Interim report january - march 2002

5/17/2002 5:13 AM EST

interim report january - march 2002

* Earnings amounted to SEK 1.3 billion
* High levels of hydroelectric power production and nuclear power
availability
* Modernization of Oskarshamn 1 proceeding according to plan
* Additional shares acquired in Norwegian company Hafslund
* Reduced ownership in consulting and data operations

Comments by group ceo
Sydkraft's operations are developing favorably. A good start was made
during the first three months of 2002, despite the mild weather.

Energy sales showed a positive trend. Today, electricity sales are
profitable, which means that the Marketing & Sales Business Sector is
once again reporting positive earnings following a difficult 2001 during
which an operating loss was reported.

Prices on the Nord Pool Exchange have declined slightly due to the warm
weather. Thanks to the preceding year's forward contracts, Sydkraft's
electricity production has been sold at relatively high prices to date
this year. Electricity production based on both hydroelectric and
nuclear power functioned well. Reservoir water levels remained at a high
level during the period.

On a couple of occasions during the past winter, southern Sweden
experienced severe weather conditions, which caused major problems for
some 50 000 electricity customers in primarily Småland, Blekinge,
Halland and northeastern Skåne. The Group's customers have been provided
with information to the effect that Sydkraft will compensate all
customers who were without electricity for periods of more than 24
consecutive hours. The customers entitled to such compensation have
received a total of approximately SEK 15 M.

Group subsidiary ElektroSandberg, which showed a deficit during 2001,
reversed the negative trend following streamlining and restructuring
measures. Work at hand and order bookings are currently satisfactory.

Our expansion continues
Some time ago, in Norway, we acquired Vattenfall's shares in the
publicly listed company, Hafslund, in which we now have a holding of
slightly more than 25%. Hafslund is one of Norway's foremost energy
companies, with substantial electricity production, distribution and
sales.

Earlier this year Sydkraft, through its subsidiary, Sydkraft Danmark
A/S, acquired the co-generation plant in Prästø and recently purchased
Western Sjælland County's co-generation plant and district heating
operations in Nykøbing. This was the third acquisition made by Sydkraft
in Denmark in less than a year and strengthens Sydkraft Danmark's
position as one of the most active of the new players in the Danish
energy market.

Sydkraft is also engaged in several activities in Poland. Recently, a
contract was signed to acquire 51% of the shares in the district heating
company serving the town of Slupsk in northern Poland. This is the
largest acquisition made to date by Sydkraft in Poland. Slupsk, which is
located about 20 km from the Baltic coast and has a population of about
120 000, is not far from the communities of Koszalin, where Sydkraft has
a 32% holding in the local district heating company, and Ustka, where
Sydkraft has signed a preliminary agreement to acquire 34% of the shares
in the local district heating company.

Company divestments
Since the beginning of the current year, Sydkraft's workforce has been
reduced by more than 1 000 employees. The subsidiary Sycon and the
majority holding in WM-data Ellips have been divested. Danish company
Carl Bro acquired Sycon in return for Sydkraft receiving an 11% stake in
Carl Bro, among other considerations, and WM-data acquired the majority
holding in WM-data Ellips in a similar manner, whereby Sydkraft received
a holding in WM-data.

These two transactions are a logical continuation of the companies'
expansion. Sydkraft's aim has been to develop Sycon into Sweden's
leading technical consulting company. Carl Bro/Sycon is now the largest
technical consulting company in the Nordic region, with approximately 3
200 employees.

WM-data Ellips will develop more rapidly as a subsidiary in an IT group
than it would with Sydkraft as principal owner. At the same time,
Sydkraft retains 40% of the shares in the company and can thus continue
to benefit from WM-data Ellips' specialist skills and know-how.

Nuclear power is needed
According to the Government's energy bill, which was presented in mid-
March, nuclear power will be phased out in Sweden in future through an
agreement to be reached with representatives of the nuclear power
industry. We at Sydkraft consider that there is a need for nuclear power
but, as we have said before, if it is to be phased out it would be
preferable to reach a voluntary agreement rather than to invoke the
Decommissioning Act. The company is prepared to discuss the question of
future energy supply, which for many years into the future will include
nuclear power.

At the same time, all of the conditions need to be discussed in depth
and naturally we shall be making firm demands during these discussions.
One of our demands is that we want to see a guaranteed and
environmentally compatible supply of electricity over time that will
assure growth and well-being. Sweden's industry, which belongs to our
customers, must not be placed at a disadvantage.

Another demand is that tax on nuclear power be eliminated. For Sydkraft,
this amounts to approximately SEK 550 M annually. This tax should be
abolished immediately; it doesn't warrant being the only production tax
in the EU, particularly within an electricity market that is open to
competition.

Vision and values
Work to implement Sydkraft's corporate values model, which includes the
company's vision, values, core brand values and interaction between
management and personnel is continuing and has been assigned high
priority. Increased cooperation and a shared vision and values will
generate better results.

Customers must perceive our products and services as adapted to their
needs and good value for money, simple and convenient, innovative and
new. Customers must perceive the company's personnel as being
accessible, reliable and creative. Customers must feel that Sydkraft is
a pioneer, that we contribute to quality of life and create confidence
and expectations.

The Sydkraft brand is important and valuable. It is the link to our
history, the strength in our current position and the foundation for our
future. Sydkraft has been a subsidiary of the E.ON Group since May 2001.

Forecast
Earnings for 2001 were affected to a significant extent by the capital
gains arising from the sale of the holdings in HEW and E.ON AG.
Excluding such effects, and bearing in mind the current market situation
and the prevailing price scenario, it is estimated that earnings in 2002
will be in line with the level achieved in 2001.

Lars Frithiof

Sydkraft has adapted its consolidation principles and presentation to
harmonize with those of the E.ON Group. This means that Sydkraft no
longer applies the proportional consolidation method and that at
functionally divided Income Statement is now being used. While
comparative figures for 2001 have been recalculated in a corresponding
manner, the figures for earlier fiscal years have not been recalculated.