Interim report on the operations of AB Custos

INTERIM REPORT ON THE OPERATIONS OF AB CUSTOS FOR THE PERIOD JANUARY 1 - SEPTEMBER 30, 2001 · Mikael Nachemson new Chief Executive Officer of Custos. · Redemption of Custos shares, with payment consisting of Perbio Science shares. · Writedown of market value of unlisted assets totaling MSEK 213 in relation to market value stated on June 30, 2001. · Holding in Svedala divested. · Total return on Custos shares for the period January - September 2001 was 0.1 percent. · CEO's comments Dear shareholders, On October 1 this year, I assumed the position of Chief Executive Officer of Custos, a challenge that I look forward to. Aside from the management change at Custos, the big event during the third quarter is that Custos' Board of Directors proposed that the Company's holding in Perbio Science should be distributed via redemption to the shareholders. This step will create a better balance in the Custos share portfolio, while the shareholders will become direct owners of Perbio Science, which is a very well managed company. On October 9, an Extraordinary General Meeting approved a resolution to implement this redemption in accordance with the Board's proposal. During the third quarter, the Board also announced that in conjunction with the publication of its preliminary report on 2001 results, it intends to propose further transfers of funds. Our task ahead will be characterized by a focus on enhancing the value of current holdings. The Company's new management is now working to review strategies and action plans for Custos as well as its portfolio companies. As for the portfolio companies, they will be evaluated on a continuous basis, at which time decisions on increasing, decreasing or retaining our holdings will be weighed against investing in new companies or in our own shares. In preparation for this task, I have formed an opinion of the values that are listed in Custos' balance sheet as well as how the organization should look. The balance sheet includes certain assets for which market uncertainty justifies greater caution. In practice, this has meant that the market value of certain unlisted assets has been adjusted downward. As for the organization, it will be adapted to Custos' smaller size, which will result in lower management expenses. Total return Total return on Custos shares for the report period was 0.1 percent. Return, January 1, 2001 - September 30, 2001 % Total return on Custos shares1 0.1 Cost of shareholders' equity2 6.1 SIX Portfolio Return Index -26.6 SIX Return Index -29.9 Morgan Stanley World Index3 -26.4 1 Return taking into account share price appreciation and, where appropriate, dividend paid and share redemption (reinvested). 2 Measured as the average 12-month Swedish Treasury bill rate plus a risk premium of 4 percent during the nine-month period. 3 MSCI Indices US$ World Index. 4 In this Interim Report, total net asset value, net asset value per share etc. on December 31, 2000 are calculated on the assumption that the SCA shares that comprised payment in the previous redemption program that was completed during 2001 had been distributed to Custos shareholders on December 31, 2000. An Extraordinary General Meeting on December 5, 2000 approved this redemption in principle. However, the Parent Company Condensed Balance Sheet on December 31, 2000 includes these SCA shares, because the approval and registration of Custos' redemption of ordinary shares with payment in the form of SCA shares was not completed until early in 2001. For further information, see the Custos Annual Report for 2000. Net asset value Total net asset value on September 30, 2001 was MSEK 4,663 (Dec. 31, 2000: 4,981), or SEK 259 (Dec. 31, 2000: 276) per share. Value per share is based on 18,022,504 Custos shares and is calculated on the assumption that the synthetically repurchased shares, as provided by a mandate from the Annual General Meeting on April 5, 2001, were redeemed. On September 30, 2001, Custos' discount to net asset value was 7 percent. This represented an unchanged discount compared to year-end 2000. Jan 1, 2001- Change in net asset value, MSEK Sep 30, 2001 Net asset value, January 11 4,981 Dividends 55 Administrative expenses -31 Other income and expenses 2 Income/loss from fixed-asset -9 receivables Financial income and expenses 19 Taxes -3 33 Change in value of securities portfolio Perstorp/Pergo2 468 Svedala 126 SCA (including securities loans) 44 Perbio Science -6 Bilia -45 C. Tybring-Gjedde -120 Christian Salvesen -152 Other holdings3 -333 -18 Change in net asset value before 15 dividend, redemption etc. Dividend to shareholders -358 Change in value from synthetic buy- -67 backs of Custos' own shares (swap agreement 2) which arose during 2001 Transfer of market value of 936 synthetic share buy-backs on December 31, 2000 (swap agreement 2) Preliminary redemption amount of -2 synthetic share buy-backs on September 30, 2001 (swap agreement 3)4 Redemption of ordinary shares etc.5 -831 Other items -11 Net asset value at end of period 4, 663 1 The Custos shares that were included in the synthetic buy-back program on December 31, 2000 as provided by a mandate from the Annual General Meeting on April 5, 2000 (swap agreement 2) are assumed to have been redeemed at the market value prevailing on December 31, 2000 (MSEK 936). 2 Also includes the change in the value of the debentures issued by Sydsvenska Kemi AB (see "Portfolio of listed shares"). 3 Of which, change in Acando MSEK -285, Group companies MSEK -43. 4 The Custos shares that were included in the synthetic buy-back program on September 30, 2001, as provided by a mandate from the Annual General Meeting on April 5, 2001 (swap agreement 3), are assumed to have been redeemed at the market value prevailing on September 30, 2001 (MSEK 2). 5 The share redemption in 2001 refers to a redemption targeted to Svenska Handelsbanken in order to achieve a final settlement of swap agreement 2. 6 Net asset value on September 30, 2001, allocated by assets and liabilities Price per Market SEK per Listed companies Number share, value, Custos 1 SEK MSEK share Perbio Science 14,101,226 130.00 1,833 102 Christian Salvesen 25,490,000 13.75 350 19 SCA A 1,412,715 232.00 328 2 18 Bilia 3,651,363 52.50 192 11 Pergo 3,964,284 40.00 159 9 C. Tybring-Gjedde 29,390,000 1.10 32 2 C. Tybring-Gjedde 17,045,850 2.51 43 3 2 (convertible loan) Other listed companies 10 0 Subtotal listed 2,947 163 companies Options issued -22 -1 Total listed companies 2,925 162 Unlisted companies Acando 4 70 4 Other unlisted companies 115 6 Subtotal unlisted 185 10 companies Options issued, Acando -1 0 Total unlisted companies 184 10 Debentures, Sydsvenska 15,857,139 14.28 226 13 Kemi Surplus value, 0 0 synthetically repurchased shares Other assets 1,483 82 Total assets 4,818 267 Liabilities -153 5 -8 Preliminary redemption -2 -0 amount on synthetically repurchased shares Net asset value 4,663 259 1 Calculated on the basis of 18,022,504 shares. 2 SCA, Series A shares have been equated in terms of value with SCA, Series B shares, which are more liquid. Furthermore, it is possible to convert SCA, Series A shares to SCA, Series B shares. 3 Convertible debenture loan equivalent to 17,045,850 shares. The market value presupposes that no conversion will take place. The loan has been calculated at its current value. 4 Including a convertible debenture loan. The loan has been calculated at its current value. 5 Excluding the market value of options issued etc. The method for assessing the market value of options issued has been changed in this Interim Report, compared to the most recent Annual Report and earlier Interim Reports. The Black & Scholes method is now being used in the valuation of options issued. The new method has had no substantial effect on net asset value compared to the previous method. Otherwise, in calculating net asset value, Custos has applied the same principles as in its Annual Report for 2000. Portfolio of listed shares On September 30, 2001, the market value of the portfolio of listed shares, taking into account options issued, was MSEK 2,925 (Dec. 31, 2000: 5,024, excluding the SCA shares distributed early in 2001, in accordance with a decision in principle by an Extraordinary General Meeting on December 5, 2000). During the report period, Custos carried out net sales of securities totaling MSEK 2,182. Below are some of the most important changes in the Custos portfolio of listed shares that were implemented during the report period: Svedala Early in September 2001, Custos divested its entire holding in the Swedish-based engineering group Svedala after Finnish-based Metso carried out its offer. The Company received a total of SEK 1.0 billion for its shares in Svedala. Perstorp Earlier in 2001, Custos divested its entire holding in the Swedish-based chemical group Perstorp to Sydsvenska Kemi AB (a chemical company controlled by the private equity investment firm Industri Kapital). For its shares in Perstorp, Custos received a total of SEK 1.1 billion in cash plus 15.9 million debentures issued by Sydsvenska Kemi with a total calculated value of MSEK 226 on September 30, 2001. Before the divestment, Perstorp had implemented a distribution of its laminate flooring subsidiary Pergo AB to the shareholders of Perstorp. C. Tybring-Gjedde Since 1997, the Norwegian-based office supply group C. Tybring-Gjedde has had problems attributable, among other things, to the implementation of information technology (IT) systems, rersulting in sizable losses and an accompanying need for fresh capital. Because of this, C. Tybring- Gjedde carried out a targeted issue of new shares during the summer. Custos subscribed for 21,390,000 new shares costing MSEK 50. The existing convertible debenture loan was renegotiated at a new conversion price of NOK 2.8746. On September 30, 2001, Custos' holding amounted to 33.7 percent of capital and voting rights in C. Tybring-Gjedde. SCA Custos converted 2,261,102 SCA, Series A shares to SCA, Series B shares and then repaid its securities loans. Custos' redemption offer with payment in the form of shares in the Swedish-based forest product group was completed by distributing 12,170,874 SCA shares to Custos' shareholders. Unlisted companies On September 30, 2001, the market value of Custos' holdings in unlisted companies, taking into account options issued, amounted to an estimated MSEK 184 (Dec. 31, 2000: 447). Shares in unlisted Number Market SEK per Custos companies value, share1 MSEK Shares in unlisted Group 110 6 companies Shares in unlisted associated companies: Acando: Shares 778,256 59 2 3 Convertible debenture 10 3 1 loan Subtotal, Acando 69 4 Other unlisted associated 5 0 companies Total unlisted companies 184 10 1 Calculated on the basis of 18,022,504 shares. 2 Taking into account options issued. 3 The loan has been calculated at its current value. 4 Acando After the Interim Report for January-June 2001, the Swedish-based IT- management consulting company Acando was recapitalized. Custos contributed another MSEK 20 by subscribing for 178,300 newly issued shares in the company costing MSEK 10 as well as subscribing for a convertible debenture loan totaling MSEK 10. Custos has invested a total of MSEK 87 in Acando. Due to the poorer market conditions a more conservative valuation of Acando has been considered justified. Custos´ holding in Acando has been valued in line with the European Venture Capital Association´s (EVCA´s) conservative valuation principle at MSEK 59 on September 30, 2001. Unlisted associated companies A writedown of MSEK 47 for possible credit losses was reported. To cover the loss during the report period, Custos provided an unconditional shareholder contribution of MSEK 47. Securities portfolio, earnings and financial position The market value of the Parent Company's total securities portfolio on September 30, 2001, taking into account options issued, amounted to MSEK 3,335 (Dec. 31, 2000: 5,471, excluding the SCA shares distributed early in 2001 in accordance with a decision in principle by an Extraordinary General Meeting on December 5, 2000). The book value of the portfolio on the balance sheet date was MSEK 1,837 (Dec. 31, 2000: 2,760). The difference between the market value and book value of the portfolio, the so-called surplus value, thus amounted to MSEK 1,498 (Dec. 31, 2000: 2,711). During the report period, Custos carried out net sales of securities totaling MSEK 2,116. The Parent Company's income before taxes for the period January 1 - September 30, 2001 amounted to MSEK 1,229 (year-earlier period: 641). Dividends received totaled MSEK 55 (253) and capital gains etc. totaled MSEK 1,243 (382). In addition, Custos reported a writedown of MSEK 47 (0) on shares in Group companies (see "Unlisted companies"). Taxes totaling MSEK 3 (3) were charged to income. The adjusted equity/assets ratio on September 30, 2001 was 96 percent (Dec. 31, 2000: 74). Net interest-bearing assets (interest-bearing assets minus interest-bearing liabilities) totaled MSEK 1,641 (Dec. 31, 2000: net interest-bearing liability 57). New Chief Executive Officer In mid-September, Custos announced that its Board had appointed Mikael Nachemson the new Chief Executive Officer of Custos. Mr. Nachemson assumed the CEO position on October 1, 2001. Christer Gardell, Custos' former CEO, and Lars Förberg, the former Deputy CEO, stepped down from their positions in order to develop their own investment business. Extraordinary General Meeting Redemption of Custos shares, with payment consisting of Perbio Science shares An Extraordinary General Meeting on October 9, 2001 approved a redemption proposal. In brief, this offer means that those who were registered shareholders in Custos on October 12, 2001 received a redemption right for each Custos share. Four redemption rights will entitle the holder to redemption of one Custos share, with payment consisting of three shares in the Swedish-based biotechnology group Perbio Science. If the offer is accepted by all shareholders, the total number of Custos shares redeemed will amount to 4,507,663 and the total number of Perbio Science shares distributed will amount to 13,522,989. The registration period and trading in redemption rights will begin on October 22, 2001. During the week beginning October 22, all directly registered shareholders and nominees will receive an informational brochure providing additional information. Other decisions Mikael Nachemson, Chief Executive Officer of Custos, was elected a new member of the Board. Christer Gardell, Custos' former CEO, resigned from the Board. The General Meeting also approved a reduction in the Company's statutory reserve by MSEK 414.2 for repayment to the shareholders or for allocation to unrestricted equity. Custos shares Synthetic buy-backs of Custos' own shares As provided by a mandate from the Annual General Meeting on April 5, 2001, Custos had entered into swap agreements equivalent to a total of 8,150 shares by September 30, 2001. Custos' redemption targeted to Svenska Handelsbanken for final settlement of the synthetic buy-back program, implemented as provided by a mandate from the Annual General Meeting on April 5, 2000, has been completed. Change in share capital, 2001 Year Ordinary shares Series C shares Share (1 vote each) (1/10 vote each) capital, MSEK December 31, 27,758, 803 - 694 2000 2001 new share - 6,085,437 152 issue1 2001 -6,085,437 - -152 redemption2 2001 - -6,085,437 -152 redemption3 2001 -3,642,712 - -91 redemption4 2001 18,030,654 - 451 1 New share issue targeted to Svenska Handelsbanken to enable Custos to carry out the redemption program with payment in SCA shares, in accordance with a decision by the Extraordinary General Meeting on February 8, 2001, efficiently without delay. 2 Completed redemption with payment in SCA shares, in accordance with a decision by the Extraordinary General Meeting on February 8, 2001. 3 Completed redemption targeted to Svenska Handelsbanken. 4 Completed redemption targeted to Svenska Handelsbanken as final settlement of the synthetic buy-back program implemented as provided by a mandate from the Annual General Meeting on April 5, 2000 (swap agreement 2). 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 11). Accounting principles This Interim Report has been prepared in compliance with the Annual Accounts Act and the recommendations of the Swedish Financial Accounting Standards Act. The same accounting principles and calculation methods have been used in the Interim Report as in the latest Annual Report. Custos is applying the new recommendations of the Swedish Financial Accounting Standards Council effective from 2001. Information schedule Annual General Meeting .................................April 8, 2002 Only reports attributable to the full-year accounts will be distributed to the shareholders. Other reports will be available at the Company's office and will be sent to shareholders that request them. All reports are also available on the Company's web site, www.custos.se. Stockholm, October 17, 2001 AKTIEBOLAGET CUSTOS (publ) Mikael Nachemson Chief Executive Officer For further questions, please contact: Mikael Nachemson, +46 8 440 57 70 The 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, Sweden Phone +46 8 440 57 70, fax +46 8 440 57 80, web site: www.custos.se ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2001/10/17/20011017BIT00880/bit0002.doc http://www.waymaker.net/bitonline/2001/10/17/20011017BIT00880/bit0002.pdf