Interim Report AB Custos January 1-June 30, 1999

INTERIM REPORT ON THE OPERATIONS OF AB CUSTOS FOR THE PERIOD JANUARY 1 - JUNE 30, 1999 Total return on Custos shares during the period was 34.3 percent for Series A shares and 35.5 percent for Series B shares. The Findata Yield Index rose by 19.5 percent during the same period. Custos' investments during the period amounted to SEK 1.3 billion, equivalent to 25 percent of the market value of its securities portfolio at the beginning of the year. This has included investments in the information technology company Acando, the auto distributor Bilia, Custos (synthetic buy- back), the investment company Industrivärden and the chemicals group Perstorp. During July, Custos carried out an investment in the Norwegian listed company C. Tybring-Gjedde ASA, amounting to approximately MSEK 158. After approval by the European Commission's Directorate for Competition of Deutsche Post´s/Danzas´ purchase of shares in the Swedish-based transport and logistics company ASG in early July, Custos divested its Series B shares in ASG, thereby adding SEK 1.0 billion to its liquidity. Total return Total return on Custos shares @ taking into account share price appreciation, dividend paid and redemption of shares @ was 34.3 percent for Series A shares and 35.5 percent for Series B shares. Return on shares was thus more than 30 percent above the cost of shareholders' equity, which was 3.5 percent during the period. The return was also higher than the gain in the Findata Yield Index, which was 19.5 percent. Total return on Custos shares up to July 29, 1999 was 33.9 percent for Series A shares and 34.0 percent for Series B shares compared to 17.5 percent for the Findata Yield Index. Return, January 1 - June 30, 1999 Custos Series A Custos Series B Total return 34.3% 35.5% Consists of the following components: Change in net asset 23.1% 23.1% value Change in discount to -7.3% -6.6% net asset value Redemption (reinvested) 9.9% 10.0% Dividend (reinvested) 7.1% 7.1% Cost of shareholders' 3.5% 1) equity Findata Yield Index 19.5% 1) Measured as the average 12-month Swedish treasury bill rate plus a risk premium of 4 percent during the six-month period. All portfolio companies performed better than the index during the report period. The total return for some of Custos' shareholdings is shown below. Return, January 1, 1999 - June 30, 1999 Portfolio % holding 1) ASG 75.9 2) Bilia 47.5 Svedala 34.7 Perstorp 33.3 SCA 32.3 Aspo 20.8 Industrivärden 16.6 3) 1) Return calculated on the basis of a price of SEK 265 per share. 2) Beginning on the acquisition date in early March. 3) Beginning on the acquisition date in late February. The return on Custos' holding in ASG amounted to 123 percent, calculated from Custos' first investment in ASG in 1997 until late April 1999. At that time, in connection with a public offer by Deutsche Post/Danzas for ASG AB, Custos announced that it had signed an agreement with Danzas, concerning all of Custos´ shares in ASG. The transaction was conditional upon the approval of the European Commission's Directorate for Competition. This approval was received in July 1999. During the ownership period, the return on this investment was 107 percentage points higher than the Findata Yield Index during the same period. Net asset value Total net asset value on June 30, 1999 was MSEK 7,522 (Dec. 31, 1998: 7,617), or SEK 236 (Dec. 31, 1998: 192) per share. Comparisons with total net asset value for the preceding year must take into account that during the period January-June, the sum of MSEK 2,103 was disbursed to Custos' shareholders in the form of dividends and redemption proceeds. Net asset value on July 29, 1999 was estimated at a total of MSEK 7,409 or SEK 233 per share. In calculating net asset value, the same principles have been used as are presented in the 1998 Annual Report. On June 30, 1999, Custos' discount to net asset value was 23 percent for Series A shares and 22 percent for Series B shares, which was higher than at year-end 1998, when the discount was 17 percent for both Series A and Series B shares. Change in net asset value, MSEK Jan 1, 1999- Jun 30, 1999 Net asset value, January 1 7,617 Dividends received 225 Administrative expenses -22 Items affecting comparability -3 Financial income and expenses 27 227 Changes in value of securities portfolio 744 SCA ASG 513 235 Perstorp 209 Svedala 54 Bilia 39 Industrivärden Aspo 12 Other listed holdings (including -12 securities loans) Other holdings 8 1,802 Change in net asset value before 2,029 dividend, redemption etc. Dividend to shareholders -456 Amount redeemable paid to shareholders -1,649 etc. Other -19 Net asset value at end of period 7,522 Net asset value on June 30, 1999, allocated between assets and liabilities Shares Number Market SEK per Listed companies value Custos 1) MSEK share SCA 15,203,5 3,451 108 91 2 ASG 4,601,02 1,219 38 ) 1 Perstorp 11,603,0 1,108 35 37 Svedala 5,967,70 913 29 0 Industrivärden 3,506,20 473 15 0 Bilia 2,912,85 230 7 0 Aspo 226,950 87 3 Others (including 131 4 securities loans) Total portfolio of listed 7,612 239 companies Options issued -42 -1 7,570 238 Other assets and -48 -2 1) liabilities, net Net asset value 7,522 236 Taking into account Custos' ongoing debenture share redemption procedure, net liabilities have been increased by the redemption amount including interest (totaling MSEK 198) and the number of shares has been reduced by 7,843,479 till 31,845,613. Valued at SEK 265 per share (not calculated on the basis of current value), as provided by the agreement between Custos and Danzas. Portfolio of listed shares On June 30, 1999, the market value of the portfolio of listed shares including securities loans was MSEK 7,612 (Dec. 31, 1998: 4,870). Adjusted for net changes, the portfolio of listed shares rose by MSEK 1,794, or 36.9 percent. During the same period, the Affärsvärlden General Index of the Stockholm Stock Exchange rose by 16.9 percent. During the report period, Custos made net share purchases of MSEK 942 (purchases 1,164, sales 222) and paid MSEK 6 as dividend compensation. Among other things Custos implemented the following changes in the portfolio: As a result of net purchases, the portfolio increased by: Bilia 2,912,850 Industrivärden, Series A 3,506,200 Perstorp, Series B 2,122,000 On June 30, 1999, Custos owned 9.2 percent of the share capital and voting power in Bilia, 2.0 percent of the capital and 2.7 percent of the votes in Industrivärden and 16.2 percent of the capital and 9.8 percent of the votes in Perstorp. Late in June 1999, Custos issued 754,000 call options to senior executives of SCA. Each option entitles the holder to purchase one Series B share in SCA from Custos at a redemption price of SEK 283. The options have a five-year maturity. Custos received an options premium of MSEK 15 for this. Unlisted companies On June 30, 1999, the market value of Custos' holdings in unlisted companies amounted to MSEK 224 (Dec. 31, 1998: 216). During the period January - June 1999, Custos invested a total of MSEK 22 in shares of unlisted associated companies, mainly in the form of shareholder contributions to the information technology (IT) company Acando. It carried out divestments totaling MSEK 19, of which MSEK 11 consisted of a supplementary payment for the shares in Sandblom & Stohne Intressenter that it divested late in 1998. Taken together, Group companies yielded positive earnings during the first half of 1999. In early 1999, Custos and three investment partners @ Industriförvaltnings AB Kinnevik, KF Invest AB and Norway's Orkla ASA @ founded the information technology (IT) company Acando AB. Acando's concept is based on recruiting the best management and IT consultants in the market and on assuming overall responsibility for helping client companies achieve extensive streamlining of processes, including a heavy element of information technology. During the first six months of 1999, Acando recruited about 180 persons. Its pace of recruitment remains high. So far, it has established offices in Stockholm and in Gothenburg. The President of Acando is Sven Kallstenius, who comes from WM-data. The Chairman is Custos' CEO, Christer Gardell. So far, Custos has invested MSEK 17 in Acando. Custos estimates that its investment will total MSEK 80. Custos has also issued options to senior executives of the company. Securities portfolio, earnings and financial position The market value of the Parent Company's total securities portfolio on June 30, 1999, including securities loans, amounted to MSEK 7,836 (Dec. 31, 1998: 5,082, excluding treasury bills and liquid funds). The book value of the portfolio on the balance sheet date was MSEK 3,822 (Dec. 31, 1998: 2,927). The difference between its market value and book value, the so-called surplus value, thus amounted to MSEK 4,014 (Dec. 31, 1998: 2,155). Total investments during the period amounted to SEK 1.3 billion. Exclusive of a synthetic buy-back of Custos shares MSEK 1,190 has been invested. It sold MSEK 240 worth of shares. In addition, it received MSEK 15 in option premiums and paid MSEK 6 in dividend compensation. Altogether this represented a net investment of MSEK 941. The Parent Company's income before taxes for the period January 1 - June 30, 1999 amounted to MSEK 167 (year-earlier period: 744). Dividends received totaled MSEK 225 (276). Income during the period was adversely affected by capital losses and provisions for securities loans etc totaling MSEK 60 (capital gains of 519). No tax burden is foreseen for 1999. The adjusted equity/assets ratio on June 30, 1999 was 94 percent (Dec. 31, 1998: 96). Adjusted for the redemption, the adjusted equity/assets ratio was 93 percent. Net interest-bearing liabilities (interest-bearing assets minus interest-bearing liabilities) amounted to MSEK 260 (Dec. 31, 1998: net interest-bearing assets 2,414). The decrease in interest-bearing assets was mainly due to the disbursement of MSEK 2,103 to Custos' shareholders in the form of dividends and redemption proceeds as well as net investments in securities. Net asset value, June 30, 1999, MSEK Shareholders' equity Reported equity, Parent 3,741 Company Payment for redemption -198 3,543 1) shares Surplus value in securities portfolio Market value of listed 7,612 portfolio Market value of other 224 securities 7,836 Book value (shares minus -3,822 4,014 securities loans) Options issued Market value of options -42 Book value 26 -16 7,541 Other -19 Net asset value 7,522 1) Redemption amount including interest on debenture shares. Custos shares Redemption Custos' redemption is continuing as planned. As one step in accelerating the disbursement of the redemption proceeds to Custos' shareholders, the Company carried out a targeted issue of new debenture shares to the Swedish National Pension Insurance Fund, Sixth Fund Board. The holder has now applied for redemption of these debenture shares, and in late August the entire redemption procedure is expected to be completed. Swap As provided by a mandate from the Annual General Meeting on April 14, 1999, Custos has entered into a swap agreement equivalent to 295,800 Series A shares and 43,700 Series B shares, totaling 339,500 shares in Custos. This volume is 1). equivalent to 1.1 percent of the number of Custos shares 1) After completion of the redemption procedure. Events after the close of the report period On July 8, 1999, the European Commission's Directorate for Competition decided to approve Deutsche Post´s/Danzas' acquisition of shares in ASG. In July, Custos thus sold all of its 3.9 million Series B shares in ASG for SEK 265 per share to Deutsche Post/Danzas. This divestment added SEK 1.0 billion to Custos' liquid funds. Deutsche Post/Danzas also has an option to acquire Custos' remaining 0.7 million shares in ASG for SEK 265 per share. After the close of the report period, Custos invested about MSEK 158 in the Norwegian listed company C. Tybring-Gjedde ASA. Tybring-Gjedde is a wholesaling and retailing company engaged in sales of office materials and supplies. Custos owns 9,300,000 shares as well as a convertible loan equivalent to 4,900,000 shares in Tybring-Gjedde. This brings Custos' stake in the company to about 38 percent of share capital and voting power, depending on the subscription level of a targeted share issue to employees. Upon full conversion of the loan, Custos' stake would be about 48 percent of capital and votes. The Group Custos is a non-diversified investment company, best analyzed on the basis of the Parent Company's accounts, in which the investment portfolio is valued at market value. Because the consolidated accounts for this type of investment company only serve as a complement to the Parent Company accounts, the consolidated balance sheets and income statements of the Custos Group are presented in an appendix to this interim report (see page 10). Information schedule Interim Report, January 1 - September 30October 29, 1999 Preliminary Report on Custos´ 1999 operationsJanuary 25, 2000 Annual General Meeting................April 5, 2000 Stockholm, July 30, 1999 AKTIEBOLAGET CUSTOS (publ) Christer Gardell Chief Executive Officer Review report for AB Custos We have reviewed the Interim Report for the period January 1 - June 30, 1999. In doing so, we have followed the recommendation of the Swedish Institute of Authorized Public Accountants (FAR). A review is substantially more limited than an audit. Nothing has emerged that indicates that this Interim Report does not fulfill the requirements of the Securities Exchange and Clearing Operations Act and the Annual Accounts Act. KPMG Per Bergman Authorized Public Accountant This Interim 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, P.O. Box 1738, SE-111 87 Stockholm. Phone +46 8 440 57 70, fax +46 8 440 57 80, Web site: www.custos.se Jan - Jan - Jan - Parent Company Income Statement Jun Jun Dec (Amounts in MSEK) 1999 1998 1998 Income from securities management 1,2) Dividends 225 276 296 Other income from holdings in listed - 152 152 3) Group companies associated 17 189 1,308 companies other listed -77 178 184 securities 4) Items affecting comparability - -15 -15 Total income from securities management 165 780 1,925 Administrative expenses -22 -21 -38 5) Items affecting comparablility -3 -6 -8 Operating income 140 753 1,879 Financial income and expenses Other interest income and similar 30 3 33 income items Interest expenses and similar expense -3 -12 -16 items Income before taxes 167 744 1,896 Taxes - - - Net income for the period 167 744 1,896 1) Of which, dividends from Group companies. - 31 51 2) Of which, dividends from associated companies. 122 185 185 3) Hufvudstaden. 4) Merger loss, Transportförvaltning. 5) Primarily Custos´ redemption expenses. Parent Company Condensed Balance Jun Jun Dec Sheet 30, 30, 31, (Amounts in MSEK) 1999 1998 1998 Fixed assets Tangible fixed assets 2 1 1 Financial fixed assets Holdings in unlisted 87 80 87 Group companies Holdings in listed - 498 - Group companies 1) 2) 3) Holdings in associated 1,369 2,777 1,363 companies Receivables from associated - 30 (30) - companies (of which interest- bearing) Other long-term holdings of 2,604 1,630 1,636 securities Current assets (of which, 173(168 54 (52) 2,743(2,7 interest-bearing) ) 11) Total assets 4,235 5,070 5,830 4) Shareholders' equity 3,741 4,821 5,482 Provisions 31 31 32 Current liabilities (of which, 463(428 218 (195 316(297 interest-bearing) ) ) ) Total shareholders' equity and 4,235 5,070 5,830 liabilities 1) Acando, ASG, Firefly, SCA etc. 2) ASG, Firefly, Sandblom & Stohne Intressenter, SCA, Skanska. 3) ASG, Firefly, SCA, etc. 4) Of which, shareholders' equity to be withdrawn for Custos' redemption.198 491 - Jun 30, Jun 30, Dec 31, 1) 1999 1998 1998 Parent Company Condensed Cash Flow Analysis (Amounts in MSEK) Current operations Dividends 225 276 296 Other operating income -85 477 1,583 Operating income 140 753 1,879 Adjustments for items not included in 60 -504 -1,649 cash flow 200 249 230 Net interest received/paid 33 -11 8 Income tax paid - - - Cash flow from current operations 233 238 238 before changes in working capital Changes in working capital Increase (-)/decrease (+) in current 51 66 62 receivables Increase (+)/decrease (-) in current 16 -550 -603 liabilities Increase (+)/decrease (-) in -1 0 2 provisions Cash flow from current operations 299 -246 -301 Investment operations Note 1 Acquisitions of holdings in companies -1,154 -611 -748 Divestments of holdings in companies 217 1,232 4,047 Merger - -72 -72 Other investment operations -6 15 23 Cash flow from investment operations -943 564 3,250 Financing operations New issue of debenture shares 196 - - Amount redeemable paid to shareholders -1,647 - - Dividend paid -456 -313 -313 Cash flow from financing operations -1,907 -313 -313 Increase (+)/decrease (-) in liquid -2,551 5 2,636 funds Liquid funds, beginning of period 2,681 45 45 Liquid funds, end of period 130 50 2,681 Note 1 Net investment in securities -941 496 3,189 Increase (-)/decrease (+) in -38 65 67 receivables related to divestments Increase (+)/decrease (-) in 36 3 -6 liabilities related to acquisitions Payments disbursed -943 564 3,250 1) To achieve comparability, the December 31, 1998 figures have been revised. Appendix INTERIM REPORT ON CUSTOS GROUP OPERATIONS FOR THE PERIOD JANUARY 1 - JUNE 30, 1999 Group Earnings The operating income of the Custos Group for the period January-June 1999 totaled MSEK 184 (905). After estimated taxes, consolidated income totaled MSEK 153 (819). Group companies International Invest Income after financial items was MSEK 0 (16). The book value of the securities portfolio on June 30, 1999 was MSEK 19 (Dec. 31, 1998: 4). Värdefinans Income after financial items of the holding company Värdefinans was MSEK 2 (1). The book value of the securities portfolio on June 30, 1999 was MSEK 14 (Dec. 31, 1998: 17). Dooba Income after financial items was MSEK 1 (-2). Custos Securities Income after financial items was MSEK 5 (-3). Associated companies Shareholdings in associated companies - in which the Group has long-term ownership of no less than 20 percent and no more than 50 percent of voting power - are reported according to the equity method in the consolidated financial statements. Share of income in associated companies is mainly reported in Custos' financial statements with a time lag of one quarter. In cases where the acquisition value of an associated company exceeds the Group's holding in the shareholders' equity of the company, the surplus is classified as goodwill and is depreciated over a five-year period. The holdings that are classified in the consolidated financial statements as associated companies are: Jun 30, 1999 Dec 31, 1998 Jun 30, 1998 1) Company % of % of % of % of % of % of capita votescapita votescapita votes l l l Acando 49.9 49.9 - - - - 2) ASG 36.6 49.0 37.3 49.3 32.7 46.8 Firefly 43.0 43.0 44.9 44.9 44.9 44.9 Plantvision 37.4 37.4 40.0 40.0 - - Sandblom & Stohne - - - - 39.4 25.3 Intressenter SCA 7.7 20.1 7.7 20.1 7.7 20.1 Skanska - - - - 6.1 25.1 Tillquist Elteknik 37.4 37.4 - - - - Intressenter Custos´ stake exclusive of call options issued. Calculated on basis of ASG's share capital, excluding Series C shares. Jan - Jan - Jan - Consolidated Condensed Income Statement Jun Jun Dec (Amounts in MSEK) 1999 1998 1998 Income from securities management Share of income in associated 166 502 683 companies Capital gains on divestments of 15 24 1,316 associated companies Income from other securities 28 411 422 management 209 937 2,421 Income from other operations 3 45 46 Expenses from other operations -3 -50 -48 - -5 -2 Gross income 209 932 2,419 Administrative expenses -22 -22 -42 Items affecting comparability -3 -5 -8 Operating income 184 905 2,369 Financial income and expenses 33 -10 19 Income after financial items 217 895 2,388 Taxes -64 -76 -147 Net income for the period 153 819 2,241 Net income per share, SEK 4.13 20.64 56.46 Consolidated Condensed Balance Sheet Jun 30, Jun 30, Dec 31, (Amounts in MSEK) 1999 1998 1998 ASSETS Fixed assets Tangible fixed assets 2 2 2 Financial fixed assets Holdings in associated companies 2,976 3,958 2,927 Other long-term holdings of 2,616 1,638 1,650 securities Other financial fixed assets 2 42 39 Current assets 346 179 2,869 Total assets 5,942 5,819 7,487 SHAREHOLDERS' EQUITY AND LIABILITIES Shareholders' equity 5,462 5,640 7,151 Provisions 31 31 32 Current liabilities 449 148 304 Total shareholders' equity and 5,942 5,819 7,487 liabilities Jun 30, Jun 30, Dec 31, 1) Consolidated Condensed Cash Flow 1999 1998 1998 Analysis (Amounts in MSEK) Current operations Operating income 184 905 2,369 Adjustments for items not included in 17 -671 -2,151 cash flow 201 234 218 Net interest received/paid 37 -12 15 Taxes paid - - - Cash flow from current operations before changes in rörelsekapitalet working capital 238 222 233 Changes in working capital Increase (-)/decrease (+) in inventories -12 96 90 etc. Increase (-)/decrease (+) in current 36 -11 -27 receivables Increase (+)/decrease (-) in current 14 -731 -728 liabilities Increase (+)/decrease (-) in provisions -1 0 2 Cash flow from current operations 275 -424 -430 Investment operations Note 1 Acquisitions of holdings in companies -1,153 -640 -789 Divestments of holdings in companies 221 1,321 4,136 Other investment operations -6 5 13 Cash flow from investment operations -938 686 3,360 Financing operations Amount redeemable paid to shareholders -1,647 - - Dividend paid -456 -313 -313 Change in lending 10 - -29 New issue of debenture shares 196 - - Cash flow from financing operations -1,897 -313 -342 Increase (+)/decrease (-) in liquid -2,560 -51 2,588 funds Liquid funds, beginning of period 2,693 105 105 Liquid funds, end of period 133 54 2,693 Note 1 Net investments in securities -936 618 3,299 Increase (-)/decrease (+) in receivables -38 65 67 related to divestments Increase (+)/decrease (-) in liabilities 36 3 -6 related to acquisitions Payments disbursed -938 686 3,360 To achieve comparability, the December 31, 1998 figures have been revised. ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1999/07/30/19990730BIT00150/bit0001.doc http://www.bit.se/bitonline/1999/07/30/19990730BIT00150/bit0002.pdf