Statkraft in the fourth quarter 2004: Good financial trading and significant capital gains
17.02.2005 08:00 | pressrelease
(Oslo, 17 February 2005) Significant capital gains had a positive effect on the Statkraft Group's fourth-quarter income. The preliminary pre-tax income for the year after adjusting for non-recurring items was NOK 4,039 million (NOK 4,754 million) and the net income was NOK 3,354 million. The improvement in the net income is attributed primarily to the reversal of tax provisions made in earlier years.
- Net income of NOK 2,242 million in fourth quarter
- Capital gains of NOK 1.3 billion after tax recognised as income in fourth quarter
- Preliminary net income for the year of NOK 4,600 million (NOK 2,867 million)
- Total of NOK 8.7 billion in capital release
Market conditions and results
The group's revenues from power sales for the year declined by NOK 2,037 million to NOK 7,287 million. In the fourth quarter the decline was over NOK 1 billion. Both the production volume and the average price were lower than in 2003. The added value from the financial power trading totalled NOK 1.8 billion in 2004. This has counteracted the effect of the decline in volume and price to a certain extent. The capital gains that were recognised as income in the fourth quarter 2004 were posted to the accounts as other revenues, NOK 1,010 million and financial income, NOK 332 million. Income from the associated companies increased by NOK 415 million to NOK 1,529 million.
"Statkraft has strengthened its financial position during 2004. This enables profitable growth. The underlying operations are good, and our profit performance and rate of return are satisfactory. We are seeing results from our expertise in production management and financial trading," says CEO Bård Mikkelsen.
The power market was relatively stable in 2004, but the prices declined somewhat towards the end of the year due to substantial precipitation and high temperatures. The average spot price for 2004 was NOK 0.242/kWh, as compared to NOK 0.291/kWh for 2003 and NOK 0.201/kWh for 2002.
The total power consumption in the Nordic region was 385.4 TWh in 2004, or 2.2 per cent higher than the previous year. Consumption in Norway was 5.6 per cent higher. The Nordic power production increased by 2.1 per cent in 2004 to 374.6 TWh. The Nordic market imported 10.8 TWh of power, and Norway alone imported 10.7 TWh of this amount.
The Statkraft Group produced 34.3 TWh in 2004, which was 4.9 TWh less than in 2003. Statkraft entered 2004 with low water reservoir levels, and therefore increased its reservoir levels during the course of the year. At the end of the year the reservoirs in the Nordic region were at 102.5 per cent of normal.
The operating expenses totalled NOK 4,663 million in 2004 (NOK 4,929 million). In both years, the operating expenses included non-recurring items. NOK 155 million in stamp duty will be charged as an operating expense in 2004 in connection with Statkraft's reorganisation as a limited company. The operating expenses remained more or less unchanged from 2003 to 2004 after adjusting for non-recurring items.
When the capital gains and stamp duty are excluded, the group's operating income is NOK 990 million for the fourth quarter and NOK 5,117 million for the year 2004 (NOK 6,264 million).
The tax charges for 2004 totalled NOK 626 million (NOK 1,887 million). The extraordinary tax reversals in 2004 totalled approximately NOK 700 million. Some of the reversals are the result of the Storting's adoption in 2004 of tax exemption for gains on asset sales. If an adjustment is made for non-recurring items in the income and the extraordinary reversal of tax provisions, the net income for 2004 is NOK 2,656 million.
Rate of return
The rates of return from the ordinary operations in 2004 show a slight decline from 2003 before tax and some improvement after tax. The level is satisfactory when the reduced price level and lower annual production are taken into account, along with the considerable portfolio of industrial contracts at prices determined by the Norwegian Storting (parliament) and the high level of tax on power companies in Norway.
Capital gains and capital release
Total capital of NOK 8.7 billion will be released through the sale of shares and fixed assets for NOK 6 billion, the sale of rights (the Rana agreement) for NOK 2.2 billion, and the redemption of loans totalling NOK 0.5 billion. Settlement has been made in 2004 for NOK 4.3 billion of this amount, while the remaining cash flow of NOK 4.4 billion will be generated in the first half of 2005.
The sales will give a book gain of NOK 1.6 billion before and after tax. NOK 1,342 million of this amount has been recorded in the accounts for 2004. The sale of shares in the former Hedmark Energiverk AS (HEAS) will be completed with effect in the accounts in 2005 and will give a gain of NOK 259 million.
Cash flow and capital
The net cash flow from operations was NOK 3.9 billion. Investments totalled NOK 1.8 billion, while the sale of assets provided NOK 4.2 billion. After the payment of NOK 2.8 billion in dividends and the net repayment of NOK 1.3 billion in long-term debt, the group had cash and cash equivalents of NOK 6.3 billion at the end of the year (NOK 3.2 billion).
A provision for a dividend of NOK 3.4 billion for 2004 has been made, and the group's equity ratio at the end of the year was accordingly 40.8 per cent of the total assets. Interest-bearing debt totalled NOK 38.7 billion. This gives an interest-bearing debt ratio of 51.2 percent (54.1 per cent).
Agreement in principle for the acquisition of hydropower plants in Sweden and Finland
Statkraft has entered into an agreement in principle to purchase hydropower plants in Sweden and Finland with an annual production capacity of approximately 1.6 TWh for around NOK 4 billion. The final contract is under preparation, and the acquisition is expected to be completed in the first half of 2005.
Outlook for the future
Statkraft reorganised into a publicly limited company on 1 October 2004. In connection with the transfer of real estate from Statkraft SF to Statkraft Energi AS, a stamp duty will be imposed. This duty will be recognised as an expense when the titles are transferred, and most of this duty will be incurred in 2005. There is some uncertainty concerning the amount of the duty, and Statkraft is engaged in a dialogue with the authorities concerning the calculation principles. The remaining duty may represent a charge of up to NOK 1.8 billion against operating income.
Statkraft entered 2005 with water reservoir levels that are somewhat higher than normal. Under the current price assumptions, and with inflow and market conditions more or less equivalent to a normal year, the results of the company's ordinary operations are expected to be about the same as in 2004. There is, however, a great deal of uncertainty associated with these estimates.
*(Figures for the corresponding period in 2003 for comparison)
Statkraft aims to be a leading European company in the field of environmentally friendly energy. Formed by over 100 years of knowledge and investment, the group is well prepared for further growth and development, with a stated will for long-term value creation. Statkraft stands for sustainable development in both environmental and economic terms. Statkraft produces a total of 42 TWh per annum, making it the third largest producer of electricity in the Nordic region and the second largest producer of renewable energy in Europe. The group has approximately 2000 employees, Skagerak Energi and Trondheim Energiverk inclusive. Statkraft also owns interests in the Norwegian power companies BKK, Agder Energi and Fjordkraft, as well as Swedish Sydkraft.