Net sales totalled SEK 1,089 million (figure for corresponding period in 2003: SEK 996 million)
Profit after net financial items rose to SEK 37 (24) million
Profit after tax rose to SEK 36 (19) million
Earnings per share were SEK 6.08 (3.37)
A few words from the President, Jonas Wiström
The market for technical consulting services has continued to stabilise with a slight increase in demand during the first six months of the year, particularly towards the end of the reporting period. The ÅF Group has discerned both a gradual improvement in incoming orders and an increased willingness in industry to make investments designed to stimulate growth.
Earnings trends have continued to develop in a positive direction compared with the corresponding period last year, thanks chiefly to good growth in sales. Takeovers and a rise in capacity utilisation during the second quarter helped to boost sales by almost 10 percent.
The ÅF Group will continue to implement rationalisation measures and concentrate its strengths firmly on its key areas of expertise in order to reinforce its market positions. Together with an improved outlook for the market as a whole, this means that the prospects look good for the Group to be able to increase capacity utilisation even further during the second half of the year. At the same time there are also signs that prices are beginning to rise, albeit from a low level. All in all, therefore, our aim remains to achieve a significantly improved result for 2004.
The Group's financial position is relatively robust. The focus is not only on profitability, but also on an increased level of internationalisation and active participation in the process of consolidation that is taking place in the industry. The ÅF Group currently has 20 percent of its human resources outside Sweden and the task of creating an efficient international structure is well under way.
Significant events during the second quarter
A new international organisation within the Pulp & Paper Division has been formed with the aim of significantly bolstering the ÅF Group's competitiveness in the forest industry. This involves dividing current operations (involving almost 700 employees based in Sweden, Finland, France, Spain, Germany, the Czech Republic and South Africa) into the trans-national business areas "Consulting" and "Engineering". Tima Juvonen has been appointed manager for Engineering, and Jan-Erik Eriksson for Consulting. The aim is to make the ÅF Group an even stronger partner when competing for major international projects without compromising the unique proximity to the client that the Group's widespread network of offices provides.
The ÅF Group has signed a new twelve-month framework agreement with Ericsson relating to consulting services within Research & Development. ÅF can call upon the resources of a large number of telecommunications consultants and current projects include the development and maintenance of both 2G and 3G systems.
In the Företagsbarometern 2004 survey of "ideal employers", 6,000 students at Sweden's leading technical universities ranked the ÅF Group among the top ten most attractive companies in all categories and number one among consulting companies. This accolade earned the ÅF Group the distinction of "Best in Class" in the awards made by the survey company Universum that was responsible for the survey.
Sales and earnings
Net sales for the period January-June amounted to SEK 1,089 (996) million. Sales for the second quarter totalled SEK 569 (497) million.
Operating profit for the period was SEK 39 (30) million. Operating margin was 3.6 (3.0) percent. Second-quarter profits were SEK 23 (16) million and the operating margin was 4.0 (3.2) percent.
Invoiced-time ratio for the year (calculated as "capacity utilisation", the proportion of time charged to clients relative to the total time spent at work) was 69 (69) percent, with a figure of 70 (69) percent for the second quarter.
Profit after net financial items amounted to SEK 37 (24) million for the period and the profit margin was 3.4 (2.5) percent. For the second quarter, profits after net financial items rose to SEK 22 (13) million and the profit margin was 3.9 (2.7) percent.
Earnings per share totalled SEK 6.08 (3.37), with a figure for the second quarter of SEK 4.55 (1.88).
Taxes for January to June totalled SEK 1.4 (1.6) million. This low figure is explained by the fact that capital gains on the sale of the Group's properties are tax-free.
The current status in the Group's divisions
Energy & Environment Operating margin: 4.4% (4.5%)
The market for energy and environmental consulting services was fundamentally strong. After a sluggish start to the year, energy consulting operations showed an improvement to produce satisfactory results for the second quarter. However, on the environmental side, the performance was poorer, partly as a result of seasonal effects. The integration of Fortum Teknik & Miljö, a consulting company (80 employees) active in the areas of energy, the environment and electric power, that was acquired in the first quarter, is proceeding positively and according to plan.
Industry Operating margin: 6.0% (4.1%)
The market for the Industry Division continues to show a gradual improvement after two or three relatively bad years. The business areas Industrial IT, Automation and Electric Power had a relatively good inflow of orders from industry. Electric Power showed good profitability and grew quickly following the integration of electric power operations (approx. 50 employees) from Fortum Teknik & Miljö.
Infrastructure Operating margin: 7.9% (5.1%)
The market for consulting services in infrastructure projects has been very buoyant. Decisions have been made concerning a number of major projects in Sweden and the Infrastructure Division is winning market share with relatively large assignments that form part of projects such as the "City Line" (Citybanan) double-track rail tunnel in Stockholm, the "City Tunnel" rail project in Malmö and Uppsala marshalling yards. All of these have obviously had a positive effect on all business areas.
After the end of the reporting period the Group took over the operations of the technical management consulting company STIBI AB in Stockholm (25 employees).
Installations Operating margin: 4.3% (5.2%)
The market for building consulting dipped during the first half of the year as a consequence of low levels of investment in private homes and commercial premises. The decline in the number of major projects has increased competition and made it difficult to achieve any long-term continuity in the use of human resources. However, thanks to a strong position in the market in a number of geographical regions and an increase in the number of assignments relating to rebuilds and renovation the Installations Division has managed to maintain an acceptable level of capacity utilisation.
Inspections & Testing Operating margin: 8.4% (6.7%)
The market has been good for all business areas within the Inspections & Testing Division: Inspection, Testing and Certification. The division continued to win new shares of the market and showed strong organic growth and good profitability.
Pulp & Paper Operating margin: 5.6% (2.5%)
Following a couple of lean years, the market for consulting services within the European pulp and paper industry has shown a clear improvement during the first six months of 2004 thanks to the steady rise in demand for paper, especially fine paper. Incoming orders for the services of the Pulp & Paper Division have been good and capacity utilisation rose in the second quarter. The efforts invested in creating an international structure have brought benefits in the form of relatively large orders in Germany and Spain, which have been secured by offering a combination of skills and expertise from ÅF Group offices in a number of different countries.
Systems Operating margin: 0.1% (-0.3%)
The market for IT and product development remains bleak. Competition is fierce and prices relatively low, even if they are slowly but surely showing signs of improvement. Towards the end of the reporting period, for example, there was a marked increase in activity in the telecommunications sector, where Ericsson is an important client. An organisational change was implemented in the Systems Division during the second quarter in order to focus more resolutely on future new sales.
This interim report has been compiled in accordance with recommendations and guidelines of the Swedish Financial Accounting Standards Council. The accounting principles and methods of calculation used are the same as those adopted in the most recent annual report, with the exception of the details provided for pensions costs, which have been reported in accordance with the Financial Accounting Standards Council's recommendation RR 29 relating to the remuneration of employees, which came into force on January 1 2004. The changeover to the new rules has had a positive effect by increasing equity by SEK 1.6 million.
Gross investments in machines and equipment during the period January to June totalled SEK 23 (17) million.
Cash flow and financial status
The cash flow for the first six months of 2004 amounted to SEK 78 (-34) million. Before shareholders' dividends and the amortisation of loans the cash flow was SEK 112 (-8) million.
The sale of certain of the Group's premises has had a positive effect of SEK 124 million on cash flow.
Cash flow for the second quarter was SEK 84 (9) million before shareholders' dividends and the amortisation of loans.
The ÅF Group's liquid assets totalled SEK 170 (34) million at the end of the reporting period.
Equity per share at the end of the reporting period was SEK 65, and the Group's equity/assets ratio was 31 percent. These figures compare with SEK 59 and 31 percent respectively at the beginning of the year.
Real estate administration
In spring 2003, the Board of Directors resolved to sell seven of the ÅF Group's eight properties.
During the fourth quarter, the Härolden 1 property (3,500 square metres in size) in central Stockholm was sold to Humlegården HB, which 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. The sale had a positive impact of SEK 2.1 million on the ÅF Group's net profit, at the same time as it provided a cash injection of SEK 80 million.
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 Fastighets-ekonomi AB.
Parent company sales for the period totalled SEK 62 (48) million. The parent company made a loss after net financial items of SEK 9 million (compared to a profit of SEK 69 million for the corresponding period in 2003).
At the end of the second quarter, the price of the ÅF Group's B shares quoted on the Stockholm stock exchange was SEK 136, which represents a rise of 17 percent in value since the start of the year. The Stockholm all-share index (SAX) rose by just 10 percent over the same period.
Capital Market day
On September 21, from 14.00 (2 p.m.) onwards, the ÅF Group will be hosting the ÅF Group Capital Market Day at its head office on Fleminggatan in central Stockholm. For more detailed information and registration, please contact the ÅF Group's Director of Corporate Information, Viktor Svensson.
Next reporting date
The ÅF Group's interim report for the period January-September will be presented on October 27.
Stockholm, Sweden - August 20, 2004
AB Ångpanneföreningen (publ)
President and CEO