Interim report January - March 2001

5/7/2001 4:13 AM EST

* Significantly improved earnings, up +30%

* Increased energy sales

* Normalization of electricity price

* Norrköping Miljö & Energi wholly owned as of January

* E.ON Energie makes bid for all shares outstanding in Sydkraft

Comments By Group CEO
The year has started well. During the first three months, earnings rose
by 30 % compared with the corresponding quarter of 2000. Energy sales
increased as a result of acquisitions and colder weather conditions.
Hydroelectric power production was high and prices on the Nord Pool
electricity exchange rose from an extremely low level and are
normalizing. The price of other energy forms also increased during the
period. The program of cost reductions is continuing according to plan.

Consumption of electricity and other forms of energy is continuing to
rise in the increasingly integrated Nordic region and we now have a
significantly more realistic price level. The underlying demand for our
products and services is positive. Electricity is capturing market share
from more expensive oil, for example.

Despite unusually high hydroelectric power production, the first signs
of an impending electricity shortage were noted as early as 2000. It is
very probable that in future years there will be a lower or even
significantly lower level of hydroelectric power production. When that
occurs, the Nordic electricity market will be close to experiencing an
electricity shortage. Such a situation will lead to a continued rise in
the price of electricity.

Further ahead, new investments will be needed in the Swedish energy
sector. At Sydkraft, we are well prepared to meet this eventuality when
it becomes necessary, and are convinced that the most appropriate fuel
is natural gas. First and foremost, however, the price of electricity
must become stable over the long term at more than 20 öre per kWh.
However, no production will be ready for at least 4-5 years.

Today, Sydkraft is synonymous with a great deal more than electricity.
The Group's operations include energy sales and distribution, the
production of electricity, gas, the production and distribution of heat,
waste and water, energy trading, broadband and consulting and
contracting services. To a large extent, we are now a multi-utility
company. Our most dominant market areas are southern Sweden, the
Mälardalen/Östergötland area and the central part of northern Sweden.

In January this year, we added a further 800 employees to the Group
through the acquisition of the remaining 51 % of Norrköping Miljö &
Energi and the acquisition a few days earlier of the whole of the energy
operations of Nora Municipality. Nora has become a well-known name in
energy circles through efforts to establish the company as a low-price
alternative on the market.

The integration of Norrköping Miljö & Energi (NME) is progressing
energetically. During spring, NME's operations will be divided up into
four independent companies to fit in with the Sydkraft organization.

In order to become optimally efficient in the recovery and recycling
area, we are forming a new company called Sydkraft EcoPlus. The new
company will develop, own and market a holistic approach towards the
handling of waste on behalf of customers and will own waste-handling
facilities. The concept will take into account both ecological and
economic factors and function as a natural part of the customer's
environmental work.

Through two new waste-handling plants, one in SAKAB, which we acquired
last autumn, and the other in Norrköping, recovery operations will be
conducted in an environmentally sustainable manner. The two new plants
will be constructed during the current year and reflect a combined
investment of nearly SEK 900 M.

Further Expansion
In addition to Sweden, Sydkraft's geographical focus is on Norway,
Denmark and Poland. In Norway, priority is given to the high-growth area
around Oslo, while the island of Sjælland is given priority in Denmark.
In Poland, we are expanding mainly in the areas around Poznan and
Katowice and, as recently as just a couple of weeks ago, we acquired a
31 % interest in district heating operations in Koszalin, a town in
northern Poland.

In cooperation with ABB, we have established a jointly owned trading
company, Acton Energy, which will manage energy portfolios mainly for
municipal electricity companies and industrial customers in the German
market. The company is based in Frankfurt and has about 15 employees.

During year 2000, a comprehensive business agreement was finalized
between Sydkraft, E.ON and Vattenfall. The agreement, which is valued at
about SEK 9 billion, means that Sydkraft and E.ON exchange their shares
in HEW for a number of strategic assets and cash from Vattenfall. The
agreement between Sydkraft and Vattenfall came into force on May 3 this
year, when all conditions had been met, and provided Sydkraft with a
capital gain of slightly more than SEK 1 billion.

Sydkraft's holding of approximately 4.9 million shares in E.ON AG will
be sold during the second quarter of the current year. The sale is
expected to generate a capital gain of approximately SEK 1.7 billion.
Both these capital gains, totaling SEK 2.7 billion, will be reported
during the second quarter of 2001.

Sydkraft's largest owner, E.ON Energie, made an offer on February 21 to
purchase all shares outstanding in Sydkraft. At a Special General
Meeting on March 22, the Board of Directors issued its recommendation
that shareholders accept the offer. At the time of writing, the offer
period has expired but the definitive ownership proportions have yet to
be finalized.

Lars Frithiof
President and Chief Executive Officer