Interim report January - June, 2001

Interim report January - June, 2001 * Earnings improved by SEK 4.7 billion to total SEK 3.2 billion * Sale of holdings in E.ON and HEW generated capital gain of SEK 2.9 billion * Significantly increased sales of electricity and heat as a result of acquisitions and colder weather conditions * Rising consumption and reduced access to hydroelectric power led to increasing electricity prices in Nordic market * Sydkraft became a subsidiary of E.ON Energie on May 11 Comments by Group CEO The first half of the year was strong, with significantly better earnings than in the corresponding period of 2000. The sale of the shareholdings in E.ON and Hamburgische Electricitäts-Werke (HEW) created a capital gain totaling SEK 2.9 billion during the second quarter. Excluding capital gains, profit after net financial items rose by 20%. The market situation improved as a result of increased electricity and heat sales and higher prices on the Nord Pool electricity exchange. The cost-efficiency program, which has been in progress since 1999, is continuing according to plan. Higher purchasing prices for electricity resulted in most electricity sales companies increasing their prices during the first half of the year. We have raised our prices on a number of occasions during the year. Despite this, we showed only slightly positive earnings for electricity sales operations during the period. Intensive discussions are currently under way regarding the rising electricity prices in the Nordic region. The increases compared with the preceding year are due to the dryer weather, which results in lower reservoir water levels, and to the continuing relatively high demand for electricity. Water supply and electricity exchange prices are directly related in the Nordic market. We have had an efficiently functioning deregulated electricity market for some years, which means that basically anyone has the right to produce electric power. The low electricity prices of recent years have led to the cost of nuclear power production exceeding the prices on Nord Pool, which is why we have optimized our production to ensure that the most expensive production is utilized last. Today, the situation is different. With less water available in the Nordic system, prices are rising, at the same time as demand is steadily increasing by a few percent each year. Electricity is constantly capturing market share at the expense of oil. Based on current price levels, the O2 and O3 nuclear reactors are used for maximum electricity production. During the most recent 12-month period the O2 reactor noted its highest-ever production level. The O1 reactor will be taken out of operation at the end of the year for a major upgrade. Further ahead, new investments will be needed in electricity production capacity. Planning has been started and we are convinced that the most appropriate fuel is natural gas. First, however, electricity prices must stabilize at above 20 öre per kWh. No production will be ready until at least four to five years' time, however. Integrations of acquisitions Work to integrate the operations of Norrköping Miljö & Energi (NME) has now been completed. NME has been divided up into four independent companies to fit into the Sydkraft organization. To become more efficient in the recovery and recycling area, we have formed a new company called Sydkraft EcoPlus. Its operations will focus on the development, ownership and marketing of environmentally adapted total concepts for handling customers' refuse and the ownership of refuse-disposal plants. Through new refuse-handling plants in both SAKAB, which Sydkraft acquired last autumn, and in Norrköping, our recycling operations will be conducted in an environmentally sustainable manner. Construction work on the two new plants is starting this year and reflects an investment of nearly SEK 900 M. Further expansion In addition to Sweden, Sydkraft's geographic focus is also on Norway, Denmark and Poland. In Norway, priority has been assigned to the high- growth area around Oslo. In July, the listed company Hafslund, in which Sydkraft controls nearly 35% of the votes, announced that it was acquiring Oslo Energi, with 355 000 customers, from Vattenfall and that it would be merged with the network company, Viken Energinett. In Denmark, priority has been assigned to the island of Sjæland. In Poland, we are expanding mainly around Poznan and Katowice, and as recently as a few weeks ago we acquired 70% of the district heating operations in Zlotów, a town in northern Poland. This is our fourth acquisition of heating operations in Poland. During spring this year, we started a joint trading company, Acton Energy, with ABB. This company will manage energy portfolios for primarily municipal electricity companies and industrial customers in the German market. Acton Energy is located in Frankfurt and has some 15 employees. Change in ownership In February, Sydkraft's largest owner, E.ON Energie, made an offer to acquire all shares outstanding in Sydkraft. The majority of Sydkraft's shareholders elected to sell their shares. At the end of June, Sydkraft held a Special General Meeting, at which a new Board was elected, based on the new ownership situation. Today, Sydkraft has two major owners, the German company E.ON Energie, which has the majority holding, and Norway's Statkraft. Sydkraft formally became an E.ON Energie subsidiary on May 11, 2001. In conjunction with the Special General Meeting, the Sydkraft Board decided to request that the Sydkraft share be delisted from the Stockholm Exchange, with September 28 as the final trading day. The reason for this request is that with its new ownership structure, Sydkraft no longer meets the requirements for a listing on the Stockholm Exchange's A List. Furthermore, there is insufficient turnover volume to warrant effective trading in the Sydkraft share. All shareholders will receive a reminder about the Board's decision at the end of August. Lars Frithiof With the exception of the accounting of income taxes in accordance with the Note referring to consolidated shareholders' equity (see below), the accounting principles upon which this interim report has been based are unchanged compared with the accounting principles used in the Annual Report for year 2000. Sales and earnings The Group's net sales for the period amounted to SEK 8 973 M (7 390), an increase of approximately 21%, compared with the first half of 2000. Of this amount, sales of SEK 4 028 M (3 008) related to the second quarter. The increase was primarily due to the acquisition of Norrköping Miljö & Energi and SAKAB, as well as to increased sales of electricity and heat. Electricity sales rose by 24% to 17 987 GWh (14 452). Sydkraft's total gas deliveries increased by 1% and amounted to 4 312 GWh (4 283). The acquisition of new heat operations in combination with a cold start to the year led to sales of heat increasing by 49% to 3 433 GWh (2 335). Operating expenses totaled SEK 5 747 M (4 828). The increase was due to acquisitions and higher volumes. Depreciation during the period totaled SEK 1 078 M (856). The increase was mainly attributable to the acquisitions implemented. Earnings from participations in associated companies amounted to SEK 171 M (188). Norrköping Miljö & Energi, which was formerly an associated company, is consolidated in the Group's accounts as a wholly owned subsidiary as of January 1, 2001. The holding in HEW was sold in May. During the period, participations were acquired in Hafslund and Fredrikstadsgruppen from Vattenfall. Operating profit increased by 88% to SEK 3 581 M (1 905), of which SEK 1 811 M (615) pertained to the second quarter. Capital gains totaling approximately SEK 1 217 M, of which the sale of the holding in HEW accounted for SEK 1 139 M, were included in operating profit for the period. Excluding the capital gains, operating profit rose by 24%. The financial net improved by SEK 1 537 M compared with the first half of 2000 and amounted to income of SEK 1 165 M (expense 372). The financial net included a capital gain totaling SEK 1 770 M related to the divestment of the financial holding in E.ON AG. Excluding this capital gain, the financial net deteriorated by SEK 233 M due to increased debt as a result of company acquisitions and negative exchange- rate differences. Consolidated profit after net financial items amounted to SEK 4 746 M (1 533), of which SEK 3 337 M (449) related to the second quarter. Excluding capital gains from the sale of HEW and E.ON, profit improved by 20%. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2001/08/20/20010820BIT00270/bit0001.doc The full report http://www.waymaker.net/bitonline/2001/08/20/20010820BIT00270/bit0001.pdf The full report