Vattenfall withdraws from UK trading services market

4 April 2003 – Vattenfall AB, Stockholm, has announced that the company will discontinue its trading services activities on the UK power market. Vattenfall has closed its London office and moved staff back to the Stockholm headquarters.

“The recent development on the UK power market and Vattenfall’s strong focus on core European markets has led to this decision. For the time being our strategy is to concentrate on core European markets”, said Erik Hagland, Head of Vattenfall’s Business Unit Supply and Trading. He also added:”The exit process, which is almost finished, has been smooth and co-operation from stakeholders has been very satisfactory.”

The exit from the UK markets will have no financial impact on Vattenfall AB.

Vattenfall AB entered the UK market in 1999 offering trading and risk management services to small independent players who needed support in order to meet additional responsibilities and risks brought about by the New Electricity Trading Arrangements (NETA). NETA was introduced by OFGEM in March 2001 with some similarities with the Scandinavian market in which Vattenfall AB had gained substantial experience as one of the leading market players.

Vattenfall AB’s largest UK customer was Electricity Direct who, with Vattenfall AB’s support, grew to become the largest independent Supplier in the UK. Electricity Direct became a part of the Centrica group in July 2002 when British Gas Trading Ltd bought them.

Separately today, the Standard & Poor’s Ratings Services said it revised its outlook on Vattenfall AB to stable from negative. At the same time, Standard & Poor’s affirmed its ‘A-/A-2’ corporate credit rating on Vattenfall.

“The outlook revision reflects Standard & Poor’s assessment of a reduced risk for destructively low electricity prices in the short to medium term, and progress in realizing the cost-savings potential in Vattenfall’s German acquisitions,” said Standard & Poor’s credit analyst Andreas Zsiga.

“The group is expected to maintain its policy of no further major acquisitions in the short to medium term. Consequently, Standard & Poor’s expects that Vattenfall will improve its financial profile over the 2003-2004 period by dedicating its strong free cash flow to debt reduction,” added Mr. Zsiga. In the longer term, the company is expected to become more acquisitive again, which is likely to constrain further material improvement in the financial profile.

Vattenfall has benefited in 2002/2003 from the high Nordic electricity prices, although Standard & Poor’s does not assume that these high prices will continue beyond the short term. Although volatility will always remain in this hydroelectric generation-based region, the currently poor hydrological balance implies a reduced medium-term risk of the low prices of 1997-2000 recurring. In Germany, the indications are that power prices have stabilized.

Furthermore, the low-risk monopoly network and heating operations should continue to provide Vattenfall with a stable base level of cash flows, despite the potential for increased regulatory pressure on tariffs in Sweden and Germany.

The German operations have been integrated into Vattenfall Europe AG, which is now more than 90 per cent controlled by Vattenfall AB. The company has accomplished about 40 per cent of its targeted €400m-€500m of annual German cost savings by 2004, and planning for achieving the remainder is well advanced.