AB Ångpanneföreningen (publ)
Interim report, January-September 1998

• Consolidated profit +8% , SEK 48.2 (44.6) million
• Consulting businesses +54%, SEK 51.2 (33.2) million
• Turnover + 15%, SEK 923 (803) million
• Net worth per share SEK 81 (79)
• Profit forecast for whole year 1998: SEK 10 (8:49) per share

The market for the ÅF Group’s services improved during the period, compared with the corresponding period in 1997. Uncertainty in world market economics did not affect the ÅF Group’s situation to any significant extent. Group capacity utilisation amounted to 71% (71%). Since the beginning of the year the order book has increased from SEK 344 to 386 million.

The ÅF Group’s consolidated profit after net financial items and interest in associated companies amounted to SEK 48.2 (44.6) million. This corresponds to a return on equity of 12.6% (11.9%). The third quarter profit showed a considerable write-down of a fixed-price project in business area Software, Electronics & Mechanical Engineering.

Turnover amounted to SEK 923 (803) million and the profit margin was 5.2% (5.6%). The profit margin for the whole year 1997 was 5.8%.

The consolidated profit was charged with a calculated bonus to the employees of SEK 4.1 (3.6) million.

The number of full-time equivalent employees in the Group during the period was 1,879 (1,756), of whom 160 were in associated companies. There were 1,984 employees in Sweden at the end of the period.

The parent company's turnover amounted to SEK 61 (54) million and profit after net financial items was SEK 1.9 (15.7) million. The large difference is explained by the fact that considerable capital gains were made during 1997 from the sale of listed shares.

The Group's net worth, after 20% standard tax on estimated surplus value of property, was SEK 81 (79) per share. The equity ratio was 47% (50%).

At the beginning of the period ISO Swedish Management Group was acquired, later changing its name to ÅF-Swedish Management Group. P-electronic was also acquired and merged with ÅF-Rateko. WO-Konsult was acquired in July and merged with ÅF-Elteknik and ÅF-VVS Projekt. In addition, Projektsamordning i Göteborg, with a small staff, was acquired by ÅF-RNK. At the end of the period, the firm of Peter Grahn Projekterings AB was acquired by ÅF-Elteknik. The newly acquired companies have a total of 85 employees.

As of 1 January 1998, a new business area has been established: Education & Management. It consists of ÅF-Swedish Management Group and the educational company SIFU. The ÅF Group has an option to become majority owner by year end 1998.

After the end of this period, ÅF-BOAB was merged with ÅF-RNK, which now has a total of 140 employees.

During the year, efforts were intensified to safeguard software, computers and other equipment with time-dependent electronics against the millennium bug. The work is based on the IT Commission’s definition of millennium security and covers production equipment and systems incorporated in buildings. The work is expected to be completed during the second quarter of 1999.

Consulting businesses
The consolidated profit of the consulting businesses improved by 54%, amounting to SEK 51 (33) million. Turnover rose to SEK 981 (892) million.

All the business areas except for Software, Electronics & Mechanical Engineering posted improved results. The improvement was particularly good in business areas HVAC & Sanitation Engineering, and Inspection & Testing.

The ÅF Group’s biggest business area - Electrical Engineering & Instrumen-tation - again showed a good trend with a profit margin of 12%.

Developments in business areas Energy, Environment & Process Technology, and Education & Management were also satisfactory.

Business area Software, Electronics & Mechanical Engineering’s profit was SEK 11 million lower than in 1997. Marketing efforts for the new financial administration system PX Control, particularly in Norway, as well as considerable write-downs for a fixed price project in the field of production equipment, explain the profit decline in this business area. This decline is expected to be temporary.

The market continued to stabilise for business area Inspection & Testing. There is now slightly less pressure to hold prices down than at the beginning of the year, and overestablishment on the market is now ebbing somewhat. The business area’s rate of loss slowed during the period compared with 1997.

During the autumn a strong efforts began to establish ÅF-Kontroll in the field of non-destructive testing (NDT). This work provides synergies with the company’s inspection operations and means that the ÅF Group can offer a new qualified service to the forest and petrochemical industries and power utilities. By the end of the period, some 30 employees were recruited in this field. It is planned to have at least 75 employees within six months. NDT operations are expected to make a significant contribution to profits as early as 1999.

Current international projects include a study for Sida (the Swedish International Development Co-operation Agency) on the legal and commercial conditions for establishing a bank asset management organisation in Bolivia to deal with uncertain assets.

The ÅF Group is also investing to a greater extent in the healthcare organisation field with the support of international aid, and is working on some projects in the Baltic countries. In France, Chleq Froté has been awarded a significant contract to build an addition to a new coating unit at the Condat fine papers mill.

The ÅF Group’s electrical consultants in Norway are designing installations for Telenor’s new head office at Fornebu, which has a floor area of over 130,000 sq. m.

In Sweden, the ÅF Group has created a strong resource in the form of software and computer capacity for projects in advanced fluid mechanics. This resource is being used by Kvaerner, among others. The ÅF Group has also been appointed by Astra to design and manufacture production equipment for handling sterile-packaged phials containing anaesthetic drugs.

The ÅF Group’s educational activities include a focus on regional schools for small businesses in the subjects of quality systems, production, and the environment management and audit scheme, EMAS.

Real Estate and Finance Administration
The ÅF Group’s real estate is 95% office space, tenanted mainly by the Group’s consulting businesses. Vacancy at the end of the period was 5%.

At year end 1997 the Group’s real estate, amounting to 39,000 sq. m, was valued internally at SEK 349 million. The book value was SEK 236 (209) million.

During the period a building on North Djurgården island in Stockholm was sold to a foundation, Vetenskapsstaden International Centre, for SEK 25 million, which corresponded to the book value. The property had 3,650 sq. m of floor space.

Real estate investments amounted to a total of SEK 18 (8) million.

Gross investments in machinery and equipment amounted to SEK 32 (34) million, mainly for computer equipment.

The ÅF Group’s liquid assets amounted to SEK 83 (65) million at the end of the period, of which SEK 40 (53) was in Swedish and foreign listed stocks. The surplus value of the stock portfolio was SEK 2 (10) million. The remainder of the liquid assets were in interest-bearing securities in Sweden.

Forecast for 1998
Market conditions are expected to continue to be favourable. The uncertainty on some markets, however, is reason for greater attentiveness. The ÅF Group’s whole-year profit for 1998 is expected to amount to SEK 75-80 million - that is, a profit of about SEK 10 per share. This corresponds to a return on shareholders’ equity of 16%.

Stockholm, 9 November 1998.

Gunnar Grönkvist
Managing Director and CEO
AB Ångpanneföreningen (publ)