ÅF: Interim report January-March 2007: Q1 - a good start to 2007
For further information:
Jonas Wiström, President/CEO +46 (0)8-657 11 15 / +46 (0)70-608 12 20
Director, Corporate Information +46 (0)8-657 12 01 / +46 (0)70-657 20 26
Net sales rose to SEK 932 million (Q1 2006: SEK 623 million)
Operating profit totalled SEK 74 million (SEK 44 million)
Operating profit excl. other operating income totalled SEK 74 million (SEK 25 million)
Profit after tax totalled SEK 49 million (SEK 31 million)
Earnings per share before dilution were SEK 3.01 (SEK 2.38)
A few words from the President, Jonas Wiström
ÅF grew its business by 50 percent and notched up a substantial increase in profitability during the first quarter of 2007, compared with figures for the corresponding period last year. The operating margin was 8.0 percent, compared to 4.0 percent for the first quarter in 2006.
One important reason behind this positive development has been the success of our corporate acquisitions, but we should not overlook the fact that the market continues to remain strong. It is also encouraging to note that the major investments we have made in recent years to make ÅF a more cohesive and more international organisation are now reaping results. We see this in the fact that we are now winning bigger contracts and enjoying greater confidence among clients on the markets where we have chosen to be active.
Capacity utilisation (the proportion of time debitable to clients relative to the time that all the Group's employees spend at work) rose to 74.2 percent for the first quarter, compared to 70.3 percent for the corresponding period last year.
Developments in the Infrastructure Division have been particularly gratifying, with profitability continuing to rise as the division captures new shares of the market. The operating margin for the first quarter was 11.5 percent (Q1 2006: 9.4 percent).
The Process Division performed according to expectations, increasing its profitability - albeit from a low level - as part of a process of gradual improvement that is expected to continue. There was a steep increase in orders during the first quarter and the division is growing steadily in the highly expansive area of energy. Developments in the other divisions were also well in line with expectations.
Our strong position in the market, coupled with brisk demand for the majority of the services that ÅF offers, means that the outlook for the remainder of 2007 is good.
Important events during the first quarter
ÅF acquired (through its Engineering Division) the Estonian technical consulting company Automaatika with 20 employees on 1 January. Automaatika is a well established company offering consulting services in the fields of automation and industrial IT.
As part of an internal reorganisation and in order to make the company's offer more transparent to existing and presumptive clients, 130 co-workers were transferred internally from the Process Division to the Engineering Division on 1 January 2007.
ÅF, again through its Engineering Division, took over a unit from the technical consulting company Xdin on 1 March 2007. The unit, known as Xdin Order to Delivery (O2D), is based in Gothenburg and has 7 members of staff. Xdin O2D helps clients to make the right decision when investing in or rationalising their production and logistics systems.
ÅF-TÜV Nord AB, in which ÅF-Kontroll owns a 50% share, was appointed by OKG to serve as an accredited inspection body to inspect the mechanical equipment at OKG's three nuclear reactor units in Oskarshamn on the Swedish south-east coast. The assignment will run over a period of several years and is expected to constitute approximately 11,000 working hours per year.
ÅF was awarded a large consulting project in a new combined heat and power plant in Tartu, Estonia. The consulting project will be carried out by ÅF's Estonian and Finnish units.
ÅF was appointed by Finland's Kuopion Energia Oy as chief engineering consult for a new power plant in Kuopio. This contract, worth approximately SEK 33 million for ÅF, further reinforces ÅF's position as a leading supplier of technical consulting services for biomass power plants in Northern Europe.
Sales and profits
Net sales rose to SEK 932 million (SEK 623 million), an increase of 50 percent.
Operating profit totalled SEK 74 million (SEK 44 million), and the operating margin rose to 8.0 percent (6.9 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 totalled SEK 25 million and the operating margin was just 4.0 percent.
Capacity utilisation for the first quarter was 74.2 percent (70.3 percent).
Profit after tax was SEK 72 million (SEK 43 million) and the profit margin was 7.8 percent (6.7 percent).
Earnings per share totalled SEK 3.01 (SEK 2.38).
Engineering Division (formerly ÅF-Benima) Operating margin 3 mths: 9.1% (-)
The division, which offers services within automation and industrial IT, is a leader in its field in the Nordic countries. Engineering is a newly formed division, following the acquisition of Benima in May 2006.
The market continued to remain strong. While brisk demand for services has, in certain instances, led to difficulties in finding enough consultants with the requisite qualifications, recruitment has, on the whole, been successful, and the number of employees has risen by approximately 10 percent.
In general, the inflow of orders has been good throughout the first three months. A new database for tenders was introduced in the first quarter, together with a new sales support system designed to reinforce the division's marketing and sales activities even further.
Among the orders won by the newly acquired Estonian automation consulting company, Automaatika, was a contract to upgrade a control system at the water purification plant in the Estonian capital, Tallinn.
The division was also engaged by Foster Wheeler in Finland to carry out control technology work at one of the world's largest power boilers. The Engineering Division has developed its own method for regulating and controlling boilers like this, which was one of the decisive factors behind the client's choice of ÅF in the face of stiff international competition.
In addition, the division, together with the Process Division, won a contract relating to a pharmaceutical project for ALK Abello in Denmark.
Infrastructure Division Operating margin 3 mths: 11.5% (9.4%)
The Infrastructure Division offers infrastructure consulting services in four sectors: Communications & Maintenance, Installations, Infrastructure Planning and Electric Power.
During the first quarter market demand for the services offered by the Infrastructure Division remained stable or showed a slight increase. Business got off to a good start early in the year and this contributed to the fact that capacity utilisation was high in all four business areas. The strong economy and a portfolio of services well adapted to the demands of the market have paved the way for a good result throughout the division.
Demand was particularly brisk in segments such as construction and plant design, electric power and defence. The quarter also saw a new expression of the confidence that the Swedish Armed Forces have in the division with an order to carry out work on systems support for command centres.
The division also noted an increase in demand and activity in the area of wind-power.
Business in Norway continued to develop positively and during the quarter the division received a fairly large installations assignment at the Stavanger Concert Hall.
Process Division Operating margin 3 mths: 5.7% (2.0%)
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 energy-intensive industries.
The market for the services of the Process Division remained strong during the first quarter, with several clients - particularly in the energy sector - making new investment decisions. This obviously benefited the division and contributed to an improvement in earnings.
Since the fourth quarter of 2006 the work of the division has been conducted according to a new strategy and with a revamped organisation that focuses specifically on the sectors of energy and pulp and paper.
Within the energy segment marketing activities are concentrated to Sweden, Finland, the Baltic states and Russia.
Pulp & Paper operations will continue worldwide, but the division will realign its offer to correspond more closely to client requirements. The focus will be firmly on expertise in specialist consulting and on project management, while the resources the division currently has within the field of mechanical construction and design will, as previously stated, be sold or reorganised. This work is now proceeding with greater intensity than ever.
The inflow of orders was good during the first quarter. These included extensive agreements relating to new power plants in Finland and Estonia, which confirm ÅF's status as Northern Europe's leading technical consulting company for energy plants. The division also won several medium-sized contracts for the forest industry, primarily in Finland, including some that involve project engineering and planning work in conjunction with new pulp and paper lines.
Inspection Division Operating margin 3 mths: 6.2 % (3.6%)
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.
Despite the fact that, historically, the first quarter is the weakest of the year, demand for the services of the Inspection Division was good. All business areas recorded strong growth enabling the division to report its best ever first-quarter figures. Taken across the board, the pace of growth was restored to bring it in line once again with the target of 10 percent.
The division recruited a number of new co-workers in the first quarter, and will continue to do so during the second quarter as well, in order to keep pace with the rise in demand.
During the first three months of the year the division won several contracts from the nuclear power industry, including assignments to develop sophisticated testing systems for Sweden's Ringhals and Forsmark facilities. ÅF-TÜV Nord, in which ÅF-Kontroll owns a 50% share, was appointed by OKG to serve as an accredited inspection body to inspect the mechanical equipment at the three nuclear reactor units in Oskarshamn on the Swedish south-east coast.
In addition, the division has also undertaken status assessments of kraft recovery units in, for example, Indonesia and Thailand.
Systems Division Operating margin 3 mths: 6.9% (8.4%)
The Systems Division offers services in the field of embedded systems, mechanical engineering and IT systems.
The market remained strong with many enquiries from clients and well-filled order books. Demand was brisk from all areas of the business: telecommunications, automotive, life science, industry and defence.
Systems continued to be successful in its recruiting campaigns, adding a further 50 or so new co-workers during the first three months of the year. As a result of this, it is quite probable that the previous target of recruiting around 100 new consultants a year will actually be exceeded before the end of 2007. The market in southern Sweden is especially buoyant, with the southernmost province of Skåne alone currently keeping almost 50 consultants fully employed.
First-quarter profits were affected, however, by redundancy costs relating to operations in Lysekil. The focus is now on increasing the capacity utilisation rate and on managing and running projects more efficiently and more profitably.
New assignments during the first quarter include a multimedia project for Sony Ericsson in Lund and a system for data communication for rail traffic to be developed on behalf of Bombardier. The division is also undertaking a product development project for GE Healthcare for separation equipment.
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.
Gross investment in machinery and equipment for the period totalled SEK 8 million (Q1 2006: SEK 8 million).
Cash flow and financial position
First-quarter cash flow was SEK 8 million (SEK 13 million). Cash flow for the first quarter of 2006 included liquidity of SEK 21 million from the sale of PX Business Solutions. The ÅF Group's liquid assets totalled SEK 265 million (SEK 255 million).
Equity per share was SEK 71 and the Group's equity/assets ratio was 48 percent: this compares to figures of SEK 53 and 49 percent respectively at the end of the first quarter last year.
At the end of the reporting period the value of the ÅF share had risen 7.4 percent since the start of the year to SEK 157. The Stockholm Stock Exchange's (OMXSPI) all-share index rose by approximately 5.9 percent during the same period.
Next reporting date
The ÅF Group's interim report for the period January to June 2007 will be published on 21 August 2007.
Stockholm, Sweden - 8 May 2007
AB Ångpanneföreningen (publ)
Jonas Wiström, President and CEO
(This report has not been subjected to scrutiny by the company's auditor)
The full report including tables can be downloaded from the following link: