Interim report, January-March 2002

Interim report, January-March 2002 · Mild weather and high levels of precipitation have contributed to relatively low spot prices, in turn affecting the power business · The mild weather has decreased the heating sales compared to last year · Profit after financial items lower than the previous year [REMOVED GRAPHICS] Compared with the corresponding period of the previous year, the Group shows a drop in profits, the heating and power production businesses bearing the main responsibility. The year started off with a very cold spell during New Year, but by mid- January the weather had already turned much milder all over the country. Since then, temperatures have only on occasional days been on a normal level. All in all, temperatures in the Stockholm area during the first quarter have been three degrees or 18 per cent higher than normal. The mild weather has resulted in a lower demand for heating, both from end-users and distributors compared to last year. Short supply of biofuels have also pushed up fuel costs. Taken together, these two factors explain the drop in sales and profits shown by the heating business. Heating sales have decreased by around 300 GWh and SEK 30 M compared with the previous year. Inflows reached higher than normal levels during the first quarter, both in Sweden and in Norway. Water levels in Swedish reservoirs were higher than normal at the end of the first quarter, while those in Norwegian reservoirs were just below normal. The hydrological balance has therefore been strengthened, resulting in falling spot prices. Lower electricity prices are responsible for the deterioration in the power business's profits compared with the previous year. District heating and cooling activities both continue to expand. Stockholm's systems for district heating and cooling are among the best in the world, and the basis of the heating system also constitutes a strategic asset for future electricity production with simultaneous heating production, so-called Combined Heat and Power (CHP). During this quarter 49 per cent of Hofors Energi AB has been acquired. This acquisition forms part of Birka Energi's continued expansion of the Group's heating business. Energy The Group's heating sales, which amounted to 3.4 TWh (3.7), have decreased by 0.3 TWh compared with the corresponding period of the previous year. The drop in sales is primarily due to the weather in the Stockholm region, which during the first quarter was milder than during the corresponding period of the previous year when relatively normally temperatures were recorded. The Group continues its efforts to increase the proportion of renewable fuels used within the heating business. Biofuels accounted for 31 per cent of the fuel mix used in own production, while the total use of renewable fuels and recycled energy amounted to 62 per cent. In spite of certain biofuels being in short supply during the period, the Group successfully maintained the high proportion of renewable fuels used in production. As regards the heating business, the Group operates on the basis of a certain flexibility within production, which means that electricity can either be used for heating production, or be generated by simultaneous production of electricity and heat. The mild weather has resulted in a reduction in the use of back pressure as a basis for producing power within heating operations, but, by increasing production capacity, production volume has been maintained at the level of the previous year. At the same time, the use of electricity for heating production has increased slightly. Sales of cooling amounted to 52 GWh (42), which represents a continuing expansion of the business. On the other hand, at 136 GWh (155), gas sales have decreased slightly compared with the previous year. At 6.8 TWh (7.3), total sales of electricity for the first quarter are below the volume achieved the previous year. This decrease is both due to a drop in physical power sales resulting from a reduction in production and lower sales to customers. Nuclear power production was around 0.3 TWh lower than the previous as a result of the shutting down of the Oskarshamn 1 plant. At the same time, hydroelectric power production was down by around 0.4 TWh compared with the previous year, principally as a result of lower inflow during the period. This means that own power production amounted to 6.3 TWh (7.1) and the Group's total electricity turnover, including own use for heating production and for covering network losses, amounted to 7.8 TWh (8.2). The Group's power distribution volume in fully or part-owned network areas, which amounted to 9.3 TWh (9.8), has decreased compared with the corresponding period of the previous year. The main reason for this reduction is that milder than normal weather has resulted in lower transmitted volumes. Economy and finance Turnover and profit The Group's net turnover, which amounts to SEK 4,594 M (4 477), shows an increase of around SEK 147 M compared with the previous year. Higher turnover from electricity sales as a result of higher price level to customers mainly explains the increase in turnover. Milder weather has resulted in the income from heating sales being around SEK 30 M down on the previous year. Other operating income have been affected by the sale of AB Avesta Energi and Renea AB. The Group's operating profit amounted to SEK 1,183 M (1,346), which is SEK 163 M down compared with the previous year. The Group's electricity sales business shows a significant improvement in profits compared with the previous year, while power and heating operations are responsible for the main drop in profits. Now at full capacity, operation and maintenance activities are also showing an improvement in profits compared with the previous year. Short supply of biofuels have resulted in higher fuel costs, which, combined with the mild weather, provide the basis for the significant drop in first quarter profits shown by the heating business. Inflows in Sweden and Norway have exceeded normal volumes, strengthening the hydrological balance, which has resulted in spot prices falling during the first quarter of the year. Profits from power operations have therefore been lower than the previous year. The operating margin has been reduced and amounts to 25.8 per cent (30,3). The Group is showing somewhat improved net financial items compared with the previous year. This improvement is due mainly to average debt being lower than it was during the corresponding period of the previous year. The sale of shares to the value of SEK 12 M (-4) has also had an impact on net financial items. These capital gains relate primarily to the sale of AB Avesta Energi and Renea AB. At SEK 687 M (833), profit after financial items is SEK 146 M down on the previous year, principally as a result of the lower operating profit since financial items remaining close to the previous year's level. Acquisitions and sales In connection with Fortum's acquisition of the City of Stockholm's shares in Birka Energi AB, a change in the ownership of the Group´s Swedish heat business was carried out. A minority interest in the Birka Värme Holding group was created through an issuing of preference shares in Birka Värme Holding at a net worth of 1,000 M. The Birka Värme Holding Group is consolidated as a subsidiary due to that the City of Stockholm owns 9,9% of the share capital. The preference shares gives the City of Stockholm a 50% economic interest in the heat business. During the first quarter of the year, Birka Energi sold the electricity business in AB Avesta Energi with approximately 13 000 customers to Graninge. The company's network operation was earlier sold to Vattenfall Sveanät, with Birka Energi retaining ownership of heating and power production. In addition, the heat pump service company, Renea AB, has been sold to ALSTOM Power Sweden AB. In March, Birka Energi acquired SKF's 49 per cent shareholding in Hofors Energi AB. This acquisition forms part of the further expansion of the Group's heating business. Hofors Energi AB operates an extensive district heating system with strong industrial links. During the month of April, Birka Energi acquired a further 40 per cent of Puab Projektutveckling AB, making the company a fully owned subsidiary. Cash flow and financing [REMOVED GRAPHICS] The Group's total net investments in intangible and tangible fixed assets - excluding company acquisitions - amounted to SEK 373 M (306) for the period. Net investments have been affected by the sale of plant assets to the value of SEK 14 M (6). Birka Värme and Birka Nät were responsible for the major part of investments. Birka Värme's investments relate mainly to the expansion of the heating and cooling businesses. The investments in network activities are essentially in the form of reinvestments in already existing networks. Cash flow effect generated by the sale of subsidiaries amounted to SEK1006 M (759), of which 1,000 M represents the change in ownership that was carried out in Birka Värme Holding through an issuance of preference shares to the minority owner. The Group's net debt has been reduced as a result of positive cash flow from operations as well as by the addition to the Goup of 1,000 M by the issuance of shares in Birka Värme Holding. As at 31 March 2002, the net debt amounted to SEK 31,972 (34,150), which represents an increase of 2,178 compared to last year. No long-term loans have been taken up during the period. The average term for the Group's loan liability amounts to 3 years and 8 months. Birka Energi has approximately SEK 10,000 M in committed loan facilities at its disposal, none of which is being utilised. The average fixed interest term amounts to 1.9 years. Since the end of the previous year, the balance sheet total has decreased by SEK 1,306 M. Equity capital has increased by SEK 435 M. The equity/assets ratio amounts to 34.0 per cent (32.4). Ecology The follow-up to the Rio conference, which will take place in Johannesburg, will ensure that global environment and sustainability issues remain at the forefront during 2002. Birka Energi is actively involved in two strategic projects, both important to the Group's position as a responsible company, as well as to long-term business development. The project, Business Leaders Initiative on Climate Change (BLICC), includes the five companies IKEA, The Bodyshop, Interface, Nuon and Birka Energi, all of which have made their ambitions clear, and indicated concrete ways of contributing towards reduced environmental impact. The project was introduced by the five CEOs during an EU "Green Week" seminar attended by Environment Commissioner, Margot Wallström. For Birka Energi, the project enhances the potential for dialogue and collaboration with the EU Commission, as well as for the exchange of experience between companies spearheading climate issues. During April, a manifesto has also been presented at a conference organised by the Nordic Partnership project, which involves 17 Nordic companies working together on the matter of sustainable development. The project has focused on developing a model that businesses can use in order to work successfully with sustainable development. The government's Energy Bill outlines its ambition to increase renewable electricity production by 10 TWh between 2002 and 2010. A new system that involves placing a compulsory quota on customers and electricity suppliers in terms of the number of electricity certificates they hold is due to be introduced from 2003. Birka Energi is in the process of preparing for this new type of certificate system. Renewal certificates are already being traded on the international market. Birka Energi is actively working with a number of customers in order to exploit the business potential created by this market. Stockholm, May 2002 Tomas Bruce President and Chief Executive Officer ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2002/05/27/20020527BIT00170/wkr0001.doc The Full Report http://www.waymaker.net/bitonline/2002/05/27/20020527BIT00170/wkr0002.pdf The Full Report