ÅF AB (publ)
Corporate identity number 556120-6474
The Board of Directors and the President of ÅF AB (publ) herewith submit their annual report for the year 2008. ÅF AB, which has its registered office in Stockholm, is the parent company of the ÅF Group.
Group and parent company
ÅF is a leading company in the technical consulting industry, with expertise founded on more than a century of experience. ÅF offers highly qualified services and solutions for industrial processes, infrastructure projects and the development of products and IT systems. ÅF is also one of the leading names in testing and inspection. The Group’s operational base is in northern Europe, but its business and clients are found all over the world.
ÅF bases its consulting business on the development of systems and products, and on investments, maintenance measures and ongoing modification work relating to its clients’ plant, processes, machinery and buildings. The majority of projects originate in Swedish and international industrial companies, service companies and the real estate sector.
Sales and earnings
ÅF performed well during 2008. Net sales rose by 18 percent, with organic growth totalling 8 percent. Operating profit improved by 44 percent. This improvement in profits is largely due to our continuing efforts to reduce costs and to the fact that the range of services we now offer is more profitable.
ÅF advanced its positions significantly during 2008, especially within the fields of energy, the environment and technical inspections.
Net sales amounted to SEK 4,569 million (2007: SEK 3,862 million), an increase of 18 percent.
Operating profit totalled SEK 479 million (SEK 332 million), an increase of 44 percent.
The operating margin was 10.5 (8.6) percent.
The capacity utilisation rate was 74 (75) percent.
Profit after tax was SEK 328 million (SEK 220 million).
Earnings per share, before dilution, totalled SEK 19.08 (SEK 13.15).
Alecta
The reduction in occupational pension premiums introduced by Alecta had a positive effect on ÅF’s operating profit of SEK 40 million in 2008, compared with 2007.
Divisional Performance
The figures for Sales & Earnings have been adjusted as if the internal restructuring had taken place on 1 January of the respective year.
Energy
Sales: SEK 1,051 million (2007: SEK 700 m)
Operating margin: 12.4% (2007: 8.2%)
The Energy Division is a leading energy consultant with assignments in approximately 40 countries worldwide.
On 1 October the division was restructured to focus exclusively on energy consulting: 177 consultants for the pulp and paper industry were transferred to the Engineering Division, and the Division’s name was changed from Process to Energy.
The market for energy consulting services remained strong throughout 2008. However, towards the end of the year there were some signs of growing uncertainty in the wake of the financial crisis, and a number of clients in different markets, including Finland, the Baltic states and South-East Asia, chose to postpone their investment decisions.
The Energy Division’s clients include private and public sector power companies, government authorities and financial institutions. Client investments are often large-scale and extend over many years. The Energy Division has a substantial order book corresponding to a sales value of approximately SEK 2 billion.
As an expression of its long-term confidence in the development of the Russian energy market, ÅF has acquired a 75 percent stake in the Russian energy consultant Lonas, which employs 250 people in Russia. Lonas was consolidated into the ÅF Group w.e.f. October 2008. The strategy is to expand Lonas in the CIS countries and to utilise the company as a subcontractor for international power generation projects.
Engineering
Sales: SEK 1,452 million (2007: SEK 1,407 m)
Operating margin: 11.0% (2007: 8.3%)
The Engineering Division is northern Europe’s leading technical consultant for industry. The division has operations in ten countries and offers technical consulting services in all sectors of industry.
A strong performance by the industrial sector helped ensure a high level of demand during the year with a high capacity utilisation rate for the Engineering Division. Demand was particularly brisk in mining and energy, with especially high levels of activity in the nuclear power sector, where the division enjoys a leading position in Sweden.
Client investments focused mainly on efficiency improvements in manufacturing plants, environmental engineering projects, the development of alternative fuels and conversion to efficient energy management.
Towards the end of the year the market in several industrial sectors began to flag. Fortunately, however, the Engineering Division was able to rapidly redistribute its consulting resources to respond to the shortage of capacity in certain growing segments of the market and thus maintain a satisfactory level of profitability.
On 1 October the Engineering Division received an injection of new resources following the transfer from the Energy Division of more than 250 experts in electrical power and process engineers in the fields of pulp & paper, food technology and pharmaceuticals. This has boosted the division’s expertise in industrial processes and strengthened its ability to participate in client projects from an early stage.
Infrastructure
Sales: SEK 1,859 million (2007: SEK 1,602 m)
Operating margin: 10.5% (2007: 9.6%)
The Infrastructure Division enjoys a leading position in consulting services for infrastructure development in Scandinavia.
On 1 October, as part of a corporate restructuring programme, the Infrastructure and System Divisions were amalgamated under the Infrastructure name to reduce costs and present clients with a stronger offer.
The market for infrastructure consulting services remained strong in 2008. The majority of business areas reported high levels of capacity utilisation and the inflow of orders was good. The sole exception was the fall-off in demand for consulting services in product development towards the end of the year.
Levels of activity remained notably high in the largest business area, Installations, which now employs 600 people in Sweden and Norway. Demand for more efficient energy solutions in commercial, industrial and public sector premises was strong.
The second-largest business area, Infrastructure Planning, also enjoyed the benefits of a market that, thanks to substantial investments in Swedish rail infrastructure, continues to be buoyant. New environmental standards and the anticipated escalation in energy prices are fuelling growing political interest in rail transport solutions.
Inspection
Sales: SEK 361 million (2007: SEK 287 m)
Operating margin: 12.1% (SEK 2007: 14.8%)
The Inspection Division works with technical inspections, chiefly in the form of periodic inspections, testing and certification.
The market for inspections remained strong in 2008. There is a shortage of experienced testing engineers and inspectors, both in Sweden and in neighbouring countries.
A charge of SEK 5 million was made to profit for the year for the establishment of a specialist operation for the nuclear power industry.
The process of technical harmonisation within the EU will become a powerful new driving force for the division’s development in the future. The Inspection Division expects a number of European markets to be deregulated, which will lead to a more international market and radically alter the current competitive situation.
Following an acquisition in September, the Inspection Division, gained a leading position for itself in the field of non-destructive testing in the Czech Republic. Late in the year an office was also opened in Lithuania; here the focus is on clients in the nuclear power industry and other test-intensive industries in the Baltic States.
The Inspection Division continued to provide Peab with services relating to a comprehensive training programme focusing on safety in the workplace. In all, some 8,000 Peab employees have now participated in the programme.
Acquisitions, disposals and alliances
Through its Energy Division ÅF acquired a 75 percent stake in the Russian technical consulting company ZAO Lonas Technologija (Lonas) in the fourth quarter of the year. The Lonas head office is located in St Petersburg and the company also has offices in Yekaterinburg and Kiev. Lonas has 250 employees, around 190 of whom are based in St Petersburg, and specialises in power plants, district-heating plants and turbine plants.
The Inspection Division, acquired the Czech inspection company Qualitest s.r.o. in the third quarter. This acquisition is a step in ÅF’s strategy to establish itself as a well-known international name in the technical inspection and testing market and to underpin further growth in the Czech Republic. Qualitest, based in the town of Pardubice, has a workforce of 80 and is the market leader for non-destructive testing in the Czech Republic.
Also in the third quarter ÅF acquired the well-known Lithuanian energy consulting company UAB Termosistemy Projektai (TSP) through the ÅF Energy Division. TSP has 16 employees in Kaunas and Vilnius.
In the second quarter ÅF acquired the technical consulting company OrbiTec AB through its Engineering Division. OrbiTec, with 30 members of staff in Jönköping, Sweden, works primarily within the fields of electrical engineering, automation and industrial IT.
Also in the second quarter ÅF acquired the technical consulting company BergByggKonsult AB through the ÅF Infrastructure Division, The company has 12 employees in Stockholm and possesses specialist expertise in rock mechanics and rock engineering, geotechnical instrumentation and 3D laser scanning.
Through the Inspection Division ÅF acquired the Swedish technical inspections company Kvalitetsteknik NDT AB, with 30 employees in Trollhättan, Stenungsund, Lysekil and Mönsterås in the second quarter. The company’s operations focus mainly on non-destructive testing.
In the first quarter ÅF acquired the consulting company Proplate IT, via the Infrastructure Division. Proplate, with 22 employees in three locations in Sweden (Karlskoga, Örebro and Karlstad), offers qualified IT consulting services to industrial clients in Sweden. Its major client is Outokumpu.
Goodwill
When consulting businesses are acquired, the price paid relates not solely to the carrying amount of tangible assets in the company, but also includes a premium to reflect the benefit of acquiring expert, well-qualified and experienced consultants. This premium in the form of human capital, which is recorded as an asset in the acquired company, is recognised primarily as goodwill in the ÅF Group.
The goodwill item on the acquisition of Lonas was SEK 88 million. Other acquisitions and additional considerations gave rise to goodwill of SEK 92 million. In total, the value of ÅF’s goodwill rose by SEK 266 million net to SEK 1,329 million, with exchange differences accounting for SEK 86 million of this total. For further information on goodwill, see Note 13.
Name change
On 5 May 2008 Aktiebolaget Ångpanneföreningen changed its name to ÅF AB following a decision made by the Annual General Meeting on 23 April 2008.
Research and development
The divisions carry out research and development work in conjunction with universities and trade organisations, but also internationally with EU funding. In-house method development also forms part of this R&D work. For the Group as a whole, investment in R&D during the year totalled SEK 36 million (2007: SEK 26 million), mostly in the form of the costs for time spent on R&D projects by ÅF’s own salaried employees.
Cash flow and financial status
Cash flow for the period January–December 2008 was SEK –54 million (Jan–Dec 2007: SEK 53 million). Cash flow was affected by SEK 142 million relating to the cost of acquisitions (SEK 224 million), by investments totalling SEK 124 million (SEK 45 million) and by a shareholders’ dividend of SEK 110 million (SEK 49 million).
The Group’s liquid assets totalled SEK 290 million (SEK 310 million), and the net loan debt at the end of the year amounted to SEK 174 million (SEK 88 million).
Equity per share was SEK 99 and the equity/assets ratio was 47.1 percent. At the beginning of 2008 equity per share was SEK 79 and the equity/assets ratio was 47.9 percent.
Equity on 31 December 2008 totalled SEK 1,699 million. This is an increase of SEK 360 million on the figure for 2007 and includes SEK 172 million relating to a change in the translation reserve.
Investments
Excluding corporate acquisitions, gross investment in tangible assets during 2008 totalled SEK 124 million (2007: SEK 45 million). During the course of the year SEK 32 million was invested in land and buildings for ÅF’s Swiss subsidiary, ÅF-Colenco, and SEK 43 million was invested in ÅF’s new head office in Solna.
Parent company
Parent company income from business operations totalled SEK 253 million (2007: SEK 197 million), and the loss after net financial items was SEK 39 million (SEK –25 million). Cash and cash equivalents totalled SEK 4 million (SEK 2 million), and gross investment in machinery and equipment for the period January to December amounted to SEK 51 million (SEK 9 million).
Environmental work
Together with its stakeholders and society in general ÅF has an important duty to work towards sustainable development. In many instances, ÅF is tasked with introducing new and better technology, implementing rationalisations and reducing emissions. With more than a century’s experience as an established name in technical consulting, ÅF adopts a long-term perspective to business and has its sights firmly set on making a positive contribution to sustainable development.
ÅF frequently participates in collaboration between different players in trade and industry, the public sector and the world of research. Its role as a consultant is to act as a bridge by facilitating understanding and the exchange of knowledge among those involved. ÅF also acts as an expert resource for ISO in the work of producing international guidelines for Corporate Social Responsibility, ISO 26000. See more details of ÅF’s environmental policy and its work in this field.
Employees
The number of FTEs was 3,948 (2007: 3,623).
The total number of employees at the end of the reporting period was 4,448 (3,892): 3,168 in Sweden and 1,280 outside Sweden.
ÅF adopts an active, long-term perspective to attract and retain skilled employees. This work involves marketing ÅF as an employer externally, but also providing clear information to both current and presumptive employees about the various career paths and opportunities for development available at ÅF.
ÅF maintains a strong position as an attractive employer. In Universum’s annual survey of 6,500 engineering graduates, ÅF was ranked in eighth place overall among Swedish companies in the league table of "ideal employers".
During 2007 and 2008 the "Five of Five Thousand" project has identified and defined three main career paths within ÅF: as specialist/expert, project manager and manager. At the same time the ÅF Academy has also been established to support these career paths and the development of co-workers in their specific professional role within the company and to assist managers in this development work. All the courses that are offered by this internal training organisation include modules of entrepreneurial skills. See further details about ÅF’s work with human resources. Sensitivity and risk analysis
The capacity utilisation rate of a consulting company is crucial for its ability to generate a profit. Every percentage point change in this figure affects ÅF’s results by plus/minus approximately SEK 48 million. The hourly rate, of course, is also a key component in the results of a consulting company. An increase in the hourly rate of SEK 10 would, if all other factors remained unchanged, improve profits for ÅF by around SEK 49 million. Methods of reducing sensitivity include the use of sub-consultants, fixed-term employment contracts and increases in the variable salary component, along with measures to broaden expertise and markets and to productise services, which involves packaging a number of services to improve competitiveness and reduce price sensitivity.
While most ÅF assignments are carried out on an open-account basis, fixed price contracts are also agreed in a number of cases. This does, of course, represent a financial risk if the costs involved in a project are miscalculated. Careful estimates of costs and follow-ups of fixed-price assignments are carried out to minimise the risk of impairment.
If the set targets are to be reached, it is absolutely crucial for a consulting company that its staff are motivated and possess the relevant skills and expertise. There is always a risk that skilled employees may leave ÅF and set up their own company or be headhunted by the competition. In order to attract and retain staff, ÅF invests in continual training, skills development and leadership development. ÅF’s ambition is to make every employee perceive some form of added value in working for ÅF.
ÅF’s business activities involve a risk of dispute. Drawing up contracts for all assignments and specifying in detail the terms of the agreement reduces the risk. In most instances, ÅF’s Swedish contracts are carried out in accordance with ÅF’s General Conditions (based on ABK96: General Conditions for Consulting Assignments for Architects and Engineers, 1996).
ÅF’s ambition is to augment growth by acquiring other consulting companies. The increased risk that this involves is minimised by adopting a systematic approach to acquisitions and insisting on the relevant documentation and reviews. An annual evaluation of recent acquisitions is carried out by the ÅF Board.
Through its operations, ÅF is exposed to a range of financial risks, such as currency risk, interest rate risk, financial credit risk and customer credit risk. Responsibility for the Group’s financial transactions and risks is held centrally by the parent company’s Corporate Finance department in accordance with the policies adopted by the board. The overriding goal is to provide cost-effective financing and to minimise the negative impact on the Group’s earnings of market fluctuations. To minimise the currency risk in contracted payment flows in foreign currencies, large contracts are hedged using derivatives. For a more detailed description of risk management and sensitivity analysis, please refer to Note 26.
Shares
ÅF’s B shares have been quoted on the OMX Nordic Exchange Stockholm (Mid Cap) since January 1986. Prior to that, Ångpanneföreningen traded as a cooperative association from 1895 until 1980 and as a joint-stock company from 1981.
ÅF shares traded at SEK 119 at the end of 2008, a depreciation in value of 29.6 percent over the year. The Stockholm Stock Exchange’s (OMXSPI) all-share index fell by 42 percent during the same period.
ÅF’s market capitalisation as at 31 December 2008 was SEK 2,022 million (SEK 2,862 million).
During the year there was a turnover of 12,184,948 (9,230,962) shares, valued at a total of SEK 1,885 million (SEK 1,585 million). The average turnover per trading day was SEK 7.32 million (SEK 6.34 million). Shares were traded on 100 (100) percent of trading days.
The total number of ÅF shares on 31 December 2008 amounted to 17,029,501, of which 804,438 were class A shares and 16,225,063 were class B shares. ÅF AB held 37,000 of its own class B shares on 31 December 2008.
The ten largest shareholders in ÅF are listed here.
Performance-related share programme 2008
At their Annual General Meeting held on 23 April 2008 shareholders in ÅF AB resolved to implement a new performance-related share savings programme for up to 150 key individuals in the company, including the President/CEO.
Employees who participate in the programme can reserve a sum corresponding to a maximum of 5 percent of their gross salary for the purchase of ÅF shares on the OMX Nordic Exchange in Stockholm over a 12-month period with effect from the implementation of the programme. On expiry of the application period 100 ÅF employees in key positions had expressed an interest in purchasing approximately 20,600 shares for the entire 2008 programme, based on the share price at the end of the application period.
In the event that the performance targets that have been set up are met in full, some 87,000 shares will be transferred to these employees without consideration during 2011 and 2012. This can lead to dilution of a maximum 0.5 percent of earnings per share.
Share buy-backs 2008
During Q4 2008 a total of 37,000 ÅF shares was acquired under the mandate given to the Board of Directors at the Annual General Meeting of ÅF shareholders on 23 April 2008. The mandate authorised the purchase of up to 230,000 of the company’s class B shares in the period prior to the Annual General Meeting on 5 May 2009.
The purpose of the buy-backs is to safeguard the company’s obligations with regard to the 2008 performance-related share programme approved by the AGM.
Board of Directors
Following the recommendation of the Nomination Committee eight directors (without deputies) were elected by the Annual General Meeting to serve in 2008: Ulf Dinkelspiel, Patrik Enblad, Magnus Grill, Eva-Lotta Kraft, Jon Risfelt, Helena Skåntorp and Lena Treschow Torell were re-elected, and Tor Ericson was elected to serve a first term as a director of the company.
Ulf Dinkelspiel was re-elected as Chairman of the Board.
Patrik Tillack was appointed as an employee representative on the board. Eva Lindén is already an employee representative on the board, and Oscar Stridh and Daniel Westman are deputies in this capacity.
At its inaugural meeting following the general meeting, the board elected Lena Treschow Torell as its Deputy Chair.
Please read more for a more detailed presentation of board members and directors.
Work of the Board of Directors
During the 2008 financial year, the board held ten meetings, of which one was the inaugural meeting. The work of the board focuses chiefly on strategic issues, business plans, financial statements, major investments and takeovers and other decisions which, according to the written rules of procedure, are to be dealt with by the board. A presentation of developments with regard to the company’s business operations and financial position has been a standing item on the agenda. In conjunction with each ordinary meeting of the board one business area within the company is also scrutinised in greater detail. At the board meeting in August a strategy seminar was arranged with a special review of each division.
Other ÅF employees have participated in board meetings to present reports. ÅF’s Executive Vice President, Corporate Information, has served as secretary to the board.
An evaluation of the board’s work during the year has been carried out.
See ÅF’s Corporate Governance Report.
Group management
In 2008 senior group management comprised Jonas Wiström (President and CEO), Jonas Ågrup (CFO), Viktor Svensson (Executive Vice President, Corporate Information), together with the Divisional Presidents, Jörgen Backersgård, Eero Auranne, Per Magnusson and Johan Olsson. Gunilla Fladvad is the secretary to the senior management group. Åke Rosenius left ÅF and his position on the senior management group in 2008.
Please read more for a presentation of the senior executives in the company.
Guidelines for the remuneration of the senior executives of the Company
The 2008 Annual General Meeting resolved that the principles below relating to remuneration and other conditions of employment for senior executives of the company will apply for contracts of employment signed or modified after the Annual General Meeting. By "senior executives of the company" is meant the President/CEO and other members of the senior management group. Remuneration paid to senior executives of the company is to be based on market conditions at the same time as it supports the interests of the company’s owners. Remuneration shall, in the main, consist of a fixed salary element, a variable salary element, share-related remuneration, pension benefits and other benefits; for example, use of a company car. The guidelines for remuneration are intended to ensure that ÅF can attract and retain the best available resources in order to support the ÅF mission and strategy.
The fixed salary element shall be determined with regard to personal skills, scope of responsibility and achievements, and shall be based on market conditions.
The variable salary element shall be based on a performance-based programme and shall be set at a rate of between 60 and 100 percent of the individual’s fixed annual salary. The variable salary element shall not qualify as income for pension purposes.
The period of notice shall be six months on the employee’s side. In the event that notice is issued by the company, the period of notice and the time during which severance pay is paid out shall not together exceed a total of 24 months.
Pension benefits shall be in the form of either defined-benefit or defined-contribution retirement plans, or a combination of the two. The standard retirement age is 65 years. In the event that a senior executive of the company retires before pensionable age, he or she shall be given a paid-up policy from the age of 60.
Issues relating to the remuneration of senior executives of the company are dealt with by a Remuneration Committee and, in matters relating to the President/CEO, are finally determined by the Board of Directors.
The 2008 Annual General Meeting authorised the board to deviate from the guidelines for remuneration drawn up by the Annual General Meeting, if there are special reasons for doing so in individual instances.
For information regarding previously approved remuneration which has not become due for payment, please refer to Note 8 in this annual report.
The board proposes that the 2009 Annual General Meeting resolves that the principles for remuneration and other conditions of employment for the senior management group for 2009 shall be in line with the principles that have been applied during 2008.
Prospects for 2009
The economic situation has deteriorated in the wake of the financial crisis and ÅF is bracing itself for a relatively tough 2009 in a very challenging marketplace. The importance of a strong market position increases as the market grows more uncertain. Fortunately, ÅF is in a favourable financial position with well-established client relations and a strong brand, all of which bodes well for the future. Moreover, the bulk of ÅF’s operations is concentrated on industries such as energy, environmental engineering, infrastructure and inspection, where the prospects for long-term expansion remain excellent.
Proposed appropriation of profits
Non-restricted profits of SEK 1,138,935,543 are at the disposal of the Annual General Meeting.
The Board of Directors and CEO propose that these profits be appropriated as follows:
| To the shareholders: | |
| a dividend of SEK 6.50 per share | 110,451,257 |
| To be carried forward | 1,028,484,286 |
| Total, SEK | 1,138,935,543 |
The board’s motivation with regard to the proposed appropriation of profits will be posted on the company’s website, www.afconsult.com. It can also be ordered from the company.