Statkraft Second Quarter 2005: Production levels and financial results remain strong
18.08.2005 08.00 | pressrelease
(Oslo, 18 August 2005) The Statkraft Group's second quarter results were boosted by continued high levels of electricity production, substantial revenues from financial power sales, and a reduction in financial expenses, but were cut back slightly by non-recurring costs charged during the period. Pretax profit for the second quarter was NOK 1,554 m (NOK 511 m), while net profit was NOK 891 m (NOK 334 m). Pretax profit for the first half year as a whole was NOK 4,026 m (NOK 2,633 m), while net profit was NOK 2,630 m (NOK 1,825 m).
- Net profit of NOK 891 m for the second quarter (NOK 334 m)
- Net profit of NOK 2,630 m for the first half year (NOK 1,825 m)
- Financial results improved as a result of increased power production and reduced financial expenses
- Takeover of 24 hydropower plants in Sweden and Finland agreed
- Decision to construct two gas-fired power plants in Germany and one in Norway
"The results for the first half year are very good, and are our highest ever. We have coped with a cut in market prices and successfully managed our water resources and output," says CEO Bård Mikkelsen.
Market conditions and results
Consolidated revenues from power sales during the first half year increased by NOK 1,897 m to NOK 5,763 m compared with the same period last year. The group generated 25.4 TWh during the first half year (17.3 TWh). High production levels more than compensated for the fact that the price of electricity was NOK 21/MWh lower than last year, with sales on the spot market rising sharply. The level of water in Statkraft's reservoirs was higher than normal at the start of the year and despite high production levels it remained so at the end of the first half. Power sales contracts continue to generate good results.
Other operating revenues totalled NOK 1,327 m (NOK 1,530 m). Last year's result was boosted by extraordinary compensation revenues. Furthermore, the official revenue ceiling for distribution grid operations has been reduced. Gross operating revenues rose by NOK 1,694 m to NOK 7,090 m. Profits from associated companies fell by NOK 184 m to NOK 758 m, largely due to Sydkraft's substantial costs for repairing the damage caused by a hurricane that hit southern Sweden in January.
Operating expenses totalled NOK 2,471 m in the first half year (NOK 2,153 m). Just over NOK 160 m of the increase can be ascribed to accrual effects and new business ventures, NOK 40 m to increased power purchases by the retail sales business, and just over NOK 50 m divided between business development and day-to-day operations. Property tax rose by NOK 57 m.
The group's consolidated operating profit rose by 45 per cent to NOK 4,245 m at the end of the first half year (NOK 2,938 m).
Due to a reduction in the group's interest-bearing debt and a lower average interest rate on its debt portfolio, net financial expenses totalled NOK 977 m, compared with NOK 1,247 m last year. Taxes payable rose to NOK 1,396 m (NOK 808 m) as a result of higher taxable income.
During the first half year the power market was affected by high water levels in the reservoirs, greater precipitation and higher average temperatures than normal, leading to a fall in prices compared with last year. However, the fall was cushioned by high fuel prices for thermal power production and rising carbon quota prices. The spot price during the first half year was NOK 225/MWh compared with NOK 246/MWh in 2004.
Electricity consumption in the Nordic region rose by 0.7 per cent to 200.6 TWh compared with the first half of 2004. Consumption in Norway rose by 6.4 per cent. 202.0 TWh of electricity was generated in the Nordic region, an increase of 4.3 per cent compared with last year. Electricity production in Norway rose by 24.4 per cent. 1.4 TWh was exported from the Nordic market.
In July Statkraft signed a long-term agreement with Rio Doce Manganese Norway AS to supply around 450 GWh/year of electricity up to and including 2020. This comes in addition to a long-term agreement signed in April with Fesil to supply around 900 GWh/year from 2006 to 2020. The agreements are part of Statkraft's efforts to replace existing statutory-priced contracts with commercial contracts at market prices, and prove that there is a functioning market for long-term electricity contracts in Norway.
On 1 July Statkraft signed an agreement with Sydkraft to acquire 24 hydropower plants in Sweden and Finland, with an annual average output of 1.6 TWh, for around NOK 3.9 bn. The takeover will occur on 1 October this year.
Statkraft has decided to invest some NOK 4 bn in the construction of two gas-fired power plants in Germany, with production capacities of 800 MW and 400 MW respectively. Statkraft will own 50 per cent of the smaller plant, and has signed a Power Purchase Agreement with the Dutch company Essent for 33 per cent of the production capacity of the larger one. Essent is also considering whether to become a shareholder in the Knapsack project. The plants will give Statkraft a combined annual production of some 5-6 TWh.
Naturkraft, in which Statkraft and Hydro each have a 50 % stake, has decided to go ahead with the construction of a gas-fired power plant in Kårstø in western Norway. The planned capacity is 420 MW. Statkraft's share will result in 1.75 TWh/year at an estimated investment cost of NOK 1 bn.
Cash flow and balance sheet
The business generated a cash flow of NOK 7.6 bn in the first half, including the receipt of NOK 2.2 bn in connection with the agreement to lease out 65 per cent of the power produced by the Rana power plant for a period of 15 years, and NOK 1 bn in dividends. Investments totalled NOK 1.1 bn, of which half was spent on constructing wind power facilities. During the second quarter Statkraft redeemed and bought back several bond loans, expending NOK 6.4 bn on financing activities.
Cash reserves at 30 June 2005 totalled NOK 5.4 bn, which is on a par with 1 January 2005.
Statkraft concluded the sale of its 49 % stake in Hedmark Energi Holding AS (HEAS) to Eidsiva energi Holding AS after the close of the second quarter. The transaction releases NOK 2.1 bn and gives Statkraft a net gain of NOK 272 m both before and after tax.
At the end of the first half year the water level in Statkraft's reservoirs was somewhat higher than normal. Relevant forward contract prices indicate a slightly higher price level in the second half of 2005 than in the same period in 2004 The group's water reserves allow for continued high production levels. In 2004 pro forma net profit totalled NOK 4.4 bn, or NOK 3.2 bn adjusted for non-recurring items. It is estimated that non-recurring items in 2005 will represent a net expense of approx. NOK 300 million after tax. With the applicable price and production forecasts, and with inflow and market conditions roughly equivalent to a normal year, the group's business activities are expected to produce better results than in 2004.
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 41 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 Sydkraft.
 Figures in parentheses show comparable pro forma figures for 2004
Comment with respect to the enclosed financial statements
The Statkraft AS Group was established on 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 first quarter, first half 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 June 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.