Interim report January - March 2001

Interim report January - March 2001 · Strong first quarter · Profit after financial items just over SEK 250 million higher than the previous year · Increased power and electricity market prices · Substantial hydroelectric power production · Heating sales significantly higher than the previous year · Considerable cash inflow through sales of offices and minority hydroelectric power holdings [REMOVED GRAPHICS] A strong start to the year At more than SEK 300 million higher than previous year, operating profit for the first quarter of 2001 is higher than that for any corresponding period since Birka Energi was established. The main reason for this improvement in profits is the increase in profits generated by the heating business, but the power business in general has also produced higher profits than the previous year. A winter quarter characterised by fairly normal temperatures has meant that the expanding heating business shows significant improvement for the quarter compared with the previous year. The power business in general has also benefited from good water supply in tandem with substantial increases in the price of power on the power exchange. Developments during the winter highlight the sensitivity of the electricity balance within the Nordic system. Insufficient quantities of snow, particularly in Norway, soon caused a doubling of the spot price. The effect produced by the lack of snow was further reinforced by the closing of Barsebäck and by the shutting down of other reserve power plants during the period with depressed prices. Decisions were reached during the previous year, to sell off office property and to consider the possibility of selling minority power holdings. During the first quarter of 2001, Birka Energi has agreed and, to some extent, carried through such sales, all of which are expected to be completed in early July and will add approximately SEK 1.6 billion to the Group's cash flow. Energy At 3.7 TWh, the Group's sales of heating have increased by 0.5 TWh compared with the same period of the previous year. This increase is partly due to the continued expansion within the heating business, but is also to a large extent the result of favourable temperatures in the Stockholm area. In contrast to the mild start to the previous year, the period has been characterised by near normal temperatures. The Group continues its efforts to increase the proportion of renewable fuels used within the heating business. Compared with the previous year, the proportion of biofuel-based production has increased from 27% to 32%. Renewable fuels and recycled energy constitute 61% (59) of the total energy supply. In addition, the heating business and the Group operate 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 heating. The period's substantial hydroelectric power production and the relatively high electricity prices have resulted in increased power production within both the heating and power operations. Due mainly to the acquisition of the regional network in Dalarna, the Group's electricity distribution volume has increased by 24% compared with the previous year. The total volume of electricity distributed by the Group's fully or part-owned networks amounted to 9.8 TWh (7.9). Electricity distribution has been subject to two major disruptions during the period. One was caused by very heavy snowfalls, while the other was the result of a cable fire in west Stockholm. The costs resulting from the damage are largely covered by insurance. At 7 TWh (7), electricity sales for the period remain at the same level as 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 power supplied. Hydroelectric power production by fully or part-owned plants has increased by just over 0.4 TWh compared with the previous year. The Group's total electricity turnover, including own use for heating production and for covering network losses, amounted to 7.9 TWh (7.9). Sales of cooling have remained substantial and amounted to 51 GWh (37) for the period. New cooling sales for the period have exceeded expectations. Gas sales, which amounted to 155 GWh (133), have also increased compared with the previous year. Economy Turnover and profit The Group's net turnover after the first quarter represents an increase of approximately SEK 200 million compared with the previous year and amounts to SEK 4,208 million (4,007). Lower income from electricity sales has been more than compensated for by increased receipts from heating sales and electricity distribution. The operating profit for the period amounted to SEK 1,314 million (1,008), which is an improvement of SEK 306 million compared with the previous year. The Group's heating business shows a significant improvement in profits compared with the previous year. Higher sales volumes and price adjustments implemented during the previous year have contributed strongly to the improvement in profits. In addition, the relatively high electricity prices, combined with substantial hydroelectric and nuclear power production, have boosted the Group's power business profits. The Group's net financial items, amounting to SEK -475 million (-423), has deteriorated by SEK 52 million, mainly due to increased indebtedness. Profit after financial items was SEK 839 million (585), which is a significant improvement amounting to SEK 254 million compared with the previous year. [REMOVED GRAPHICS] The interim figures shown above clearly indicate the seasonal variations in the Group's profit development during the year. Following the first quarter of the year, the Group's rolling twelve-months figures show a clear trend towards rising profit levels. The yearly trend for profit after financial items represents an increase on the corresponding period's twelve-month figures and when compared with the accounts of the previous two years. Acquisitions and sales Birka Energi continues to exploit the restructuring of the energy market by strengthening and rationalising its own structure and range of services. Sustained monitoring of the Group's assets has resulted in the selling of certain part-owned share holdings in order to further restructure activities while simultaneously reducing the amount of tied- up capital. During the first quarter, the Group sold the subsidiary Österede Kraft AB to Sydkraft AB. Österede Kraft AB has minority holdings in hydroelectric power assets in which Sydkraft is the majority shareholder. The transaction covers 365 GWh of normal annual production. The sale has added SEK 759 million to the Group's cash flow during the period. A further agreement regarding the sale of minority hydroelectric power holdings, representing 128 GWh of normal annual production, has been reached during the period. The transaction, to be concluded on 1 July, concerns the sale of the subsidiary Svarthålsforsens Intressenter AB to Graninge AB. The total impact of these transactions on Birka Energi's normal annual hydroelectric power capacity amounts to 4%. Birka Energi and Vattenfall have signed a declaration of intent to exchange Vattenfall's holdings in AB Ryssa Elverk for Birka Energi's fully owned company AB Kallströmmen together with the subsidiary AB Avesta Elnät. Completion of the transaction is set for 1 July after which Birka Energi will own approximately 97 percent of AB Ryssa Elverk. The exchange of certain fixed assets also forms part of the transaction. Birka Energi has reached an agreement with Vasakronan AB to sell off office property in Stockholm for SEK 470 million. The transaction will be concluded in May after which the premises will be rented. Cash flow and financing [REMOVED GRAPHICS] The balance sheet total and cash flow have been affected by the sale of hydroelectric power assets. The balance sheet total and interest-bearing debt have therefore been reduced since the end of the previous year. In addition, disposals and positive profit development have both had an impact on the Group's cash flow. The Group's total net investments in intangible and tangible fixed assets - excluding company acquisitions - amounted to SEK 305 million (387) for the period. 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 quarter of this year (SEK 46 million). Income generated by the sale of subsidiaries amounted to SEK 759 million (427) during the period. Compared with the corresponding period of the previous year, the balance sheet total and the net debt increased. This increase is the result of the expansive level of investment in district heating and the substantial acquisitions undertaken during the second quarter of 2000. On average, net debt during the period was approximately SEK 2,000 million higher than it was during the corresponding period of the previous year. At the close of the period, the balance sheet total was around SEK 800 million higher than at the same time the previous year. The equity/assets ratio amounted to 35.1% (35.1). At the general meeting, a dividend totalling SEK 800 million was agreed; distribution will take place in May. During the period, the Group carried out its third international public bond issue. The loan was well received by the market and was three times oversubscribed. EUR 500 million were issued to a wide range of investors consisting primarily of institutions in Europe. Funds raised by the loan have been used to pay off short-term bank financing. The Group has thereby completed the restructuring of its debt financing initiated in connection with the establishment of the company. Two thirds of the Group's borrowings now consist of long-term bond borrowings of which approximately half are on terms in excess of five years. During the remainder of 2001, loans to the value of SEK 4,700 million will mature. The major part of these loans comprises short-term certificate borrowings. Refinancing is planned via continued short-term certificate borrowings. In addition to the short-term borrowings, the Group has non-utilised credit facilities to the value of approximately SEK 12,000 million at its disposal. The average duration of the Group's net debt was approximately two years and four months at 31 March. SEK 10,050 million of the total interest portfolio will be replaced during the coming year. Ecology The Group remains expressly committed to supporting its customers' environmental initiatives. Sales of Good Environmental Choice Electricity have increased somewhat. During the period, Birka Energi has reached agreement with ODAL regarding the supply of electricity endorsed by the Swedish Society for the Conservation of Nature as a Good Environmental Choice Agreement. The agreement also involves environmental collaboration. Tests are currently underway to evaluate an Internet based energy statistics system, offering customers better access to information about their own energy consumer profile. During the year, an environmental module will supplement the service. In the longer term, trade in so-called "green certificates" may turn out to be of great significance for Birka Energi's business development. Birka Energi is therefore actively participating in two international projects aiming to develop a system for trading in renewal certificates. In order to evaluate systems, contract formats etc., experimental trading on a small scale has been initiated. In May 2000, following a five year investigation, Gullspångs Kraft AB was charged with alleged negligence in connection with the 1995 spring floods in upper Klarälven and the Höljes power plant. At the beginning of April, Örebro District Court acquitted the company on all counts, a decision that establishes a fundamentally important principle in terms of the power companies' responsibility for water control at times when water levels are abnormally high. At the prosecution's request, the case is likely to be taken to a higher court. Stockholm, May 2001 Tomas Bruce President and CEO [REMOVED GRAPHICS] [REMOVED GRAPHICS] [REMOVED GRAPHICS] [REMOVED GRAPHICS] This report has not been the subject of special review by the Groups' auditors. The accounting principles and bases for calculations used here are the same as those used in the latest annual report. For further information, please contact: Tomas Bruce, President and Chief Executive Officer, tel +46 8 671 79 60 or +46 70 316 14 14 Susanne Jonsson, Corporate Executive Vice President, Financial Control and Accounting, tel +46 8 671 74 11 or +46 70 344 51 56 Merril Boman, Corporate Executive Vice President , Communications, tel +46 8 671 79 51 or +46 70 590 79 75 ------------------------------------------------------------ This information was brought to you by BIT http://www.bit.se The following files are available for download: http://www.bit.se/bitonline/2001/05/04/20010504BIT00650/bit0001.doc http://www.bit.se/bitonline/2001/05/04/20010504BIT00650/bit0001.pdf