEK 57 and 30 percent respectively at the beginning of the year. 
     
    Real Estate and Finance Administration
     
    In the spring of 2003 the ÅF Group's Board of Directors resolved to sell seven of the Group's eight premises.
     
    During the third quarter the ÅF Group sold its premises in Tyresö (Snickaren 6). The positive net effect of this on the accounts is approximately SEK 1 million.  
     
    During the fourth quarter the ÅF Group sold one of its central Stockholm properties to the Swedish property management company Humlegården. Access to the 3,500 square-metre premises (known officially as the Härolden 1 building) has been granted from the beginning of 2004. The sale of the premises is expected to have a net effect on the ÅF Group's first-quarter result for 2004 of some SEK 20 million.
     
    The five remaining properties for sale were sold to the property management company Estancia Fastigheter AB in January 2004. The sale of the properties is expected to have a positive effect of approximately SEK 5 million on the net result of the ÅF Group for the second quarter of 2004.
     
    The premises which currently house the ÅF Group's head office in Stockholm (approximately 10,700 square metres in size) are not affected by the decision to sell. At the end of the reporting year these premises (officially known as the Härolden 44 buildings) were valued at SEK 220 (240) million by Forum Fastighetsekonomi AB.
     
    Parent company
     
    Parent company sales totalled SEK 107 (96) million, yielding a profit after net financial items of SEK 87 million, as opposed to a loss of SEK 68 million in 2002. 
     
    Shareholders' dividend
     
    The Board of Directors proposes a dividend for 2003 of SEK 2.60 (2.00) per share. This is in line with the established policy of issuing a dividend to shareholders that corresponds to 50 percent of the Group's earnings after tax.
     
    ÅF shares
     
    At the end of the reporting period, ÅF class "B" shares were valued at SEK 116 each. This corresponds to an appreciation in value of 26 percent since the start of the year, when they were being traded for SEK 92 each. The Stockholm Stock Exchange's all-share index (Sax) rose by 30 percent during the same period.
     
    Liquidity guarantee
     
    In order to encourage liquidity in the ÅF share, the Board of Directors has, after consultations with the major owner of the ÅF Group, Ångpanneföreningen's Foundation for Research and Development, reached an agreement with the stockbrokers Öhman Fondkommission to act as liquidity provider for the ÅF share within the framework of the Stockholm Stock Exchange's system for liquidity providers.
     
    The undertaking, which came into effect on 31 October 2003 means that Öhman Fondkommission will quote bid and offer prices for the ÅF Group's class "B" share and stand by ready to buy and sell the share at these prices on its own account.
     
    Reporting dates for financial information 2004
     
    The ÅF Group will publish financial information on the following dates in 2004:

    Interim report January-March 2004     11 May
    Report from the Annual General Meeting     11 May
    Interim report January-June 2004     20 August
    Interim report January-September 2004     27 October
     
    Annual General Meeting
     
    The Annual General Meeting of Shareholders will take place take place at 17.00 (5.00 pm) on 11 May 2004 at AB Ångpanneföreningen's head office at number 7 Fleminggatan in Stockholm, Sweden. A formal call to the meeting will be issued via an advertisement placed in the national Swedish daily newspapers.
     
    The ÅF Group's Annual Report for 2003 will be despatched by post to shareholders who have indicated their interest. It will also be available at the ÅF Group's offices from 16 April 2004.
     
     
    Stockholm, Sweden - 18 February 2004
     
    AB Ångpanneföreningen (publ)
     
    Jonas Wiström
    President and CEO
     
     
    The full report including tables can be downloaded from the following link: