Interim report january - june 2000

Interim report january - june 2000 * Tough price competition and low electricity prices * Decrease in sales of electricity and heat due to mild weather conditions * Profit after net financial items down by 7% * Lower operating and maintenance costs * Cash flow from operations remains strong * Continued focus on broadband Comments by GROUP CEO Tough competition in primarily the electricity market combined with a mild start to the year led to lower earnings for the Group during the first six months. The ongoing rationalization and efficiency enhancement measures were unable to fully offset the impact of lower volumes and continuing low electricity prices. Operating profit declined by 6% during the period. Profitability in the form of the Group's return ratios deteriorated somewhat, while the profit margin was slightly up. Cash flow remained strong. Within the Marketing and Sales business sector the margin for electricity declined compared with the corresponding period of 1999. Price area differences occurred on the electricity exchange as a result of the abundant water supplies in Norway and transmission restrictions between Norway and Sweden. At times, the spot price for electricity in Sweden was significantly higher than in Norway. The price area differences constituted a problem for the Nordic electricity exchange. The differences derive from the surplus of hydroelectric power in Norway, which was accentuated by the high precipitation in July and the periodical scarcity of effective output in Sweden. As usual nuclear power plants were subject to inspection during the summer and, in addition, some nuclear power production was reduced to come into line with market conditions. For the same reasons, it is possible that in future production plants could be shut down for long periods. A factor that is contributing significantly to this trend is the switch to a fixed "output tax" on nuclear power, effective midyear 2000. Such a tax stimulates prolonged cutbacks at one and the same place. The tax is equivalent to approximately 20% of the forward contract price of electricity. Few people can have missed the reports of the very difficult situation caused by the severe rainfall in parts of northern Sweden earlier this summer. Flooding caused extensive damage in certain areas. Like everyone else, it was impossible for the power companies to foresee the extreme precipitation that occurred. A great deal of damage also took place in the unregulated tributaries, for which there are neither dams nor power plants. Regulation of rivers reduces the risk of flooding. The restructuring of the Nordic energy market is continuing. Following our acquisition of 49% of Østfold Energi's sales and network companies, we are now discussing the acquisition of 20% of Oslo Energi Holding. It is estimated that these negotiations will be concluded during the autumn. Oslo Energi Holding, which is one of the largest power companies in Norway, has substantial hydroelectric power operations. Sydkraft's increased presence in Norway is creating business opportunities for several companies in the Group. ElektroSandberg, part of the Consulting and Contracting business sector, is hiring new employees in southern Norway in order to meet the needs that exist in that region. In Denmark, we are starting a new company, Sydkraft Danmark A/S, which will offer the Danish heat market Totalvärme - Sydkraft's successful Swedish heating concept. In Poland, we are continuing our efforts to sell-in the same concept Total Heat and to invest in central and subsidiary boiler plants in the city of Poznan's district-heating network for 600 000 consumers. Developments in the IT and broadband areas are progressing rapidly. Within just a few years, 40% of all households in Sweden are expected to be linked to the broadband network. We have established Sydkraft Bredband AB in order to sharpen our efforts to generate business with the help of broadband technology. Our aim is for Sydkraft, which has worked with broadband for a number of years, to become one of the country's leading suppliers of broadband. Accordingly, investments will be made in the main grid, metropolitan networks and access networks - in other words, all the networks that are closest to the customer. This focus is another expression of our desire to look to the future without losing our grip on the present, as coined in our new corporate slogan, "TomorrowToday." Another future-oriented project is the international housing exhibition "Bo01," which will take place in Malmö in 2001. Sydkraft will deliver 100% locally generated, renewable energy based on windpower, solar cells and geothermal technology. With approximately 1 000 consultants in our Consulting and Contracting business sector, many of whom are experts in IT and broadband, we have every reason to act aggressively in the energy area. During recent months, Sycon, our consulting company, has acquired additional expertise. In July, Stockholm Konsult Stadsutveckling and BARAB were acquired, contributing 170 and 20 technical consultants, respectively, to Sycon's operations. The prevailing market conditions, with extremely low electricity prices and a lack of transmission capacity between mainly Norway and Sweden, have caused substantial price area differences and this has had an adverse effect on all of the Group's Swedish electricity sales companies. Stable cash flows from principally our hydroelectric production and distribution operations mean that we can continue to participate actively in the ongoing restructuring of primarily the Nordic electricity market. Lars Frithiof Sales and earnings The Group's net sales for the period amounted to SEK 7 390 M (7 701), down approximately 4%, compared with the first half of 1999. SEK 3 008 M (3 360) of sales was attributable to the second quarter. The decrease in sales was mainly due to lower volumes of energy sold, in combination with lower electricity prices. Energy sales were down as a result of the mild start to the year. Electricity sales totaled 14 452 GWh (16 320). The 11% decrease was mainly due to the mild weather in combination with lower hydroelectric and nuclear power production. As a result of lower LPG sales, gas deliveries decreased by 5% to 4 283 GWh (4 528). The mild weather resulted in sales of heat declining by 7% to 2 310 GWh (2 483) during the period. Operating expenses declined by 5% and totaled SEK 4 828 M (5 080). The decrease, which was due to continuing measures to improve cost-efficiency, in combination with lower volumes, was insufficient to fully offset the impact of lower energy volumes and continuing low electricity prices. Depreciation during the period amounted to SEK 856 M (854). Earnings from participations in associated companies, primarily HEW and Graninge and the newly added associated companies Norrköping Miljö & Energi and Østfold Energi, amounted to SEK 188 M (226). Operating profit declined by 6% to SEK 1 905 M (2 030). SEK 615 M (705) of operating profit was attributable to the second quarter. The financial net was largely unchanged compared with the first half of 1999 and amounted to an expense of SEK 372 M (expense: 380). Consolidated profit after financial items amounted to SEK 1 533 M (1 650). ------------------------------------------------------------ This information was brought to you by BIT The following files are available for download: The full report The full report

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Sydkraft is a supplier of electricity, gas, heating and energy services.