Statkraft – Q3 2007 - Satisfactory result
01.11.2007 08:00 | pressrelease
Profit after tax for third quarter of NOK 1,048 million (loss of NOK 290 million) ,and profit after tax for year-to-date of NOK 4,103 million (NOK 2,909 million) .
Reduction in sales revenues as a result of lower prices and output, but good results from trading activities
Agreements of significant strategic importance signed with E.ON AG and the Swedish company SCA
In the third quarter Statkraft Group posted a profit before tax of NOK 1,691 million (NOK 372 million) and a profit after tax of NOK 1,048 million (loss of NOK 290 million). Adjusted for unrealised changes in the value of financial instruments, the Group posted respective pre- and post-tax profits of NOK 1,248 million (NOK 1,596 million) and NOK 682 million (NOK 600 million). The company has signed a letter of intent with the German company E.ON that could make Statkraft Europe’s largest producer of renewable energy.
"The Group achieved a satisfactory result for the first nine months of the year, despite low prices. This is attributable to efficient financial trading, increased shares of income from associated companies and efficient operations," remarked President and CEO Bård Mikkelsen.
Highlights in the quarter
Statkraft and E.ON AG signed a letter of intent under the terms of which E.ON AG will acquire Statkraft's shareholding in E.ON Sverige AB in exchange for power generation assets and shares in E.ON AG. Statkraft will become Europe's largest producer of renewable energy following the implementation of this agreement.
Statkraft and the Swedish company SCA signed a ten-year industrial power agreement to deliver annual supplies of 500 GWh to SCA's business. A joint venture was also established to focus on renewable energy in Sweden. The plans include the construction of seven wind farms with a potential annual output of around 2.8 TWh, and the possible construction of hydropower facilities in four watercourses where SCA own waterfall rights.
The gas turbines and steam boilers at the two gas power plants in Germany (Knapsack and Herdecke) and at the gas power plant at Kårstø were started up for the first time and synchronised with the electricity grid.
The decision was taken to start construction of the world's first prototype osmosis power plant at Hurum in Buskerud. This represents an important step with regard to the future construction of a commercial plant. It has been estimated that this technology could contribute around 1,600 TWh of electricity globally each year.
The joint venture SN Power signed an agreement with the US energy company PSEG Global to purchase the latter's shares in the Peruvian company Electroandes SA for USD 390 million. This will make SN Power one of Peru's five largest power producers. In Chile, Statkraft has decided to start construction of a further hydropower plant and wind farm.
(Figures in brackets show comparative figures for 2006)
Market conditions and results
Gross operating revenues in the third quarter totalled NOK 3,117 million, a fall of 10% compared with the third quarter of 2006. Revenues fell by 11% to NOK 10,975 million in the first nine months of the year. Output declined by 19% to 29.1 TWh compared with the first nine months of 2006, while the average spot price fell by 213 NOK/MWh to 186 NOK/MWh.
Operating expenses for the nine months to 30 September 2007 totalled NOK 4,176 million, a year-on-year increase of NOK 518 million. The increase is primarily attributable to the consolidation of Fjordkraft, new business, project development and increased supplier costs.
The operating profit was NOK 1,005 million (NOK 1,574 million) for the third quarter and NOK 4,234 million for the first nine months of the year (NOK 6,364 million). Adjusted for unrealised changes in the value of financial instruments, the above figures represent respective quarter-on-quarter and year-on-year decreases of 36% and 38%.
The share of income from associated companies in the first nine months of the year was NOK 1,903 million. This represents an increase of NOK 1,316 million compared with the comparable prior-year period. The regional Norwegian companies Agder Energi and BKK, and E.ON Sverige made the largest contributions.
Net financial items in the third quarter of 2007 amounted to minus NOK 259 million, a decrease of NOK 1,498 million compared with the first nine months of 2006. The reduction is primarily attributable to an improvement of NOK 1,674 million in the unrealised changes in value of the Group's interest-rate and currency agreements. The majority of this change arose in the third quarter of this year due to the appreciation of the Norwegian krone against the Swedish krona and euro. The Norwegian krone depreciated against these two currencies in the third quarter of 2006. Financial expenses were also impacted by higher portfolio interest charges and increased loan volumes.
The spot price in the Nordic market was significantly lower in the first nine months of 2007 than in the corresponding prior-year period. Prices were also impacted by a strong hydrological balance. Precipitation was higher and consumption lower than normal due to the relatively warm weather.
Cash flow and capital structure in 2007
The business generated a cash flow of NOK 3.0 billion in the first nine months of the year, compared with NOK 7.2 billion in the comparable prior year period. Investments in the period totalled NOK 3.2 billion. Statkraft AS issued three bond loans under the EMTN scheme in the first nine months of the year. Total new borrowings amounted to NOK 9.9 billion, while NOK 4.6 billion was repaid in borrowings. Net liquidity changed by NOK 1.7 billion, while at the end of the third quarter the Group's cash and cash equivalents totalled NOK 3.4 billion, compared with NOK 1.8 billion at the start of the year.
Health and safety
The number of lost-time injuries per million hours worked for the third quarter was 5.9. This is a slightly worse result than in the corresponding prior-year period (5.6). Statkraft’s stated goal is for no accidents to occur in connection with its operations. The Group’s safety culture will be further enhanced through clear leadership, responsible involvement and a strategy of continuous improvement.
High inflows into the water reservoirs during the first three quarters of the year and relatively good snow reservoirs at the start of the year have resulted in a robust resource situation, while forward contract prices indicate higher prices for the end of the year. This will provide the basis for a relatively high power production in the fourth quarter and higher income from ongoing power sales. The Group also expects to achieve an increased contribution from hedging operations in 2007 than in 2006. In overall terms, the forecasts point to a further good annual result for the Statkraft Group in 2007, while the result of underlying operations is expected to be slightly weaker than in 2006. However, significant uncertainty attaches to price developments and thus revenue and profit forecasts.
Further work on the letter of intent relating to the swap deal between Statkraft and E.ON will require considerable attention from the entire organisation.
On the development side, the focus is on the testing and commissioning of Statkraft’s three gas power plants. There will also be a significant focus on the build-up of operational and market activities associated with these, as well as on innovation and the development of new technologies for power production.
High priority will be given to the follow-up of the agreement with SCA and options for wind power construction in Sweden, and Statkraft will continue to actively endeavour to find similar solutions with other industrial businesses.
In its national budget for 2008 the government proposed that Statkraft pay the Norwegian state a dividend for 2007 corresponding to 98% of its consolidated profit after tax and minority interests. In the long-term, a dividend set at such a high level will impact Statkraft’s opportunities with regard to continued innovation, growth and investment in new environment-friendly capacity.
The Statkraft Group is a leading player in Europe within renewable energy. The Group generates hydropower, wind power and district heating and constructs gas power plants in Norway and Germany. Statkraft is a major player on the European energy exchanges. In Norway the company supplies electricity and heat to around 600,000 customers through its shareholdings in other companies. In 2006 Statkraft recorded a profit after tax of NOK 6.3 billion (restated in accordance with IFRSs: NOK 7.6 billion), and employed more than 2,100 employees in nine countries. The world needs pure energy. Statkraft works to deliver this every day.