Interim report January - June 2001

Interim report January - June 2001 · Profit after financial items approximately 60% higher than the previous year · Higher power and electricity prices · Substantial hydroelectric and nuclear power production · Sales of heating and cooling significantly stronger than the previous year · Continued restructuring via disposals and exchanges · Reduced indebtedness [REMOVED GRAPHICS] Continued profit development during the first half of the year The first two quarters of 2001 show considerably improved operating profits for Birka Energi. Profits after net financial items for the period amounted to SEK 881 million, representing an increase of approximately 60% compared with the corresponding period of the previous year. The main reasons for the improvement in the Group's profits are increased profits from the heating and power operations. A combination of relatively normal winter temperatures, increasing demand, excellent electricity supply from fully or part-owned hydroelectric and nuclear power plants, and the deepening water shortage in Norwegian reservoirs, have pushed up both spot and forward prices on the Nordic power exchange to roughly the same levels as those prevailing during the last three wet years. In spite of a marked rise in end-user electricity prices, this part of electricity operations shows negative profit. This is largely due to the fact that the high power prices have left fixed contract prices behind, and because of the notice period required for any adjustment to notified contracts. However, these negative margins fall well short of increases in income from power operations and, being of a temporary nature, will be neutralised as price increases catch up with power prices. As regards heating operations, organic growth remains vigorous, supplemented by rapid expansion of district cooling. The strong environmental position of district heating and cooling, combined with financial competitiveness when compared with local oil and refrigeration plant alternatives, attract the market while also strengthening the environmental profile of the Birka Energi brand name. In addition, Birka Energi continues to restructure its activities by exchanging and disposing of non-strategic assets. Minority holdings in hydroelectric power plants have been sold, as have shares in Katrineholms Energi and Katrineholms Energiförsäljning. Office properties in Stockholm, Örebro and Kungsbacka have been sold and, in part, rented back. Other transactions have also been concluded or are due to be concluded following the end of the period. The power distribution network in Avesta has been exchanged for a majority holding in the Ryssa Elverk power distribution network. Further sales of minority holdings in hydroelectric power plants have taken place and agreement has been reached regarding the sale of shares in Etrem. Energy The Group's sales of heating, which during the first half of the year amounted to 5.4 TWh (4.8), have increased by 0.6 TWh compared with the previous year. This increase is partly due to the continued expansion of heating operations, but is primarily the result of favourable temperature conditions. In contrast to the mild start to the previous year, temperatures during the first half of this year have been close to normal in the Stockholm region. The Group continues its efforts to increase the proportion of renewable fuels used within the heating business. Renewable fuels and recycled energy account for 64% (64) of own production, and biofuel-based production represents 29% (28) of total 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 heat production or be generated by simultaneous production of electricity and heat. This year's relatively high electricity prices have resulted in increased power production within the heating business compared with the previous year. Sales of cooling during the first half of the year have remained substantial, amounting to 143 GWh (100), which represents an increase of just over 40% compared with the previous year. Given that the year's new sales of cooling to be connected during the next few years have clearly exceeded expectations, the rate of expansion of cooling sales is expected to remain rapid. Sales of gas, which amounted to 232 GWh (210), have also increased somewhat compared with the previous year. At 12.1 TWh (12.5), electricity sales for the period are slightly down compared with the previous year. Reduced electricity sales to customers have been offset by increased sales of physical power on the power exchange, primarily as a result of the substantial amount of hydroelectric and nuclear power supplied. Hydroelectric power production in fully or part-owned plants has been just over 0.2 TWh higher than the previous year, with the corresponding figure for nuclear power production being approximately 0.7 TWh. The Group's total electricity turnover, including own use for heat production and for covering network losses, amounted to 13.7 TWh (14.1). Due primarily to the acquisition of the regional network in Dalarna, the volume of the Group's electricity distribution has increased by approximately 20% compared with the previous year. The volume distributed by the Group's fully or part-owned networks amounted to 17.1 TWh (14.3). Economy Turnover and profit The Group's net turnover after the second quarter represents a decrease of approximately SEK 200 million compared with the previous year, amounting to SEK 6,828 million (7,041). Income from heating sales is significantly higher, as is income from electricity distribution. Sales of electricity to customers essentially remain unchanged compared with the previous year. However, total sales are down due to negative items referring to successive financial hedging of power sales. Corresponding positive items referring to financially hedged power purchases are listed under costs. Operating profit for the period amounted to 1,718 (1,394), representing an improvement of SEK 324 million compared with the previous year. At 25.2% (19.8%), the Group's operating margin for the first half of the year is also a clear improvement compared with the corresponding period of the previous year. The Group's power and heating operations show a significant boost in profits. A higher volume of sales and the price adjustments implemented during the previous year have substantially contributed to the increase in profits from heating operations. In addition, the previous year's relatively high electricity prices, in conjunction with substantial hydroelectric and nuclear power production, have resulted in continued improvement in the profits of the Group's power operations. Due to higher indebtedness, net interest (income/expenses) has deteriorated during the first half of the year. During this period, average debt has been just over SEK 1,500 million higher than during the corresponding period of the previous year. Disposals within the Group have, however, gradually reduced indebtedness to a level, which, at the end of the period, is below that of the previous year. Higher interest costs have been compensated for by capital gains generated by the sale of shares, thus maintaining the Group's net financial items at the level of the previous year, SEK -837 million (-839). Profit after financial items amounted to SEK 881 million (555), representing a substantial improvement of approximately SEK 330 million compared with the previous year. [REMOVED GRAPHICS] During the second quarter, the Group continued to improve on the previous year's performance. The second quarter's profit after financial items amounted to SEK 42 million (-30). The table above shows the significant seasonal impact on the Group's profit development during the year. Following the year's second quarter, the Group's rolling twelve months figures show a rising trend. The year's trend for profit after financial items represents an increase on the corresponding period's twelve months figures, as is also the case when compared with the accounts for the previous two years. Acquisitions and sales [REMOVED GRAPHICS] During the period, Birka Energi has continued to exploit the restructuring of the energy market by strengthening and rationalising its own structure and range of services. Sustained monitoring of Group assets has resulted in the sale of certain part-owned share holdings in order to further restructure activities, while, at he same time, reducing the amount of tied-up capital. During the second quarter of the year, Birka Energi sold its holdings in Katrineholms Energi AB along with its fully-owned company, Katrineholms Energiförsäljning AB, to Tekniska Verken i Linköping AB for SEK 276 million. In addition, office properties in Stockholm and Kungsbacka have been sold for approximately SEK 500 million. Apart from the disposals that took place during the period, the following acquisitions and sales have been concluded or are due to be concluded after the end of the period: On 2 July, a deal was struck with Vattenfall regarding the exchange of Vattenfall's shares in AB Ryssa Elverk for Birka Energi's fully-owned company, AB Kallströmmen, including the subsidiary AB Avesta Elnät. As a result, Birka Energi now owns 97.6% of the shares in AB Ryssa Elverk. Further sales of minority holdings in hydroelectric power assets, representing a normal annual production of 128 GWh, were also concluded on 2 July, when the subsidiary Svarthålsforsens Intressenter AB, including its shares in Gulsele AB, was sold to Graninge AB. Also on 2 July, further shares in the associated company, Puab Projektutveckling AB, were acquired, making Birka Energi the holder of 60% of the company's shares. Birka Energi, Fortum, Karlstad Energi and Trondheim Energiverk have reached an agreement with Viterra Energy Services in Germany regarding the sale of all shares in Etrem AB. The company was established by the four vendors in 1998 in order to produce a more efficient structure for electricity metering in the Nordic market. This process having now been completed and Etrem will, through the sale planned in August, become integrated within the European market for electricity metering. The agreement is contingent on the approval of the competition authorities in the countries concerned. Cash flow and financing [REMOVED GRAPHICS] The Group's total net investments in intangible and tangible fixed assets - excluding company acquisitions - amounted to SEK 228 million (887) for the period. Net investments have been affected by the sale of plant assets to the value of SEK 384 million (8). Birka Värme and Birka Nät have undertaken the major part of these investments. Birka Värme's investments mainly cover expansion within heating and cooling. Network investments principally concern reinvestments in existing networks. No company acquisitions have been undertaken during the first half of the year (SEK 2,155 million). Income generated by the sale of subsidiaries amounted to SEK 787 million (427) during the period. Apart from disposals, the Group's cash flow has also been affected by the strong development in profits. The net debt and balance sheet total have therefore been reduced since the beginning of the year. Net debt has decreased by SEK 1,658 million since the beginning of the year and by SEK 744 million since the same time the previous year. Net debt amounted to SEK 29,674 million (30,418). During the remainder of 2001, loans to the value of SEK 3,900 million will mature. The majority of these loans consist of short-term certificate borrowings. Refinancing is planned via continued short-term certificate borrowings. In addition to the short-term borrowings, the Group has, as at 30 June 2001, non- utilised credit facilities to the value of approximately SEK 10,000 million at its disposal. As at 30 June, the average fixed interest term for the Group's net debt was approximately two years and three months. SEK 8,777 million of the total portfolio will be subject to interest renewal during the coming year. At the end of the period, the balance sheet total was approximately SEK 3,100 million less than it was at the same time the previous year. The equity/assets ratio had increased, and amounted to 35.0% (34.1). Ecology The proportion of renewable energy used within Birka Energi's electricity and district heating production continues to increase. Carbon dioxide emissions from Birka Energi's plants have, however, increased somewhat compared with the previous year, primarily due to increased operation of fossil-based CHP plants. The main reason for this is profitable co-production of electricity and heat due to high electricity prices. Such production generates less carbon dioxide per unit produced than electricity produced by the coal-fired condensing plants common in many of our neighbouring countries. New agreements have been reached with, amongst others, Drott, regarding the supply of cooling and heating in Kista, and with Saab Automobile regarding heating and energy efficiency in Trollhättan. As a result of the expansion of district heating during the first half of the year, customers' carbon dioxide emissions have been reduced by just over 20 ktonnes. District cooling has also continued to expand, with the result that 3.6 tonnes of HCFC and HFC have been phased out in customer plants while, at the same time, energy efficiency has been enhanced. Birka Service has reached an agreement with Borås Energi regarding operation and maintenance of their district heating, cooling and hydroelectric plants. The co-operation agreement is based on a mutual ambition to develop a more compact eco-cycle system within Borås municipality. Birka Energi has decided to invest approximately SEK 300 million in measures to increase reservoir safety during 2001-2005. Reservoir safety is given high priority within Birka Energi, and the planned investments will mean that the reservoirs can handle water flows with a likely time cycle of more than 10,000 years. Stockholm, August 2001 Tomas Bruce Managing Director This report has not been the subject of special scrutiny by the Group's auditors. Accounting principles and bases for calculations are those used in the previous annual report. For further information, please contact: Tomas Bruce, CEO, tel +46 70 316 14 14 Susanne Jonsson, Corporate Executive Vice President Controlling , tel +46 70 344 51 56 Merril Boman, Corporate Executive Vice President Communications, tel +46 70 590 79 75 [REMOVED GRAPHICS] [REMOVED GRAPHICS] [REMOVED GRAPHICS] [REMOVED GRAPHICS] ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2001/08/02/20010802BIT00020/bit0001.doc http://www.waymaker.net/bitonline/2001/08/02/20010802BIT00020/bit0001.pdf