<Page>
FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the quarter ended June 30, 2002
PREEM HOLDINGS AB (PUBL)
(Translation of registrant's name into English)
Sandhamnsgatan 51
S-11590
STOCKHOLM, SWEDEN
(address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
Form 20-F X Form 40-F
-------- --------
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2 (b) under the Securities Exchange Act of
1934.
Yes. No X
-------- --------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Preem Holdings AB (publ)
Date: August 29, 2002 By: /s/Per Hojgard
------------------ -------------------------
Name: Per Hojgard
Title: Chief Financial Officer
<Page>
Table of Contents
<Table>
<Caption>
PAGE
--------
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
PREEM HOLDINGS AB AND CONSOLIDATED SUBSIDIARIES
Cautionary Statement Concerning Forward-Looking Statements.................................... ii
Presentation of Certain Information........................................................ ii
Interim Consolidated income statements for
the three months ended June 30, 2001 and June 30, 2002..................................... 1
the six months ended June 30, 2001 and June 30, 2002....................................... 2
Interim Consolidated balance sheets as of December 31, 2001 and June 30, 2002................. 3-4
Interim Consolidated statements of cash flow for the six month periods ended June 30, 2001
and June 30, 2002.......................................................................... 5
Notes to interim consolidated financial statements............................................ 6-10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS...................................................................... 11-18
Quantitative and Qualitative Disclosures About Market Risk.................................... 18-20
</Table>
2
<Page>
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 6-K contains forward-looking statements.
The management of Preem Holdings AB (publ) (the "Company") has based these
forward-looking statements on its current expectations and projections about
future events. Although the Company's management believes that the expectations
reflected in such forward-looking statements are reasonable, the Company can
give no assurance that such expectations will prove to be correct. Important
factors that could cause the Company's actual results, performance or
achievements to differ materially from those in the forward-looking statements
include, among others:
o volatility in refining margins and in market prices for crude oil and
refined products;
o unplanned shut-downs due to technical problems at the refineries;
o the Company's future capital needs;
o the Company's ability to hedge against currency, commodity and interest
rate risks;
o the Company's ability to comply with existing or newly implemented
environmental regimes in the countries in which it operates;
o the Company's liability for violations, known and unknown, under
environmental laws;
o the Company's ability to remediate contaminated sites within budgeted
amounts;
o possible adverse effects of the Company's anticipated growth through
joint venture, acquisition or restructuring, including diversion of
management resources, incurrence of additional debt, the terms and
conditions of any joint venture, failure to integrate acquired
businesses and the Company's liability for known and unknown
liabilities of acquired businesses;
o agreements or disagreements among members of OPEC; and
o limitations on the Company's operational flexibility arising under
agreements governing the Company's debt.
All forward-looking statements attributable to the Company or persons
acting on the Company's behalf are expressly qualified in their entirety by
these cautionary statements. Because of the uncertainties associated with
forward-looking statements, you should not place undue reliance on them. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
PRESENTATION OF CERTAIN INFORMATION
Solely for the convenience of the reader, the interim financial
statements for all periods have been translated into U.S. Dollars ($) using the
June 30, 2002 rate of $1.00 = SEK9.16. On August 27, 2002, the exchange rate for
the Krona against the U.S. Dollar was $1.00=SEK 9.37, based on data provided by
the Swedish Central Bank.
We present our financial statements in Kronor. Unless otherwise
indicated, all references in this report to "SEK," "Krona" or "Kronor" are to
the lawful currency of Sweden; all references to "$" or "Dollar" are to the
lawful currency of the United States; and all references to "E" or "Euro"
are to the single currency adopted by the member states of the European Union
participating in the European Union's Economic and Monetary Union.
ii
<Page>
PREEM HOLDINGS AB AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED
------------------------------------------
JUNE 30, 2001 JUNE 30, 2002
---------------- ------------------------
SEK SEK $
(IN MILLIONS)
Revenues....................... 12,140 10,225 1,116
Excise duties.................. (2,240) (1,800) (196)
---------------- ------------- ---------
SALES REVENUE.................. 9,900 8,425 920
Cost of goods sold............. (9,242) (8,031) (877)
---------------- ------------- ---------
GROSS PROFIT................... 658 394 43
Selling expenses............... (258) (237) (26)
Administrative expenses........ (63) (92) (10)
Other operating income......... 69 53 6
---------------- ------------- ---------
OPERATING INCOME............... 406 118 13
Interest income................ 12 11 1
Interest expense............... (129) (121) (13)
Other financial expenses....... (82) 61 7
---------------- ------------- ---------
INCOME BEFORE TAXES............ 207 69 8
Income taxes................... (64) (17) (2)
Minority interests............. - (1) -
---------------- ------------- ---------
NET INCOME..................... 143 51 6
================ ============= =========
</Table>
The accompanying notes form an integral part of these Interim Consolidated
Financial Statements.
1
<Page>
PREEM HOLDINGS AB AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED JUNE 30,
-----------------------------------
2001 2002
-------- ----------------------
SEK SEK $
(IN MILLIONS)
Revenues......................... 23,738 20,555 2,244
Excise duties.................... (4,535) (4,668) (510)
-------- -------- -------
SALES REVENUE.................... 19,203 15,887 1,734
Cost of goods sold............... (17,985) (15,172) (1,656)
-------- -------- -------
GROSS PROFIT..................... 1,218 715 78
Selling expenses................. (467) (470) (51)
Administrative expenses.......... (175) (198) (22)
Other operating income........... 149 126 14
-------- -------- -------
OPERATING INCOME................. 725 173 19
Interest income.................. 26 24 3
Other financial income........... 33 335 37
Interest expense................. (195) (236) (26)
Other financial expenses......... (248) (108) (12)
-------- -------- -------
INCOME BEFORE TAXES.............. 341 188 21
Income taxes..................... (116) (61) (7)
Minority interests............... (1) (4) (1)
-------- -------- -------
NET INCOME....................... 224 123 13
======== ======== =======
</Table>
The accompanying notes form an integral part of these Interim Consolidated
Financial Statements.
2
<Page>
PREEM HOLDINGS AB AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<Table>
<Caption>
DECEMBER 31, JUNE 30,
2001 2002
------------ -------------------
SEK SEK $
(IN MILLIONS)
ASSETS
FIXED ASSETS
INTANGIBLE FIXED ASSETS
Goodwill..................................... 1,303 1,187 130
------------ -------- -------
TOTAL INTANGIBLE ASSETS...................... 1,303 1,187 130
TANGIBLE ASSETS
Land and building............................ 905 848 92
Plant and machinery.......................... 3,280 3,262 356
Capitalized turnaround cost, net............. 96 72 8
Equipment, tools fixtures and fittings....... 695 657 72
Construction in progress..................... 339 651 71
------------ -------- -------
TOTAL TANGIBLE FIXED ASSETS.................. 5,315 5,490 599
FINANCIAL ASSETS
Participation in associated companies........ 190 5 1
Receivables from associated companies........ 38 -
Other securities held as fixed assets........ 2 2 --
Other long-term receivables.................. 135 137 15
------------ -------- -------
TOTAL FINANCIAL ASSETS....................... 365 144 16
TOTAL FIXED ASSETS........................... 6,983 6,821 745
CURRENT ASSETS
Inventories.................................. 3,751 3,527 383
Accounts receivable.......................... 3,219 2,268 249
Receivables from associated companies........ 133 - -
Other receivables............................ 267 265 29
Prepaid expenses and accrued income.......... 110 267 29
------------ -------- -------
Cash and cash equivalent..................... 959 1,373 150
TOTAL CURRENT ASSETS......................... 8,439 7,700 840
------------ -------- -------
TOTAL ASSETS................................. 15,422 14,521 1,585
============ ======== =======
</Table>
The accompanying notes form an integral part of these Interim Consolidated
Financial Statements.
3
<Page>
PREEM HOLDINGS AB AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<Table>
<Caption>
DECEMBER 31, JUNE 30,
2001 2002
------------ -------------------
SEK SEK $
(IN MILLIONS)
SHAREHOLDERS' EQUITY, PROVISIONS
AND LIABILITIES
SHAREHOLDERS' EQUITY
RESTRICTED EQUITY
Share capital................................ 1 1 --
Restricted reserves.......................... - -- --
------------ -------- -------
1 1 --
NON-RESTRICTED EQUITY
Loss brought forward......................... 3,344 3,201 349
Profit for the year.......................... (233) 123 13
------------ -------- -------
TOTAL SHAREHOLDERS' EQUITY................... 3,112 3,325 362
Minority interests........................... 134 8 1
PROVISIONS
Pension provision............................ 187 161 17
Deferred tax liability....................... 109 199 22
Other provisions............................. 53 53 6
------------ -------- -------
TOTAL PROVISIONS............................. 349 413 45
LIABILITIES
LONG-TERM LIABILITIES
Shareholder loans............................ 242 242 26
Bondloan..................................... 2,874 2,773 303
Liabilities to credit institutions........... 2,936 3,389 370
Bank overdraft facility...................... 12 - -
------------ -------- -------
TOTAL LONG-TERM LIABILITIES.................. 6,064 6,404 699
------------ -------- -------
CURRENT LIABILITIES
Liabilities to credit institutions........... 560 269 29
Advanced payment from customers.............. 150 167 18
Accounts payable............................. 2,019 1,973 215
Liabilities to parent company................ 149 102 11
Liabilities to associated companies.......... 3 5 1
Income tax payable........................... 18 4 1
Other liabilities............................ 2,091 1,069 117
Accrued expenses and prepaid income.......... 773 782 85
------------ -------- -------
TOTAL CURRENT LIABILITIES.................... 5,763 4,371 477
------------ -------- -------
TOTAL SHAREHOLDERS' EQUITY, PROVISION ============ ========
AND LIABILITIES.............................. 15,422 14,521 1,585
============ ======== =======
</Table>
The accompanying notes form an integral part of these Interim Consolidated
Financial Statements.
4
<Page>
PREEM HOLDINGS AB AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
<Table>
<Caption>
SIX MONTH PERIODS ENDED JUNE 30,
-------------------------------
-------- --------------------
2001 2002
-------- --------------------
SEK SEK $
(IN MILLIONS)
INCOME FROM OPERATION
Income after financial items.............................. 341 188 21
Adjustments for non-cash items
Deprecation and amortization.............................. 401 404 44
Unrealized exchange losses/(gains)........................ 177 (441) (48)
Other adjustments for non-cash items...................... 3 7 1
Taxes paid................................................ (6) (31) (4)
-------- -------- --------
CASH FLOW FROM OPERATING ACTIVITIES BEFORE CHANGES IN
WORKING CAPITAL........................................... 916 127 14
CASH FLOW IN WORKING CAPITAL
Decrease (Increase) in inventories........................ 8 160 18
Decrease (Increase) in current receivables................ 560 650 71
Decrease (Increase) in liabilities........................ (122) (408) (45)
CASH FLOW FROM OPERATING ACTIVITIES....................... 1,362 529 58
INVESTMENT ACTIVITIES
Investment in intangible fixed assets..................... (6) (1) -
Investment in tangible fixed assets....................... (280) (457) (50)
Sale of tangible fixed assets............................. 24 1 -
Sale of subsidiary........................................ - (38) (4)
Increase in financial fixed assets........................ (118) (1) -
-------- -------- --------
CASH FLOW USED IN INVESTMENT ACTIVITIES................... (380) (496) (54)
FINANCING OPERATION
New loans from credit institutions........................ 3,440 741 81
Payment of loans from credit institutions................. (736) (364) (40)
Payment of loans from parent company...................... (2,017) - -
Dividends paid............................................ - (2) -
Group contributions received/(paid)....................... (1,000) 8 1
-------- -------- --------
CASH FLOW FROM (USED IN) FINANCING ACTIVITIES............. (313) 383 42
CASH FLOW OF THE PERIOD................................... 669 416 45
Liquid funds at the beginning of the period............... 370 959 105
Exchange-rate difference.................................. 12 (2) -
Cash and cash equivalents at the end of the period........ 1,051 1,373 150
SUPPLEMENTARY DISCLOSURES
Cash flow interest and dividend received
Interest received......................................... 26 21 2
Interest paid............................................. (211) (349) (38)
Items included in liquid funds
Cash and bank balance..................................... 406 441 48
Short-term investment..................................... 645 932 102
TOTAL LIQUID FUNDS........................................ 1,051 1,373 150
</Table>
The accompanying notes form an integral part of these Interim Consolidated
Financial Statements.
5
<Page>
PREEM HOLDINGS AB AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTH PERIOD ENDED JUNE 30, 2002
NOTE 1. BASIS OF PRESENTATION
Preem Holdings AB (publ) (the "Company") was originally established in
1980 as Swedoil AB and is registered with the Swedish Patent and Registration
Office under the number 556206-9673. Swedoil AB was a subsidiary of Preem
Petroleum AB that had been dormant since 1983. On March 1, 2001, its name was
changed from Swedoil AB to Preem Holdings AB, through an amendment to its
Articles of Association and its subsequent registration with the Swedish Patent
and Registration Office. The purpose of this name change was to accurately
reflect its status as a holding company and its position within the overall
corporate structure with respect to Corral Petroleum Holdings AB, its parent
company, and Preem Petroleum AB, its operating subsidiary. Also on March 1,
2001, the Company's status was changed from a private company to a public
company, giving it the ability under Swedish law to raise capital through the
issuance of securities. Corral Petroleum Holdings AB, a Swedish company,
contributed all of the issued and outstanding shares of Preem Petroleum AB to
Preem Holdings AB on March 19, 2001. Preem Holdings AB is wholly-owned by Corral
Petroleum Holdings AB, which is wholly-owned by Moroncha Holdings Company
Limited, which is wholly-owned by Mr. Mohammed Hussein Ali Al-Amoudi.
Preem Holdings AB applies the Swedish Annual Account act and complies
with recommendations of the Swedish Accounting Standards Board and the Swedish
Financial Accounting Standards Council.
The accompanying Consolidated Financial Statements present the
financial position, result of operations and cash flows of Preem Holdings AB and
its consolidated subsidiaries. In the accompanying Consolidated Financial
Statements the results of operations and cash flows of Preem Holdings AB for the
six months ended June 30, 2001, includes the results of operations and cash
flows of Preem Petroleum AB.
Preem Holdings AB's principal assets as of June 30, 2002 consist of all
of the issued and outstanding shares of Preem Petroleum AB and an inter-company
loan to Preem Petroleum AB. Preem Holdings AB's principal liability as of
June 30, 2002 consists of E305 million aggregate principal amount of 10 5/8%
senior secured notes, due 2011, of which Preem Holdings AB issued E250
million on April 10, 2001 and E55 million on July 20, 2001. The accompanying
consolidated financial statements present the financial position and results of
operations of the Company and have been prepared in accordance with Swedish
GAAP. These accounting principles differ in certain significant respects from
U.S. GAAP. See Note 7 for a discussion of the principal differences between
Swedish GAAP and U.S. GAAP affecting the consolidated net income and
Shareholders' equity of the Company.
On April 17, 2002, Preem Petroleum AB and Norsk Hydro AS signed a
transaction structure agreement in which the parties agreed to combine the
operations, assets and liabilities of Scanraff and Scancracker into a joint
refining company with unified ownership shares and processing rights being held
75% by Preem and 25 % by Norsk Hydro. Preem and Norsk Hydro have agreed to use
Scanraff as such joint refining company by assigning all shares of Scancracker
to Scanraff in return for the issuance of such number of shares in Scanraff as
is required in order to meet the ownership ratio of 75% for Preem and 25% for
Norsk Hydro. As a consequence of this new structure we have adopted the
proportional method for group consolidation regarding Scanraff, meaning that 75%
of the financial accounts for Scanraff is consolidated in Preem Petroleum and
Preem Holdings.
The interim financial information included in the interim consolidated
financial statements is unaudited but reflects all adjustments (consisting only
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the results for the interim periods
presented. Interim results for the six months ended June 30, 2002 are not
necessarily indicative of the results to be expected for the full year.
There has been no material change in the Company's contingent
liabilities since December 31, 2001 (for further information see note 22 in the
Company's Form 20-F as of December 31, 2001).
6
<Page>
NOTE 2. SALES REVENUE
<Table>
<Caption>
SIX MONTHS ENDED
---------------------------------
JUNE 30,
---------------------------------
2001 2002
----------------- --------------
Supply and Refining........................... 16,805 13,589
Swedish Market................................ 5,214 4,778
International................................. 884 987
Group eliminations............................ (3,700) (3,467)
----------------- --------------
TOTAL......................................... 19,203 15,887
================= ==============
</Table>
NOTE 3. OPERATING INCOME
<Table>
<Caption>
SIX MONTHS ENDED
---------------------------------
JUNE 30,
---------------------------------
2001 2002
----------------- --------------
Supply and Refining........................... 658 706
Swedish Market................................ 27 23
International................................. (35) (7)
Other Non-allocated Income (expense), net..... 75 (549)
----------------- --------------
TOTAL......................................... 725 173
================= ==============
</Table>
NOTE 4. INVENTORIES
The valuation of inventories has been carried out at the lower of the
acquisition value and the actual value. The actual value for finished products
is the net sales value, and for crude oil it is the replacement costs. At June
30, 2002, the actual value of inventories was SEK35 million higher than the
acquisition value. There is a general practice within the Swedish oil industry
to lend and borrow products to/from other oil companies. The lending portion of
inventory volume is included in the inventory value in an amount of SEK10
million. Borrowed inventory volumes corresponds to an inventory value of SEK67
million, which is not included in the inventory value.
<Table>
<Caption>
AS OF AS OF
DECEMBER 31, JUNE 30,
2001 2002
----------------- --------------
Raw materials and supplies..................... 2,037 1,236
Finished products.............................. 1,714 2,291
----------------- --------------
TOTAL.......................................... 3,751 3,527
================= ==============
</Table>
7
<Page>
NOTE 5. SHAREHOLDERS' EQUITY
The changes in Shareholders' equity in Preem Holdings AB and
Subsidiaries for the period December 31, 2001 to June 30, 2002 are as follows:
<Table>
<Caption>
TOTAL
SHARE RESTRICTED UNRESTRICTED SHAREHOLDERS
CAPITAL RESERVES RESERVES EQUITY
--------- ------------ ------------ ------------
(SEK IN MILLION)
Balance at December 31, 2001............. 1 -- 3,111 3,112
Translation differences.................. -- -- 6 6
Changes in group structure............... -- -- 84 84
Net income............................... -- -- 123 123
Balance at June 30, 2002................. 1 -- 3,324 3,325
</Table>
NOTE 6. LONG-TERM LIABILITIES TO CREDIT INSTITUTIONS
AMORTIZATION PLAN
<Table>
<Caption>
2002 2003 2004 2005 2006 2007+
-------- -------- -------- -------- -------- --------
Bond loan....................... 2,773
Loans........................... 34 70 221 248 462 1,269
Capital lease obligation........ 6 14 24 30 33 1,018
-------- -------- -------- -------- -------- --------
TOTAL........................... 40 84 245 278 495 5,060
======== ======== ======== ======== ======== ========
</Table>
The Company has as of June 30, 2002 debt of SEK44 million secured by
real estate mortgages and debt of SEK458 million that is guaranteed by a
financial institution.
NOTE 7. U.S. GAAP INFORMATION
The accompanying interim consolidated financial statements have been
prepared in accordance with Swedish GAAP, which differs in certain significant
respects from U.S. GAAP. The following is a summary of the adjustments to net
income and Shareholders' equity that would have been required if U.S. GAAP had
been applied instead of Swedish GAAP in the preparation of the interim
consolidated financial statements.
<Table>
<Caption>
SIX MONTH PERIODS ENDED
------------------------
JUNE 30, JUNE 30,
---------- ----------
2001 2002
---------- ----------
(SEK IN MILLION)
Net income under Swedish GAAP............................................ 224 123
Adjustments to reconcile to U.S. GAAP:
Pensions (A).......................................................... 2 2
Pension refund (B).................................................... 6 46
Computer software for internal use (C)................................ 25 6
Changes in group structure (D)........................................ - 6
Income tax effect of U.S. GAAP adjustments............................ (9) (15)
---------- ----------
Net income under U.S. GAAP............................................ 248 168
========== ==========
Basic and diluted income per share in accordance with US GAAP (SEK) (E).. 49,600 33,600
========== ==========
Weighted-average number of shares outstanding (thousands) (E)............ 5 5
========== ==========
</Table>
8
<Page>
<Table>
<Caption>
AS OF AS OF
DECEMBER 31, JUNE 30,
2001 2002
------------- -------------
(SEK IN MILLION)
Shareholders' equity under Swedish GAAP ....... 3,112 3,325
Adjustments to reconcile to U.S. GAAP:
Pensions (A)................................ 58 60
Pension refund (B).......................... (62) (16)
Computer software for internal use (C)...... 18 24
Changes in group structure (D).............. - (78)
Tax effect of U.S. GAAP adjustments......... (4) (19)
------------- -------------
Shareholders' equity U.S. GAAP.............. 3,122 3,296
============= =============
</Table>
(A) Pensions -- The Company's operating subsidiary, Preem Petroleum AB and
its consolidated subsidiaries (the "Group") have various pension
schemes in accordance with local conditions and practices in the
countries in which they operate. Most of these schemes are defined
benefit pension schemes with retirement, disability, death and
termination income benefits. The retirement income benefits are
generally a function of years of employment and final salary with the
Company and are generally coordinated with local national pension
schemes. The Group's schemes are generally funded through payments to
insurance companies or to trustee-administered funds as determined by
periodic actuarial calculations. The Group policy for funding its
defined benefit plans is to satisfy local statutory funding
requirements for tax deductible contributions. The Company contributes
at least an amount equal to the minimum funding requirements for the
countries in which it maintains pension schemes. The Company also
participates in some multi-employer pension arrangements and defined
contribution pension arrangements. Under U.S. GAAP, the determination
of pension expense for defined benefit pension plans is made pursuant
to Statement of Financial Accounting Standard No. 87, "Employers'
Accounting for Pensions SFAS No. 87." SFAS 87 is more prescriptive
than Swedish GAAP in that it requires the use of specific actuarial
method (the projected unit credit method). SFAS 87 requires, under
certain circumstances, a minimum liability may be recorded with a
corresponding intangible asset and/or reduction of shareholders'
equity for plans that are underfunded.
(B) Pension refund -- The Swedish National Pension Fund decided during
late 1999 to repay some of its excess funds to the contributors to the
plan. The amount to be received is split into two parts: (i) 20% in
cash during September 2000; and (ii) 80% of future required payments.
Swedish GAAP allows the Company to account for this refund in income
during 2000 using a present value calculation of future payments.
Under U.S. GAAP the non-cash portion of the refund will be recognized
as an offset to future contributions. Total amount recognized in
Swedish GAAP amounted to SEK115 million.
(C) Computer software for internal use -- The cost of developing computer
software for internal use is expensed as incurred under Swedish GAAP.
Certain costs are capitalized under U.S. GAAP (SOP 98-1) and are
amortized over the expected economic life of the asset. The use of the
computer software system commenced in May 2002.
(D) Changes in group structure -- The reorganisation of shareholdings in
Scanraff and Scancracker resulted in a net increase of equity in
accordance with Swedish GAAP in an amount of SEK84 million. This
increase in value is however deemed as a negative goodwill under U.S.
GAAP and has been used to reduce the value of the underlying fixed
assets. The value is dissolved over the estimated remaining economic
life of the assets.
(E) Basic and diluted income per share data in accordance with U.S. GAAP
is presented assuming the current capitalisation of Preem Holdings AB
for all periods.
9
<Page>
A description of differences between Swedish GAAP and U.S. GAAP which
significantly affect the determination of net income and Shareholders' equity of
the Company is set forth in Note 25 to the Consolidated Financial Statements of
Preem Petroleum AB included in the Company's registration statement on Form
20-F.
The Company has adopted Statement of Financial Accounting ("SFAS") No.
130, "Reporting Comprehensive Income." Comprehensive income includes net income,
net unrealized gains or losses on available for sale securities and foreign
currency translation adjustments. Comprehensive income for the six months ended
June 30, 2001 and 2002 was SEK248 million and SEK174 million, respectively.
NOTE 8. INTERIM SEGMENT INFORMATION
Financial information by segment is as follows:
<Table>
<Caption>
THREE MONTHS ENDING SIX MONTHS ENDING
---------------------------- --------------------------
JUNE 30, JUNE 30,
---------------------------- --------------------------
2001 2002 2001 2002
-------------- ------------- ------------ -------------
(IN MILLIONS)
SALES REVENUE:
Supply and refining.................. 8,598 7,331 16,805 13,589
Swedish market....................... 2,546 2,383 5,214 4,778
International........................ 488 537 884 987
SEGMENT SALES REVENUE................ 11,632 10,251 22,903 19,354
Intersegment sales revenue........... (1,732) (1,826) (3,700) (3,467)
-------------- ------------- ------------ -------------
Sales revenues....................... 9,900 8,425 19,203 15,887
SEGMENT OPERATING PROFIT:
Supply and refining.................. 461 518 658 706
Swedish market....................... (15) (9) 27 23
International........................ (20) (7) (35) (7)
-------------- ------------- ------------ -------------
Segment operating profit............. 426 502 650 722
Other non-allocated income net(1).... (20) (384) 75 (549)
Income from operations............... 406 118 725 173
Non-allocated items(2)............... (199) (49) (384) 15
-------------- ------------- ------------ -------------
Income before income taxes........... 207 69 341 188
</Table>
(1) Other non-allocated income (expense) includes the corporate cost
center, non-recurring items and exchange rate differences.
(2) Non-allocated items consist of interest income and expenses, other
financial income and expense.
10
<Page>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
HIGHLIGHTS OF THE FIRST SIX MONTHS OF 2002
SUPPLY AND REFINING DIVISION
During the first six months of 2002, consumption of oil in Europe was
still lower compared to the previous year. The forecast is that the decrease in
consumption will end as a consequence of rising industrial activity.
Inventories have been flat over the period because OPEC has cut output
substantially. The cut in output has led to increasing oil prices with crude oil
going from $20/bbl to $25/bbl. Product prices have followed although not at the
same pace as crude oil, leading to depressed refining margins, especially in
February and March of 2002 when crude prices rose rapidly. The refining margins
recovered somewhat in June when crude prices fell back while gasoline remained
strong due to good demand from the US market.
The operations at the refineries have been stable, but throughput has
been reduced in periods with poor refining margins on the market. At Scanraff
the new propylene plant went into operation in June 2002.
On April 17, 2002, Preem Petroleum AB ("Preem") and Norsk Hydro AS
signed a transaction structure agreement in which the parties agreed to combine
the operations, assets and liabilities of Scanraff and Scancracker into a joint
refining company with unified ownership shares and processing rights being held
75% by Preem and 25% by Norsk Hydro. Preem and Norsk Hydro have agreed to use
Scanraff as such joint refining company by assigning all shares of Scancracker
to Scanraff in return for the issuance of such number of shares in Scanraff as
is required in order to meet the ownership ratio of 75% for Preem and 25% for
Norsk Hydro. As a consequence of this new structure, we have adopted the
proportional method for group consolidation regarding Scanraff, meaning that 75%
of the financial accounts for Scanraff is consolidated in Preem Petroleum and
Preem Holdings.
At its ordinary meeting held on May 22, 2002, Preem's board of
directors approved an investment of SEK2,500 million that will give Scanraff the
capacity to produce sulphur-free petrol and diesel. The resolution pertains to
Preem's 75% ownership in the Scanraff refinery. Norsk Hydro is in the process of
seeking approval from its board of directors for an investment for the same
purpose related to its 25% stake in the Scanraff refinery. The investment is
particularly important for Scanraff's competitive position in the market, its
capacity to increase the volume of transportation fuel, and its ability to meet
future environmental requirements. The primary objective of investment in
Scanraff is to reduce the sulphur content to a level below 10 parts per million,
and to reduce the content of aromatics, which are hydrocarbon compounds produced
in the distillation process at our refineries, and regulated by environmental
laws. The investment will also enable the Scanraff refinery to produce products
in compliance with the European requirements that come into force in 2005. A
precondition for the investment is that Scanraff must receive the necessary
environmental permits. The Swedish government is presently considering the
issue. The production of sulphur-free petrol and diesel implies a local increase
of carbon dioxide emissions, but the global impact will be lower because the
overall amount of emissions from consumers will be less.
As of May 7, 2002, Preem has disposed of all its shares in Greenergy
Fuels Ltd. Preem's shares in Greenergy Fuels Ltd. were purchased by Preem's
former partner in Greenergy Fuels, Greenergy International Ltd., for a
consideration of GBP1 million, which resulted in a gain of SEK1 million to
Preem.
The following tables show the calculation of margins for the Scanraff
(Preem's share) and Preemraff refineries.
11
<Page>
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------ ---------------------------
JUNE 30, JUNE 30,
------------------------------ ---------------------------
2001 2002 2001 2002
-------------- -------------- ------------- ------------
(IN DOLLARS/BARREL)
SCANRAFF
Gross refining margin.......................... $2.57 $1.87 $2.38 $1.45
Variable refining costs........................ (0.17) (0.22) (0.18) (0.22)
-------------- -------------- ------------- ------------
Refining margin................................ 2.40 1.65 2.20 1.23
Fixed operating costs.......................... (0.47) (0.45) (0.53) (0.50)
-------------- -------------- ------------- ------------
Net cash margin................................ 1.93 1.20 1.67 0.73
Depreciation................................... (0.26) (0.35) (0.30) (0.32)
-------------- -------------- ------------- ------------
Net refining margin............................ $1.67 $0.85 $1.37 0.41
-------------- -------------- ------------- ------------
Total production (000 barrels)................. 13,790 13,435 27,610 27,651
PREEMRAFF
Gross refining margin.......................... $1.72 $1.17 $1.44 $0.69
Variable refining costs........................ (0.19) (0.16) (0.17) (0.17)
Natural gas, refining fuel..................... (0.13) (0.11) (0.09) (0.11)
-------------- -------------- ------------- ------------
Refining margin................................ 1.40 0.90 1.18 0.41
Fixed operating costs.......................... (0.35) (0.57) (0.37) (0.42)
-------------- -------------- ------------- ------------
Net cash margin................................ 1.05 0.33 0.81 (0.01)
Depreciation................................... (0.37) (0.35) (0.42) (0.34)
-------------- -------------- ------------- ------------
Net refining margin............................ $0.68 $(0.02) $0.39 (0.35)
-------------- -------------- ------------- ------------
Total production (000 barrels)................. 10,279 7,862 20,820 17,429
</Table>
Preem's Supply and Refining Division generated EBITDA of SEK640 million
in the second quarter of 2002 compared to SEK581million in the second quarter of
2001, and EBITDA of SEK951 million in the first six months of 2002 as compared
to SEK897 million in the first six months of 2001.
SWEDISH MARKET DIVISION
In the Swedish Market Division, the decrease in consumption is notable
in the Home-heating oil sector. This is partly due to the mild winter, but also
to structural changes such as conversion of home-heating systems.
Within the Business-to-Business segment, Preem remains the market
leader within the product areas of diesel, heating oil and fuel oil.
The Saifa card and concept continue to develop well in the growing
diesel market. Volumes have increased by 12% compared to the first six months of
2001. In the gasoline market, the restructuring of Preem's network is continuing
and focused activities to increase sales through shops at gasoline stations are
being carried out.
The Swedish Market Division generated EBITDA of SEK30 million in the
second quarter of 2002 compared to SEK23 million in the second quarter of 2001.
The division generated EBITDA of SEK100 million in the first six months of 2002
as compared to SEK103 million in the first six months of 2001.
12
<Page>
INTERNATIONAL MARKET DIVISION
The business in Poland has been positively influenced by increased
volumes and margins while the sales of heating oil in Norway has decreased due
to the mild winter.
The International Division generated EBITDA of SEK0 million in the
second quarter of 2002 compared to negative EBITDA of SEK14 million in the
second quarter of 2001. The division generated EBITDA of SEK7 million in the
first six months of 2002 as compared to negative EBITDA of SEK23 million the
first six months of 2001.
CORPORATE COST CENTER
We book losses or gains in foreign exchange in operating activities
separately as "corporate costs" so that we can present a fair and accurate
result of the operating activities of each of our divisions. The "corporate cost
center" generated negative EBITDA of SEK 350 million in the second quarter of
2002 compared to positive EBITDA of SEK19 million in the second quarter 2001.
The "corporate cost center" generated negative EBITDA of SEK 481 million in the
first six months of 2002 compared to positive EBITDA of SEK149 million in the
first six months of 2001. The decrease resulted primarily from an increase in
foreign exchange losses made on our inventory, which is priced in Dollars.
PURCHASE OF SENIOR SECURED NOTES
On May 22, 2002, our board of directors approved the purchase of a
portion of our outstanding senior secured notes, which we issued last year.
We purchased a total amount of E15 million of our notes. We intend to use the
potential proceeds of any future sale of such notes to offset the interest
expense associated with our outstanding senior secured notes. Pursuant to the
indenture governing our senior secured notes, so long as we hold our notes,
which we purchase on the open market, such notes shall remain outstanding for
purposes of any payments, including principal and interest; however, such
notes are considered treasury notes preventing us from voting on matters
requiring direction, waiver or consent of all of the noteholders. We may
decide to purchase more of our senior secured notes in the open market in the
future.
13
<Page>
RESULTS OF OPERATIONS
The following table shows the sales revenues and operating income for the three
divisions discussed above:
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------ ------------------------------
JUNE 30, JUNE 30,
------------------------------ ------------------------------
2001 2002 2001 2002
--------------- ------------- --------------- -------------
(IN MILLIONS)
SALES REVENUE:
Supply & Refining........................ 8,598 7,331 16,805 13,589
Swedish Market........................... 2,546 2,383 5,214 4,778
International Market..................... 488 537 884 987
TOTAL SALES REVENUE...................... 9,900 8,425 19,203 15,887
OPERATING INCOME (LOSS):
Supply & Refining........................ 461 518 658 706
Swedish Market........................... (15) (9) 27 23
International Market..................... (20) (7) (35) (7)
Other non-allocated income (expense)..... (20) (384) 75 (549)
TOTAL OPERATING INCOME................... 406 118 725 173
</Table>
CONSOLIDATED STATEMENT OF OPERATIONS:
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------ ------------------------------
JUNE 30, JUNE 30,
------------------------------ ------------------------------
2001 2002 2001 2002
--------------- ------------- --------------- -------------
(IN MILLIONS)
Revenues................................. 12,140 10,225 23,738 20,555
Excise duties............................ (2,240) (1,800) (4,535) (4,668)
--------------- ------------- --------------- -------------
SALES REVENUE............................ 9,900 8,425 19,203 15,887
Costs of goods sold...................... (9,242) (8,031) (17,985) (15,172)
GROSS PROFIT............................. 658 394 1,218 715
Selling and administrative expenses...... (321) (329) (642) (668)
Other operating income................... 69 53 149 126
--------------- ------------- --------------- -------------
OPERATING INCOME......................... 406 118 725 173
Financial expense, net................... (199) (49) (384) 15
--------------- ------------- --------------- -------------
Income before taxes...................... 207 69 341 188
INCOME TAXES............................. (64) (17) (116) (61)
Minority interests....................... (0) (1) (1) (4)
--------------- ------------- --------------- -------------
NET INCOME............................... 143 51 224 123
=============== ============= =============== =============
</Table>
14
<Page>
THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001
REVENUES. Our revenues for the three months ended June 30, 2002 were
SEK10,225 million, a decrease of SEK1,915 million, or approximately 16%, from
SEK12,140 million for the three months ended June 30, 2001. This decrease is
attributable to the decrease in market prices for crude oil and products and to
the weaker Dollar. The average market price for dated Brent crude oil dropped by
approximately $2.30/bbl or approximately 8%, and the Dollar decreased by
approximately 4% against the Krona compared to the same period last year.
Because our sales are made principally in Dollars, a weaker Dollar, when
translated into Kronor, will result in a decrease in revenues if all other
factors remain constant over time.
SALES REVENUE. Sales revenue for the three months ended June 30, 2002
was SEK8,425 million, a decrease of SEK1,475 million, or approximately 15%, from
SEK9,900 million for the three months ended June 30, 2001, primarily as a result
of, and in the same proportions as, the factors discussed above.
COST OF GOODS SOLD. Cost of goods sold for the three months ended June
30, 2002 was SEK8,031 million, a decrease of SEK1,211 million, or approximately
13%, from SEK9,242 million for the three months ended June 30, 2001. The
decrease was primarily attributable to lower market prices for crude oil and
products and to the weaker Dollar.
GROSS PROFIT. Gross profit for the three months ended June 30, 2002 was
SEK394 million, a decrease of SEK264 million, or approximately 40%, from SEK658
million for the three months ended June 30, 2001. Price gains (in dollars) on
our inventory was more than offset by foreign exchange losses on our inventory
and lower sales margins and volumes due to the decrease in gross refining
margins. Throughput has been reduced in periods with poor refining margins on
the market.
SELLING AND ADMINISTRATIVE EXPENSES. Selling expenses for the three
months ended June 30, 2002 were SEK237 million, a decrease of SEK21 million, or
approximately 8%, from SEK258 million for the three months ended June 30, 2001.
The decrease in selling expenses is attributable to a reduction in costs for
sales personnel in our Swedish Market division and to savings in the sales
organization in Poland. Administrative expenses for the three months ended June
30, 2002 were SEK92 million, an increase of SEK29 million, or approximately 31%,
from SEK63 million for the three months ended June 30, 2001. The increase is a
largely a result of higher costs for technical and advisory services provided by
Capital Trust SA, and to the implementation of an IT project related to the
business operations at our head office in Stockholm, Sweden.
OTHER OPERATING INCOME. Other operating income for the three months
ended June 30, 2002 was SEK53 million, a decrease of SEK16 million, or
approximately 23%, from SEK69 million for the three months ended June 30, 2001.
SEK9 million of the decrease is attributable to the change in the method for
Group consolidation concerning Scanraff resulting from the transaction structure
agreement signed in April 2002. The former consolidation method included
Scanraff at 100% and the new method (the proportional method) includes Scanraff
at 75% (the other 25% of Scanraff is owned by Norsk Hydro). SEK2 million of the
decrease in other operating income is a result of a decrease in the sale of
storage certificates and SEK3 million of the decrease is attributable to lower
sales of waste heat sold by our Preemraff refinery to the City of Gothenburg.
OPERATING INCOME (LOSS). Operating income for the three months ended
June 30, 2002 was SEK118 million, a decrease of SEK288 million, or approximately
71%, from SEK406 million for the three months ended June 30, 2001. Price gains
(in dollars) on our inventory was more than offset by foreign exchange losses on
our inventory, accounted for under the corporate cost center, and lower sales
margins and volumes due to the decrease in gross refining margins The operating
income of our Supply and Refining Division was SEK518 million for the three
months ended June 30, 2001, an increase of SEK57 million, or approximately 12%,
from SEK461 million for the three months ended June 30, 2001. This increase in
operating income was in particular attributable to price gains on our oil
inventory and to sales of excess volumes from stock. Our Swedish Market Division
generated an operating loss of SEK9 million for the three months ended June 30,
2002, a reduced loss of SEK6 million, or approximately 40%, from an operating
loss of SEK15 million for the three months ended June 30, 2001. The decrease in
the Swedish Market Division's operating loss is to a large extent attributable
to higher sales margins, in particular in the Business to Business segment. The
operating loss of our International Division was SEK7 million for the three
months ended June 30, 2002, a reduced loss of SEK13 million, or approximately
65%, from an operating loss of SEK20 million for the three months ended June 30,
2001. The reduced operating loss was attributable to our International
Division's higher volumes and margins in the Polish market. As stated above, the
overall increase in operating income for these three divisions for the three
months ended June 30, 2002 compared to the three months ended June 30, 2001
15
<Page>
was more than offset by an decrease of SEK364 million in other non-allocated
income. This decrease in other non-allocated income resulted primarily from an
increase in foreign exchange losses made on our inventory, which is priced in
Dollars.
FINANCIAL EXPENSE, NET. Financial expense, net, for the three months
ended June 30, 2002 was SEK49 million, a decrease of SEK150 million from SEK199
million for the three months ended June 30, 2001. The principal components of
this decrease were the interest on the Preem Holdings note issuance of SEK73
million offset by increase in foreign exchange gains on the notes of SEK8
million and increase in foreign exchange gains on Dollar-denominated loans of
SEK139 million.
SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001
REVENUES. Our revenues for the six months ended June 30, 2002 were
SEK20,555 million, a decrease of SEK3,183 million, or approximately 13%, from
SEK23,738 million for the six months ended June 30, 2001. This decrease is
attributable to the decrease in market prices for crude oil and products and to
lower sales volumes. Crude oil prices were approximately $3.50/bbl or 13% and
sales volumes were 284,000 cubic meters lower or approximately 4% lower,
compared to the same period last year.
SALES REVENUE. Sales revenue for the six months ended June 30, 2002 was
SEK15,887 million, a decrease of SEK3,316 million, or approximately 17%, from
SEK19,203 million for the six months ended June 30, 2001, primarily as a result
of, and in the same proportions as, the factors discussed above.
COST OF GOODS SOLD. Cost of goods sold for the six months ended June
30, 2002 was SEK15,172 million, a decrease of SEK2,813 million, or approximately
16%, from SEK17,985 million for the six months ended June 30, 2001. The decrease
was primarily attributable to lower market prices for crude oil and products.
GROSS PROFIT. Gross profit for the six months ended June 30, 2002 was
SEK715 million, a decrease of SEK503 million, or approximately 41%, from
SEK1,218 million for the six months ended June 30, 2001Price gains (in dollars)
on our inventory was more than offset by currency losses on our inventory and to
lower sales margins and volumes due to the decrease in gross refining margins.
Throughput has been reduced in periods with poor refining margins on the market.
SELLING AND ADMINISTRATIVE EXPENSES. Selling expenses for the six
months ended June 30, 2002 were SEK470 million, an increase of SEK3 million, or
approximately 1%, from SEK467 million for the six months ended June 30, 2001.
Higher costs in our Station and Consumer segment for depreciation and
maintenance were to a large extent offset by lower costs for sales operations in
Sweden and by savings in the sales organization in Poland. Administrative
expenses for the six months ended June 30, 2002 were SEK198 million, an increase
of SEK23 million, or approximately 13%, from SEK175 million for the six months
ended June 30, 2001. The increase is a largely a result of higher costs for
technical and advisory services provided by Capital Trust SA, and to the
implementation of an IT project related to the business operations at our head
office in Stockholm, Sweden.
OTHER OPERATING INCOME. Other operating income for the six months ended
June 30, 2002 was SEK126 million, a decrease of SEK23 million, or approximately
15%, from SEK149 million for the six months ended June 30, 2001. SEK7 million of
the decrease is attributable to the change in the method for Group consolidation
concerning Scanraff. The former consolidation method included Scanraff at 100%
and the new method includes Scanraff at 75% (the other 25% of Scanraff is owned
by Norsk Hydro). SEK8 million of the decrease in other operating income is a
result of a decrease in the sale of storage certificates and SEK2 million of the
decrease is attributable to lower sales of waste heat sold by our Preemraff
refinery to the City of Gothenburg.
OPERATING INCOME (LOSS). Operating income for the six months ended June
30, 2002 was SEK173 million, a decrease of SEK552 million, or approximately 76%,
from SEK725 million for the six months ended June 30, 2001. Price gains (in
dollars) on our inventory was more than offset by foreign exchange losses on our
inventory, accounted for under the corporate cost center, and lower sales
margins and volumes due to the decrease in gross refining margins. The operating
income of our Supply and Refining Division was SEK706 million for the six months
ended June 30, 2002, an increase of SEK48 million from SEK658 million for the
six months ended June 30, 2001. This increase in operating income is largely
attributable to price gains on our oil inventory due to higher increase in
market prices for crude oil and products compared to the same period in the
previous year. Crude oil prices rose by approximately $6.50/bbl from January 1,
2002 to June 30, 2002,
16
<Page>
compared to a rise of approximately $4.10/bbl during the same period last year.
Our Swedish Market Division generated an operating income of SEK23 million for
the six months ended June 30, 2001, a decrease of SEK4 million, or approximately
15%, compared to an operating income of SEK27 million for the six months ended
June 30, 2001. The decrease in the Swedish Market Division's operating income
resulted from lower sales volumes in our Home-Heating segment and from higher
costs for depreciation and maintenance in our Station and Consumer segment. The
operating loss of our International Division was SEK7 million for the six months
ended June 30, 2002, a reduced loss of SEK28 million, from an operating loss of
SEK35 million for the six months ended June 30, 2001. The reduced operating loss
was attributable to higher volumes and margins in the Polish market. As stated
above, the overall increase in operating income for these three divisions for
the six months ended June 30, 2002 compared to the six months ended June 30,
2001 was more than offset by an decrease of SEK624 million in other
non-allocated income. This decrease in other non-allocated income resulted
primarily from an increase in foreign exchange losses made on our inventory,
which is priced in Dollars.
FINANCIAL EXPENSE, NET. Financial income, net, for the six months ended
June 30, 2002 was SEK15 million, an increase of SEK399 million from a financial
expense, net, of SEK(384) million for the six months ended June 30, 2000. The
principal components of this increase were the net interest on the Preem
Holdings note issuance of SEK76 million, offset by increase in foreign exchange
gains on the notes of SEK101 million and increase in foreign exchange gains on
Dollar-denominated loans of SEK332 million.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
Our primary sources of liquidity are internal cash generation,
long-term debt, short-term working capital financing and short-term use of
excise duties collected. We operate in an environment in which liquidity and
capital resources are impacted by changes in the prices for crude oil and
refined products, and a variety of additional risks, including currency and
regulatory risks. In particular, because we purchase crude oil on the spot
market and prices can be volatile, the availability of cash or short-term credit
is crucial to our business. Historically, our cash and short-term credit have
been sufficient to finance such purchases. For the six months ended June 30,
2002, EBITDA was SEK577 million, compared to SEK1,126 million for the six months
ended June 30, 2001. We believe the cash flow from operating activities, bank
borrowings and other available sources of funds, will be adequate to enable us
to make required payments on our debt and to fund anticipated expenditures and
working capital requirements for the foreseeable future.
CASH FLOW
Cash flow from operating activities before changes in working capital
was SEK127 million for the six-month period ended June 30, 2002 a decrease of
SEK789 million from SEK916 million for the six-month period ended June 30, 2001.
This decrease reflects the combination of a decrease in income before taxes and
an increase in unrealized exchange gains. However, we believe that a more
informative description of our underlying cash generation capability is to
include changes in working capital, which are primarily driven by differences
between product prices and volumes at period end. Cash flow from operating
activities before changes in working capital is not a GAAP-based measure of
liquidity or financial performance and should not be considered as a substitute
for operating earnings, net income, or other statements of operations data
computed in accordance with Swedish GAAP or U.S. GAAP. Funds depicted by this
measure may not be available for management's discretionary use.
Cash flow from operating activities was SEK529 million for the
six-month period ended June 30, 2002, a decrease of SEK833 million from SEK1,362
million for the six-month period ended June 30, 2001. This decrease is primarily
a result of the factors discussed above.
In Sweden, we collect government excise duties imposed on petroleum
products at the time of retail sale and subsequently remit them on a monthly
basis to the Swedish government. Excise duties were SEK4,668 million for the
six-month period ended June 30, 2002 compared to SEK4,535 million for the
six-month period ended June 30, 2001. The delay between the time we collect
these funds and the time we are required to remit them to the government enables
us to use the cash to finance a significant portion of our working capital
needs.
Cash flow used in investing activities was SEK496 million for the
six-month period ended June 30, 2002 compared to SEK380 million recorded for the
six-month period ended June 30, 2001. This increased use
17
<Page>
of cash flow in investing activities is the result of ordinary, variable
investments related to maintenance of the two refineries and day-to-day
investments made during the course of the period.
Cash flow from financing activities was SEK383 million for the
six-month period ended June 30, 2002 compared to a negative cash flow from
financing activities of SEK313 million for the six-month period ended June 30,
2001.
CREDIT ARRANGEMENTS, SHAREHOLDER INVESTMENT AND INTERCREDITOR
ARRANGEMENTS
As of June 30, 2002, we had total debt of SEK6,431 million and an
additional SEK2,416 million of available unused commitments. Our long-term debt
(excluding long-term bank overdraft facilities and shareholder loans) amounted
to SEK6,202 million as of June 30, 2002, the current portion of which was SEK70
million. We also had drawings under short-term debt of SEK229 million. These
loans and facilities are provided by various international banks. Our long-term
debt as of June 30, 2002 included SEK1,125 million incurred to finance the
desulphurization plant at Preemraff that became operational in 1997. This plant
was financed through a sale and leaseback financing that runs through the year
2023. As of June 30, 2002, our indebtedness bore interest at a weighted average
rate per year of 6.9%.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risk exposures are commodity price risk, foreign
currency risk and interest rate risk.
COMMODITY PRICE RISK
Changes in the price of commodities, such as crude oil, can affect our
cost of goods sold and the price of our refined products. Commodity price
changes can trigger a price effect on inventory, which can affect our revenues,
gross profit and operating income. Our inventory management strategies include
the purchase and sale of exchange-traded, oil-related futures and options with a
duration of twelve months or less. To a lesser extent, we also use oil swap
agreements similar to those traded on international exchanges such as the
International Petroleum Exchange, including crack spreads and crude oil options
that, because they contain certain terms, such as point of delivery, customized
to the market in which we sell, are better suited to hedge against the specific
price movements in our markets. The number of barrels of crude oil and refined
products covered by such contracts varies from time to time. We hedge amounts of
crude oil and refined products above and below optimal inventory levels, which
represent the volumes in stock and in transit within our system. These
strategies are designed to minimize, on a short-term basis, our exposure to the
risk of fluctuations in crude oil prices and refined product margins. This
hedging activity is closely managed and subject to internally established risk
standards. The results of these hedging activities are recognized in our
financial statements as adjustments to the refining costs of sales and inventory
costs. We do not engage in speculative derivatives transactions.
Fluctuations in the crude oil price have been significant over the last
three years. The three-year low of the monthly average dated Brent crude oil
price (free on board, Rotterdam) during this period was $18.68 /barrel in
December 2001, while the three-year high was $32.77/barrel in September 2000.
Monthly average prices decreased by as much as $7.48 from November to December
2000 and increased by as much $4.97 between April and May 2000.
Our revenues and cash flows, as well as estimates of future cash flows
are sensitive to changes in energy prices. Major shifts in the cost of crude oil
and the price of refined products can result in significant changes in the
operating margin from refining operations. Energy prices also determine the
carrying value of our inventory.
We enter into commodity derivative contracts from time to time, to
manage our price exposure to our inventory positions and our purchases of
foreign crude oil in the refining process, and to fix margins on certain future
production. The commodity derivative contracts may take the form of futures
contracts, collars or price swaps and are entered into with reputable
counter-parties. Gains and losses on futures contracts, realized and unrealized,
are recognized in cost of goods sold at the time the contract is bought or sold
(marked to market).
18
<Page>
o HEDGING ACTIVITIES/HEDGE OF INVENTORY: At June 30, 2002, we
had a short position in derivative contracts of Brent crude
oil and oil products of 6.6 million barrels. This position was
a hedge of our large inventory. The unrealized profit at the
quarter-end was SEK111million ($12 million).
o TRADING ACTIVITIES: At June 30, 2002, the following commodity
derivative contract was not treated as a hedge: a short
position on the refining margin for the first quarter of 2001
of 2.1 million barrels. The unrealized loss at the quarter-end
was SEK3 million ($0.3million).
FOREIGN CURRENCY RISK
We publish our financial statements in Kronor. However, our crude oil
purchases are primarily denominated in Dollars, our revenues are denominated in
both Dollars and Kronor, a portion of our indebtedness is denominated in
Dollars, a portion of our indebtedness is denominated in Kronor and a portion of
our indebtedness comprising the senior secured notes is denominated in Euros.
Consequently, fluctuations in the Dollar-Krona and Euro-Krona exchange rates can
affect our financial results. We incur substantial amounts of our borrowings in
Dollars to hedge our expenses to inventories, which are also priced in Dollars.
We primarily use forward exchange contracts and, to a lesser extent, currency
options and currency swaps to manage our foreign currency risk.
In the six-month period ended June 30, 2002, we estimate that we
received 62% of our revenues in Dollars and 38% in Kronor and that we incurred
78% of our costs and expenses in Dollars and 22% in Kronor. In the six-month
period ended June 30, 2001, we estimate that we received 64% of our revenues in
Dollars and 36% in Kronor and that we incurred 76% of our costs and expenses in
Dollars and 24% in Kronor. As of June 30, 2002, our Krona-denominated fixed-rate
indebtedness totaled SEK535 million and our Krona-denominated variable-rate
indebtedness totaled SEK1,703 million. As of June 30, 2002, our
Dollar-denominated fixed-rate indebtedness totaled $50 million and our
Dollar-denominated variable-rate indebtedness totaled $150 million. As of June
30, 2002, our Euro-denominated fixed-rate indebtedness totaled E305 million.
The table below presents, as of June 30, 2002 and December 31, 2001, a
summary of our financial instruments by functional currency and expected
maturity dates, which are derived from the Preem Petroleum AB and from the Preem
Holdings AB consolidated financial statements.
<Table>
<Caption>
PERCENTAGE
OF TOTAL
LONG- ESTIMATED
TOTAL TERM FAIR
2001 2002 2003 2004 2005 2006 2007+ VALUE DEBT (1) VALUE
---- ---- ---- ---- ---- ---- ----- ----- ---------- ---------
SEK SEK SEK SEK SEK SEK SEK SEK SEK
(IN MILLIONS, EXCEPT PERCENTAGES)
KRONA-DENOMINATED INDEBTEDNESS AS
OF JUNE 30, 2002:
Fixed rate debt--amount due 535 535 9% 535
Variable rate debt--amount due 40 84 245 49 37 1,248 1,703 27% 1,703
DOLLAR-DENOMINATED INDEBTEDNESS
AS OF JUNE 30, 2002:
Fixed rate debt--amount due 458 504 962 15% 962
Variable rate debt--amount due 229 229 4% 229
EURO-DENOMINATED INDEBTEDNESS AS
OF JUNE 30, 2002:
Fixed rate debt--amount due 2,773 45% 2,773
KRONA-DENOMINATED INDEBTEDNESS AS
OF DECEMBER 31, 2001:
Fixed rate debt--amount due - - - - - 64 64 1% 64
Variable rate debt--amount due 16 60 179 33 165 1,047 1,500 26% 1,500
DOLLAR-DENOMINATED INDEBTEDNESS
AS OF DECEMBER 31, 2001:
Fixed rate debt--amount due - - - - 534 - 534 9% 534
Variable rate debt--amount due 587 267 - - 854 15% 854
EURO-DENOMINATED INDEBTEDNESS AS
OF DECEMBER 31, 2001:
Fixed rate debt--amount due - - - - - 2,874 2,874 49% 2,874
</Table>
- -----------
19
<Page>
(1) Includes current portion.
Preem Holdings AB and its subsidiaries had, as of June 30, 2002, cash
and cash equivalents in foreign currencies amounting to SEK1,098 million of
which the equivalent of SEK880 million were denominated in Dollars, the
equivalent of SEK170 million were denominated in Euro and the equivalent of
SEK48 million were denominated in other European currencies.
INTEREST RATE RISK
In the normal course of our business, we hold various financial
instruments that expose us to the risk of loss arising from changes in the
market interest rates. We use interest rate swaps to manage our interest rate
risk, but did not have any open position at either June 30, 2002 or December 31,
2001. As of June 30, 2002, SEK1,497 million of our indebtedness required payment
at fixed rates and SEK4,705 million required payment at variable rates. As of
December 31, 2001, SEK598 million of our indebtedness required payment at fixed
rates and SEK2,353 million required payment at variable rates.
The table below presents, as of June 30, 2002 and December 31, 2001,
principal cash flows and related weighted average interest rates by expected
maturity dates.
<Table>
<Caption>
PERCENTAGE
OF TOTAL
LONG- ESTIMATED
TOTAL TERM FAIR
2001 2002 2003 2004 2005 2006 THEREAFTER VALUE DEBT (1) VALUE
---- ---- ---- ---- ---- ---- ---------- ----- ---------- ---------
SEK SEK SEK SEK SEK SEK SEK SEK SEK
(IN MILLIONS, EXCEPT PERCENTAGES)
AS OF JUNE 30, 2002:
Fixed rate debt--amount due - - - - 458 3,812 4,270 69% 4,270
Weighted average interest rate - - - - 5,6% 7,7% 6,9% - -
Variable rate debt--amount due 40 84 245 278 37 1,248 1,932 31% 1,932
Weighted average interest rate 4,6% 4,6% 4,8% 3,3% 4,8% 4,8% 4,6% - -
AS OF DECEMBER 31, 2001:
Fixed rate debt--amount due - - - - 534 2,938 3,472 60% 3,472
Weighted average interest rate - - - - 5,6% 10,5% 9,7% - -
Variable rate debt--amount due 16 60 765 300 165 1,047 2,353 40% 2,353
Weighted average interest rate 4,4% 4,5% 2,5% 3,3% 4,5% 4,3% 3,8% - -
</Table>
- ----------------------
(1) Includes current portion.
20