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Jonas Wiström, President/CEO +46 (0)70-608 12 20 Viktor Svensson, Director, Corporate Information +46 (0)70-657 20 26
Record earnings and 13% organic growth in Q3
Third quarter 2008 * Net sales totalled SEK 987 million (Q3 2007: SEK 844 million) * Operating profit rose to SEK 81 million (SEK 65 million) * Earnings per share, before and after dilution, amounted to SEK 3.46 (SEK 2.65) Q1-Q3 2008 * Net sales totalled SEK 3,224 (Q1-Q3 2007: SEK 2,744 million) * Operating profit rose to SEK 332 million (SEK 224 million) * Earnings per share, before and after dilution, amounted to SEK 13.67 (SEK 9.18)
A few words from the President, Jonas Wiström:
ÅF continues to grow at the same time as the company is increasing its profits. This year's third-quarter results were the best ever for the company. Our operating margin was 8.2 percent (Q3 2007: 7.7 percent) bringing the figure for the nine-month period as a whole to 10.3 percent (Jan-Sept 2007: 8.2 percent). The improvement is due to growth in volumes and a higher gross margin.
The past quarter has seen SEK 16 million in costs relating to redundancies following organisational changes that have been undertaken to make ÅF even more efficient.
With effect from 1 October the Infrastructure and Systems Divisions have merged and operations in the Process Division have been streamlined to focus exclusively on energy and environmental consulting. The divisions' new names, Infrastructure and Energy respectively, describe what have been identified as strategic areas for ÅF's future development. The changes are expected to lead to cost synergies of SEK 8-10 million a year.
Third-quarter growth was 17 percent overall and 13 percent organic. ÅF remains a highly attractive employer, ranking eighth in Sweden in Universum's annual survey of more than 6,000 professional engineers that was carried out early in October. This was the highest placing of any consulting company.
ÅF enjoys a strong position in several relatively stable sectors of industry, and current uncertainty about the future of the economy has had only a marginal impact on demand for our services so far. Therefore, while we are fully aware of the signs of a downturn in the economy, we see no reason to change our basically positive view of the outlook for the fourth quarter of 2008.
Acquisitions, Q3 2008
ÅF-Kontroll, the ÅF Inspection Division, has acquired the Czech company Qualitest s.r.o. This is a step in ÅF's strategy to establish itself as an 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.
ÅF has also acquired the well-established Lithuanian energy consulting company UAB Termosistemy projektai (TSP) through the ÅF Process Division. TSP has a total of 16 employees in Kaunas and Vilnius.
Important events during Q3 2008 and after the end of the reporting period
ÅF has signed a major cooperation agreement with Ringhals AB together with ES-konsult with regard to services relating to reactor safety and plant development. The agreement is worth SEK 130-150 million over 5 years.
On 1 October ÅF's Infrastructure and Systems Divisions merged to form one of Europe's biggest players in the market for infrastructure consulting services. The merger is expected to lead to synergies in both revenues and costs. The new divisional president is Johan Olsson, formerly president of ÅF's Systems Division.
Sales and earnings, Q3 2008
Net sales for the third quarter totalled SEK 987 million, an increase of 17 percent on the figure for the corresponding period in 2007 (SEK 844 million).
Operating profit was SEK 81 million (SEK 65 million), and the operating margin was 8.2 percent (7.7 percent).
The third-quarter accounts have been charged with costs of SEK 16 million relating to some 20 redundancies in ÅF's Finnish pulp and paper operations and to severance pay due to senior executives in ÅF.
Capacity utilisation during the quarter was 74 percent (74 percent).
Profit after net financial items totalled SEK 80 million (SEK 64 million), and the profit margin was 8.1 percent (7.5 percent).
Earnings per share before and after dilution were SEK 3.46 (SEK 2.65).
Sales and earnings, Q1-Q3 2008
Net sales for the first nine months of the year totalled SEK 3,224 million, an increase of 18 percent on the figure for the corresponding period in 2007 (SEK 2,744 million).
Operating profit was SEK 332 million (SEK 224 million), and the operating margin was 10.3 percent (8.2 percent).
Capacity utilisation was 75 percent (75 percent).
Profit after net financial items was SEK 320 million (SEK 220 million), and the profit margin was 9.9 percent (8.0 percent).
Earnings per share before and after dilution were SEK 13.67 (SEK 9.18).
Alecta
The reduction in occupational pension premiums introduced by Alecta had a positive effect on ÅF's operating profit of SEK 9.5 million in the third quarter of 2008, compared with 2007. The cumulative effect over the nine-month period is SEK 28.5 million.
Cash flow and financial position
Cash flow for the period January-September was SEK 12 million (Jan-Sept 2007: SEK -124 million). Cash flow so far this year has been affected by SEK 91 million relating to the cost of acquisitions (Jan-Sept 2007: SEK 223 million), and by a shareholders' dividend of SEK 110 million (2007: SEK 49 million).
The Group's liquid assets totalled SEK 334 million (SEK 134 million) at the end of the reporting period. The Group's net loan debt at the end of September amounted to SEK 183 million (SEK 211 million).
Equity per share was SEK 88.88 and the equity/assets ratio was 47.9 percent. At the beginning of 2008, equity per share was SEK 78.83 and the equity/assets ratio was 47.9 percent.
Investments
Excluding corporate acquisitions, gross investment in property, plant and equipment for the period January to September 2008 totalled SEK 65 million (Jan-Sept 2007: SEK 29 million). The period has seen investments of SEK 33 million in land and buildings for ÅF's Swiss subsidiary, ÅF-Colenco, to facilitate the expansion of this company's operations. Number of employees
The number of full-time equivalents employed by the company was 3,840 (3,577). The total number of employees at the end of the reporting period was 4,113 (3,828): 3,173 in Sweden and 940 outside Sweden.
Divisional Performance Engineering Division Sales Q3: SEK 235 million (SEK 234 m) Operating margin Q3: 13.6% (8.6%) Sales Q1-Q3: SEK 834 million (SEK 816 m) Operating margin Q1-Q3: 13.6% (9.2%)
The Engineering Division, which offers services within automation, industrial IT and mechanical engineering, is a leader in its field in the Nordic countries.
The market remained strong throughout the reporting period and the inflow of orders was good, despite noticeable signs of a contraction, for example in the automotive industry. The division's capacity utilisation rate remained high in all business areas.
The Engineering Division has more than 2,000 active clients representing most sectors of industry. Demand was strongest in the energy sector, which now accounts for 35 percent of the division's sales. A new, long-term agreement was signed with the Ringhals nuclear power plant in the third quarter. The division is currently in the middle of a successful campaign to recruit further expertise in the area of nuclear power.
The proportion of international assignments is growing steadily. In the third quarter approximately 25 percent of projects were performed outside Sweden. The division's Czech unit, for example, signed an agreement with the French energy concern Areva for project engineering services relating to a planned, new nuclear power plant in China.
Infrastructure Sales Q3: SEK 302 million (SEK 242 m) Operating margin Q3: 7.4% (5.1%) Sales Q1-Q3: SEK 993 million (SEK 856 m) Operating margin Q1-Q3: 10.9% (9.8%)
The Infrastructure Division offers infrastructure consulting services in the following business areas: Communications & Maintenance, Installations, Infrastructure Planning, Electric Power and Sound & Vibrations.
The market for qualified consulting services in the field of infrastructure developments has remained strong. The division's capacity utilisation rate rose during the third quarter and all five business areas reported better results than for the corresponding period last year. Once clear trend that the division has noticed is that projects are increasing in size.
The high level of activity in the largest of the division's business areas, Installations, with 500 members of staff, is particularly noteworthy. New legislation and high energy prices are playing their part in buoying up demand from property owners and local and regional government for more efficient energy solutions in residential apartments and other premises.
Business remains brisk, too, for the second largest business area, Infrastructure Planning. This is thanks to substantial investments in the Swedish rail network. Environmental criteria and high oil prices are combining to generate greater political interest in railbound traffic solutions. ÅF is involved in several rail projects with a long-term investment horizon.
Two thirds of the division's earnings originate from the public sector, with the remainder coming from private companies.
Inspection Sales Q3: SEK 85 million (SEK 68 m) Operating margin Q3: 15.5% (20.7%) Sales Q1-Q3: SEK 241 million (SEK 195 m) Operating margin Q1-Q3: 13.5% (14.8%)
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.
The market for technical inspections remained strong in the third quarter, although capacity utilisation was somewhat lower than anticipated.
Demand was once again strongest from the nuclear power and petrochemical industries. The third quarter saw Inspection secure an assignment to conduct non-destructive testing activities in connection with a new chemical factory for Borealis in Stenungsund on the Swedish west coast.
Elsewhere, the extensive testing and inspection agreement signed by Ringhals AB at the start of the third quarter offers proof of the success of the division's focus on periodic testing of reactor vessels.
On 1 September the Inspection Division acquired the Czech inspection and testing company Qualitest with approximately 80 employees. Qualitest is the division's first establishment outside Sweden.
Process
Sales Q3: SEK 281 million (SEK 238 m) Operating margin Q3: 6.3% (5.8%) Sales Q1-Q3: SEK 871 million (SEK 669 m) Operating margin Q1-Q3: 8.5% (6.1%)
The Process Division offers technical consulting services for the energy and pulp & paper industries worldwide.
Demand from the market continued to remain strong in the field of energy production, driven by the global rise in energy consumption and the expansion of capacity. Capacity utilisation was satisfactory in all units, except in Sweden, where a change in management took place during the quarter, and in the Finnish pulp and paper consulting operations.
The division is a market leader in the energy and environment sector in Sweden, Finland, Switzerland and the Baltic countries, and business is growing in Russia and South-east Asia. The investments made by clients extend over a number of years. Today the division has more than 1.5 billion kronor's worth of orders on the books.
Among the assignments that the Process Division won during the third quarter was a commission to assume responsibility for project management and contractor monitoring services for Fortum in connection with the construction of a new biofuel-powered district-heating power plant in Estonia. Another major order was an EPCM project for TNK-BP's gas-fired power plant in Siberia.
There has been a slight downturn in demand from the pulp and paper industry and a decision has been made to wind up the division's unit for local pulp and paper consulting operations in Finland. As a result of this, third-quarter earnings for the division have been charged with costs of SEK 8 million.
Systems Sales Q3: SEK 113 million (SEK 90 m) Operating margin Q3: 5.8% (8.7%) Sales Q1-Q3: SEK 386 million (SEK 304 m) Operating margin Q1-Q3: 10.0% (7.8%)
The Systems Division offers services in the fields of embedded systems, mechanical engineering and IT systems.
The Swedish market for IT and product development services remained strong in the third quarter. This resulted in an improved capacity utilisation rate for the Systems Division.
The reduced operating margin for the third quarter is the result of a loss sustained in a fixed-price project.
Organic growth in the Systems Division over the past 12 months now amounts to 30 percent.
Among the orders that Systems won in the third quarter was a substantial equipment-testing project from a leading manufacturer of telecommunications equipment. Under the umbrella of the "EcoDesign Center" the division also won an order from Morphic Systems relating to a software development assignment.
Parent company
Parent company sales totalled SEK 185 million (SEK 144 million) and relate primarily to intra-group services. The parent company reported a loss of SEK 25 million (SEK -17 million) after net financial items. Cash and cash equivalents totalled SEK 2 million (SEK 0 million), and gross investment in machinery and equipment for the period January to September 2008 amounted to SEK 9 million (Jan-Sept 2007: SEK 4 million).
Accounting principles
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 with statements on interpretation from the International Financial Reporting Interpretations Committee (IFRIC) as approved by the European Commission for use in the EU, and with 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 2007 (see Note 1, page 78). The parent company has implemented the Swedish Financial Reporting Board's Recommendation RFR 2.1 ("Accounting for Legal Entities"), which means that the parent company in the legal entity 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.
Risks and uncertainty factors
The significant risks and uncertainty factors to which the ÅF Group is exposed include business risks linked to the general economic situation and the propensity of various markets to invest, the ability to recruit and retain qualified co-workers, and the effect of political decisions. In addition, the Group is exposed to a number of financial risks, including currency risks, interest-rate risks and credit risks. No significant risks are considered to have arisen over and above those described on pages 57-60 of ÅF's Annual Report for 2007.
ÅF shares
The ÅF share price quoted at the end of the reporting period was SEK 152, which represents a fall of 10 percent since the beginning of the year. During the same period the Stockholm Stock Exchange all-share index (OMXSPI index) fell by 30 percent.
The 2008 Annual General Meeting of Shareholders approved a new performance-related share savings programme for key individuals in the company, including the President/CEO. By the time the application period had expired, 100 ÅF employees in senior positions had expressed an interest in purchasing approximately 20,600 shares for the entire 2008 programme. Provided that the performance targets that have been set are achieved, some 87,000 shares will be transferred to the participants without consideration during 2011 and 2012. This can lead to a dilution of earnings per share corresponding to a maximum of 0.5%.
Next reporting date
The summary of ÅF's annual report for the company's financial year 2008 will be published on 17 February 2009.
Stockholm, Sweden - 23 October 2008, ÅF AB (publ) Jonas Wiström, President & CEO
The full report including tables can be downloaded from the following link:
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