Interim report January - June, 2001

8/20/2001 6:21 AM EST

* Earnings improved by SEK 4.7 billion to total SEK 3.2 billion
* Sale of holdings in E.ON and HEW generated capital gain of SEK
2.9 billion
* Significantly increased sales of electricity and heat as a
result of acquisitions and colder weather conditions
* Rising consumption and reduced access to hydroelectric power
led to increasing electricity prices in Nordic market
* Sydkraft became a subsidiary of E.ON Energie on May 11

Comments by Group CEO
The first half of the year was strong, with significantly better
earnings than in the corresponding period of 2000. The sale of the
shareholdings in E.ON and Hamburgische Electricitäts-Werke (HEW) created
a capital gain totaling SEK 2.9 billion during the second quarter.
Excluding capital gains, profit after net financial items rose by 20%.

The market situation improved as a result of increased electricity and
heat sales and higher prices on the Nord Pool electricity exchange. The
cost-efficiency program, which has been in progress since 1999, is
continuing according to plan. Higher purchasing prices for electricity
resulted in most electricity sales companies increasing their prices
during the first half of the year. We have raised our prices on a number
of occasions during the year. Despite this, we showed only slightly
positive earnings for electricity sales operations during the period.

Intensive discussions are currently under way regarding the rising
electricity prices in the Nordic region. The increases compared with the
preceding year are due to the dryer weather, which results in lower
reservoir water levels, and to the continuing relatively high demand for
electricity. Water supply and electricity exchange prices are directly
related in the Nordic market.

We have had an efficiently functioning deregulated electricity market
for some years, which means that basically anyone has the right to
produce electric power. The low electricity prices of recent years have
led to the cost of nuclear power production exceeding the prices on Nord
Pool, which is why we have optimized our production to ensure that the
most expensive production is utilized last. Today, the situation is
different. With less water available in the Nordic system, prices are rising,
at the same time as demand is steadily increasing by
a few percent each year. Electricity is constantly capturing market
share at the expense of oil.

Based on current price levels, the O2 and O3 nuclear reactors are used
for maximum electricity production. During the most recent 12-month
period the O2 reactor noted its highest-ever production level. The O1
reactor will be taken out of operation at the end of the year for a
major upgrade.

Further ahead, new investments will be needed in electricity production
capacity. Planning has been started and we are convinced that the most
appropriate fuel is natural gas. First, however, electricity prices must
stabilize at above 20 öre per kWh. No production will be ready until at
least four to five years' time, however.

Integrations of acquisitions
Work to integrate the operations of Norrköping Miljö & Energi (NME) has
now been completed. NME has been divided up into four independent
companies to fit into the Sydkraft organization.

To become more efficient in the recovery and recycling area, we have
formed a new company called Sydkraft EcoPlus. Its operations will focus
on the development, ownership and marketing of environmentally adapted
total concepts for handling customers' refuse and the ownership of
refuse-disposal plants.

Through new refuse-handling plants in both SAKAB, which Sydkraft
acquired last autumn, and in Norrköping, our recycling operations will
be conducted in an environmentally sustainable manner. Construction work
on the two new plants is starting this year and reflects an investment
of nearly SEK 900 M.

Further expansion
In addition to Sweden, Sydkraft's geographic focus is also on Norway,
Denmark and Poland. In Norway, priority has been assigned to the high-
growth area around Oslo. In July, the listed company Hafslund, in which
Sydkraft controls nearly 35% of the votes, announced that it was
acquiring Oslo Energi, with 355 000 customers, from Vattenfall and that
it would be merged with the network company, Viken Energinett.

In Denmark, priority has been assigned to the island of Sjæland. In
Poland, we are expanding mainly around Poznan and Katowice, and as
recently as a few weeks ago we acquired 70% of the district heating
operations in Zlotów, a town in northern Poland. This is our fourth
acquisition of heating operations in Poland.

During spring this year, we started a joint trading company, Acton
Energy, with ABB. This company will manage energy portfolios for
primarily municipal electricity companies and industrial customers in
the German market. Acton Energy is located in Frankfurt and has some 15
employees.

Change in ownership
In February, Sydkraft's largest owner, E.ON Energie, made an offer to
acquire all shares outstanding in Sydkraft. The majority of Sydkraft's
shareholders elected to sell their shares. At the end of June, Sydkraft
held a Special General Meeting, at which a new Board was elected, based
on the new ownership situation. Today, Sydkraft has two major owners,
the German company E.ON Energie, which has the majority holding, and
Norway's Statkraft. Sydkraft formally became an E.ON Energie subsidiary
on May 11, 2001.

In conjunction with the Special General Meeting, the Sydkraft Board
decided to request that the Sydkraft share be delisted from the
Stockholm Exchange, with September 28 as the final trading day. The
reason for this request is that with its new ownership structure,
Sydkraft no longer meets the requirements for a listing on the Stockholm
Exchange's A List. Furthermore, there is insufficient turnover volume to
warrant effective trading in the Sydkraft share. All shareholders will
receive a reminder about the Board's decision at the end of August.

Lars Frithiof
With the exception of the accounting of income taxes in accordance with
the Note referring to consolidated shareholders' equity (see below), the
accounting principles upon which this interim report has been based are
unchanged compared with the accounting principles used in the Annual
Report for year 2000.

Sales and earnings
The Group's net sales for the period amounted to SEK 8 973 M (7 390), an
increase of approximately 21%, compared with the first half of 2000. Of
this amount, sales of SEK 4 028 M (3 008) related to the second quarter.
The increase was primarily due to the acquisition of Norrköping Miljö &
Energi and SAKAB, as well as to increased sales of electricity and heat.

Electricity sales rose by 24% to 17 987 GWh (14 452). Sydkraft's total
gas deliveries increased by 1% and amounted to 4 312 GWh (4 283). The
acquisition of new heat operations in combination with a cold start to
the year led to sales of heat increasing by 49% to 3 433 GWh (2 335).

Operating expenses totaled SEK 5 747 M (4 828). The increase was due to
acquisitions and higher volumes.

Depreciation during the period totaled SEK 1 078 M (856). The increase
was mainly attributable to the acquisitions implemented.

Earnings from participations in associated companies amounted to SEK 171
M (188). Norrköping Miljö & Energi, which was formerly an associated
company, is consolidated in the Group's accounts as a wholly owned
subsidiary as of January 1, 2001. The holding in HEW was sold in May.
During the period, participations were acquired in Hafslund and
Fredrikstadsgruppen from Vattenfall.

Operating profit increased by 88% to SEK 3 581 M (1 905), of which SEK
1 811 M (615) pertained to the second quarter. Capital gains totaling
approximately SEK 1 217 M, of which the sale of the holding in HEW
accounted for SEK 1 139 M, were included in operating profit for the
period. Excluding the capital gains, operating profit rose by 24%.

The financial net improved by SEK 1 537 M compared with the first half
of 2000 and amounted to income of SEK 1 165 M (expense 372). The
financial net included a capital gain totaling SEK 1 770 M related to
the divestment of the financial holding in E.ON AG. Excluding this
capital gain, the financial net deteriorated by SEK 233 M due to
increased debt as a result of company acquisitions and negative exchange-
rate differences.

Consolidated profit after net financial items amounted to SEK 4 746 M
(1 533), of which SEK 3 337 M (449) related to the second quarter.
Excluding capital gains from the sale of HEW and E.ON, profit improved
by 20%.