Skellefteå Kraft Excerpt from Annual Report 2013

2

Our products and servicesElectricity. We produce and sell electricity to customers throughout Sweden. As a customer, you can choose between three tariffs: Fixed, Variable and Square Metres. In autumn 2013 we decided to completely abolish the expensive default rate.

Electricity networks. Our electricity networks are in Skellefteå, Norsjö, Malå, Robertsfors and parts of Vindeln, Arvidsjaur, Piteå, and Lycksele. We take care of these to ensure electricity can be transported to you. The latest customer satisfaction survey shows that we have the most satisfied residential customers in the country and the second most satisfied corporate customers.

District heating. Our district heating network is primarily in Skellefteå. This delivers water heated by renew-able and recovered fuel.

Broadband. We construct and own Skekraft.net, a broadband network covering Skellefteå and the surrounding area. Taking area and population combined with the broadband speed on offer, Skellefteå Munici-pality has Sweden's foremost broadband network.

Premises and property. We own, manage and lease premises in the Expolaris Center district in central Skellefteå.

SEU, Energiunderhåll. Energiunderhåll delivers maintenance services to energy companies requiring support within wind power, hydropower and combined power and heating, as well as major energy users within the industry.

Sikfors

Hedensbyn

Bureå

Stockholm

Forsmark

StorumanMalå

Klippen

Sädva Rebnis

Slagnäs

Bergnäs

– AlholmenJakobstad

Lycksele

Grytfors

Rengård BolidenBåtforsFinnfors

GranforsSelsforsKrångfors

Uljabuouda

SkellefteåRönnskär

Jokkmokksliden

Storliden

Blaiken

Röjnoret

NorrhedenKristineberg Kåge

Byske

LövångerÅnäset

JörnNorsjö

Vindeln Robertsfors

Burträsk

Thermal pover

Electicity, thermal power

Wind power

Hydropower

Nuclear power

Peat

Local district heating

Sales office

Sundsvall

Sällsjö

Aitik

Hemavan

This is Skellefteå Kraft

We strive to be Sweden's best energy com-pany and regard ourselves as the champion of the energy industry. We are dependable Norrlanders who put the customer and the customer's needs first. How? By investing in our own energy resources and our own sustainable energy production, while at

the same time constantly strengthening the expertise of our employees. And, of course, by offering our customers attrac-tive products and services at competitive prices. Our owner, Skellefteå Municipality, also sets requirements for us. We should aim to generate profitable growth that fur-

thers development of the region. In other words, safeguard the region's energy sup-ply, create good infrastructure within ener-gy, telecommunications and data commu-nication, and supply capital and business expertise to the region.

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Sikfors

Hedensbyn

Bureå

Stockholm

Forsmark

StorumanMalå

Klippen

Sädva Rebnis

Slagnäs

Bergnäs

– AlholmenJakobstad

Lycksele

Grytfors

Rengård BolidenBåtforsFinnfors

GranforsSelsforsKrångfors

Uljabuouda

SkellefteåRönnskär

Jokkmokksliden

Storliden

Blaiken

Röjnoret

NorrhedenKristineberg Kåge

Byske

LövångerÅnäset

JörnNorsjö

Vindeln Robertsfors

Burträsk

Thermal pover

Electicity, thermal power

Wind power

Hydropower

Nuclear power

Peat

Local district heating

Sales office

Sundsvall

Sällsjö

Aitik

Hemavan

Where our power is generated

These are Skellefteå Kraft's production facilities and sales offices, from Stockholm in the south to Aitik in the north, and from Jakob-stad in the east to Klippen in the west.

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Skellefteå Kraft 2013 - in brief

637 full-time employees in 2013

300 people or just over work principally from our office

building in central Skellefteå, while others work at various units in Västerbotten, Norrbotten

and at our sales office in Sundsvall.

was the year Skellefteå Kraft was founded.

General

Finance

SEK 215 million was the dividend to owner Skellefteå Municipality in 2013. This corresponds to 4% of the equity.

OPERATING MARGINTURNOVER PROFIT AFTER NET FINANCIAL INCOME

2012 2013

%

18

16

14

12

10

8

6

4

2

0

2012 2013

SEK MILLION5,500

5,000

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0

2012 2013

SEK MILLION800

700

600

500

400

300

200

100

0

5

80%Our attendance rate among

Skellefteå Kraft's employees in 2013. The target was 85%.

1.9%Our absence due to illness rate in 2013. The target was 2.5%.

48 people have been recruited

during the past year.

Number 1 in the countrySkellefteå Kraft provides the best customer service in the energy industry. This accolade is based on a survey of over 2,000 Swedish consumers regarding the service provided by various companies and which companies they regard as having exceeded expectations in terms of service.

Social Environment

Customers

81%

Proportion of electricity from renewable production.

83%

Proportion of heating from renewable production.

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Customer Safisfaction Index, residential customers 2013

Electricity supply

Industry average

Industry average

Industry average

District heating

0 20 40 60 80 100

Electricity networks

72,2

77,7

77,4

Our responsibility to customersOur customers should never feel guilty

As a customer of ours you need never feel guilty about enjoying a long shower or having your home a little warmer. You can always rely on our products maintaining a high level of quality and being sustain-ably produced. This outlook applies to all our customers, regardless of whether we are talking about electricity, broadband or district heating. We also want to challenge the energy sector in terms of communica-tion, by being clearer, more straightfor-ward, more helpful and more accessible than our competitors. HOW TO BE THE BEST IN THE INDUSTRYWe are driven by the concept of giving the customer a better, i.e. clearer and more straightforward, alternative. Our overall objective is to have the most satisfied cus-tomers in the industry and thus move to-wards our vision of being the best energy company in the industry. OUR RESPONSIBILITY TO CUSTOMERS IN FIGURESThe Swedish quality index measures cus-tomer satisfaction, and their surveys show that we are number one or two in the en-ergy sector in all business areas (electricity networks residential and corporate, dis-

trict heating and electricity supply corpo-rate), except electricity supply residential, where we are in 10th place.

In 2013, for the second successive year, we won the award for the energy sector's best customer service. This was awarded by ServiceScore in conjunction with the Swedish Marketing Federation (Sver-iges Marknadsförbund). This accolade is based on a survey of over 2,000 Swedish consumers.

OUR OBJECTIVES, CUSTOMERS Increased national awareness. We work to ensure that more potential customers around the country are aware of us, which lays the foundation for an expanded cus-tomer base in the long term. We are on the right track, and with our campaign "Inte en eljätte" (Not an electricity giant) we are positioning ourselves as the clear alterna-tive to the electricity giants. We aim to be innovators in a traditionally dissatisfied sector.

Increased customer satisfaction. Satisfied customers and long-standing customer relationships are important success fac-tors for us. In the annual measurements of customer satisfaction conducted by the

Swedish quality index we have remained at a constant level, well above the industry in-dex, in recent years, but we want more and are striving for a cus-tomer satisfaction val-ue of 75 for the group. In order to achieve this, we need to know how our customers behave and what they think and need. Conse-

quently, we are focusing on customer in-sight through customer surveys and focus groups, among other things.

Improved customer experience. Our customer service team has 16 employees ready to deal with customer enquiries. This is our outward face, and in a normal year they receive over 90,000 calls. Since autumn 2013, customers can also contact our customer service via Facebook. This team is one of the keys to ensuring an even better customer experience, but there are more ways we can improve our clarity; by adapting the tone of all our texts, for ex-ample.

Reduced customer administration costs. We are streamlining our routines and pro-cesses to ensure that contact with our cus-tomers is fair, straightforward and clear.

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Our financial responsibilityWe work towards long-term growth

Our owner, Skellefteå Municipality, sets requirements for us. We must aim to achieve a return on equity of at least 10 per cent. We are working towards long-term stable economic value growth, with the aim of burdening neither nature nor human resources.

HOW TO BE THE BEST IN THE INDUSTRYBy investing wisely in sustainable and own production we safeguard profitability and growth.

Taking financial responsibility means that the group's profits benefit local resi-dents in Skellefteå. We give back 4 per cent of the equity every year to our owner, the municipality.

In addition, we are one of the biggest in-vestors in the local area, which makes us an important engine in the region.

OUR OBJECTIVES, ECONOMICWe want to have our own 100%-sustain-able energy production, and we are adapt-

ing our investments accordingly. This means that we are focusing heavily on our own production and primarily on renew-able energy sources, such as wind and hy-dropower. We are also reviewing our fo-cus on other production sources, with the intention of phasing out any that are not profitable or sustainable in the long term. We are aiming to ensure stable economic growth and at the same time working to-wards refining our production and making it 100% sustainable in the long term.

We want to achieve an operating profit of SEK 1 billion. We will do this through shrewd investments and by being better at utilising the production sources we have at present. The key is optimisation, in other words, fine-tuning production by means of better maintenance and planned mainte-nance and finding improvement points. We are also looking more closely at our sub-sidiary operations, charting what drives revenue and what possible scenarios might

threaten our business. The objective is to get more out of the operations we want to continue with and to divest the segments that do not fit our profile, considering our financial sustainability. We must also dare to be entrepreneurs, i.e. have the courage to focus on business development within our core activity.

We aim to give back to our owner, Skel-lefteå Municipality. Every year we give 4 per cent of the equity to the municipal-ity as a dividend. The more we grow, the bigger the dividend, which leads to better prospects for us as local citizens. In order to continue with this we need to grow and make a profit.

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Our social responsibilityWe provide an outlet for entrepreneurship

We safeguard the health and safety of our employees and others affected by our activities. We want to build good relations with existing and potential employees, as well as with various stakeholders in the community. We want our employees to feel that Skellefteå Kraft is a company that offers an outlet for creativity, drive and en-trepreneurship. Our priority issues include safeguarding our future provision of ex-pertise, working towards greater diversity and creating a safe working environment.

HOW TO BE THE BEST IN THE INDUSTRY In order to accomplish our business and operational goals we need well-trained, skilled and committed employees and managers. Every employee should have good opportunities to develop as an indi-vidual in a wider context, i.e. understand their role and how they can contribute to the whole. Everyone needs to feel that they are being seen, listened to and respected in order to enable us to be the best energy company in Sweden.

OUR OBJECTIVES, SOCIALSatisfied employees. Every two years we measure what our employees think of Skellefteå Kraft within a number of areas, such as employeeship, communication and working environment. From 2013, this index is designated MMI (Motivated Employee Index - 'Motiverad Medarbetar-index' in Swedish), with a maximum in-dex value of 100. The target for the 2013 index for the group was 73, and the ac-tual result was 70. A very good result, but there are improvement areas to work on over the coming year.

Increased attendance rate. The attendance rate is defined as "the number of employ-ees who have been absent due to illness for no more than five days during the year". The result for 2013 was 80 per cent, but our objective is to achieve 85 per cent. We aim to improve our attendance rate in the long term, and we will achieve this by con-tinuing our ambitious focus on health and fitness, but also by creating opportunities for development of both employees and managers in a good working environment.

Reduced numbers of occupational inju-ries. Our vision for Skellefteå Kraft is to have workplaces free from accidents, ill health and work-related injuries and ill-nesses. This will be achieved through fo-cus on working environment issues of all types. One essential element is to have a certified management system that employs risk analyses and quality-assured working methods to help keep accidents to a mini-mum.

The target for 2013 was for the number of occupational injuries to be a maximum of 1.5 accidents resulting in absence per 1 million hours worked. The result for 2013 was 3.2 accidents.

We aim to be among the 20 most attrac-tive companies at the three Norrland uni-versities. The energy sector demands tech-nical expertise and so do we. Therefore we make determined and focused efforts to reach out to students at the three Norr-land universities, partly to interest them in the energy sector, and partly to generate specific interest in us.

Skills development. Large-scale retirement departures and extensive wind power in-vestments over the next few years mean that energy companies will be on the look-out for new talent with the right expertise. We have good partnerships with a num-ber of bodies, from secondary schools to universities. We are also focusing strongly on exchange of experience and skills development for our existing employees. In order to support these processes, there is access to on-the-job training and mobil- and mobil-ity between different posts is actively en-couraged.

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Our environmental responsibilityWe aim to produce our own sustainable energy

Sustainability should permeate our deci-sions and actions. We are therefore work-ing strategically and long term to provide society with 100% sustainable and self-produced energy. Our work should also be compatible with the guidelines of our owner, Skellefteå Municipality.

HOW TO BE THE BEST IN THE INDUSTRYOur overall environmental goal should support our vision of being the best en-ergy company. Our efforts and objectives take their bearing from sustainable energy production. Environmental issues should be better integrated into the investment decisions and choices we make. The in-vestment process includes procedures and tools intended to ensure that responsibil-ity and decision-making are kept close to operations. Environmental and working environment issues are naturally linked in when the business makes assessments and decisions in accordance with established objectives and frameworks.

OUR OBJECTIVES, ENVIRONMENT100% sustainable energy production. We are investing heavily to reduce depend-ence on coal and oil, primarily through projects that increase our own production of renewable energy. Investments are be-ing made in wind power, bio-energy and hydropower. Our own electricity produc-tion currently consists of 82.2 per cent renewable energy (according to the EU's definition, where peat is not defined as renewable), with the bulk of production coming from hydropower, and the remain-der from wind and bio-based combined power and heating.

We aim to improve the energy efficiency of our business by 25 per cent by 2020, compared with 2009. Together with other companies in the municipal group we pur-sue common energy and climate strategies. These initially consisted of finding good methods for following up on energy sta-tistics, to enable useful and comparable

documentation to be produced. This work has subsequently incorporated specific measures and exchange of experience.

From 2013, any passenger cars purchased will be powered by renewable fuels*. We aim to reduce our energy usage for our own transport by 10 per cent by 2015, compared with 2010. Our vehicle fleet needs to be adapted to future demands, which means that all transport and travel must be more efficient than in the past. A project commenced in 2013 to compile new criteria for vehicle purchasing. These criteria should contribute to safer vehicles with better environmental performance. In addition to checking and overhauling our vehicle fleet we need to develop travel-free meetings and provide training for our em- and provide training for our em-ployees in available technology.

* The exception is passenger cars stationed within our business area where there are no alternative fuels available and where require-ments are set for availability and range.

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2013 2012REVENUES Net turnover 4,249.8 4,606.5Work performed by the company for its own use and capitalized 41.1 23.6Other operating revenues 14.3 32.5

Total revenues 4,305.2 4,662.6

COSTS Energy and production costs -2,316.2 -2,631.6Other external costs -599.1 -497.0Personnel costs -455.4 -420.9Depreciation -586.6 -451.7Other operating expenses -7.4 -23.5Shares of income in associated companies -45.2 24.7

Total costs -4,009.9 -4,000.0 OPERATING PROFIT 295.3 662.6 Income from security paper and receivables from fixed assets -57.8 46.4Other interest income and similar income items 3.8 2.1Interest expenses and similar income items -116.0 -112.3

Net financial income -170.0 -63.8 PROFIT AFTER NET FINANCIAL INCOME 125.3 598.8 Appropriations -7.3 0.0 Taxes -11.5 63.2 NET INCOME 106.5 662.0

Income Statement of the group, amounts in SEK million

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Balance sheet of the group, amounts in SEK million

2013-12-31 2012-12-31ASSETS Fixed assetsIntangible assets 140.0 148.6Tangible assets 8,347.7 8,054.1Shares in associated companies 26.4 152.1Receivables from associated companies 409.8 409.8Other long-term securities holding 8.4 8.4Other long-term receivables 305.5 281.2

Total fixed assets 9,237.8 9,054.2 Current assets Inventories etc 133.2 141.7Customer receivables 261.2 291.4Receivables from associated companies 0.1 0.0Other receivables 28.9 35.0Prepaid expenses and accrued income 457.4 603.4Cash and bank 483.9 379.0

Total current assets 1,364.7 1,450.5 TOTAL ASSETS 10,602.5 10,504.7 TOTAL EQUITY AND LIABILITIES Shareholders’ equity Restricted equity 204.0 204.0Non-restricted equity 4,577.7 4,127.6This year’s result 106.5 662.0

Total shareholders’equity 4,888.2 4,993.6

Allocations Liabilities to credit institute 3,982.2 3,795.2Provisions for pensions 27.9 21.2Other allocations 8.3 8.1Deferred tax liability 749.2 737.7Other debts 93.4 96.2

Total allocations 4,861.0 4,658.4 Current liabilities Liabilities to credit institute 5.4 0.0Advance payments from customers 1.6 0.0Accounts payable 246.5 304.3Liabilities to asociated companies 0.0 0.0Income tax liabilities 56.8 17.6Other liabilities 163.3 151.4Accrued expenses and deferred income 379.7 379.4

Total current liabilities 853.3 852.7 TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 10 602.5 10,504.7 Pledged assets 189.1 129.8Guarantees 1,551.8 697.4

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2013 2012CURRENT OPERATIONS Profit after net financial income 125.3 598.8Adjustment of items not in cash flow depreciations 586.6 451.7 write-down in financial fixed assets 83.6 2.6 share in profit in associated companies 45.2 -27.4 profit after sale of fixed assets etc 6.1 -12.9 increase(-)/decrease in interest receivables, liabilities -2.7 -1.6Paid(-)/repaid income tax - -

Cash flow from current operations before change in working capital 844.1 1,011.2 Cash flow from change in working capital Increase(-)/decrease in inventories etc 8.5 50.2 Increase(-)/decrease in operating receivables 182.2 -78.1 Increase/decrease(-) in allocations 6.9 -0.1 Increase/decrease(-) in operating liabilities -2.1 9.6

Cash flow from current operations 1,039.6 992.8 INVESTMENTS Acquisition of intangible fixed assets - -Acquisition of tangible fixed assets -882.5 -726.4Acquisition of financial fixed assets 0.0 -1.8Sale of fixed assets 3.8 18.8Capital withdrawal from associated companies 0.0 0.0Increase(-)/decrease in other long-term receivables -24.3 -216.4Received government contribution 1.0 -

Cash flow from investments -902.0 -925.8 EXTERNAL FINANCING New loans 192.4 354.8Repayments and prepaid loans etc - -Increase/decrease(-) in other long-term liabilities -2.8 30.1Group contribution -7.3 0.0Allocation to the municipality -215.0 -205.0

Cash flow from external financing -32.7 179.9 Change in cash flow during the period 104.9 246.9Liquid funds at the beginning of the period 379.0 132.1

Liquid funds at the end of the period 483.9 379.0

Cash flow break-down analysis of the group, amounts in SEK million

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2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 FROM INCOME STATEMENT

Net turnover 4,249.8 4,606.5 5,139.5 4,541.3 3,618.8 3,626.5 3,075.8 3,210.4 2,245.5 1,961.8Expenses and other business items -3,367.9 -3,492.2 -4,110.0 -3,510.3 -2,684.4 -2,544.0 -2,197.8 -2,302.2 -1,351.6 -1,237.6Depreciation -586.6 -451.7 -514.2 -326.2 -407.6 -350.2 -276.1 -270.4 -258.3 -242.5

OPERATING PROFIT 295.3 662.6 515.3 704.8 526.8 732.3 601.9 637.8 635.6 481.7

Net financial income -54.0 48.5 30.9 -62.0 23.4 40.7 44.3 15.2 10.3 1.3Net financial costs -116.0 -112.3 -117.3 -113.7 -115.4 -151.2 -139.7 -114.8 -119.8 -132.0

PROFIT AFTER NET 125.3 598.8 428.9 529.1 434.8 621.8 506.5 538.2 526.1 351.0

Group contribution -7.3 - - - - - - - - - Taxes -11.5 63.2 -19.3 -82.2 -75.5 -8.0 -62.8 -72.5 -106.0 -56.9

NET INCOME 106.5 662.0 409.6 446.9 359.3 613.8 443.7 465.7 420.1 294.1

FROM BALANCE SHEET Intangible assets 140.0 148.6 159.9 168.7 156.4 161.7 166.0 171.1 176.2 176.4Tangible assets 8,347.7 8,054.1 7,769.7 7,357.5 7,071.8 6,858.7 6,361.0 5,943.3 5,559.5 5,417.4Financial fixed assets 750.1 851.5 616.5 523.0 768.7 678.3 581.6 520.7 434.9 249.7Current receivables and inventories 880.8 1 071.5 1 043.6 1 312.7 985.2 1 070.9 1 188.2 796.9 638.8 516.5Cash and bank 483.9 379.0 132.1 51.8 17.4 23.6 15.2 48.6 53.0 58.0

TOTAL ASSETS 10,602.5 10,504.7 9,721.8 9,413.7 8,999.5 8,793.2 8,312.0 7,480.6 6,862.4 6,418.0

SHAREHOLDERS EQUITY 4,888.2 4,993.6 4,539.8 4,326.7 4,123.3 3,939.7 3,464.5 3,140.7 2,782.8 2,435.5Interest-bearing long-term liabilities and allocations 4,010.1 3,816.4 3,456.6 2,776.2 2,916.8 2,640.2 2,627.8 2,506.2 2,668.0 2,805.9Non-interest-bearing long-term liabilities and allocations 850.9 842.0 875.7 800.6 726.7 656.9 665.4 605.8 547.6 449.4Interest-bearing current liabilities 5.4 0.0 5.0 643.1 573.1 833.1 975.8 608.1 371.1 265.5Non-interest-bearing current liabilities 847.9 852.7 844.7 867.1 659.6 726.0 578.5 619.8 492.9 461.7

TOTAL SHAREHOLDERS EQUITY AND LIABILITIES 10,602.5 10,504.7 9,721.8 9,413.7 8,999.5 8,795.9 8,312.0 7,480.6 6,862.4 6,418.0

KEY RATIOS Return on equity, % 2.5 12.6 9.7 12.5 10.8 16.8 15.3 18.2 20.2 15.1Return on assets, % 2.3 7.0 5.7 7.0 6.2 9.0 8.2 9.1 9.7 7.6Return on capital employed, % 2.7 8.5 6.9 8.4 7.3 10.7 9.7 10.8 11.4 8.8Operating margin, % 6.9 14.4 10.0 15.5 14.6 20.2 19.6 19.9 28.3 24.6Net margin, % 2.9 13.0 8.3 11.7 12.0 17.1 16.5 16.8 23.4 17.9Solidity, % 46.1 47.5 46.7 46.0 45.8 44.8 41.7 42.0 40.6 37.9Self-financing, % 71.5 112.7 81.9 106.1 124.6 88.2 86.5 104.2 158.0 133.4Interest coverage ratio, times 2.1 6.3 4.7 5.7 4.8 5.1 4.6 5.7 5.4 3.7Debt ratio, times 0.8 0.8 0.8 0.8 0.8 0.9 1.0 1.0 1.1 1.3Capital turnover ratio, times 0.48 0.55 0.65 0.59 0.48 0.50 0.46 0.53 0.40 0.36

OTHER INFORMATION Capital employed 8,903.7 8,810.0 8,001.4 7,746.0 7,613.2 7,413.0 7,068.1 6,255.0 5,821.9 5,506.9 Net investments in plants 875.4 726.4 921.6 681.4 614.4 815.6 700.0 657.3 408.0 359.5 Net investments in shares 0.0 1.8 4.0 49.7 3.3 112.1 60.6 13.4 32.9 23.1 Allocation to the municipality 215.0 205.0 196.0 180.0 170.0 153.0 124.0 104.0 85.0 78.0

Year review, amounts in SEK million

SE-931 80 Skellefteå, Sweden. Tel +46 910 77 25 00, fax +46 910 77 28 82, info@skekraft.se, www.skekraft.se Kru

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