Interim Report from Drott AB January 1 - June 30 1998

Interim Report from Drott AB January 1 - June 30 1998 Significant during the first six months of 1998 January Drott Group formed through Skanska combining a number of properties and property owning companies into a new legal structure. February Prior to Skanska´s Annual General Meeting, the Drott Group 's properties were independently appraised at about SEK 9.9 billion. March Drott AB Board members appointed Lars Wohlin (Chairman), Christer Gardell, Esbjörn Olsson, Lars Sköld and Mats Mared (President). April Skanska's Annual General Meeting resolves to distribute all shares in Drott AB to Skanska's shareholders. Six-month report The Drott Group reports an operating surplus for the first six months of 1998 of SEK 357 M, an increase of nearly 7 % compared with half of the operating surplus pro forma for full-year 1997. After tax, profit for the period was SEK 141 M. These earnings were charged with non-recurring expenses (interest and restructuring expenses in conjunction with the detachment from Skanska) of SEK 147 M. Key events with regard to the second six months of 1998 Listing particulars will be released on September 3, 1998. Drott's Series A and B shares listed on the O-List of the Stockholm Stock Exchange from September 24, 1998. When share trading starts, Drott has the identical ownership structure as Skanska. The Skanska share is listed through September 16, 1998 including rights to dividends of Drott shares. Based on the property portfolio and balance sheet as of June 30, 1998, earnings in 1998 (after taxes) are expected to exceed SEK 375 M. This assessment takes into account the nonrecurring expenses totalling SEK 147 M. Reader's guide In order to present the current Drott Group's development, pro forma accounting was prepared for 1997 based on the following: The income statement is based on: @ fomal accounting for 1997 for the companies currently included in Drott @ assumption that capitalization was effected as of January 1, 1997 @ assumption that Drott was an independently listed company during 1997. @ In order to obtain a correct view of Drott's earning capacity, the costs which are of a non-recurring nature in conjunction with the separation from Skanska are reported under a specific heading. Drott's accounting principles are the same as Skanska's with the following exceptions: Interest subsidies are reported under financial items. Properties excluding land and land improvements are depreciated annually with 1% of the acquisition value. The proportional method was applied in reporting half-owned companies. Comment on results for the first half of 1998 The figures within parentheses below refer to half of the respective pro forma full-year figures for 1997. Rental revenue The Group's rental revenue in the first half of 1998 amounted to SEK 645 M (SEK 627 M). The increase was attributable primarily to renegotiated leases and to additional rental revenue from facilities that were completed during the period. The rent-based occupancy ratio was unchanged, 96 % for both residential and commercial properties. Several small real estate transactions were implemented during the period. Drott Bostad accounted for SEK 368 M (SEK 364 M) of the rental revenue, Drott Kontor for SEK 169 M (SEK 156 M), and Drott Riks for SEK 108 M (SEK 107 M). Operating surplus The operating surplus in the first half of 1998 amounted to SEK 357 M (SEK 335 M). The largest part of the increase was attributable to higher rental revenue. Reported building management costs (operating costs, maintenance, costs of adapting premises to tenant specifications, ground rent, real estate taxes and building management) amounted to SEK 291 M (SEK 294 M). Drott Bostad accounted for SEK 159 M (SEK 144 M) of the operating surplus, Drott Kontor for SEK 135 M (SEK 129 M) and Drott Riks for SEK 63 M (SEK 62 M). Operating profit The operating profit in the first half of 1998 amounted to SEK 273 M (SEK 288 M). Central Corporate and Group expenses during the first half of the year amounted to only SEK 5 M, since the Drott organization was in the process of being established. It is estimated that these costs will amount to approximately SEK 37 M per year in a normal year. All of Drott's restructuring costs, (covering formation of the Group, new computer systems, the establishment of new offices for Group management and subsidiaries, preparations for the stock exchange listing, etc.), which amounted to SEK 50 M, were charged against profits in the first six months. Profit after net financial items The profit after net financial items in the first half of 1998 amounted to SEK 196 M (SEK 339 M). The net financial expense in the first half of the year included interest amounting to SEK 97 M on the loans taken over in connection with the formation of the Drott Group on January 14, 1998. These loans have largely been repaid following Drott's receipt of an unconditional shareholder contribution of SEK 4,755 M on March 28, 1998. Otherwise, the lower interest subsidy and higher operating surplus were the largest changes relative to first-half 1997 operations. The interest subsidy in the first half of 1998 amounted to SEK 20 M (SEK 41 M) and Drott is expected to receive SEK 38 M (SEK 83 M) in interest subsidies for the full year. Interest expense totaling SEK 10 M during the first half of the year was attributable primarily to the cost of loans from Skanska that were used to capitalize half-owned companies. Profit for the period Profit for the period amounted to SEK 141 M (SEK 244 M). Profit was charged with SEK 147 M in non-recurring items. Taxes are calculated based on comprehensive tax allocation. The Group's earnings capacity after tax, excluding non-recurring effects, is currently approximately SEK 490 M annually. Comment on results for the first half of 1998 The figures within parentheses below refer to half of the respective pro forma full-year figures for 1997. Rental revenue The Group's rental revenue in the first half of 1998 amounted to SEK 645 M (SEK 627 M). The increase was attributable primarily to renegotiated leases and to additional rental revenue from facilities that were completed during the period. The rent-based occupancy ratio was unchanged, 96 % for both residential and commercial properties. Several small real estate transactions were implemented during the period. Drott Bostad accounted for SEK 368 M (SEK 364 M) of the rental revenue, Drott Kontor for SEK 169 M (SEK 156 M), and Drott Riks for SEK 108 M (SEK 107 M). Operating surplus The operating surplus in the first half of 1998 amounted to SEK 357 M (SEK 335 M). The largest part of the increase was attributable to higher rental revenue. Reported building management costs (operating costs, maintenance, costs of adapting premises to tenant specifications, ground rent, real estate taxes and building management) amounted to SEK 291 M (SEK 294 M). Drott Bostad accounted for SEK 159 M (SEK 144 M) of the operating surplus, Drott Kontor for SEK 135 M (SEK 129 M) and Drott Riks for SEK 63 M (SEK 62 M). Operating profit The operating profit in the first half of 1998 amounted to SEK 273 M (SEK 288 M). Central Corporate and Group expenses during the first half of the year amounted to only SEK 5 M, since the Drott organization was in the process of being established. It is estimated that these costs will amount to approximately SEK 37 M per year in a normal year. All of Drott's restructuring costs, (covering formation of the Group, new computer systems, the establishment of new offices for Group management and subsidiaries, preparations for the stock exchange listing, etc.), which amounted to SEK 50 M, were charged against profits in the first six months. Profit after net financial items The profit after net financial items in the first half of 1998 amounted to SEK 196 M (SEK 339 M). The net financial expense in the first half of the year included interest amounting to SEK 97 M on the loans taken over in connection with the formation of the Drott Group on January 14, 1998. These loans have largely been repaid following Drott's receipt of an unconditional shareholder contribution of SEK 4,755 M on March 28, 1998. Otherwise, the lower interest subsidy and higher operating surplus were the largest changes relative to first-half 1997 operations. The interest subsidy in the first half of 1998 amounted to SEK 20 M (SEK 41 M) and Drott is expected to receive SEK 38 M (SEK 83 M) in interest subsidies for the full year. Interest expense totaling SEK 10 M during the first half of the year was attributable primarily to the cost of loans from Skanska that were used to capitalize half-owned companies. Profit for the period Profit for the period amounted to SEK 141 M (SEK 244 M). Profit was charged with SEK 147 M in non-recurring items. Taxes are calculated based on comprehensive tax allocation. The Group's earnings capacity after tax, excluding non-recurring effects, is currently approximately SEK 490 M annually. Events affecting earnings following the report period Stage II (9,000 square meters) in the newly constructed Helgafjäll 4 building in Kista, north of Stockholm, was completed on July 1. The newly available space is being leased by Ericsson and the building, which contains a total of 16,400 square meters, is fully rented. Mälardalens Högskola in Eskilstuna, which is being inaugurated September 11, 1998, has leased the entire newly completed Väpnaren 3 and 4 building (10,100 square meters), effective in mid-August. An agreement has been reached with Skanska to acquire residential properties in Växjö valued at SEK 78 M, effective September 1, 1998. The properties produce approximately SEK 7.8 M in annual rental revenue and will receive an interest subsidy amounting to slightly more than SEK 2 M in 1998. Outlook for 1998 Based on the Drott Group's real estate portfolio and balance sheet as of June 30, 1998, profit (after tax) in 1998 is expected to exceed SEK 375 M. This estimate takes into account non-recurring costs totalling SEK 147 M. Stockholm, August 26, 1998 Mats Mared President Auditors' statement We have reviewed this six-month report and in this connection have followed the Recommendation issued by the Swedish Institute ofAuthorized Public Accountants (FAR). A review is substantially limited, relative to an audit. Nothing has come to light that indicates that the six-month report does not fulfill the requirements of the Stock Exchange Act and the Annual Accounts Act. Stockholm, August 26, 1998 Anders Scherman Bernhard Öhrn Authorized Public Authorized Public Accountant Accountant ------------------------------------------------------------ Please visit http://www.bit.se for further information The following files are available for download: http://www.bit.se/bitonline/1998/08/26/19981125BIT00040/bit0001.doc http://www.bit.se/bitonline/1998/08/26/19981125BIT00040/bit0002.pdf