Three-month interim report 2004 January - March

Three-month interim report 2004 January - March · Net sales decreased by 11.7 per cent to SEK 31,810 million (36,019) · Operating profit increased by 8.6 per cent to SEK 7,664 million (7,055) · Net profit after tax increased by 14.5 per cent to SEK 4,765 million (4,162) Strong financial performance despite lower market prices for electricity Vattenfall reports substantial profits for the first three months of the year. The increase in operating profit compared with the first quarter of 2003 is largely due to the integration of the acquired German companies leading to considerable cost savings and synergy effects. Net sales decreased due to market prices for electricity being considerably lower during the first quarter compared with last year. Despite lower market prices for electricity, operating profit increased as Vattenfall hedged large shares of its generation at a higher price than in the equivalent period in 2003. Strong cash flow during the first quarter of 2004 also meant that net debt could be reduced by approximately SEK 4 billion to SEK 62.9 billion (December 31, 2003: SEK 66.9 billion). The return on net assets was 12.6 per cent (11.6) while the return on equity was 19.4 per cent (22.3), both ratios excluding items affecting comparability. Market development The average price on the Nordic energy exchange Nord Pool's spot market was SEK 259 per MWh, which was 46 per cent lower than for the same period in 2003. At the end of March, the deficit in the so-called hydrological balance for the Nordic Countries was 19.7 TWh, compared with a deficit of 32 TWh in March 2003. According to preliminary figures, total electricity consumption in Sweden during the first quarter of 2004 was 43.5 TWh, unchanged from the first quarter of 2003. For the Nordic Countries as a whole, electricity consumption increased by 2.9 TWh to 113.4 TWh (110.5). In Germany, the average price on the German Electricity Exchange EEX dropped, and was EUR 22.82 per MWh (29.97) for the first quarter of 2004. Total electricity consumption in Germany during January and February was somewhat lower than for the equivalent months in 2003. (Statistics for March not yet available.) The EU's trading system for emission rights During the first quarter, the impending system for trading in emission rights was subject to intensive political negotiations within the energy sector, particularly in Germany. According to the Kyoto Protocol, the EU member states are committed to reducing their emissions of greenhouse gases by eight (8) per cent by 2012 compared to 1990. According to the time plan, the member states were to submit their national allocation plans to the EU Commission no later than March 31 (May 1 for the new member states). Only five countries, among them Germany, submitted such plans on time. The other countries have produced outlines or are still pursuing discussions. For Vattenfall, with its main markets comprising the Nordic Countries, Germany and Poland, the German allocation plan is of the greatest importance. This plan specifies the framework for permitted emissions and, in the allocation of emission rights, Vattenfall has been able to include its extensive investments in East Germany, which almost halved Vattenfall's emissions. Vattenfall considers the allocation of emission rights to be acceptable and, overall, Vattenfall expects to see a positive financial effect resulting from the new trading system. New models for regulating network operations In Germany, an independent network regulator is to be introduced as of July 2004. In Sweden, the proposal for a new model, the so-called network utility model, has long been under discussion. The formulation of these systems is still underway and exactly how the new network regulation systems will function is as yet unknown. Vattenfall expects no material effects in the medium term. New organisation in the Nordic Countries and within electricity trading operations As of January 2004, the business units within Nordic Countries are organised under a joint Business Group - Vattenfall Nordic Countries. The business units in Germany are organised, as before, under Business Group Vattenfall Europe. Poland remains a separate business unit. Parallel to this, electricity trading activities in Germany and Sweden are being co-ordinated in order to utilise synergies such as risk and credit management, information flows, IT systems and cross-border trading. Awards to Vattenfall in Poland Vattenfall Poland was honoured with two awards in the month of January. The prize in the "foreign investor" category has previously been awarded to companies such as General Motors, Toyota and SAP. In 2004, the award went to Vattenfall and Fiat. Vattenfall Poland was nominated as an "active and reliable investor, which has established new norms within the Polish energy sector and acts responsibly both socially and with regard to the environment". The other award, "Schlesien's Oscar", is a regional prize for the most active leaders within the business and social communities of Schlesien. Vattenfall received the award for its economic development project in Upper Schlesien. Vattenfall strengthens customer standing During the spring, Vattenfall will appoint a customer ombudsman in order to take better care of customer interests in the Nordic countries. Vattenfall wants its customers to have a well functioning channel to turn to when problems arise. Customers will also be protected against late billing. For this reason, as of March 9, Vattenfall has ceased demanding payment from customers for electricity consumption via networks that occurred more than one year ago and where Vattenfall has caused the delayed billing. Vattenfall's goal is to be number one for the customer and comprehensive projects are underway in order to simplify and improve matters for customers in several areas. For example: · Installation of remote-readable meters in Sweden and Finland. · Bills that are easier to read and understand. The new bills were sent out at the beginning of March. · Revision of cancellation rules and statute of limitations based on what customers consider reasonable and justifiable conditions. · Increase in investment level in Vattenfall's electricity networks to SEK 10 billion over the next five years. In Finland, Vattenfall will be the first company to introduce billing based on actual consumption. This reform will take place in the summer. The electricity bills will be easier to read and understand. Vattenfall will continue with the initiative to live up to its promise to be number one for the customer. Lars G Josefsson President and Chief Executive Officer Summary of Vattenfall's financial performance and cash flow Amounts in SEK millions January-March 2004 January-March 2003 Change % Net sales 31,810 36,019 -11.7 Operating profit before depreciation and dissolution of negative goodwill (EBITDA) 10,767 10,317 4.4 Operating profit (EBIT) 7,664 7,055 8.6 Operating profit excluding items affecting comparability 7,639 7,006 9.0 Financial items, net -690 -892 22.6 Profit before tax and minority shares 6,974 6,163 13.2 Net profit 4,765 4,162 14.5 Net profit excluding items affecting comparability 4,748 4,134 14.9 Return on net assets, excluding items affecting comparability * 12.6 11.6 - Funds from operations (FFO) 8,990 7,697 16.8 Cash flow before financing 4,580 2,758 66.1 Free cash flow 6,504 2,641 146.3 Vattenfall's financial performance varies considerably over the year. The greater part of the year's profit is normally generated during the first and fourth quarters when demand for electricity and heating peaks. * Rolling 12-month value. From Vattenfall's Press Office, telephone: +46 8 739 50 10. For more information, please contact: Klaus Aurich, Investor Relations, telephone +46 8 739 65 14, mobile +46 70 539 65 14. Martin May, Press Officer, telephone +46 8 739 52 70, mobile +46 70 539 52 70. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2004/04/27/20040427BIT20130/wkr0001.pdf