AB Ångpanneföreningen (publ): Interim Report January - March 2004: Improved earnings and strategic corporate acquisitions
Net sales amounted to SEK 520 (491) million
Profit after net financial items was SEK 15 (11) million
Profit after tax totalled SEK 10 (9) million
Earnings per share were SEK 1.64 (1.49)
A few words from the President, Jonas Wiström
Our objectives for 2004 are clear: improved profitability, expansion partly through corporate acquisitions, the continued reconstruction of the ÅF Group's structural capital, and the commencement of the process of becoming a truly international company.
Progress was made towards these objectives during the first quarter. Profitability rose in comparison with the corresponding quarter last year, which is due above all to rising sales and continued vigorous measures to improve the ÅF Group's efficiency.
The market for technical consulting services has stabilised, and the market outlook is better than it was a year ago, with the ÅF Group noting a slight increase in demand.
Following a month-by-month increase capacity utilisation improved in comparison with the preceding quarter. In our view, the business cycle will turn during the second half-year.
Two strategic acquisitions were made to strengthen the ÅF Group's offer on the market: the Finnish forestry industry consultants, CTS Engineering Oy, with 260 staff, and the energy consultants, Fortum Teknik och Miljö, with 150 employees.
In conjunction with the acquisition of CTS, for the first time the ÅF Group made use of the facility for paying with newly-issued shares.
The ÅF Group's financial position is comparatively strong, which enables us to continue our active and ground-breaking role in the consolidation of the technical consulting sector.
Significant events during the first quarter
At the end of March, ÅF acquired one of the largest consulting firms in the Finnish pulp and paper industry, CTS Engineering Oy, with a staff of 260. Together, ÅF and CTS represent a truly comprehensive resource for the pulp and paper industry, and one that is able to call upon the services of 675 employees in almost a dozen countries.
The ÅF Group acquired 67.6 percent of the shares, with an option to acquire an additional 12.4 percent during 2005. With the previous holding of 20 percent, this means that ÅF now holds 87.6 percent of the shares, and at the latest by 2005, will own 100 percent of CTS.
The ÅF Group acquired Fortum Teknik & Miljö (FTM) AB at the end of March, with a staff of about 150. This strengthens the Group's position as the leading consulting company in the fields of energy, the environment and electric power, and reinforces our relationship with an important customer. The majority of FTM's personnel are based in Stockholm, and its largest customer is Fortum.
With effect from 1 April 2004, CTS and FTM have become subsidiaries of the ÅF Group.
In January, ÅF sold five properties to Estancia Fastigheter AB. It is estimated that the sale will have a positive effect of slightly more than SEK 1 million on the ÅF Group's net profits during the second quarter of 2004.
Sales and earnings
Net sales amounted to SEK 520 (491) million.
Operating profit was SEK 16 (14) million. Operating margin was 3.1 (2.8) percent.
Results have benefited from a profit of SEK 21.5 million on the sale of the Härolden 1 property, but were adversely affected by an item affecting comparability of SEK -25.4 million relating to structural measures primarily within the Industry and Systems divisions.
Capacity utilisation was 67.0 (68.6) percent.
Profit after net financial income/expense amounted to SEK 15 (11) million. Profit margin was 2.9 (2.2) percent.
Earnings per share totalled SEK 1.64 (1.49).
The current status in the Group's divisions
Energy & Environment Operating margin: 3.7% (2.4%)
The energy business had a weak start to the quarter, but there was an improvement in March. The environmental sector has improved markedly, compared with last year, and enjoyed an excellent and stable first quarter. The majority of the staff in the newly-acquired Fortum Teknik & Miljö business will be integrated into the Energy & Environment division.
Industry Operating margin: 4.8% (6.0%)
Industry has been restructured to focus on the areas of industrial automation and electric power, in which the division has achieved a prominent position in the Swedish consulting market. The market could have been better in the first quarter - but Industry is noticing a gradual slight increase in demand from basic industries.
The acquisition of Fortum Teknik & Miljö strengthens the division by the addition of around a further 40 full-time members of staff, mainly with expertise in electric power.
Infrastructure Operating margin: 7.8% (6.5%)
Infrastructure recorded a good inflow of orders, and has noted that in general the market has improved, in consequence of a rise in infrastructural investment in Sweden. Infrastructure has won fairly large assignments relating to major rail development projects such as Citybanan, Citytunneln and Uppsala Bangård, and these will have a positive impact on all the division's business areas.
In the telecoms sector, Infrastructure has noted a tentative upswing, from a low base.
Installations Operating margin: 4.8 % (8.2%)
Installations reported that the construction market continues to weaken. The downturn is most noticeable in the Stockholm area. There are, however, positive signals from architects, for example, who have begun to see an increase in assignments. Through its market leadership, an increase in rebuilds and renovations along with burgeoning interest in energy conservation, Installations has succeeded in limiting the fall in capacity utilisation.
Inspections & Testing Operating margin: 2.1% (1.4%)
Given that the first quarter is seasonally weak, Inspections & Testing achieved a satisfactory result. The division won relatively large customer contracts and continued to take market share in the face of tightening competition. The Inspections side especially made excellent progress.
Pulp & Paper Operating margin: 4.9% (0.1%)
Demand for expert consulting services from the pulp and paper industry is rising, after several tough years. The division noted a clear increase in the inflow of orders, and this is gradually working through into improved capacity utilisation.
Significant progress was made in making the division more international, for example through the purchase of CTS Engineering Oy, and through the introduction of a new structure which has split the division into two international business areas; Consulting and Engineering.
The President and CEO, Jonas Wiström, took over as acting divisional manager during the quarter. It is expected that a new divisional manager will be appointed and will take up the post after the summer.
Systems Operating margin: 0.0% (0.0%)
The market for IT and product development remains tough, not least in Stockholm. The Systems Division recorded a slight increase in capacity utilisation, from a relatively low level. It is expected that stabilisation will be achieved both as a result of the action taken during the quarter, which included reducing staff numbers by some 55 full-time equivalents, and thanks to successes in the hardware and software development markets.
This interim report has been compiled in accordance with recommendation RR20 (Interim Reports) issued by the Swedish Financial Accounting Standards Council.
With effect from 1 January 2004, the ÅF Group applies RR29, Employee Benefits. The majority of the Company's retirement benefit obligations are currently with Alecta, and since Alecta cannot produce information on individual companies' retirement benefit obligations in accordance with RR 29, these are reported as if they were defined contribution plans in accordance with URA 42. A small proportion of the Company's retirement benefit obligations are defined benefit, and a provision is made for these in the balance sheet. Under the terms of the transfer provisions in the recommendation, a liability brought forward as at 1 January 2004 is established in accordance with RR 29. This liability brought forward falls SEK 2.2 million short of the liability reported as at 31 December 2003 under the previous principles.
The reduced value of the liability has been recorded as at 1 January 2004 as a reduction in retirement benefit provisions, and by a corresponding increase in equity. Under the transfer rules in the recommendation, the ÅF Group has not recalculated the figures for the previous financial year.
Gross investments in machinery and equipment during the period January-March 2004 totalled SEK 7.3 (11) million, excluding investments in corporate acquisitions.
Cash flow and financial status
Cash flow was SEK 21 (-29) million. Before the amortisation of loans, cash flow was SEK 28 (17 million). There was a positive effect on cash flow of SEK 45 million from the final settlement for the property at Härolden 1.
The Group's liquid assets amounted to SEK 114 (40) million.
Equity per share was SEK 64. The Group's equity/assets ratio was 29.0 percent. At the start of the year, equity per share was SEK 59, and equity/assets ratio 30.5 percent.
Real estate administration
In spring 2003, the Board of Directors resolved to sell seven of the Group's eight properties.
During the fourth quarter, the Härolden 1 property (3,500 square metres) in central Stockholm was sold to Humlegården, who accordingly took possession of the property at the beginning of 2004. The sale made a positive contribution to the ÅF Group's net profits of SEK 21.5 million during the first quarter of 2004.
The five remaining properties for sale were sold in January 2004 to Estancia Fastigheter AB. It is estimated that the sale will have a positive impact of slightly more than SEK 1 million on the ÅF Group's net profit, and will provide a cash injection of SEK 81 million in the second quarter.
The sole remaining property owned by the ÅF Group is Härolden 44 (10,700 square metres); the ÅF Group's head office in central Stockholm. The property was valued at SEK 220 (240) million at the start of 2004 by Forum Fastighetsekonomi AB.
At the end of the first quarter, the price of the ÅF Group's B shares quoted on the Stockholm stock exchange was SEK 134, compared with SEK 118 at the start of the quarter. This represents a rise of 15.5 percent. The Stockholm all-share index rose by just 8.1 percent in the same period.
The Annual General Meeting will take place on 11 May at 5 pm at the ÅF Group's head office (address: Fleminggatan 7, Stockholm).
AB Ångpanneföreningen (publ)
Jonas Wiström, President and CEO
The full report including tables can be downloaded from the following link: