Preliminary report on parent company operations during the 1997 fiscal year

PRELIMINARY REPORT ON PARENT COMPANY OPERATIONS DURING THE 1997 FISCAL YEAR *Total return to Custos' shareholders for the period was 24.3 percent for the Series A share and 22.6 percent for the Series B share *The net asset value as of January 28, 1998 was SEK 213 per share, or a total of MSEK 9,222 *Decision by Custos' Board of Directors to propose the right to redeem each twelfth share in Custos for payment in Hufvudstaden shares *Dividend of SEK 7.25 (5.75) proposed, an increase of 26 percent Total return The total return on Custos' shares, that is the return including share price appreciation, dividend paid and redemption of shares, was 24.3 percent for the Series A share and 22.6 percent for the Series B share. The return was thereby approximately 15 percent higher than the cost of shareholders' equity, Custos' primary return measure. The cost of shareholders' equity during the year amounted to 8.5 percent. The Findata Yield Index increased by 27.8 percent during the same period. Total return 1997 Custos Custos Series A Series B Change in net asset 16.7% 16.7% value Change in discount to 1.3% -0.8% net asset value Redemption of shares 2.2% 2.5% (reinvested) Dividend (reinvested) 4.1% 4.2% Total 24.3% 22.6% Cost of shareholders' 8.5% 1) equity Findata Yield Index 27.8% 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. ASG's return was 43.4 percent in the period August 8 - December 31, 1997, while Hufvudstaden's return was only 4.5 percent. 1) Total return 1997 Portfolio company 2) ASG 43.4 % SCA 33.5 % Svedala 16.6 % Skanska 13.8 % Perstorp 4.8% 3 Hufvudstaden 4.5% ) Findata Yield Index adjusted for redemption August 8, 1997 - December 31, 1997 Return adjusted for cash redemption (reinvested) and the value of Diligentia shares received in Diligentia's acquisition of Hufvudstaden International Net asset value Custos' net asset value increased by 16.7 percent during 1997 and amounted to SEK 207 per share on December 31, 1997 (December 31, 1996: 178). Total net asset value on December 31, 1997 was MSEK 8,951 (8,420). In order to achieve comparability between years for total net asset value, an amount of MSEK 822 paid out during 1997 to Custos' shareholders in the form of redemption should be added to the net asset value as of December 31, 1997. The estimated current net asset value at January 28, 1998 is SEK 213 per share, or a total of MSEK 9,222. The principles used when calculating the net asset value are the same as those stated in Custos' 1996 Annual Report. On December 31, 1997, the discount to net asset value was 17 percent on Custos' Series A share and 19 percent on the Series B share. Net asset value, December 31, 1997, MSEK Shareholders' equity 4,390 Surplus value in securities portfolio market value 9,531 book value -4,970 4,561 Total net asset value 8,951 Net asset value at December 31, 1997, distributed among assets and liabilities Shares Number Market value SEK/shar Listed companies MSEK e (directly and indirectly owned) SCA 15,173,5 2,716 63 91 7,030,04 Skanska 2,288 53 9 Perstorp 10,279,8 1,461 34 37 38,319,0 Hufvudstaden 1,169 27 95 ASG 5,422,02 1,065 25 7 3,868,30 Svedala 507 12 0 Diligentia 2,028,58 215 5 4 2,200,56 Sandblom & Stohne 143 3 0 Other listed companies 20 - Total listed companies 9,584 222 Other assets and -633 -15 liabilities, net Net asset value 8,951 207 Active ownership - developments in 1997 Examples of important events during the year in Custos and in the portfolio companies: Custos - Two redemption programs - Liquidation clause SCA - Acquisition of shares outstanding in PWA - Acquisitions in priority areas - Increased focus on hygiene products Skanska - New CEO - Sale of Sandvik shares - Redemption Perstorp - New CEO - Divestments of Analytical and Components - Cost reduction program Hufvudstaden - New CEO - Demerger - Recapitalization - Cost reduction program Hufvudstaden - Acquired by Diligentia International ASG - New CEO - Divestment of Frigoscandia - Cost reduction program Svedala - Continued acquisitions - Divestment of Componenta Industrier Fabege - Acquired by Näckebro Sandblom & Stohne - Spin-off of Firefly - Buy-out by Stohne Intressenter Stock portfolio The market value of Custos' portfolio at December 31, 1997 was MSEK 9,584 (8,484). The stock portfolio comprises Custos' directly or indirectly owned holdings of listed shares. Adjusted for net changes, the market value of the portfolio increased by MSEK 1,480, or 17.4 percent, during the year. The following significant changes were made in the stock portfolio: As a result of net purchases, the portfolio increased by: 969, ASG A 000 4,45 ASG B 3,02 7 313, Perst 800 orp A 985, Perst 503 orp B 39,6 Skans 47 ka A 352, Skans 612 ka B 2,97 Sveda 1,30 la 0 The portfolio increased by 3,136,084 Diligentia shares as a result of a share exchange. As a result of net sales, the portfolio decreased by: 1,10 Diligentia 7,50 0 4,22 Fabege B 6,30 9 5,05 Hufvudstaden 0,00 A 0 1,10 Piren 5,48 1 272, Sandblom & 031 Stohne B As a result of redemption, the portfolio was reduced by 1,006,746 Skanska Series B shares. The largest single change in the composition of the portfolio during 1997 was Custos' acquisition of ASG shares, through the unlisted company AB Transportförvaltning and other means. Custos now owns 969,000 ASG Series A shares and 4,453,027 Series B shares, which represent 48.6 percent of the votes and 32.5 percent of the capital in ASG. During 1997, Hufvudstaden was demerged into one Swedish and one international real estate company. The demerger was implemented through the spin-off of Hufvudstaden International. Diligentia then acquired Hufvudstaden International with payment in Diligentia shares. Custos' entire holding of shares in Sandblom & Stohne was sold to Stohne th Intressenter AB in which Custos and the 6 AP-Fund each hold a 40-percent interest and the Gun & Bertil Stohne's Foundation holds 20 percent. On November 10, 1997, Stohne Intressenter made a public offer to shareholders in Sandblom & Stohne of SEK 65 per share in cash. In addition, Custos has divested its entire holdings in Partek, Fabege and Piren. Parent Company Stock portfolio, earnings and financial position The market value of the Parent Company's stock portfolio on December 31, 1997 was MSEK 9,531 (8,645). At year-end, the book value of the portfolio was MSEK 4,970 (4,445). Accordingly, the difference between the market value and book value, the so called surplus value, rose to MSEK 4,561 (4,200). A total of MSEK 2,095 was invested in the stock portfolio. Sales of shares amounted to MSEK 2,699. Accordingly, net sales totaled MSEK 604. Income of the Parent Company, before taxes, amounted to MSEK 1,267 (763). Dividends received amounted to MSEK 207 (335) and tax-exempt capital gains to MSEK 1,130 (581). Management expenses were MSEK 30 (27). Net interest expense, MSEK 34, was lower than in the preceding year (93), due to a reduction of average debt and lower interest rates. The adjusted equity/assets ratio on December 31, 1997 was 94 percent (97). Net borrowing increased to MSEK 539 (255), due primarily to Custos' redemption program. Proposed distribution of earnings Net income for the year plus retained earnings amount to MSEK 3,048 (2,773). The Board of Directors and the Chief Executive Officer propose a dividend to the shareholders of SEK 7.25 (5.75) per share, or a total of MSEK 313 (273). MSEK 2,735 (2,500) is to be carried forward. Compiled in accordance with the Annual Accounts Act 1995:1554 1997 1996 Parent Company income statement (Amounts in MSEK) Income from securities management 1) Dividends 207 335 Other income from participations in: 184 -29 unlisted subsidiaries . listed 334 - 2) subsidiaries listed associated 421 9 3) companies other listed 191 601 securities Total income from securities management 1,337 916 Operating expenses -30 -27 Items affecting comparability -6 -33 Operating income 1,301 856 Income from financial investments Other interest income and similar 1 6 income/loss items Interest expense and similar income/loss -35 -99 items Income before taxes 1,267 763 Taxes - - Net income for the year 1,267 763 1) of which, MSEK 7 (56) from subsidiaries, MSEK 158 (109) from associated companies and MSEK 0 (109) in dividend on Diligentia shares 2) Hufvudstaden and Hufvudstaden International 3) Sandblom & Stohne, SCA and Skanska Compiled in accordance with the Annual December December Accounts Act 1995:1554 31, 1997 31, 1996 Parent Company condensed balance sheet (Amounts in MSEK) Fixed assets Tangible fixed assets 1 2 Financial fixed assets Shares and participations in 411 91 unlisted subsidiaries Shares and participations in 776 1,392 1) listed subsidiaries Shares and participations in 2,495 2,159 2) associated companies Claims on associated companies 30 - Other long-term holdings of 1,288 803 3) securities Current assets 179 303 Total assets 5,180 4,750 Shareholders' equity 4,390 4,221 Allocations 30 31 Current liabilities (of which interest- 760 (74 498 (45 bearing liabilities) 6) 5) Total shareholders' equity and 5,180 4,750 liabilities Hufvudstaden ASG, Firefly, Stohne Intressenter, SCA and Skanska 3) Diligentia, Perstorp and Svedala Redemption with payment in Hufvudstaden shares As announced earlier, the Custos Board of Directors will recommend that the 1998 Annual General Meeting makes a decision regarding the right to redeem each 12th share held in Custos with payment comprising shares in Hufvudstaden. The proposed redemption amount corresponds to seven (7) Hufvudstaden Series A shares for each Custos share redeemed. At January 28, 1998, this corresponds to SEK 230 per Custos share redeemed, compared with Custos' net asset value per share of SEK 213. As an alternative to seven (7) Hufvudstaden Series A shares, owners of Custos Series A shares will be offered five (5) Hufvudstaden Series A and two (2) Hufvudstaden Series C shares. The shares tendered for redemption will be entitled to the ordinary dividend in Custos for the 1997 fiscal year (see proposed distribution of earnings). If all shareholders accept the offer, 3,600,002 Custos shares will be redeemed in return for payment of 25,200,014 shares in Hufvudstaden, corresponding to a market value totaling MSEK 827 on January 28, 1998. The background to the redemption proposal is that Custos' Board and management regard the net asset value discount in Custos to be higher than is acceptable. The redemption procedure gives shareholders the opportunity to receive the full net asset value for a part of their shareholding. Custos' net asset value discount at January 28, 1998 amounted to 16 percent for the Series A share and 17 percent for the Series B share. The reason for offering payment comprising Hufvudstaden shares is that Custos' management and Board view the distribution of Custos' shares in Hufvudstaden to Custos' shareholders to benefit both Custos and Hufvudstaden. The need for active ownership on behalf of Custos has diminished after the changes Hufvudstaden has carried out in 1997. Custos is of the opinion that Hufvudstaden will benefit from a wider ownership, which will result in a significant improvement in the liquidity of the share, and that Hufvudstaden's access to capital for offensive measures will increase. An Extra General Meeting will be held on March 2, 1998 with the objective of making a decision in principle on the redemption. All shareholders will be sent information material prior to this Extra Meeting. The information will contain a detailed description of the background to the redemption proposal, a time schedule and instructions on how shareholders can participate in the redemption procedure. The Custos share At the Annual General Meeting on April 29, 1997, shareholders approved the redemption of 4,214,597 shares at a price of SEK 195 per share, amounting to a total of MSEK 822. On December 31, 1997, Custos' share capital amounted to MSEK 1,080 represented by 32,381,712 Series A shares and 10,818,312 Series B shares, or a total of 43,200,024 shares. The Annual General Meeting also approved to add a liquidation clause to the Company's Articles of Association. Shareholders, December 31, 1997, and known subsequent changes Percenta Percenta ge of ge of votes capital Öresund 36.1 28.0 Swedbank's mutual 13.6 10.6 funds 9.7 7.7 S-E-Banken's mutual 6.9 10.2 funds 1.8 3.4 Franklin Mutual Series 1.5 1.2 Fund 1.3 1.0 SPP 29.1 37.9 SB-stiftelsen Trygg-Hansa Försäkring Others Total 100.0 100.0 Source: "Owners and Power 1997" and information from the companies Developments in 1998 During 1998, Custos has acquired additional shares in Svedala Industrier AB. Following the acquisition, Custos owns shares corresponding to 10 percent of the share capital and votes of Svedala. Information schedule *The preliminary report on the Group's operations will be published on February 19, 1998 *The Extra General Meeting will be held in Stockholm on March 2, 1998 *The Annual Report is scheduled to be distributed to shareholders at the end of March, 1998 *The Annual General Meeting will be held in Stockholm on April 15, 1998 Stockholm, January 29, 1998 AKTIEBOLAGET CUSTOS (publ) Christer Gardell Chief Executive Officer 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, P.O. Box 1738, S-111 87 Stockholm, Sweden Telephone +46 8 440 57 70, Telefax +46 8 440 57 80, Web-address: www.Custos.se ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1997/01/29/19990212BIT00600/bit0001.doc http://www.bit.se/bitonline/1997/01/29/19990212BIT00600/bit0002.pdf