Preliminary Report on the Operations of AB Custos during 2001

PRELIMINARY REPORT ON THE OPERATIONS OF AB CUSTOS DURING 2001 · The Board proposes redemption of every second share for payment of SEK 200 per redeemed share. · A dividend amounting to SEK 14.50 (16.50) per share is proposed. · The total return on Custos' shares during 2001 was 0.8 percent. · CEO's comments Two thousand one was another weak stock market year. Although Stockholmsbörsen (formerly the OM Stockholm Stock Exchange) recovered part of its decline late in the year, Custos' comparative index, the SIX Portfolio Return Index, ended at -11.5 percent. Compared to Stockholmsbörsen as a whole Custos performed well with a total return of 0.8 percent. Two large sources of satisfaction were SCA and Perbio, where Custos' holdings were distributed to its shareholders in the spring and autumn, respectively. The shares of both companies rose sharply during the year, while the performance of Pergo, Christian Salvesen and C. Tybring-Gjedde was a disappointment. Looking at Custos' own shares, the discount on net asset value rose somewhat during the year - from 7 percent to 10 percent - which is unsatisfactory even if this level is low in a historical perspective. The fact that Custos is still traded at a discount, despite the fact that the company has distributed assets equivalent to more than SEK 11 billion since 1996, is to some extent a rejection of investment companies as a form of enterprise. However, Custos will continue to transfer assets to its owners. The Board proposes that a total of MSEK 1 554 be transferred to the shareholders during the spring via the dividend and share redemptions. Transfer of funds to the shareholders through redemption, dividend and synthetic repurchase is a good way to maximize the shareholders' value today. As long as the discount continues, new investments will always be weighed against the return that shareholders may instead receive via a distribution of capital or assets or through buy-backs of shares. Because Custos' capital base has diminished, its future strategy will change to some extent. The management expenses of the Company have been lowered. Among other things, the number of employees has been decreased from fourteen to eight, and office space has been substantially reduced. Custos' new investments will mainly be of a financial nature, meaning that in most cases the Company will neither aim at becoming a main shareholder and nor request representation on the board of directors. In addition, Custos will place greater emphasis on the liquidity of the shares it acquires. However, Custos will continue to be closely involved in the companies that are now in its portfolio and work for value maximization. In line with the new strategy, Custos carried out some minor adjustments in its portfolio during the fourth quarter. The Company reduced its exposure to SCA and implemented some small financial investments. These adjustments mean that Custos now has a more balanced investment portfolio. Custos is in a good starting position for 2002. The Company has an investment portfolio with good value potential. Total return Total return on Custos shares - taking into account share price appreciation, dividend paid and redemption of shares - was 0.8 percent. Return in 2001 % Total return on Custos shares 1 0.8 Cost of shareholders' equity 2 8.1 SIX Portfolio Return Index -11.5 SIX Return Index -14.8 Morgan Stanley World Index 3 -17.8 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. 3 MSCI Indices US$ World Index. 4 In this Interim Report, total net asset value, net asset value per share etc. on December 31, 2001 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 Consolidated and Parent Company Condensed Balance Sheets on December 31, 2000 include 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 December 31, 2001 was MSEK 3,046 (Dec. 31, 2000: 4,981), or SEK 224 (Dec. 31, 2000: 276) per share. Value per share is based on 13,570,897 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 December 31, 2001, Custos' discount to net asset value was 10 percent. This was higher than at year-end 2000, when the discount was 7 percent. In calculating the discount on December 31, 2001, Custos' holding in Pergo has been valued at its market price on the day when trading was resumed after the temporary suspension, that is, the price on January 8, 2002 (see "Events after the close of the report period"). 2001 Change in net asset value, MSEK Net asset value, January 1 1 4,981 Dividends 55 Administrative expenses -45 Other income and expenses -46 Income/loss from fixed-asset receivables -9 Financial income and expenses 33 Taxes -3 -15 Change in value of securities portfolio Perstorp/Pergo 2 411 Svedala 126 SCA (including securities loans) 113 Bilia 26 C. Tybring-Gjedde -87 Perbio Science 3 -116 Christian Salvesen -154 Other holdings 4 -321 -2 Change in net asset value before dividend, redemption -17 etc. Dividend to shareholders -358 Market value of Perbio Science shares distributed 3 -1,597 Change in value from synthetic buy-backs of Custos' -67 own shares (swap agreement 2) which arose during 2001 Change in value from synthetic buy-backs of Custos' 1 own shares (swap agreement 3) which arose during 2001 Preliminary redemption amount of synthetic share buy- -1 backs on December 31, 2001 (swap agreement 3) 5 Redemption targeted to Svenska Handelsbanken 6 -831 Transfer of market value of synthetic share buy-backs 936 on December 31, 2000 (swap agreement 2) Other items -1 Net asset value, December 31 3,046 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 Pergo has been valued at its market value on the first day after suspension of trading, i.e. its market value on January 8, 2002 (SEK 25.70 per share). The change in value also includes the change in the value of the debentures issued by Sydsvenska Kemi AB (see "Portfolio of listed shares"). 3 The Perbio Science shares that comprised payment in Custos' redemption procedure have been distributed at their market value on October 9, 2001 (SEK 119.50 per share). 4 Of which, change in Acando MSEK -285, Group companies MSEK -17. 5 The Custos shares that were included in the synthetic buy-back program on December 31, 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 December 31, 2001 (MSEK 1). 6 Refers to a redemption of ordinary shares in 2001 targeted to Svenska Handelsbanken in order to achieve final settlement of swap agreement 2. Net asset value on December 31, 2001, allocated by assets and liabilities Price Market SEK per Listed companies Number per value, Custos 1 share, MSEK share SEK Christian Salvesen 25,065,000 13.60 341 25 SCA, Series A 799,240 287.00 229 2 17 SCA, Series B 146,975 287.00 42 3 Bilia 3,351,363 72.00 241 18 Perbio Science 740,294 170.50 126 9 C. Tybring-Gjedde 29,390,000 2.20 65 5 C. Tybring-Gjedde 17,045,850 2.57 44 3 3 (convertible loan) Pergo 3,964,284 25.70 102 4 8 Other listed companies 165 12 Subtotal listed companies 1,355 100 Options issued -43 -3 Total listed companies 1,312 97 Unlisted companies Acando 70 5 5 Other unlisted companies 140 10 Subtotal unlisted 210 15 companies Options issued, Acando -1 0 Total unlisted companies 209 15 Debentures, Sydsvenska 15,857,139 14.28 226 17 Kemi Surplus value, 0 0 synthetically repurchased shares Other assets 1,510 111 Total assets 3,257 240 Liabilities -210 6 -16 Preliminary redemption -1 -0 amount on synthetically repurchased shares Net asset value 3,046 224 1 Calculated on the basis of 13,570,897 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 The holding in Pergo has been valued at its market value on the day when trading was resumed after the temporary suspension, that is, the market value on January 8, 2002. If the market price on December 31, 2001 had been used, the holding in Pergo would have amounted to MSEK 155. 5 Including a convertible debenture loan. 6 Excluding the market value of options issues etc. The method for assessing the market value of options issued was changed during 2001. The Black-Scholes model is now being used in the valuation of options issued. Otherwise, in calculating net asset value, Custos has applied the same principles as in its Annual Report for 2000. Portfolio of listed shares On December 31, 2001, the market value of the portfolio of listed shares, taking into account options issued, was MSEK 1,312 (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). The big change in the structure of the portfolio during the fourth quarter was Custos' distribution of most of its shareholding in Perbio Science as payment for redeemed Custos shares. A total of 13,360,932 Perbio Science shares were distributed to Custos' shareholders. Below are some of the most important changes in the Custos portfolio of listed shares that were implemented during 2001: Major net divestments: Company Number of shares MSEK Perstorp A (buyout offer) 390,200 32 Perstorp B (buyout offer) 15,466,939 1,098 Perstorp B (option redemptions) 280,000 20 SCA, series B (converted from Series A) 466,500 125 Svedala (buyout offer) 5,296,600 978 Svedala (option redemptions) 198,500 33 For its shares in Perstorp, Custos also received 15.9 million debentures issued by Sydsvenska Kemi (a chemical company controlled by the private equity investment firm Industri Kapital), with a total estimated value of MSEK 226 on December 31, 2001. Before the divestment, Perstorp had implemented a distribution of its laminate flooring subsidiary Pergo AB to the shareholders of Perstorp. In addition, Custos repaid the securities loans that were outstanding at year-end 2000 by converting 2,261,102 SCA, Series A shares to SCA, Series B shares. Participation in new share issue: Company Number of shares MSEK C. Tybring-Gjedde 21,390,000 50 During the year, Custos made investments of MSEK 197. The Company carried out divestments of MSEK 2,386. This represented total net divestments of MSEK 2,189. Unlisted companies On December 31, 2001, the market value of Custos' holdings in unlisted companies, taking into account options listed, amounted to an estimated MSEK 209 (Dec. 31, 2000: 447). Shares in unlisted companies Number Market value, SEK per MSEK Custos share 1 Shares in unlisted Group 135 10 companies Shares in unlisted associated companies: Acando: Shares 778,256 59 2 4 Convertible debenture loan 10 1 Subtotal, Acando 69 5 Other unlisted associated 5 0 companies Total unlisted companies 209 15 1 Calculated on the basis of 13,570,897 shares. 2 Taking into account options issued. Acando The estimated market value of Custos' holding in the Swedish-based IT- management consulting company Acando has been unchanged since the Interim Report for January-September 2001, when poorer market conditions led to a more conservative valuation of Acando. During 2001, Custos contributed another MSEK 20 to Acando. Custos has invested a total of MSEK 87 in the company. Securities portfolio, earnings and financial position On December 31, 2001, the market value of the Parent Company's total securities portfolio, taking into account options issued, convertible debenture loans and debentures, amounted to MSEK 1,747 (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 1,277 (Dec. 31, 2000: 2,760). The difference between the market value and book value of the portfolio, the "surplus value," thus amounted to MSEK 470 (Dec. 31, 2000: 2,711). During the year, Custos made investments of MSEK 265 (of which MSEK 47 refers to shareholder contributions provided to Group companies). The Company carried out divestments of MSEK 2,388. This represented a total net divestment of MSEK 2,123 in securities. In 2001, the Parent Company's net income for the year was MSEK 1,109 (2000: 565). Capital gains etc. amounted to MSEK 1,317 (411). In addition, the Company reported writedowns of shares totaling MSEK 192 (22), mainly during the fourth quarter, of which a writedown of shares in Group companies amounted to MSEK 31 (22). On December 31, 2001, the adjusted equity/assets ratio was 92 percent (Dec. 31, 2000: 74). Net interest-bearing assets (interest-bearing assets minus interest-bearing liabilities) totaled MSEK 1,600 (Dec. 31, 2000: net interest-bearing liability 57). Proposed allocation of income Custos has received District Court approval to implement the decision of an Extraordinary General Meeting on October 9, 2001 to reduce the Company's statutory reserve by MSEK 414, for repayment to the shareholders or for allocation to unrestricted equity. An allocation to unrestricted equity was reported on December 31, 2001. Net income for the year plus retained earnings amount to MSEK 2,125 (2,755). The Board of Directors and the Chief Executive Officer propose a dividend to the shareholders of SEK 14.50 (16.50) per share, or a total of MSEK 197 (358). MSEK 1,928 (2,397) is to be carried forward. Custos shares Redemption of shares in Custos with payment consisting of Perbio Science shares During the fourth quarter, Custos completed a redemption offer by transferring most of its shareholding in the Swedish-based biotechnology group Perbio Science to the Company's shareholders. The total redemption payment amounted to 13,360,932 Perbio Science shares, which had a total book value of MSEK 483. The total number of Custos shares redeemed was 4,453,644. For redemption payments in excess of the reduction in the Company's share capital, unrestricted equity was utilized. 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 6,113 shares by December 31, 2001. Change in share capital, 2001 Year Ordinary shares Series C Share capital, (1 vote each) shares (1/10 vote MSEK each) December 31, 2000 27,758,803 - 694 New share issue 1 - 6,085,437 152 Redemption 2 -6,085,437 - -152 Redemption 3 - -6,085,437 -152 Redemption 4 -3,642,712 - -91 New share issue 5 - 4,453,644 111 Redemption 6 -4,453,644 - -111 Redemption 7 - -4,453,644 -111 December 31, 2001 13,577,010 - 340 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 an Extraordinary General Meeting on February 8, 2001, efficiently without delay. 2 Completed redemption with payment in SCA shares, in accordance with a decision by an 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). 5 New share issue targeted to Svenska Handelsbanken to enable Custos to carry out the redemption program with payment in Perbio Science shares, in accordance with a decision by an Extraordinary General Meeting on November 23, 2001, efficiently without delay. 6 Completed redemption with payment in Perbio Science shares, in accordance with a decision by an Extraordinary General Meeting on November 23, 2001. 7 Completed redemption targeted to Svenska Handelsbanken. 8 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 accounts of the Custos Group are presented in an appendix to this Preliminary Report (see page 13). Accounting principles This Preliminary Report has been prepared in compliance with the Annual Accounts Act and the recommendations of the Swedish Financial Accounting Standards Council. The same accounting principles and calculation methods have been used in the Preliminary Report as in the latest Annual Report. Redemption, dividend and synthetic repurchase mandate The Custos´ Board of Directors proposes redemption and dividends at a total value of MSEK 1,554. Custos' Board of Directors decided to propose to the Annual General Meeting a dividend of SEK 14.50 per share, totaling MSEK 197. Moreover, the Custos´ Board will convene an Extraordinary General Meeting, intended to be held on February 25, 2002 in order to approve the right to redeem every second share in Custos in exchange for a payment of SEK 200 per share redeemed, corresponding to a total of MSEK 1,357. The Board also proposes that redeemed shares be entitled to the regular dividend of SEK 14.50 per share. According to the proposal, the total payment per redeemed share would thus amount to SEK 214.50. Custos' net asset value and share price at January 25, 2002 was SEK 224 and SEK 196, respectively. The intention is to distribute this payment in conjunction with the Annual General Meeting in April 2002. Custos' Board has also decided to propose at the Annual General Meeting that the Meeting authorize the Board to repurchase up to 1.5 million shares to a maximum value of MSEK 400 through a synthetic repurchase program. Annual General Meeting of Shareholders Due to the Board's proposed redemption procedure, the Annual General Meeting has been moved from April 8, 2002 to April 19, 2002. Shareholders who wish to participate in the meeting must be recorded by April 9, 2002 in the share register maintained by VPC AB (the Swedish Securities Register Center). The Board of Directors proposes to the Annual General Meeting that the dividend for 2001 be SEK 14.50 per share. The dividend approved by the meeting will be paid via VPC to shareholders who are entered in Custos' share register on the record date. VPC is expected to send the dividend on April 29, 2002, provided that the Annual General Meeting approves the Board's proposal that April 24, 2002 be the record date. Events after the close of the report period Pergo's Board of Directors suspended trading in Pergo shares on January 2, 2002, after consultation with Stockholmsbörsen. On January 8, trading was resumed. In conjunction with this event, the Board of Pergo announced that it has decided to carry out a 2:1 issue of new shares at a subscription price of SEK 11 per share, for a total issue amount of MSEK 394, with preferential rights for Pergo's shareholders. The Board's resolution concerning the share issue is subject both to approval by an Extraordinary General Meeting of shareholders in Pergo, which will be held on February 7, 2002, and endorsement by the company's lenders of necessary decisions regarding Pergo's loan financing no later than January 2002. Custos favors the share issue and intends to subscribe for its allotment of new shares, among other things on the condition that Pergo receives a loan financing commitment. Information schedule Distribution of the Swedish-language official Annual Report is expected to take place in mid-March. The English translation will be distributed shortly thereafter. · Annual General Meeting April 19, 2002 · Interim Report, January 1 - March 31April 19, 2002 · Interim Report, January 1 - June 30July 17, 2002 · Interim Report, January 1 - September 30October 17, 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 who request them. All reports will be available on the Company's website, www.custos.se. Stockholm, January 28, 2002 AKTIEBOLAGET CUSTOS (publ) The Board of Directors For further questions, please contact: Mikael Nachemson, CEO, +46 8 440 57 70. This Preliminary 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. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2002/01/28/20020128BIT00500/bit0002.doc The full year-end report http://www.waymaker.net/bitonline/2002/01/28/20020128BIT00500/bit0001.pdf The full year-end report