(Oslo, 27 August 2003) Statkraft Group reported gross pre-tax income of NOK 277 million and net income of NOK 108 million for the second quarter of 2003. This is a slight decline compared to the second quarter of last year, when the gross pre-tax income was NOK 339 million and the net income was NOK 240 million. The decline was mainly due to the fact that Statkraft's production volume during the quarter was relatively low as a result of the water situation. However, the fact that this year's power prices have been higher than last year's has to a large extent offset the reduction in the volume sold.
For the first half-year as a whole, the pre-tax income came to NOK 2,945 million while the net income amounted to NOK 1,808 million. This was an improvement of NOK 1,174 million and NOK 641 million respectively on last year's figures. The improvement in the half-yearly result can be traced to the first quarter, when earnings from power production and trading were high. This was due to the price of electricity being much higher during the first quarter of this year than in the first quarter of last year. The volume produced and sold during the first quarter of this year was about the same as last year.
The difference in the amounts earned during the first and second quarters is a result of natural seasonal fluctuations in the power market, although the effects this year are greater than normal due to the abnormally large price variations we have experienced.
"We attach much importance to managing water resources in a proper manner. Although Statkraft's water situation has been better than that of most of the other power producers, we have chosen, due to the rather low water levels in our reservoirs, to produce slightly less than normal. High power prices have, however, contributed to a strong financial result for the half-year," says Bård Mikkelsen, President and Chief Executive Officer.
Market conditions and the result
The market developments during the first half-year have been characterised by a normalisation of the price level from January (NOK 0.524 per kWh) to June (NOK 0.202 per kWh). Price developments on the Nordic Power Exchange must be seen in relation to the low water levels in the reservoirs at the start of the year due to the abnormally dry autumn we experienced last year. The total precipitation during the first half of 2003 was slightly greater than normal. This, together with a relatively low production level and high volume of imports, has improved the water situation in the Nordic market. The average spot price during the first half-year was NOK 0.313 per kWh, compared to NOK 0.144 per kWh for the same period in 2002 and NOK 0.202 per kWh for the same period in 2001.
Electricity consumption declined from the first half of last year to the first half of 2003. This was primarily due to high prices and the media focus. Nordic power production was also lower than last year as a result of the resource situation, and the Nordic Region imported 10.5 TWh. Imported power accounted for approximately 5 per cent of consumption.
Statkraft Group produced 19.2 TWh during the first half of this year, 3.1 TWh less than in the same period last year. Nevertheless, revenues rose as a result of the high prices and in all power production and power sales generated good earnings. Industrial contracts at prices determined by the authorities account for around 60 per cent of the production during the period. Statkraft Group's gross operating revenues came to NOK 6,208 million, compared to NOK 4,683 million during the first half of last year.
The Group's operating income for the first half-year amounted to NOK 3,550 million, compared to NOK 2,105 million for the first half of 2002. The parent company, Statkraft SF, contributed just over 75% of the operating income.
The share of the results of associated companies rose by NOK 84 million to NOK 624 million. This increase is due to Statkraft acquiring 45.5 per cent of the shares in Agder Energi and increasing its stakes in BKK and Sydkraft last year. The competition authorities have ordered Statkraft to sell its ownership shares in E-CO Vannkraft and Hedmark Energi. These companies have therefore been excluded since they are no longer regarded as being associated companies. Net financial costs rose by NOK 356 million as a result of last year's major investments.
With effect as from 1 September, Statkraft has sold its stake (91.89 per cent) in Statkraft Grøner AS, a consultancy company, to Sweco AB.
Prospects
Statkraft's earnings for the rest of the year are strongly dependent on developments in the power market, and the amount of precipitation will be of crucial significance to these. Despite the fact that the water situation and price levels have been normalised to a certain extent during the first half-year, the market is still volatile. There is therefore a great deal of uncertainty surrounding the development of the financial results. Provided the inflow and market circumstances for the rest of the year are more or less as in a normal year, however, Statkraft expects the results of its ordinary operations to be better than in 2002.
In December 2002, Statkraft asked its owner for a capital contribution of NOK 12 billion. The Norwegian Ministry of Trade and Industry has not yet finished discussing this capital issue. On 18 June, the Norwegian parliament (Storting) passed a resolution stating that the Government is to contribute new equity of NOK 10 billion to Statkraft, at the latest in connection with the State Budget for 2004, in order to strengthen the company.
The Storting has amended the Competition Act so that the basis for Statkraft's acquisitions in Norway has changed. The effect this may have on the competition authorities' order that Statkraft is to sell assets (E-CO Vannkraft, HEAS and Trondheim Energiverk) has still not been clarified. The Government is still dealing with the proposal to convert Statkraft into a limited liability company. It has not been finally made clear when a bill will be put before the Storting.
Statkraft is Norway's largest producer of electric power. The company's own average production capacity is a good 42 TWh p.a., or about 1/3 of the country's total hydropower production. Statkraft has a staff of about 2,100, including the subsidiaries Skagerak Energi and Trondheim Energiverk. The company is Norway's largest land-based taxpayer. Statkraft has ownership interests in the following Norwegian energy companies: BKK, Agder Energi and Fjordkraft. In terms of size the Statkraft Alliance is the third largest in the Nordic production market and the second largest in the Norwegian consumer market.
