Report on 2000 Operations

Report on 2000 Operations Vattenfall Group Press Release - Report on 2000 Operations: Increase in net sales Continued low electricity prices in the Nordic region Increase in profit affected by significant non-recurring items Penetration of Poland and Germany Restructuring of Nordic assets Lower margins in electricity generation, the investments in Elektrocieplownie Warszawskie, Hamburgische Electricitäts-Werke and Uppsala Energi as well as certain other items had a negative impact on profit by a total of about SEK 600 million.Non-recurring items had a positive impact on profit by a net amount of about SEK 1.5 billion. This means that profit for 2000, excluding the impact of non-recurring items, is somewhat less than that for 1999. In 2000, Vattenfall took decisive steps to implement the international strategy established by the Board of Directors in 1997, whereby the company would evolve into a leading European energy company. Vattenfall is now undergoing a major transformation. For the first time since it was founded in 1909, the company's operations outside Sweden's borders will be larger than its domestic operations. Deregulation, which is about to be introduced throughout Europe, is leading to rapid industry consolidation. In order for Vattenfall to sustain its competitive strength and participate in energy market development, it must be of an adequate size. A substantial customer base is a prerequisite for us and our competitors. It is also essential that we should be perceived by our customers as the best supplier on the market. We do not compromise on quality to our customers. The Vattenfall Group is evolving into one of the five or six largest energy companies on the European market. This will benefit our customers in all of the countries where we operate in terms of reliable delivery, quality and attractive prices. Furthermore, an essential increase in long-term value will be created for our owners. It will also ensure Vattenfall's long-term survival as a competitive player and as the only major Swedish-controlled power company on the Swedish market. Stockholm, March 6, 2001 Lars G Josefsson, President and Chief Executive Officer NET SALES AND PERFORMANCE Net sales increased in 2000 by 14 per cent to SEK 31,695 million (27,754). The increase is primarily attributable to sales generated by the acquired companies, Elektrocieplownie Warszawskie S.A. (EW), Keski-Soumen Valo and Hämeenlinnan Energia in Finland as well as Uppsala Energi as of September 1, 2000. The share of net sales outside Sweden increased to 27 per cent (25).Operating profit was SEK 6,688 million (5,515). Operating profit was positively affected by a total of SEK 1,719 million (348) in non-recurring items, including SEK 532 million in surplus funds from the SPP pension company, SEK 2,639 million in agreed compensation from the Swedish state for Barsebäck. Operating profit was negatively affected, by SEK 1.5 billion, by various non-recurring items and by the acquisition of a majority stake in EW. The operating margin was 21.1 per cent (19.9). The electricity prices in the Nordic countries continued to be low due to the mild weather and abundant supply of hydro power. Electricity sales amounted to 83.1 TWh (86.9), of which 13.0 TWh (19.4) went to power exchanges etc. Profit was negatively affected by the lower prices and lower volumes of bilateral electricity sales in the Nordic countries. The lower volume of sales to power exchanges had a negative impact on profit, in spite of a somewhat higher price level than in 1999. Financial income and expenses - net amounted to SEK - 1,499 million (- 1,218). Interest cover was 3.1 times (3.4). Profit before tax and minority interests increased by 21 per cent to SEK 5,189 million (4,297). Profit after net financial items was positively affected by a total of SEK 1,852 million (348) in non-recurring items. The pre-tax profit margin was 16.4 per cent (15.5). Net profit for the year increased by 17 per cent to SEK 2,970 million (2,538).Return on capital employed before tax amounted to 9.7 per cent (9.3) and the return on equity after actual tax was 8.7 per cent (7.7). PRODUCT AREAS Electricity Net sales amounted to SEK 18,575 million (18,499) and operating profit to SEK 6,058 million (4,198). Direct sales to customers increased by 2.6 TWh, while sales on power exchanges decreased by 6.4 TWh. Sales amounted to 83.1 TWh (86.9), with customers accounting for 70.1 TWh (67.5) and power exchanges accounting for 13.0 TWh (19.4). In addition, 13.3 TWh (8.5) was delivered to minority owners in power plants etc. Electricity acquired amounted to 99.9 TWh (98.7), of which in-house generation comprised 83.7 TWh (86.6) and purchases, 16.2 TWh (12.1). In total, 39.6 TWh (36.7) of hydro power, 40.6 TWh (49.0) of nuclear power and 3.5 TWh (0.9) of thermal power etc. were generated. Of the electricity acquired, 3.5 TWh (3.3) was utilized internally, mainly to cover network losses. District-heating Net sales amounted to SEK 2,828 million (1,028) and operating profit amounted to SEK 103 million (121). The volume sold amounted to 14.6 TWh (3.0). The increase is attributable to company acquisitions. Energy Services Net sales amounted to SEK 3,693 million (2,633) and operating profit amounted to SEK - 60 million (- 52). Sales of Färdig Värme (Ready Heat) amounted to 2.4 TWh (2.3). Energy Services comprise Energy Solutions, Färdig Värme, Energy and Consulting Services as well as Contracting Services. Contracting Services accounted for about 60 per cent of net sales and also made a positive contribution to operating profit while Energy Solutions, Färdig Värme and Energy and Consulting Services reported negative results. The development of intelligent services that Vattenfall initiated in 1993 is now entering a new phase. In view of the weak market development, Vattenfall has decided to postpone the commercialisation of intelligent services for the home Network Services Net sales amounted to SEK 7,763 million (7,097) and operating profit to SEK 1,590 million (1,657). Energy output was 84 TWh (79) and input, 36 TWh (35). Natural Gas Net sales amounted to SEK 1,327 million (863) and operating profit to SEK 76 million (69). The volume sold corresponded to 9.1 TWh (9.3), of which 0.2 TWh (0.3) was sold within the Group. The increase in net sales is attributable to high oil prices in 2000, whereas the oil price was low at the beginning of 1999. FINANCIAL POSITION Liquid assets amounted to SEK 7,543 million (4,860), of which SEK 1,374 million (1,960) comprised investments concerning interest-arbitrage transactions with refinancing risk. The net debt, i.e. interest-bearing liabilities and provisions minus liquid assets, increased by SEK 16,919 million to SEK 43,124 million (26,205). The increase is primarily due to the financing of company acquisitions. Equity including minority interests amounted to SEK 40,105 million, which is an increase of SEK 4,286 million. The equity-assets ratio was 35.3 per cent (42.3). FINANCING Cash flow from operating activities before changes in operating assets and liabilities (internally generated funds) amounted to SEK 5,830 million (6,224). Cash flow before financing activities amounted to SEK - 15,645 million (-1,813). INVESTMENTS The Group's investments amounted to SEK 23,840 million (7,916), of which growth-related investments, i.e. company acquisitions and expansion investments in fixed assets, amounted to SEK 20,759 million (6,004). Company acquisitions amounted to SEK 19,077 million (5,435). Acquisitions of group companies accounted for SEK 10,035 million (2,916), associated companies SEK 8,880 million (2,137) and other long-term securities, SEK 162 million (382). SEK 4,426 million (2,462) was invested in tangible fixed assets and SEK 337 million (19) was invested in intangible assets. STRUCTURAL CHANGES Acquisitions in Poland Vattenfall acquired 55 per cent of the Polish energy company, Elektrocieplownie Warszawskie, for about SEK 2.1 billion in January 2000. Under the agreement, Vattenfall's ownership stake will increase over the next few years and investments will be made. In 2000, Vattenfall acquired one per cent of the new Polish power exchange, Gielda Energii SA. In December 2000, Vattenfall reached an agreement with the Polish state to purchase 25 per cent of the shares in the electricity distribution company, Gornoslaski Zaklad Elektroenergetyczny S.A. (GZE) for euro 167.5 million or SEK 1,420 million. Furthermore, through a directed share issue for euro 66 million or about SEK 560 million, Vattenfall is to increase its ownership stake to 31.8 per cent. The transaction was completed in February 2001. Under the agreement, Vattenfall will become a majority shareholder within two years through additional acquisitions and new issues. Structural Transactions for Majority Ownership of HEW In April 2000, ownership of the 25.1 per cent stake in HEW (Hamburgische Electricitäts-Werke AG) was transferred to Vattenfall. The shares were acquired from the City of Hamburg for about SEK 7.6 billion, under an agreement in 1999. According to the agreement, the City of Hamburg is entitled to sell its remaining 25.1 per cent to Vattenfall. Vattenfall's Germany subsidiary, VASA Energy merged with HEW. In 2000, a further 1.2 per cent were acquired and, early in 2001, a further 7.8 per cent of the shares in HEW were acquired from institutional investors. This brings Vattenfall's ownership stake in HEW to 34.1 per cent at the beginning of March 2001. Vattenfall and HEW have formed a jointly-owned energy trading company, Nordic Powerhouse GmbH.In October 2000, Vattenfall reached an extensive Memorandum of Understanding concerning acquisitions and asset exchange with E.ON Energie AG and Sydkraft AB. Under the agreement, Vattenfall will acquire Sydkraft's and E.ON's shares in HEW, corresponding to 21.8 per cent and 15.4 per cent of the share capital, respectively. In payment, in addition to providing about SEK 4.3 billion in cash, Vattenfall will provide the following assets: Shares in Forsmarks Kraftgrupp AB (8.5 per cent of the capital), network operations in Östergötland, Vattenfall's ownership stake in the Norwegian companies, Hafslund ASA (21 per cent), Fredrikstad Energiverk (49 per cent), Fredrikstad Fjernvarme (35 per cent) and Fredrikstad Energinett (35 per cent) as well as Vattenfall's participations in Baltic Cable AB (33.3 per cent), LPC in Lithuania (10 per cent) and VCE in the Czech Republic (42 per cent). The agreement is expected to be largely completed during the first half of 2001. When these transactions have been completed, Vattenfall's ownership stake in HEW will amount to 71.3 per cent. At the end of 2000, HEW signed an agreement to acquire 81.25 per cent of the generation company, VEAG Vereinigte Energie AG (Veag) in eastern Germany and 92.5 per cent of the mining company, Lausitzer Braunkohle AG (Laubag) from the power companies E.ON and RWE. After the acquisitions, HEW's ownership stake in these companies will be 87.5 and 95 per cent, respectively. The acquisitions will be reviewed by the Federal Cartel Office in spring 2001. In August 2000, HEW signed an agreement with E.ON to purchase 49 per cent of the shares in the Bewag energy company in Berlin. The transaction was questioned by Bewag's shareholder, Mirant Corporation, and will be resolved by arbitration in spring 2001. If the acquisition is completed, HEW will own 60 per cent of the share capital in Bewag. Structural Transactions in the Nordic Region In Sweden, all of the shares in Uppsala Energi AB were acquired for SEK 3,407 million on September 1, 2000. The electricity network in Sigtuna was also acquired from Birka Energi AB for SEK 286 million. In 2000, Vattenfall's 99-per cent ownership stake in Ljusfors kraft AB was sold to Tekniska Verken i Linköping which, at the beginning of 2001, also acquired the hydro power plants owned by Vattenfall on the Motala river. Vattenfall sold, to Skellefteå Kraft AB, its 72 per cent stake in Bastusels Kraft AB, with the power stations in Bastusel, Rebnis, Sädva, Bergnäs, Slagnäs and Grytfors as well as the wholly-owned power plant, Klippen, and the right to replacement and co-operative power from a couple of small power plants. In return, Vattenfall acquired Bastusels power station from Bastusels Kraft AB. In a transaction with Fortum, Vattenfall sold its 37 per cent stake in Bullerforsens Kraft AB and became the sole owner of the Finnish hydro power company, Pamilo Oy, in which it previously held a 49 per cent stake. As a step in the broadening of Vattenfall's spectrum of services, Vattenfall Connection AB was founded during the year. The company plans to develop high capacity data connections, known as broadband, by installing optical fiber in existing power lines. In June 2000, Vattenfall AB granted Arrowhead AB a usufruct for half of the capacity of the planned optical fiber network. Arrowhead AB is a provider of Internet-based products and services. As payment for the usufruct, Vattenfall received newly issued shares in Arrowhead. Vattenfall's stake in Arrowhead was 53 per cent at year-end. Barsebäck Kraft AB became a wholly-owned subsidiary of Ringhals AB in January 2000. At the same time, Vattenfall transferred 25.8 per cent of the shares in Ringhals AB to Sydkraft in accordance with the agreement reached between Vattenfall, Sydkraft and the Swedish state on November 30, 1999. Vattenfall received SEK 2,639 million in compensation from the state which, after minority interests, has an impact on profit of SEK 1,958 million. Sydkraft will retain the responsibility for the decommissioning and dismantling of Barsebäck and, in the same way, Vattenfall will retain responsibility for Ringhals's four nuclear reactors. In Finland, Vattenfall completed its acquisition of Keski-Suomen Valo at the beginning of 2000 for SEK 1,587 million. During the year, Hämeenlinnan Energia was also acquired for SEK 752 million. The 2.1 per cent of the share capital in the Finnish nuclear power company, TVO, which was owned by Revon Sähkö Oy, was sold in December to the City of Helsingfors for SEK 395 million.In Norway, Vattenfall has owned a 49 per cent stake in Oslo Energi AS. The second shareholder, Oslo Energi Holding AS, has requested that Vattenfall exercise its contractual option to purchase the remaining part of the company. Negotiations are underway and are expected to be completed during the first half of 2001. In Estonia, in January 2001, Vattenfall acquired Pärnu Soojuus, a heat plant with an annual output of 163 GWh PERSONNEL The average number of employees increased during the year to 13,123 (7,991). RESEARCH AND DEVELOPMENT R&D, excluding product development, amounted to SEK 481 million (479) in 2000, which is 1.5 per cent (1.7) of net sales. PARENT COMPANYNet sales for the parent company amounted to SEK 17,405 million (18,450). Profit for the year amounted to SEK 3,362 million (3,929). Investments amounted to SEK 14,865 million (7,963). Liquid assets amounted to SEK 123 million (48). Funds in the group account managed by Vattenfall Treasury AB (publ.) amounted to SEK 5,115 million (14,824). DIVIDENDSEarnings per share amounted to SEK 22.55. The Board of Directors proposes a dividend of SEK 990 million, corresponding to SEK 7.52 per share. GENERAL MEETING OF SHAREHOLDERS The general meeting of shareholders will be held in Stockholm on April 26, 2001. The annual report will be available on March 27, 2001 (English translation April 10, 2001) and can be obtained from Vattenfall Support AB, SE-162 87 Stockholm, tel: +46 8 739 6592, fax: +46 8 739 64 44, e-mail: info@vattenfall.se. Stockholm, March 6, 2001 Vattenfall AB (publ) The Board of Directors ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2001/03/06/20040817BIT20710/wkr0001.pdf