Statkraft - Third Quarter 2006
09.11.2006 08:00 | pressrelease
Both output and prices were high in the third quarter, as they had been in the first half of the year, and this resulted in substantial power sales revenues. However, financial and tax expenses increased, while the Group's profit shares declined. Overall profit for the quarter was therefore weaker than in the third quarter last year. Profit before tax for the quarter totalled NOK 1,233 million (NOK 1,317 m), while net profit totalled NOK 380 million (NOK 904 m). For the first nine months of the year the Group made a profit before tax of NOK 7,380 million (NOK 5,343 m), while profit after tax totalled NOK 4,575 million (NOK 3,534 m).
Third-quarter net profit of NOK 380 million (NOK 904 m)1
- High power sales revenues offset by increased financial and tax expenses
- Accumulated net profit of NOK 4,575 million (NOK 3,534 m) for the first threequarters
- High output and high electricity prices have produced a strong performance so far this year
- Government proposes dividend of 98% for 2006
"The third quarter result is influenced by various factors. We received substantial power sales revenues, and operations were good throughout the quarter. However, financial items, tax and production outages combined to weaken our overall performance," says CEO Bård Mikkelsen. Low presipitation, the outage at Svartisen power plant, record high prices for primary energy and the nuclear power situation in Sweden will continue to affect the market in the fourth quarter.
Market conditions and financial performance
The Group had gross operating revenues of NOK 12,080 million in the first nine months of the year. This is NOK 2,442 million higher than in the same period in 2005, a rise of 25 %. Output rose from 34.2 TWh after nine months last year to 36.3 TWh this year. 1.0 TWh of the 2.1 TWh increase derives from new business activities in Sweden and Finland. The average spot price rose from NOK 228/MWh to NOK 399/MWh. Revenues from hedging activities were lower than in the first nine months of last year.
Operating costs totalled NOK 3,776 million in the first nine months of the year, an increase of NOK 85 million compared with the same period in 2005. The rise in costs can be ascribed to the consolidation of new businesses, the start-up of new generating facilities and the periodic adjustment of the basis for calculating property tax. This is partly offset by adjustments in the way pension costs and periodic maintenance are dealt with in the accounts to comply with IFRS.
The Group's operating profit in the first nine months of the year rose by 40 % to NOK 7,611 million (NOK 5,453 m).
The Group's share of the profits from associated companies rose to NOK 1,157 million (NOK 953 m). The Norwegian regional companies increased their contribution by NOK 121 million, while the contribution from E.ON Sverige rose by NOK 85 million. The associated companies have increased their results due to high prices, however their performance is affected by lower than normal reservoir water levels. E.ON Sverige's results were affected by a halt in its nuclear power production. Statkraft's share of the profits from E.ON Sverige is based on estimates for the last three months.
Lower interest-bearing debt and slightly lower current interest rates on its borrowing portfolio reduced net financial expenses, but this is offset by foreign exchange losses on currency hedging in the last quarter. Net financial expenses are also higher this year because last year's figure included the gain on the sale of Hedmark Energi Holding AS. Net financial expenses totalled NOK 1,389 million (NOK 1,062 m) in the first nine months of this year.
The Nordic power market was affected by lower than normal precipitation levels, low snow reserves and high consumption in the first nine months of this year. In the last quarter in particular a weak hydrological balance, with low reservoir water levels, and a halt in Swedish nuclear power production have kept prices high. The average spot price in the first nine months of the year therefore stands at NOK 399/MWh (up 75 %).
Electricity consumption in the Nordic region rose by 2.2 % compared with the first nine months of last year to 288.8 TWh. A total of 280.0 TWh was generated in the Nordic region during the period, a fall of 1.2 %. Net electricity imports into the Nordic market totalled 8.8 TWh.
In the national budget for 2007, which was announced in October, the government proposes to set the dividend from Statkraft at 98 % of the Group's consolidated profit after tax and minority interests. The high level of dividend could lead to the imposition of a tax correction.
Construction of two gas-fired power plants in Germany and one in Norway is going according to plan. Kjøllefjord Wind Farm was opened in October. Construction of the Heimdal district heating facility and the new Leirfossene power plant is also underway.
In the proposed national budget the government announced its intention to finance the carbon capture and storage facility at the Kårstø gas-power plant.
To achieve a closer level of coordination between Trondheim Energiverk (TEV) and Statkraft, and to realise economies of scale within the Group, it has been decided that energy optimisation and hedging associated with TEV's hydropower portfolio shall be undertaken by Statkraft's Generation & Markets business unit. TEV shall remain as a regional company and shall continue to own, operate and maintain its generating facilities.
At the start of November it became clear that the Svartisen power plant will be out of operation for four to five months. The power plant has an installed capacity of 350 MW, and a mean annual output of 2.2 TWh.
Cash flow and capital
Operating activities generated a cash flow of NOK 7.6 billion in the first nine months of the year. Net investments totalled NOK 3.2 billion, of which NOK 1.7 billion relates to the Group's gas-power projects. Net debt repayments of NOK 0.9 billion were made, while group contribution of NOK 4.8 billion was paid. Cash and cash equivalents at the end of the third quarter totalled NOK 3.0 billion, NOK 1.4 billion less than at the start of the year.
In November Statkraft issued new bond loans amounting to NOK 4.3 billion with a 10-year term in the Norwegian bond market. The issues will be listed on the Oslo Stock Exchange and are included in the Euro Medium Term Notes programme which was set up in the second quarter. The bonds have been issued to finance debt repayments which fall due in December and January.
The government has proposed that Statkraft's dividend payment for 2006 is set at 98 % of its consolidated profit after tax and minority interests. The national budget estimates a dividend payment of NOK 5,880 million, based on previous profit forecasts. Over time, such a high level of dividend will affect Statkraft's ability to develop new business opportunities, grow and invest in new capacity. The Board has recommended a long-term dividend level of 50 %. The Board has further proposed that the Companies Act's principal rule for setting dividends, i.e. that the AGM cannot vote to distribute a higher dividend than that proposed or approved by the Board of Directors, should be implemented for Statkraft.
Given the reservoir water levels at the end of the third quarter, the outage at Svartisen power plant and a relatively normal level of precipitation during the rest of the year, the Group expects its total annual output to be slightly lower than in 2005. The market's price expectations have been adjusted downwards recently, but remain at a high level for the rest of the year. Overall the power sales revenues are expected to be lower in the fourth quarter of this year compared with the forth quarter in 2005. The Board expects that net profit for the year will be lower than the estimate on which the government's dividend proposal was based.
1 Figures in parentheses show the comparable figures for 2005
Statkraft is Europe's second largest company within renewable energy. We produce hydropower and wind power, we build gas-fired power plants and we focus on innovation with a clear ambition to deliver the energy solutions for the future. We are a considerable actor on the European Power Exchanges, with special expertise within physical and financial power trading. We had gross revenues of around NOK 15 billion and total assets of NOK 91 billion in 2005. More than 2000 employees in Norway, Sweden, Finland, Germany, The Netherlands, Great Britain and Bulgaria create value every day. Together we strive to be a European leader in environment- friendly energy.