Value increases in the group

Statkraft realised some of the added values in the Group through the asset swap with E.ON AG at the end of 2008. E.ON AG acquired Statkraft's shareholding of 44.6 per cent in E.ON Sverige AB in return for assets and shares in E.ON AG. E.ON Sverige had an annual mean production of about 32 TWh and about one million electricity and distribution grid customers.

The shareholdings had a book value of NOK 17.9 billion and were swapped for assets worth NOK 17.1 billion and shares in E.ON AG worth NOK 23.1 billion. In January 2009, Statkraft increased its ownership interest in SN Power from 50 to 60 per cent. In this connection, property, plants and equipment worth NOK 14 billion, including added value, have been consolidated in the accounts.

The Norwegian hydropower plants in the Generation and Markets segment have a mean production of 35.8 TWh. These are plants that have a total book value of NOK 24.7 billion. This should mean that there are substantial values beyond those recognised in the Group's balance sheet, also after the completion of the E.ON and SN Power transactions.

Growth ambitions

Statkraft's has indicative investment plans amounting to NOK 90 billion in the period 2009-2015. Statkraft plans to finance these investments with a combination of increased borrowings, retained earnings and an increase in contributed capital from the owner. The degree of implementation of these plans depends on Statkraft's owner, the Ministry of Trade and Industry, endorsing the board's recommendation for strengthening of the equity and adjustment of the dividend level. At the time of writing, the owner has not yet made a decision on this issue. The investment portfolio has a high degree of flexibility and can be adapted to various outcomes. Of the NOK 90 billion, about 45 per cent is in connection with projects where Statkraft has committed development plans, but the final investment decision has not yet been made for many of these. The remaining 55 per cent consists of potential opportunities which will be adapted to the Group's future financing situation. About 50 per cent relates to hydropower and about 25 per cent to wind power. Geographically, the investments are evenly distributed between Norway, the Nordic countries except Norway, Europe except the Nordic region and areas outside Europe, with a minor predominance for investments in Norway. About 15 per cent of the investments is in connection with maintenance requirements.

See graph Indicative investment plans 2009-2015

Credit rating

The two international credit rating agencies Standard & Poor's (S&P) and Moody’s have rated Statkraft AS. In addition, S&P has a credit rating for Statkraft Energi AS. In the short and intermediate term, Statkraft's goal is to maintain the current rating, a BBB+/Baa1, as a minimum. In the longer term, the goal is to achieve a stable A-level rating with both S&P and Moody’s.

In October, Statkraft was upgraded to A-/Negative by S&P, as a result of the agency's amended method for assessment of governmental owner support. S&P considers it ”moderately highly likely” that the Norwegian state will provide sufficient aid in a potentially critical financial situation. S&P assesses Statkraft's underlying credit profile to be BBB, but awards two extra grades due to the company's importance to Norway and the close connection to the Norwegian state. Of the underlying conditions, S&P highlights Statkraft's strong market position, multi-year reservoirs, cost-effective hydropower production and strategic position in downstream activities. However, these factors are offset by Statkraft's volatile income basis in connection with hydropower, a high dividend level and minority interests in regional companies. S&P writes that Statkraft's risk profile may be impaired in the short and intermediate term due to lower power prices and the company's expansive investment program, which includes making investments in countries S&P associates with high risk. However, the agency writes that it will change its assessment of Statkraft's outlook from ”Negative” to ”Stable” if the company receives sufficient financial support from its owner to carry out the program, or if the program is sufficiently reduced.

In August, Moody’s revised its methodology for unregulated energy companies with state affiliation, but still maintained its rating for Statkraft (Baa1/Stable) in its analysis from October. Like S&P, Moody’s adds two extra grades due to the state ownership. The underlying credit assessments of Statkraft corresponds to Baa3, which reflects a strong market position, the profit contribution from the business activities in Norway and a strengthened cash flow from the activities. Among the negative factors, Moody's emphasises the high dividend level and the uncertainty stemming from the unresolved financing of Statkraft's planned investments. Moody’s writes that the future rating will depend on the dividend level, power prices, the size and scale of the investment program, as well as the Norwegian state's willingness to inject the necessary capital in connection with major acquisitions or investment programs.

Financial strength and rating

Credit rating is an important factor for Statkraft. With a substantial borrowing portfolio, the rating can have a major impact on the Group's access to financing as well as to borrowing costs. This was experienced by the Group in particular in the capital market in 2009, when interest rates varied significantly with the respective ratings. Statkraft closely monitors the key financial figures which are important for the rating. The FFO debt ratio, which indicates the relative cash flow from the operations compared with liabilities, went down by 17.1 percentage points for 2008, while the interest cover from the cash flow fell by 1.6 compared with 2008. The substantial reduction reflects the general result development from the exceptionally good result in 2008, but the result is in line with or somewhat better than in 2007.

See graph Financial strength and rating 

Financial communication

Statkraft emphasises transparent and good communication with all stakeholders. The Group's financial reporting must be characterised by timely and transparent information which gives the users relevant, detailed and reliable overview of strategies, goals and results as well as the Group's economic development and financial position.

The information the company provides to its owner, lenders and the financial markets in general must be sufficient to enable evaluation of company’s underlying values and risk exposure. To ensure predictability, the owner and the financial markets shall be treated equally, and information shall be communicated in a timely manner. The company works to hold regular meetings with its owner and stakeholders in the financial market. Important information is reported to stock exchanges where the company's bonds are listed. In addition, all important information will be published on the company's website.