First Quarter 2005: High production levels give strong financial results
11.05.2005 08:00 | pressrelease
(Oslo, 11 May 2005) The Statkraft Group's first quarter income was boosted by high levels of electricity production. In addition, revenues from financial power hedging were substantial and financial costs were reduced. The major costs incurred by the associated company Sydkraft following a hurricane in southern Sweden did, however, pull down the group's overall financial result slightly. Statkraft achieved a pre-tax income of NOK 2,472 million (NOK 2,124 million), and a net income of NOK 1,739 million (NOK 1,493 million) in the first quarter 2005.
- Net income for the first quarter of NOK 1,739 million (NOK 1,493 million)1
- Increase in income due to increased production and reduced financial costs
- Signing of long-term market contract to supply electricity to Fesil in Mo i Rana
- Announcement of offer to redeem Norwegian bond debt worth NOK 14.2 billion
Market conditions and financial results
At NOK 3,117 million, the group's power sales revenues in the first quarter 2005 were NOK 818 million higher than in the corresponding period in 2004. The group's level of electricity production was high, which more than compensated for lower prices, and revenues from spot sales rose significantly. Despite high production, Statkraft ended the quarter with slightly higher reservoir levels than normal. Financial power hedging was slightly weaker than in the first quarter last year, but continued to perform well. Other operating revenues amounted to NOK 796 million (NOK 1,014 million). The reduction is due to the fact that compensation payments were taken to income last year. Gross operating revenues increased by NOK 600 million to NOK 3,913 million. Statkraft's share of the profits from associated companies fell by NOK 334 million to NOK 436 million, largely due to the major costs incurred by Sydkraft during the quarter to repair the damage caused by a hurricane in southern Sweden in January.
"These are the best first quarter profits we have ever had. By leveraging our water resource management and power optimisation skills, we have successfully handled a market situation characterised by reduced prices," says Statkraft CEO Bård Mikkelsen.
The power market started the year with a high water level in the reservoirs and substantial precipitation levels, which resulted in a drop in prices compared with last year. However, in February and March prices gradually returned to last year's levels. The average spot price for the quarter was NOK 213/MWh, compared with NOK 247/MWh in 2004.
Total electricity consumption in the Nordic region was 115.4 TWh in the first quarter, 1.5 per cent higher than last year. Consumption in Norway was 2.5 per cent higher. At 117.1 TWh, electricity production in the Nordic region was 5.8 percent higher in the first quarter 2005 compared with the same quarter in 2004. Electricity production in Norway rose by 20.8 per cent. Exports from the Nordic market amounted to 1.7 TWh of electricity, with Norway alone exporting 3.9 TWh.
The Statkraft Group generated 14.1 TWh of electricity in the first quarter, 4.1 TWh more than in the same quarter last year. Statkraft had a higher than normal level of water in its reservoirs at the start of the year. However, despite high production levels throughout the quarter, a substantial inflow of water ensured that the water level in the reservoirs is still higher than normal at the end of the quarter. In the Nordic region hydropower reservoirs were at 87 per cent of their normal level.
In April Statkraft entered into a long-term contract with Fesil to supply electrical power to Fesil's smelting plant in Mo i Rana. Under the agreement, Statkraft will supply approx. 0.9 TWh per year from 1 January 2006 until 31 December 2020. Up until now Statkraft has supplied power to Fesil for NOK 55/MWh under a statutory-priced industrial contract. This contract has now expired. The new contract is part of the group's efforts to replace statutory-priced contracts with contracts based on commercial terms and conditions.
Operating costs amounted to NOK 1,197 million in the first quarter 2005 (NOK 1,128 million). Half of the NOK 69 million increase relates to property tax, public charges and depreciation. The group considers that it has, on the whole, a satisfactory level of costs associated with ongoing operations.
The group made an operating income of NOK 2,504 million in the first quarter (NOK 2,012 million), an improvement of almost 25 per cent compared with the first quarter last year.
Net financial costs amounted to NOK 468 million (NOK 658 million). The reduction is due to lower interest-bearing debt and a lower average rate of interest on Statkraft's loan portfolio. Tax expenses rose to NOK 733 million (NOK 631 million) as a result of a higher taxable income.
Shareholdings in other companies
Statkraft has sold its 49 per cent shareholding in the former Hedmark Energiverk AS (HEAS) to Eidsiva energi Holding AS. The transaction is expected to be completed during the third quarter. The sales price is NOK 2.2 billion, which gives Statkraft a net profit of NOK 259 million both before and after tax.
In 2004 Statkraft signed an agreement in principle relating to the acquisition of hydropower plants in Sweden and Finland with an annual production capacity of around 1.6 TWh at a cost of NOK 4 billion. The specific contract negotiations with Sydkraft are expected to be concluded during the first half-year, with the transfer of assets taking place during the second half-year.
Cash flow and balance sheet
Operating activities generated a cash flow of NOK 4.7 billion in the first quarter. This includes a NOK 2.2 billion payment in connection with an agreement to lease out 65 per cent of the electricity produced by the Rana power plant for a period of 15 years. The agreement came into effect 1 January this year. Investments totalled NOK 380 million, of which half went to the construction of wind power generation facilities. There was no net change in total borrowing, while cash reserves increased by NOK 4.3 billion to NOK 9.6 billion.
The scale of the cash reserve must be seen in light of the fact that Statkraft SF (owner of Statkraft AS) has offered to redeem the bulk of its Norwegian bond debt amounting to NOK 14.2 billion. Bondholder meetings will take place in the second half of May, with redemption planned for late May/early June. The redemption will be financed by Statkraft AS repaying loans to Statkraft SF in an amount corresponding to the sum redeemed by Statkraft SF.
A liability for stamp duty has accrued as a result of Statkraft's transition to a limited company and the transfer of real estate from Statkraft SF to Statkraft Energi AS. The duty will be charged as an expense as the transfer of title takes place, and most of the duty will accrue in 2005. The size of the final liability remains uncertain at this stage. The outstanding liability may reach NOK 1.8 billion, in which case NOK 1.5 billion is expected to accrue in 2005.
Statkraft's pro forma net income for the year in 2004 was NOK 4.4 billion. Adjusted for non-recurring items, primarily gains on the sale of assets, income from ordinary operations amounted to NOK 3.2 billion. Non-recurring items (net negative) will accrue in 2005, primarily stamp duty, gains from the sale of shares in HEAS and repair costs incurred by Sydkraft.
At the end of the first quarter Statkraft had a slightly higher than normal level of water in its reservoirs. Forward contracts for power indicate a slightly lower price level in 2005 than in 2004, but the group's water level is sufficient to maintain a high level of production. With the current expectations that price and production levels, as well as inflow and market conditions, will be at normal levels, the group's total income is expected to be slightly lower than in 2004. Results from ordinary operations (before non-recurring items) are expected to be slightly better than in 2004, though this assessment is highly uncertain.
Statkraft aims to be a European leader in environment-friendly energy. Backed by over a century of knowledge and investment, the group is well situated for further growth and development, and it is dedicated to creating lasting value. We contribute to sustainable development financially, environmentally and socially. Generating a total of 41.3 TWh of electricity, Statkraft is the Nordic region's third largest power producer, and the second largest European producer of electricity based on renewable energy sources. Including Skagerak Energi and Trondheim Energiverk, the group employs some 2,000 people. Statkraft also holds shares in the Norwegian energy companies BKK, Agder Energi and Fjordkraft, as well as in Sydkraft in Sweden.
1 Comparable pro forma figures for 2004.
Comment with respect to the financial statements
The Statkraft AS Group was established on 1 October 2004 in connection with Statkraft SF's transition to a limited company. Actual comparable figures for 2004 in the financial statements below apply to the period subsequent to the group's establishment. To provide an adequate basis for comparison with previous periods, the group's income statement includes pro forma figures for the first quarter and the whole of the 2004 financial year. The pro forma figures have been calculated on the assumption that the reorganisation was applicable to the entire period. Pro forma figures as at 31 March 2004 have been included in the balance sheet. These figures have been calculated on the assumption that the reorganisation had taken place on that date.