Statkraft Third Quarter 2005: Financial results continue to rise
10.11.2005 08:00 | pressrelease
(Oslo, 10 November 2005) Profits for the Statkraft Group continued to strengthen in the 3rd quarter as a result of high production levels. Revenues from financial power hedging were considerable, financial expenses were reduced and gains from the sale of assets were taken to income during the quarter. Statkraft made a profit before tax of NOK 1,317 m (NOK 241 m) in the 3rd quarter, while the group's net profit totalled NOK 904 m (NOK 380 m). In the first 9 months of the year Statkraft made a profit before tax of NOK 5,343 m (NOK 2,874 m), while its net profit totalled NOK 3,534 m (NOK 2,205 m).
- Profits rise as a result of high production levels and reduced financial expenses
- Net profit of NOK 904 m (NOK 380 m) in the 3rd quarter 2005
- Net profit of NOK 3,534 m (NOK 2,205 m) for the first 9 months of 2005
- Phase 2 of Smøla Wind Farm goes into production
- Preparations made to sell off Trondheim Energiverk in compliance with Competition Authority directives
- Government proposes NOK 4,720 m in dividend for 2005
"We are very pleased with the employees' efforts. Our performance has continued to improve in the 3rd quarter. This year's results so far are our best ever. A high earnings level is a prerequisite if we are to continue developing the company and investing in new, environment-friendly energy," says CEO Bård Mikkelsen.
Market conditions and results
The power sales revenues in the first nine months of the year amounted to NOK 7,824 m, a rise of NOK 2,408 m compared with the same period last year. The group generated 34.0 TWh of electricity during the period (24.9 TWh). The high level of output more than compensated for a NOK 19/MWh fall in prices compared with 2004. Revenues from spot sales rose considerably. Statkraft had more water in its reservoirs than normal at the start of the year. Despite a high level of production, water levels were still higher than normal at the end of the 3rd quarter. Hedging activities continue to produce good results.
Other operating revenues totalled NOK 1,814 m (NOK 2,003 m). Extraordinary compensation payments were taken to income last year. Gross power sales revenues rose by NOK 2,219 m to NOK 9,638 m. The group's share of the profits from associated companies fell by NOK 37 m to NOK 953 m, largely as a result of the substantial costs incurred by E.ON Sverige (formerly Sydkraft) to repair the damage caused by a hurricane that hit southern Sweden in January.
Operating costs in the first nine months totalled NOK 3,691 m (NOK 3,330 m). Some NOK 100 m of this increase is due to accruals, NOK 50 m relates to provisions and write-downs, while NOK 100 m relates to new business and increased levels of activity. Property tax and depreciation increased by NOK 127 m.
The group's operating profit rose by 49 % to NOK 5,453 m at the end of the first nine months (NOK 3,651 m).
A cut in interest-bearing debt and lower average interest rates on the group's debt portfolio reduced financial expenses. Financial income includes gains on the sale of assets amounting to NOK 334 m. Net financial expenses totalled NOK 1,062 m at the end of the 3rd quarter 2005 (NOK 1,767 m).
High reservoir levels, as well as more precipitation and higher average temperatures than normal had an impact on the power market during the first nine months. Prices were lower than in the corresponding period last year. However, high fuel costs for thermal power generation and high carbon quota prices limited the fall in prices. During the first nine months the average spot price was NOK 228/MWh, compared with NOK 247/MWh in 2004.
Power consumption in Norway rose by 2.0 % compared with the first nine months of 2004, while consumption in the Nordic region as a whole fell by 1.5 % to 282.5 TWh. A total of 283.6 TWh was generated in the Nordic region, up 2.5 % from last year. Power production in Norway rose by 22.8 %. 1.1 TWh of electricity was exported from the Nordic market.
Statkraft opened Phase 2 of the Smøla Wind Farm in September. With a total of 68 wind turbines and an annual output of approx. 450 GWh, the facility is Europe's largest land-based wind farm. A total of NOK 1.2 bn has been invested in Smøla. The board of directors has approved the construction of the Kjøllefjord Wind Farm in Lebesby, Finnmark. Construction work will commence immediately. The wind farm will have an expected annual output of 150 GWh, and the investment requirement is estimated at NOK 365 m.
On 3 October Statkraft took over 24 hydropower facilities in Sweden and Finland, with an annual mean output of approx. 1.6 TWh. The transaction, which is priced at approx. NOK 4 bn, is based on an agreement signed on 1 July this year between E.ON Sverige and Statkraft.
Construction of the three gas-fired power plants in which Statkraft has decided to participate has started. Two gas-fired power plants are being built in Germany and one in Norway.
Sale of TEV underway
The Norwegian competition authorities have considered that the measures initiated by Statkraft to comply with the directives issued when Trondheim Energiverk (TEV) was acquired in 2002 are inadequate. The authorities have therefore not deemed the leasing out of 65 % of the production capacity of the Rana Power Plant to be a sufficiently compensatory measure. As a result Statkraft will proceed with its preparations for the sale of TEV.
Cash flow and balance sheet
The business generated a cash flow of NOK 8.1 bn in the first nine months of the year. This figure includes receipts of NOK 2.2 bn in connection with the agreement to lease out 65 % of the power produced by the Rana Power Plant for a period of 15 years, and NOK 1 bn in dividends received. Investments totalled NOK 1.9 bn, of which NOK 1.3 bn was spent on increasing the group's generating capacity. The sale of HEAS brought in NOK 2.1 bn. NOK 8 bn was used to repay debt. Cash and cash equivalents totalled NOK 5.6 bn at the end of the 3rd quarter, compared with NOK 5.3 bn at the start of the year.
The proposed state budget for 2006 stipulates that Statkraft must pay a dividend of NOK 4,720 m for 2005, which corresponds to over 90 per cent of the group's forecast net profit. The proposed dividend must therefore be considered extremely high in relation to the group's current earnings, and will weaken its ability to undertake new environment-friendly investments and reach its long-term objectives.
Statkraft's board of directors has established a dialogue with the Ministry of Trade and Industry with respect to this matter.
Relevant forward contract prices indicate a slightly higher price level in the fourth quarter 2005 than in the same quarter in 2004, and the group's reserves of water allow for continued high production levels.
Statkraft aims to be a European leader in environment-friendly energy. Based on more than 100 years of knowledge and investments, the Statkraft Group is well equipped for further growth and development - and has a clearly stated desire to create lasting value. Statkraft stands for sustainable development in both an environmental and a financial sense. The group produces a total of 42 TWh per year, 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 2,000 employees including the subsidiaries Skagerak Energi and Trondheim Energiverk. Statkraft also has shareholdings in the Norwegian power companies BKK, Agder Energi and Fjordkraft, as well as in the Swedish company E.ON Sverige.
Comment with respect to the financial statements
The Statkraft AS Group was established 1 October 2004 in connection with Statkraft SF's transition to a limited company. Real 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 and statement of cash flow include pro forma figures for the 3rd quarter, first nine months 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 30 September 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.
Figures in parentheses show comparable pro forma figures for 2004