Results and market conditions
The Group's power revenues in the first three quarters were slightly lower than in the same period last year because the Group has produced less electricity - and has sold it at a lower average price. However, the financial power trade operations' added value was more than NOK 600 million higher than during the same period last year, and the power-transmission costs were lower. The associated companies also contributed higher profits than during the same period last year and Statkraft has recorded a one-off compensation amount related to the termination of the agreement on a direct-current cable from Norway to the Netherlands.
"We're satisfied with the Group's profit performance," says Group President and CEO Bård Mikkelsen. "We're now seeing the results of the considerable investments we've made in our subsidiaries and associated companies. Even with a lower spot price, we've thus achieved a result after three quarters that is better than last year's and is the best Statkraft has ever achieved for this period."
Market developments during the first three quarters of this year were characterised by prices being lower than in the same period last year. The situation in the power market is now more normal than it was last year, resulting in a relatively stable spot price which was an average of NOK 0.247/kWh for the first nine months of the year, compared to NOK 0.294/kWh for the same period in 2003 and NOK 0.146/kWh in 2002.
During the first three quarters of this year, the total power consumption in the Nordic Region was 279.3 TWh, or 1.9 per cent more than in the same period last year. Power consumption in Norway was 6.3 per cent higher during this period. Nordic power production during the first three quarters of the year came to 270 TWh, or 3.4 per cent more than in the same period last year. The Nordic market imported 9.3 TWh.
The Statkraft Group produced 24.8 TWh during the first three quarters of this year, 2.9 TWh less than in the same period last year. Combined with lower prices, this meant that the Group's revenues fell by NOK 806 million to NOK 7 780 million.
Both the power-transmission and operating costs were lower than during the same period last year, and the Group achieved an operating income of NOK 4 127 million for the first three quarters of the year, compared to NOK 4 646 million for the same period in 2003. The associated companies improved their overall results and the profits from associates increased by NOK 376 million to NOK 1 020 million.
Stakes in other companies
In order to comply with the orders of the competition authorities, Statkraft entered into contracts earlier this year to sell its shares in E-CO Vannkraft and Hedmark Energi (HEAS). The company has also agreed to sell its stake in Kraftverkene i Øvre Namsen (KØN) - a group of hydroelectric power stations - and the rights to 65 per cent of the power produced by Rana Power Station for a period of 15 years.
Combined with increased transmission capacity in southern Norway, the contracts with E-CO and HEAS mean that Statkraft will comply with the competition authorities' orders to sell its production operations in this price area. The company is currently in dialogue with the authorities regarding the orders the company is under to sell power production in Central and Northern Norway.
In total, the sales and lease amount to just over NOK 8 billion. This will produce a pre-tax accounting gain of around NOK 1.6 billion. Provided the necessary approvals are granted by the authorities, etc, the sales are expected to be implemented in the accounts in 2004, while the Rana contract comes into force on 1 January 2005.
Business development
Statkraft and E.ON., which are the largest shareholders in Sweden's Sydkraft, entered into an agreement in principle in October that entitles Statkraft to buy hydroelectric power stations equivalent to an annual mean production of around 1.6 TWh from Sydkraft's subsidiary Graninge. Statkraft and Norsk Hydro also acquired Statoil's shares in Naturkraft AS in September. Statkraft and Norsk Hydro thus each own 50 per cent of Naturkraft and are currently working to realise a gas-fired power station at Kårstø. A final investment decision is planned to be reached by the summer of 2005.
Reorganisation into a limited company
On 1 October, Statkraft SF's corporate meeting agreed to reorganise the company. The reorganisation involved Statkraft SF's existing operations, with certain exceptions, being transferred to underlying limited companies owned by Statkraft SF. This reorganisation has been carried out in accordance with the Norwegian parliament's decision of 14 June 2004 to convert Statkraft into a limited company. The reorganisation and the financial effects of it are discussed in further detail in the quarterly report and on Statkraft's web site.
Future prospects
The income from ordinary operations is expected to be slightly higher in 2004 than it was in 2003. This is conditional on the market developing more or less normally for the rest of the year, and there is still a great deal of uncertainty relating to this. The income for 2004 will also include considerable one-off entries relating to gains on the sale of assets.
In its draft State Budget for 2005, the Government has proposed setting the dividend for 2004 at 78 per cent of the company's net income, ie, NOK 3.4 billion based on the Government's expectations. The basis for the dividend includes NOK 1.5 billion in estimated gains on the sale of power stations and shares. The Government has also suggested amending the parliament's previous decision that Statkraft AS's board of directors should be able to propose the dividend in accordance with the normal rules applicable to limited companies. The State Budget assumes a dividend of 75 per cent of Statkraft's income for the years 2006-2008.
"The Board is concerned that the proposal regarding dividend contributes to uncertainty regarding the framework for the planning and management of the Group's activities", says chairman of the Board Arvid Grundekjøn. "However, the Board is confident that, through a dialogue with Statkraft's owner, it will be possible to determine a level of dividend that safeguards business opportunities and future value creation. The Norwegian parliament and government have both stated that Statkraft is to be run on commercial principles. Among other things, this requires the company's dividend policy to be predictable."
For further information, please contact:
Executive vice president Christian Rynning-Tønnesen, tel: +47 24 06 79 77/+47 909 86 281 or
Executive vice president Ragnvald Nærø, tel: +47 24 06 71 00/+47 900 80 303
Senior vice president IR Lisbeth Lindberg, tel: +47 24 06 72 86/+47 995 23 150
