Interim Report (group) six months ended June 30, 1998

INTERIM REPORT ON GROUP OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 The interim report for the Parent Company, AB Custos, was issued previously in a press release on July 30, 1998. The interim report now being issued for the Custos Group also includes the previously released report for the Parent Company. Custos is a pure investment company and is best analyzed on the basis of the Parent Company's accounts, in which the investment portfolio is stated at market value. The consolidated accounts for this kind of investment company are a complement to the Parent Company's accounting and are prepared for formal reasons. The district court's decision to approve the reduction of Custos' share capital through the redemption of shares in Custos, with payment consisting of Hufvudstaden shares, gained legal force on August 7, 1998. Hufvudstaden is thereby no longer a subsidiary of Custos and is not consolidated for the six months ended June 30, 1998. The last day for trading in redemption shares is Monday, August 24, 1998. Payment for the redemption, consisting of Hufvudstaden shares, is expected to be received by shareholders around Monday, August 31, 1998. For foreign shareholders, the timetable may be delayed for tax reasons. Group Consolidated operating income for the Custos Group amounted to MSEK 905 (803) for the six months ended June 30, 1998. When comparing with last year's figures, it should be taken into account that these figures include Hufvudstaden. After estimated tax and minority interest, consolidated income was MSEK 819 1) (522), or SEK 20.64 per share (12.07). Adjusted for the redemption Group companies The estimated value of Custos' unlisted Group companies on June 30, 1998, was MSEK 212 (Dec. 31, 1997: 690). The decrease in the value of the Group companies is mainly due to the merger of the Group company AB Transportförvaltning, whose main asset consists of stock in ASG AB, with Custos during the first half of 1998. Dooba Dooba Fastighetsutveckling, with a property in Lisbon and long-term promissory notes, was divested during the period. The sale generated a small loss of approximately MSEK 2. Assets remaining from the company consist of a property in Lübeck with an estimated value of MSEK 35 and MSEK 80 in short- term promissory notes. The property and the short-term promissory notes have been transferred to the Group company Custos Securities. International Invest Income after financial items totaled MSEK 16 (11). The book value of the securities portfolio on June 30, 1998, was MSEK 0 (Dec. 31, 1997: 96). On an aggregate basis the Group companies generated a small profit. Associated companies According to the new Annual Accounts Act, the equity method is to be used in accounting for associated companies. A long-term holding with a voting percentage of at least 20 percent entails that the holding is an associated company. Income from participations are reported by Custos mainly with a one quarter time lag. In the event the acquisition value of an associated company exceeds the share in the company's shareholders' equity, the surplus value is applied to goodwill and is amortized over a period of five years. The holdings classified in the Group as associated companies are listed below: June 30, Dec. 31, June 30, 1998 1997 1997 Company % of % of % of % of % of % of capit votescapit votescapit votes al al al ASG 32.7 46.8 32.5 48.6 - - FASAB - - 39.2 39.2 - . Fastighetssystem Firefly 44.9 44.9 44.9 44.9 44.9 44.9 Sandblom & Stohne - - - - 44.9 23.9 Sandblom & Stohne 39.4 25.3 40.0 25.6 - - Intressenter SCA 7.7 20.1 7.7 20.1 7.7 20.1 Skanska 6.1 25.1 5.9 24.8 5.3 23.3 Vasaterminalen - - 33.3 33.3 33.3 33.3 Prepared in accordance with the Annual Accounts Act 1995:1554 1998 1997 1997 Consolidated Income Statement Jan.- Jan.- Jan.- 1) (Amounts in MSEK) June June Dec. Income from securities management Income from participations in 502 205 849 associated companies Capital gains on sale of associated 24 220 529 companies Income from other securities 411 194 324 management 937 619 1,702 Income from other operations Real estate management - 366 545 Other operations 45 84 182 45 450 727 982 1,069 2,429 Costs from other operations Real estate management -1 -183 -241 Other operations -49 -64 -150 -50 -247 -391 Gross income 932 822 2,038 Management expenses -22 -37 -71 Items affecting comparability -5 18 7 Operating income 905 803 1,974 Financial income and expense Income from receivables that are 0 0 0 fixed assets Other interest income and similar 4 6 37 income items Interest expense and similar income -14 - 103 - 192 items Income after financial items 895 706 1,819 Taxes -76 -154 -351 Minority interest in income/loss for - -30 -131 the period Net income for the period 819 522 1,337 1) Excl. Hufvudstaden Prepared in accordance with the Annual Accounts Act 1995:1554 June Dec. June Consolidated Condensed Balance Sheet 30, 31, 30, 1) 1998 1997 1997 (Amounts in MSEK) ASSETS Fixed assets Tangible fixed assets Real estate - 4,717 7,559 Other tangible fixed assets 2 14 24 Financial fixed assets Participations in associated 3,958 4,354 3,032 companies Other long-term securities 1,638 1,403 1,061 holdings Other financial fixed assets 42 86 171 Current assets 179 572 909 Total assets 5,819 11,146 12,756 SHAREHOLDERS' EQUITY AND LIABILITIES 2) Shareholders' equity 5,640 5,419 4,831 3) Minority interests - 1,186 3,034 Provisions 31 85 86 Long-term liabilities - 501 960 Current liabilities 148 3,955 3,845 Total shareholders' equity and 5,819 11,146 12,756 liabilities 1) Excl. Hufvudstaden 2) Of which, shareholders' - - 105 equity for reduction 3) Of which, minority share - - 1,933 of shareholders' equity to distribute INTERIM REPORT ON PARENT COMPANY FOR THE SIX MONTHS ENDED JUNE 30, 1998 Below the interim report for the Parent Company, AB Custos, published on July 30, 1998, is presented. Total return The total return on Custos' shares, that is the return including share price appreciation, dividend paid and the redemption of shares, was 26.2 percent for the Class A shares and 26.1 percent for the Class B shares. The return was thus higher than the cost of shareholders' equity, which was 4.2 percent during the first half of the year. The Findata Yield Index rose by 27.9 percent during the same period. Total return, January 1-June 30, 1998 Custos Custos Class Class A B Change in net asset value 15.7% 15.7% Change in discount to net 4.3% 4.0% asset value Redemption of shares 2.1% 2.3% (reinvested) Dividend (reinvested) 4.1% 4.1% Total 26.2% 26.1% Cost of shareholders' equity 4.2% 1) Findata Yield Index 27.9% 1) Measured as the average 12-month Swedish treasury bill rate plus a risk premium of 4 percent. The total return (share price appreciation plus reinvested dividend and cash redemption) for the largest shareholdings is shown below. The new investments Custos made in 1997, Svedala and ASG, have continued to perform well. The holdings in Svedala and ASG showed returns in excess of 40 percent during the period, while the return on the holding in Perstorp was only 6.9 percent. Total return, January 1-June 30, 1998 Portfolio companies Svedala 45.5 % ASG 41.0 % SCA 19.6 % Skanska 13.3 % Perstorp 6.9% Net asset value Net asset value rose by 15.7 percent, from SEK 207 per share on December 31, 1997, to SEK 240 per share on June 30, 1998. Total net asset value on June 30, 1998, was MSEK 9,515 (8,951). During the period MSEK 313 was distributed to Custos' shareholders and 24,576,524 shares in Hufvudstaden were distributed with a market value of MSEK 796 on June 30, 1998 (market value on December 31, 1997: MSEK 750). These shares represent payment in Custos' ongoing redemption procedure (see "The Custos share" below). Net asset value on July 29, 1998, was SEK 232 per share, or MSEK 9,188 in total. In calculating net asset value, the same principles as those stated in the 1997 Annual Report have been used. On June 30, 1998, the discount to net asset value was 14 percent for Custos' Class A shares and 16 percent for Custos' Class B shares. Net asset value at June 30, 1998, after distribution of Hufvudstaden shares, MSEK Shareholders' equity after distribution of Hufvudstaden shares Reported shareholders' equity in the 4,821 Parent Company Shareholders' equity in distribution of -491 4,330 Hufvudstaden shares Surplus value in securities portfolio Market value of listed portfolio 9,444 Market value of other securities 251 1) Book value (4,985-491 ) -4,494 5,201 2) Options issued Market value -25 Book value 9 -16 Net asset value 9,515 1) Book value of Hufvudstaden shares prior to distribution. 2) To senior executives of the portfolio companies. Net asset value on June 30, 1998, distributed among assets and liabilities after distribution of Hufvudstaden shares Shares Market value SEK per Listed companies Number MSEK Custos share SCA 15,173,591 3,164 80 Skanska 6,963,634 2,493 63 Perstorp 9,637,737 1,441 36 Svedala 5,843,200 1,081 27 ASG 4,101,021 1,005 25 Other 260 7 Total, listed portfolio 9,444 238 1) Options issued -25 -1 9,419 237 Other assets 336 9 Total assets 9,755 246 Liabilities -240 -6 2) Net asset value 9,515 240 1) To senior executives of the portfolio companies. In connection with Custos' ongoing redemption procedure, the number of shares has been reduced by 3,510,932 to 39,689,092. Active ownership - developments during the first half of 1998 Custos - Redemption with payment in Hufvudstaden shares - Stock-related bonus program for senior executives SCA - Further acquisitions in Hygiene and Packaging business areas - Convertible loan to all employees Skanska - Decision to divest noncore assets - Decision to spin off Drott - Sale of remaining shares in Sandvik - Sale of forestry assets Perstorp - Sale of Plastic Systems - Continued efficiency improvements within framework of action program - Flooring made into separate division - Option program for senior executives ASG - Transfer of SEK 1.2 billion to shareholders through redemption program - Continued efficiency improvements within framework of action program - Profit-sharing plan for all employees Svedala - Continued acquisitions in priority areas - Options issued by Custos to senior executives - Convertible loan to all employees Stock portfolio The market value of Custos' listed portfolio on June 30, 1998, was MSEK 9,444 (9,441). Adjusted for net changes the listed portfolio increased by MSEK 1,479, or 15.7 percent. During the period, shares were sold net for MSEK 663 (purchases: MSEK 549, sales: MSEK 1,212, including MSEK 380 for ASG redemption). In addition, the Hufvudstaden shares in the listed portfolio that make up payment for Custos' redemption program were distributed as per April 15, 1998, at a market value of MSEK 813. The following significant changes were made in the portfolio: As a result of net purchases, the portfolio increased by: Svedala 1,974,900 Following these purchases, Custos owns 12.2 percent of the votes and capital in Svedala. In connection with redemption procedures, the portfolio decreased by: ASG A 242,250 ASG B 1,113,256 Hufvudstaden A 20,804,846 Hufvudstaden C 3,771,678 A total of MSEK 380, or SEK 280 per share, was received for the redemption shares in ASG. The largest single change in the composition of the portfolio during the first half of 1998 was Custos' distribution of Hufvudstaden shares through the redemption of Custos shares. On April 15, 1998, the Annual General Meeting decided to reduce the share capital through a redemption of 3,510,932 shares in Custos, with payment consisting of 24,576,524 Hufvudstaden shares. As a result of net sales, the portfolio decreased by: Diligentia 2,028,584 Hufvudstaden A 11,880,939 Hufvudstaden C 1,561,632 Perstorp B 650,000 Custos' entire holding in Diligentia has thereby been divested. The sales of Hufvudstaden entail that, together with Custos' ongoing redemption procedure with payment in Hufvudstaden shares, Custos is no longer exposed to Hufvudstaden's stock price. The divestment process begun in 1997 through the recapitalization of Hufvudstaden, the spin-off of Hufvudstaden International, and the subsequent bid by Diligentia, has thus been concluded. Parent Company Stock portfolio, earnings and financial position The market value of the Parent Company's total stock portfolio (including unlisted group and associated companies) was MSEK 9,695 (9,531) on June 30, 1998. The book value of the portfolio on the closing date was MSEK 4,494 (4,970). The difference between the market and book values, i.e., the surplus value, was thus MSEK 5,201 (4,561). The Parent Company's investments in shares totaled MSEK 615. Sales of shares amounted to MSEK 1,168, and thus shares were sold for a net total of MSEK 553. The Parent Company's income before taxes totaled MSEK 744 (420). Dividends received amounted to MSEK 276 (202) and tax-exempt capital gains to MSEK 519 (257). The unlisted group company AB Transportförvaltning, with ASG shares as the main asset, was merged during the period with Custos. Management expenses totaled MSEK 21 (17). Net interest expense, totaling MSEK 9, improved compared with the preceding year (17) due to a reduction of average debt and lower interest rates. No tax charge is anticipated for 1998. The adjusted equity/assets ratio on June 30, 1998, was 98 percent, an increase of 6 percentage points compared with the start of the year (92 percent). Net borrowing (interest-bearing liabilities less interest-bearing assets) decreased to MSEK 113 (Dec. 31, 1997: MSEK 539), mainly due to sales of shares. Prepared in accordance with the Annual Accounts Act 1995:1554 Jan.- Jan.- Jan.- Parent Company Income Statement June June Dec. (Amounts in MSEK) 1998 1997 1997 Income from securities management 1) Dividends 276 202 207 Other income from participations in - - 184 unlisted Group companies listed Group 152 4 334 2) companies associated 189 129 421 companies other listed 178 124 191 securities 3) Items affecting comparability -15 - - Total income from securities management 780 459 1,337 Management expenses -21 -17 -30 4) Items affecting comparability -6 -5 -6 Operating income 753 437 1,301 Financial income and expense Other interest income and similar 3 0 1 income/loss items Interest expense and similar -12 -17 -35 income/loss items Income before taxes 744 420 1,267 Taxes - - 0 Net income for the period 744 420 1,267 1) Of which, MSEK 31 from Group companies and MSEK 185 from associated companies. 2) Hufvudstaden. 3) Loss on merger with AB Transportförvaltning. 4) Mainly costs for Custos' redemptions. Prepared in accordance with the Annual Accounts Act 1995:1554 June Dec. Parent Company Condensed Balance Sheet 30, 31, (Amounts in MSEK) 1998 1997 Fixed assets Tangible fixed assets 1 1 Financial fixed assets Participations in unlisted Group 80 411 companies Participations in listed Group 498 776 1) companies Participations in associated 2,777 2,495 2) companies Receivables from associated 30 30 companies Other long-term securities 1,630 1,288 holdings Current assets 54 179 Total assets 5,070 5,180 3) Shareholders' equity 4,821 4,390 Provisions 31 30 Current liabilities (of which, interest- 218(19 760(74 bearing liabilities) 5) 6) Total shareholders' equity and liabilities 5,070 5,180 1) Of which, Hufvudstaden shares for 491 - distribution 2) SCA, Skanska, ASG, Sandblom & 491 - Stohne Intressenter and Firefly 3) Of which, shareholders' equity that will be utilized in connection with Custos' redemption The Custos share Redemption In accordance with the decision in principle made at an Extra General Meeting on March 2, 1998, the Annual General Meeting decided on April 15, 1998, to reduce the share capital by MSEK 88 to MSEK 992. This is taking place through the redemption of 3,510,932 shares in Custos. The objective of the share capital reduction is to repay the shareholders with payment consisting of 24,576,524 shares in Hufvudstaden, whose total book value amounts to MSEK 491. In addition to the share capital reduction, MSEK 403 in unrestricted shareholders' equity will be used for the redemption payment. The district court's approval of the share capital reduction is expected to be received in early August 1998, after which payment for the redemption will be made in the form of Hufvudstaden shares. After the concluded redemption procedure, Custos' share capital will amount to MSEK 992, represented by 29,732,893 Class A shares and 9,956,199 Class B shares, or 39,689,092 shares in total. Development of share capital 1997-1998 Year No. of No. of A-shares B-shares Share (1 vote) (1/10 vote) capital, MSEK Dec. 31, 1996 35,593,931 11,820,690 1,185 1997 Redemption -3,212,219 -1,002,378 -105 1) 1998 Redemption -2,648,819 - 862,113 -88 June 30, 1998 29,732,893 9,956,199 992 1) Redemption in progress. Quotation on A-List Custos' Board decided on January 29, 1998, to request a de-registration from the Stockholm Stock Exchange's O-list and to once again register on the A- list. In 1997 Custos moved from the A-list to the O-list due to the more favorable wealth tax situation offered by the O-list for individuals at the time. Custos has been quoted on the A-list since February 11, 1998. Starting at the half-year mark, Custos is also included among the Stockholm Stock Exchange's list of most actively traded shares. Decisions made at Annual General Meeting - 8 - At Custos' Annual General Meeting on April 15, 1998, Per-Olof Eriksson, Christer Gardell, Leif Gustafsson, Sven Hagströmer, Sten K. Johnson, Mats Lederhausen and Mats Qviberg were re-elected to Custos' board, and Björn Savén was elected for a first term. At the following statutory board meeting, Sven Hagströmer was re-elected Chairman of the Board. In accordance with Custos' Articles of Association, the question of Custos' liquidation was taken up for consideration. The Annual General Meeting decided that Custos should not be liquidated. The dividend for the 1997 financial year was set at SEK 7.25 (5.75) per share. In addition, the decision was made to redeem 3,510,932 shares in Custos, with payment in Hufvudstaden shares (see "The Custos share" above). Other The Board of Directors of Custos has decided to introduce a bonus program for senior executives, which is linked to the growth in Custos' stock price. A condition for the payment of bonuses under this program is that Custos' shares generate a return that exceeds the Findata Yield Index as well as Custos' capital cost. In other words, bonus will be paid only if Custos provides a return to the shareholders in excess of both the Yield Index and the cost of capital. The bonus program was started on January 1, 1998. Financial calendar Preliminary report on the Parent Company's operationsJanuary 26, 1999 Preliminary report on the Group's operations..February 18, 1999 Press release on decisions of the Annual General MeetingApril 14, 1999 Stockholm, August 12, 1998 AKTIEBOLAGET CUSTOS (publ) Christer Gardell Chief Executive Officer This interim report has not been subject to special examination by the company's auditors. This report is published in Swedish and English. In the event of any difference between the English version and the Swedish original, the Swedish version shall govern. AB Custos, Box 1738, S-111 87 Stockholm, Telephone +46-8-440 57 70, Fax +46-8- 440 57 80, www.custos.se - 9 - ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1998/08/12/19990223BIT00080/bit0001.doc http://www.bit.se/bitonline/1998/08/12/19990223BIT00080/bit0002.pdf