Financial performance

In order to give a better understanding of Statkraft’s underlying operations, unrealised changes in value and material non-recurring items within the Group and associates have been excluded from the financial review for the Group and the segments. Further information on these items can be found in the section “Items excluded from the underlying profit” later in the report.

At the beginning of the year, Statkraft had a total installed production capacity of 14 857 MW, of which 2433 MW was added through take-over of power plants from E.ON on 31 December 2008. The increase is mainly in hydropower and gas power. From 2009, SN Power was consolidated as a subsidiary, this increasing the Group's production capacity by an additional 621 MW as a result.

Annual profit**

The profit before tax for the year was NOK 10 654 million (NOK 11 960 million), while the profit after tax was NOK 6468 million (NOK 8097 million). However, 2008 was a historically good year, with both high power prices and high capacity utilisation. Both operating revenues and expenses increased in 2009 as a result of the added activities. The group's production capacity increased by about 25 per cent in 2009.

See graph EBITDA and net profi, underlying operations

Return on investment

Measured in ROACE – Returns on Average Capital Employed – the Group achieved a return of 15.2 per cent in 2009 (26.6 per cent). The decline of 11.4 percentage points is due to both higher average capital employed and lower operating profit.

The return on equity was 10.2 per cent after tax (15.6 per cent), and the return on total assets after tax was 5.8 per cent (9.9 per cent). The reduction is attributable to lower earnings, as well as higher average equity and total capital as a consequence of the E.ON transaction and the consolidation of SN Power. 

Operating revenues

Gross operating revenues increased by 2 per cent to NOK 25 675 million (NOK 25 061 million).

The average system price for the year on the Nord Pool power exchange was 35.0 EUR/MWh (44.7 EUR/MWh) and the average spot price on the European Energy Exchange (EEX) in Germany was 38.9 EUR/MWh (65.8 EUR/MWh). Compared with the historically high prices in 2008, the decline was 22 and 41 per cent, respectively. Compared with the average prices for the years 2004-2008, however, the decline was less substantial, 2 per cent in the Nordic region and 15 per cent in Germany.

The Group produced 56.9 TWh (53.4 TWh) in total. Hydropower production increased by 2.7 TWh, of which 2.0 TWh relates to SN Power, which has been consolidated as a subsidiary since 2009. In addition, European hydropower production outside of Norway increased by 4.2 TWh as a result of new production capacity from the asset swap with E.ON AG. Lower prices and reduced demand from energy-intensive industry reduced hydropower production in Norway by 3.4 TWh. New gas-fired power plants in Germany and higher production at Kårstø in Norway increased gas-based power production by 0.7 TWh. Wind power production was somewhat higher than in 2008.

Lower prices resulted in net physical spot sales falling by NOK 2204 million to NOK 10 464 million. The revenues from the hedging activities and trading and origination compensated for most of the decline and increased by NOK 433 million and NOK 1171 million, respectively. The realisation of EUA and CER contracts worth about NOK 800 million in Germany in December is a significant factor in the improvement of revenues from trading and origination. These revenues are offset by reduced unrealised gains for energy contracts slightly exceeding NOK 600 million. Revenues from grid and end-user activities were on a par with 2008, but the income from the district heating activities increased by NOK 134 million as a result of new assets in Sweden from the asset swap with E.ON AG.

Power sales to the industry under politically determined contracts amounted to 8.8 TWh, resulting in an estimated revenue reduction of NOK 981 million compared with selling the same volume at spot price.

Other operating revenues amounted to NOK 960 million for the year (NOK 856 million). The increase is mainly from revenues from Tyssefaldene.

Energy purchases totalled NOK 4825 million (NOK 4416 million). The increase is primarily related to new district heating plants in Sweden from the asset swap with E.ON AG and the purchase of gas for the gas-fired production.

Transmission costs in connection with transport of power totalled NOK 1054 million (NOK 1326 million). The decline is due to lower power prices and production volumes in Norway. This is offset to some degree by new production capacity in Sweden.

Net operating revenues amounted to NOK 19 796 million (NOK 19 319 million).

See graph Operating revenues and operating profit, underlying operations

Operating expenses

The operating expenses were NOK 9849 million in 2009 (NOK 7290 million), an increase of 35 per cent from 2008. In excess of 60 per cent of the increase is related to added activities. The Group is in a strong growth phase, resulting in an increase in salary costs and other operating costs in the other activities.

Salary costs increased by NOK 663 million to NOK 2517 million, of which the added activities contributed slightly less than 60 per cent of the increase. Many exploration, engineering and development projects have resulted in an increase in the number of full-time equivalents. General wage increases and provisions for pension liabilities explain the rest of cost increases.

The increase in depreciation of NOK 775 million from 2008 is mainly related to new assets and the consolidation of SN Power. In total, depreciation for the year amounted to NOK 2635 million.

Property tax and licence fees increased by NOK 89 million to NOK 1166 million for the year. Property tax in Sweden increased as a result of new assets, while a lower calculation basis reduced the tax burden in Norway.

Other operating expenses amounted to NOK 3530 million. Of the increase of NOK 1030 million, about 55 per cent comes from new assets from the E.ON transaction and the consolidation of SN Power. The remaining increase is mainly from increased costs in power plants operated by third parties, a pre-engineering study in Albania, terminations of power sales agreements and the repair of Baltic Cable.

Operating profit

The operating profit amounted to NOK 9947 million (NOK 12 029 million), of which new assets and the consolidation of SN Power contributed NOK 1005 million.

Share of profit from associates

The share of profit from associates amounted to NOK 1033 million in 2009 (NOK 2153 million).

The decrease in this item in 2009 is attributable to the fact that at the end of 2008, the 44.6 per cent shareholding in E.ON Sverige AB was swapped for wholly owned assets within hydropower, gas and district heating. Statkraft also acquired 4.17 per cent of the shares in E.ON AG. The dividend from these shares amounted to NOK 1093 million before withholding tax and was recognised as financial income in the second quarter.

The 2008 accounts included the profit shares from E.ON Sverige AB of NOK 1315 million for the period up to 18 June, when the board of Statkraft resolved to proceed with the asset swap with E.ON AG. Profit shares after this date were included in the calculation of gain and recognised in the income statement upon the completion of the transaction on 31 December 2008. Settlement took place in the second quarter of 2009.

Financial items

Net financial items amounted to NOK -327 million in 2009 (NOK -2222 million).

The financial expenses were reduced by NOK 828 million compared with 2008. Interest charges fell by NOK 471 million as a result of lower market interest rates. In 2008, the Group's hedging transactions in EUR and bank deposits in foreign currencies yielded a loss totalling NOK 746 million, while they yielded a profit in 2009. This profit has been classified under other financial income. Skagerak Energi has added NOK 383 million to the Group's financial expenses in the form of loan losses and exercising of guarantee liabilities in connection with Cinclus Technology AS.

Financial income increased by NOK 1067 million compared with 2008. The increase is attributable to dividends from E.ON AG of NOK 1093 million. In addition, bank deposits in currency and hedging transactions in EUR have resulted in a currency gain of NOK 482 million. Average liquidity was higher in 2009 than in 2008, while falling market interest rates generated a reduced yield from the portfolio.

The Group has four loan portfolios in NOK, SEK, EUR and USD, respectively.  The portfolios are exposed to both variable and fixed interest rates, with exposure to variable interest rates amounting to 67 per cent. The average current interest rates in 2009 for loans denoted in NOK were 4.1 per cent, in SEK 2.3 per cent, in EUR 3.9 per cent and in USD 4.8 per cent. Debt in USD is related to project financing in SN Power.

Statkraft has used hedge accounting in 2009 to reduce the volatility in the income statement.  A larger share of the debt in EUR has been hedged against market rate changes.

Statkraft has entered into agreements with its financial counterparties for the settlement of interest and currency rate changes in value that limit counterparty risk resulting from derivative contracts to one week’s changes in value (cash collateral).

Statkraft places significant amounts in banks and securities at times, particularly ahead of major payments. Counterparties are continually followed up to reduce the risk of losses. 

Items excluded from the underlying profit 

Total unrealised changes in value and material non-recurring items after tax in 2009 amounted to NOK 1248 million (NOK 25 165 million).

Unrealised changes in the value of energy contracts amounted to NOK -2813 million (NOK 4283 million). The Group's contracts are, for example, indexed against various commodities, currencies and indices. At the end of 2009, the falling USD exchange rate and rising price for oil-related products compared with the gas price in particular resulted in unrealised losses for the contracts. In addition, several major contracts were realised in 2009.

Unrealised changes in value of associates and joint ventures amounted to NOK 547 million (NOK -753 million).

Unrealised changes in value of financial items amounted to NOK 5977 million (NOK -3102 million), and are primarily related to currency effects. This applies to currency effects on internal loans, the shareholding in E.ON AG, debt denoted in SEK and EUR as well as currency hedging contracts.

Of the unrealised changes in value for financial items, a currency gain on internal loans amounted to NOK 4163 million. The gain arose mainly as a result of the strengthened NOK compared with EUR. Statkraft Treasury Centre (STC) provides loans to the Group's companies in the companies' local currency, of which a large percentage is in NOK. STC, which prepares its accounts in EUR, accordingly reports significant currency effects in its income statement. A contra item is recognised in equity for the foreign currency effects on the consolidation of STC.

Unrealised changes in value related to the E.ON AG shares which can be attributed to currency factors are shown as currency loss under financial items and amounted to NOK -3440 million in 2009. The Group's debt in EUR, which is lower than the cost price of the E.ON AG shares, has a currency gain which partly offsets the currency loss on the shares.

Debt in SEK and EUR resulted in an aggregate currency gain of NOK 3031 million for 2009. The unrealised changes in value result from a stronger NOK compared with SEK and EUR over the course of the year.

Unrealised changes in value for currency hedging contracts were positive and amounted to NOK 1408 million at the end of 2009. The reason is that the NOK has strengthened compared to EUR and SEK during the period. Statkraft uses currency hedging contracts to hedge future cash flows, and the contracts are mainly related to power sales denoted in EUR.

Changes in value for interest rate and inflation derivatives amounted to NOK -173 million in 2009, of which NOK -103 million is related to reductions in the value of the inflation derivatives.

Non-recurring items excluded from the calculation of the underlying profit amounted to NOK -1878 million (NOK 25 433 million). The amount in 2009 is related to write-downs as well as the asset swap with E.ON AG, while the amount in 2008 is substantially related to gains from the sale of the shareholding in E.ON Sverige AB.

As a result of lower prices and foreign currency changes, the investment in Naturkraft has been written down by NOK 213 million in 2009. In total, the investment has been written down by NOK 610 million.

The district heating plants in Sweden, two German biomass plants and one hydropower plant in the UK were written down by NOK 189 million in total in 2009 as a result of better knowledge of the plants and therefore a better basis for estimating future cash flows as well as continued difficult market conditions.

The La Higuera hydropower project in Chile has been written down by NOK 107 million as a result of delays and increased construction costs.

The profit on the sale of shares in E.ON Sverige AB was recognised as income as of 31 December 2008.  The final settlement was completed in 2009, and NOK 149 million has been recognised as financial income which is excluded from the calculation of the underlying result. In the second quarter, loans from Statkraft AS to subsidiaries in connection with the sale of and the settlement for the shares in E.ON Sverige AB were repaid and replaced with internal loan agreements. The loans were denominated in EUR, which had a development which differed from that of SEK and NOK, resulting in a currency loss of NOK 1518 million. The currency loss has been recognised under financial expenses as realised, but it is excluded from the calculation of the underlying profit. The currency loss had no cash effect. 

Taxes

The tax expense on the underlying profit amounted to NOK 4186 million in 2009 (NOK 3863 million), which corresponds to an effective tax rate of 39 per cent (32 per cent). The increase is mainly due to a significant reduction in tax-free income. The unrealised changes in value and non-recurring items increased tax costs by NOK 586 million (NOK 695 million).

Accounting tax expenses amounted to NOK 4772 million (NOK 4558 million).

Resource rent tax amounted to NOK 1428 million (NOK 1876 million), which corresponds to 30 per cent of the Group’s total accounting tax expense, compared with 41 per cent in the same period in 2008.

Cash flow and capital

Operating activities generated a cash flow of NOK 7781 million in 2009 (NOK 9880 million). Long and short-term items had a net positive change of NOK 3601 million (NOK -960 million). These items are composed of changes in working capital and accrual effects. Tied-up working capital increased by NOK 1725 million due to the final settlement from the sale of E.ON Sverige AB in 2009. Changes in value for derivative positions, cash collateral, shares in E.ON AG, as well as currency conversion of property, plant and equipment and debt resulted in a positive change of NOK 1876 million. Dividend received from associates amounted to NOK 1083 million (NOK 2579 million). The net change in liquidity from the activities was thus NOK 12 714 million (NOK 11 499 million).

See graph Cash flow

Investments amounted to NOK 4678 million (NOK 3046 million). In addition to maintenance investments, the largest items were the purchase for NOK 469 million of 50 per cent of the shares in Statoil’s project to develop the Sheringham Shoal offshore wind farm and the purchase of 95 per cent of the shares in Yesil Enerji of Turkey for NOK 523 million.

Both the international and the Norwegian credit markets were under great pressure in the latter half of 2008. Throughout 2009, liquidity improved significantly and credit margins fell. Credit margins remain high, however, compared with before the onset of the problems in the financial markets in 2007.

Statkraft was active in the Norwegian, Swedish and European bond markets in 2009. In total, new bond issues were made for NOK 3300 million in the Norwegian market, SEK 900 million in the Swedish market and EUR 1000 million in the European market. In addition, certificates totalling NOK 1660 million were issued in the Norwegian market. New borrowings totalled NOK 15 377 million. During the same period, bond and certificate debt totalling NOK 9378 million fell due.

There was a positive change in cash and cash equivalents of NOK 4703 million during 2009 and the Group’s cash and cash equivalents amounted to NOK 6663 million, compared with NOK 2209 million at the start of the year. The high cash reserve is partly due to raising of new debt to meet future needs for capital.

See graph Long-term liabilities, debt redemption profile

Interest-bearing liabilities were NOK 45 660 million at the end of 2009, compared with NOK 40 791 million at the start of the year. The interest-bearing debt-to-equity ratio was 41.3 per cent, compared with 36.1 per cent at year-end 2008. The increase of 5.2 percentage points is due to a combination of increased debt and lower equity.

Loans from Statkraft SF to Statkraft AS totalled NOK 4.5 billion at the end of 2009, compared with NOK 7.2 billion at the start of the year. Guarantee premium payments to the Norwegian state have been reduced and amounted to NOK 38 million in 2009.

One of the paramount goals for Statkraft’s financing is to establish and maintain financial flexibility and secure an even distribution of repayment maturities. Efforts are made to adapt new borrowings to the maturity profile.

Current assets, except cash and cash equivalents, amounted to NOK 15 020 million (NOK 19 784 million) and the short-term interest-free debt was NOK 15 775 million (NOK 16 245 million) at the end of 2009. Of this, energy and financial derivatives amounted to NOK 4645 million (NOK 7090 million) and NOK 4067 million (NOK 7687 million), respectively.

At the end of 2009, Statkraft’s equity totalled NOK 64 901 million, compared with NOK 72 324 million at the start of the year. This corresponds to 45.1 per cent of total assets. The decline of 5.0 percentage points from the turn of the year is primarily due to the disbursement of dividend for 2008.

See graph Interest-bearing debt ratio

Going concern

In accordance with the requirements of the Accounting Act, the board confirms that the annual accounts have been prepared under the going concern assumption.