Postboks 255 Sentrum 0103 Oslo Phone 24 11 69 00 Fax 24 11 69 01 www.e-co.no Q1 QUARTERLY REPORT 09 E-CO ENERGI
CONSOLIDATED QUARTERLY REPORT 1 JANUARY 2009-31 MARCH 2009 (2008 figures in parentheses) E-CO posted a good result in Q1 2009. The Group s price hedging strategy enabled it to obtain a selling price that was significantly higher than the system price. However, power generation was significantly lower than in Q1 last year. Lower net financial expenses also had a favourable influence on the performance trend. The profit after tax came to MNOK 446, up MNOK 23 from last year. operations The Group s main activities are: The ownership, development, operation and management of hydropower plants; The sale of power on the wholesale market; Business development in energy and related fields. The Group owns stakes in Oppland Energi AS (61.4 per cent), Vinstra Kraftselskap DA (66.7 per cent), Energiselskapet Buskerud Kraftproduksjon AS (30 per cent), Opplandskraft DA (25 per cent) and Norsk Grønnkraft AS (20 per cent). Including these interests, E-CO has a normal production level of 9.7 TWh. E-CO is wholly owned by Oslo Municipality. ACCOUNTING PRINCIPLES The Quarterly Report for Q1 2009 is presented in compliance with Norwegian accounting standards and generally accepted Norwegian accounting practices. The same accounting principles and estimation methods have been applied to the quarterly report as were applied to the financial statements for 2008. The accounts for Q1 2009 have not been audited. MARKET CONDITIONS, PRODUCTION AND PRICES Power prices declined in Q1. The most pronounced drop was up to March, and prices have picked up slightly since. The drop was primarily related to declining prices on thermal fuels and CO2 permits. It is assumed that this was due to the international economic crisis, characterised by diminishing demand and turmoil in financial markets. The rise in March coincided with a stock exchange rally and may have been due to financial market players being somewhat more optimistic about the prospects for the future. Measured in NOK, the price reduction was reinforced by the steep decline in the EUR exchange rate since the beginning of the year. The system price on NordPool dropped from 0.422 NOK/kWh in week 1, to 0.316 NOK/kWh in week 13. Prices also declined in the futures market. In the Nordic power market, hydrological conditions have helped limit the impact of diminishing thermal power production costs. Although temperatures and precipitation have not deviated much from normal thus far this year, water and snow reserves are significantly below normal. Cable repairs in the Oslo Fjord have taken considerably longer than planned and are expected to be completed now in June. On 11 April, there was a breakdown in the cable to the Netherlands due to a fire on the Netherlands side. Given the relatively weak hydrological balance, however, it is less likely that limitations on transmission capacity from southern Norway will entail the kind of large differences between the area price and the system price as those seen last year. Norway produced 38.1 TWh of hydropower in Q1 2009 (40.2 TWh), i.e. a decline of approx. 5.2 per cent relative to Q1 2008. Power consumption totalled 37.2 TWh (37.6 TWh). This marks a reduction of 1.2 per cent. Net exports totalled 0.9 GWh in Q1 (2.6 GWh). 0,55 0,50 0,45 0,40 0,35 0,30 0,25 0,20 0,15 0,10 PRICES, MONTHLY AVERAGES NOK/kWh JAN. FEB. MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC. Spotprice 2008 Spotprice 2009 Forward price 2009 Sales price 2009 The Group s power production totalled 2 802 GWh in Q1 this year (3 550 GWh). Q1 E-CO QUARTERLY REPORT 09 2
The average system price was 0.344 NOK/kWh in Q1 2009 (0.303 NOK/kWh). The average selling price during the quarter, excluding the compulsory yield of power, was approx. 0.40 NOK/kWh (approx. 0.33 NOK/kWh). The selling price obtained was 16 per cent higher than the average system price during the quarter (9 per cent). Q1 PERFORMANCE Revenues in Q1 2009 came to MNOK 1 099 (MNOK 1 167), entailing an decline of 6 per cent. The decline is related to a significantly lower power production volume (-21.1 per cent) and a slight reduction in other operating revenues. A higher spot price combined with successful price hedging nevertheless entailed that the decline in operating revenues was substantially less than the decline in production. The EBIT in Q1 2009 came to MNOK 868 (MNOK 919), i.e. a reduction of 6 per cent. The decline is due to lower operating revenues. Operating expenses were reduced from MNOK 248 in Q1 2008 to MNOK 231 in Q1 2009. The reduction is ascribable to generally lower expenses for feeding power into the central grid. Associates generated a profit of MNOK 16 (MNOK 16), made up of E-CO Energi s share of the profits produced by Buskerud Kraftproduksjon AS and Norsk Grønnkraft AS. Net financial expenses aggregated MNOK 39, a decline of MNOK 60 relative to Q1 last year. The decline is related to recognised foreign exchange earnings and lower interest expenses. Net earnings in foreign currencies aggregated MNOK 47 (MNOK 6). They are mainly due to a reversal of recognised unrealised currency losses at 31 December 2008 as a result of the lower EUR exchange rate. The rest of the decline in net financial expenses is due to the reduction in interest-bearing liabilities, as well as to a lower interest level on loans with floating interest rates. Average net interest-bearing debt was MNOK 1 070 lower in Q1 this year than in the same quarter of 2008. The effective interest rate on loans (excl. subordinated loans) was 4.3 per cent at 31 March (5.3 per cent). Earnings before taxes came to MNOK 845 (MNOK 836), i.e. an improvement comparable to 1 per cent. Taxes came to MNOK 399 in Q1 2009 (MNOK 413), which translates into a reduction in the tax rate from 49 per cent last year to 47 per cent this year. Booked payable resource rent tax aggregated MNOK 152 during the quarter (MNOK 165), and MNOK 16 (MNOK 15) was expensed due to a reduction in the tax asset associated with the value of negative resource rent income carried forward. The decline in payable resource rent tax is related to the fact that gross resource rent income is estimated based on power production valued at spot prices. Even though the spot prices increased relative to last year, the effect of lower production was more pronounced. The profit after tax came to MNOK 446 in Q1 (MNOK 423), corresponding to an increase of 5 per cent from Q1 2008. INVESTMENTS, CASH FLOW AND CAPITAL STRUCTURE Investments in tangible fixed assets came to MNOK 21 (MNOK 18). The largest ongoing investment projects are the rehabilitation of unit 1 at the Hol 1 power station and building the new Stolsvatn Dam, both of which are expected to be completed this year. Opplandskraft is working with Eidefoss on planning a new power plant in Nedre Otta. The project will be reviewed with two different alternatives, Pillarguri and Åsåren, which will generate 387 and 316 GWh, respectively, of clean new power. The report has been submitted to the Norwegian Water Resources and Energy Directorate (NVE) and is now out for a round of consultations. Opplandskraft and Eidefoss are planning to be joint and equal owners. E-CO owns approx. 40 per cent of Opplandskraft, meaning it has roughly a 20 per cent stake in the project. The Group s cash flow from operating activities came to MNOK 558 (MNOK 765). The decline is primarily related to the interest on subordinated loans from the owner being paid in March this year, as opposed to in April in 2008. Interest for 2008 paid in 2009 came to MNOK 149. PRODUCTION GWh OPERATING PROFIT NOK million 4000 1000 3500 3000 2500 900 800 700 600 2000 500 1500 1000 500 400 300 200 100 0 Q1 Q2 Q3 Q4 0 Q1 Q2 Q3 Q4 2007 2008 2009 2007 2008 2009 Q1 E-CO QUARTERLY REPORT 09 3
At end-march, liquid reserves added up to MNOK 876 (MNOK 812), marking an increase of MNOK 674 in Q1. E-CO Energi has an ordinary line of credit with the bank of MNOK 100, as well as an agreement for a syndicated drawing facility with a framework of MEUR 235 which will run until November 2009. At 31 March 2009, MNOK 400 was drawn on the credit facility, exactly the same as at 31 December 2008. At 31 March, the Group had MNOK 4 624 in interest-bearing liabilities, apart from subordinated loans. The interest-rate term was 2.4 years, a reduction of 0.3 years during the quarter. At 31 March 2009, the Group s equity ratio came to 38.3 per cent (36.5 per cent), compared with 36.6 per cent at the beginning of 2009. RISK, EVENTS AND UNCERTAINTY FACTORS E-CO s financial risk is primarily associated with production volume and power prices, including hedging transactions and trends in foreign exchange rates. Since the Group has substantial debt, there is also uncertainty associated with interest trends. E-CO s policy involves hedging prices and exchange rates on parts of future production and using fixed interest rates to a certain extent. The Group s policy is to hedge the price-hedged volume of power against exchange rate fluctuations. Foreign currency loans are fully hedged against exchange rate fluctuations. There is a risk associated with gaps between the system price and the area price and, to a certain extent, the Group is trying to hedge against this risk by buying Contracts for Difference on NordPool. The problem is the poor liquidity of these products. PROSPECTS FOR THE FUTURE The Group s strategy is to invest in hydropower production to the extent there are profitable investment alternatives and to work with several possible alternatives. The Group has considerable expertise in the efficient planning, steering and operation of hydropower production, and it enjoys a strong financial position. The Group s water and snow reserves were at a satisfactory level at the end of Q1, and a relatively substantial part of anticipated production for the rest of the year has been hedged against price and exchange rate fluctuations at satisfactory prices based on today s pricing. There is nonetheless uncertainty associated with production and market conditions for the rest of the year. OSLO, 4 MAY 2009 THE BOARD OF DIRECTORS OF E-CO ENERGI AS At 31 March 2009, the Group had hedged a relatively substantial percentage of anticipated production for the rest of 2009, limiting price uncertainty related to after-tax earnings for the current year. Significantly lower percentages are hedged for 2010 and 2011. Fluctuations in forward prices can result in large unrealised changes in the value of the hedging portfolio which, in accordance with the Group s accounting policies, are not recognised. The unrealised surplus value on the Group s hedging portfolio (including currency hedging) was MNOK 376 at 31 March this year. At year end, the unrealised negative value was MNOK 510. The change was ascribable to the lower EUR exchange rate in particular. On 5 March, there was a breakdown in one of the two transformers at Aurland 3, a pumped storage power station. The problem was serious, and the transformer had to be sent away for repair. It will probably be more than a year before it will be in place once again. The financial consequences of any production losses are uncertain. E-CO has damage and production loss insurance (up to one year for Aurland 3) and the matter is currently being addressed with the insurance company. Q1 E-CO QUARTERLY REPORT 09 4
Income statement (Amounts in MNOK) Q1 Q1 Year Energy revenue 1 088 1 150 3 674 Other operating revenue 11 17 74 Operating revenue 1 099 1 167 3 748 Energy purchases, transmission (34) (52) (158) Property tax and licence fee (53) (51) (205) Other operating expenses (76) (78) (325) Depreciations and amortisation (68) (67) (271) Operating expenses (231) (248) (959) Operating profit (EBIT) 868 919 2 789 Share of the profit/loss in associates 16 16 112 Net financial expenses (39) (99) (597) Profit before taxes (EBT) 845 836 2 304 Taxes (399) (413) (1 189) Net profit 446 423 1 115 Earnings per share (NOK) 262 248 655 BALANCE SHEET (Amounts in MNOK) 31.3 31.3 31.12 Assets: Intangible assets 8 205 8 204 8 221 Tangible fixed assets 6 522 6 695 6 570 Financial fixed assets 1 525 1 344 1 506 Fixed assets 16 252 16 243 16 297 Short-term receivables 199 400 258 Short-term investments 308 380 447 Cash and cash equivalents 876 812 202 Current assets 1 383 1 592 907 Assets 17 635 17 835 17 204 Equity and liabilities: Paid-in capital 3 606 3 606 3 606 Retained earnings 3 140 2 902 2 694 Equity 6 746 6 508 6 300 Provisions 358 408 367 Subordinated loan 3 347 3 347 3 347 Other long-term liabilities 3 959 5 581 3 959 Long-term debt 7 664 9 336 7 673 Current liabilities 3 225 1 991 3 231 Equity and liabilities 17 635 17 835 17 204 Q1 E-CO QUARTERLY REPORT 09 5
CASH FLOW ANALYSIS (Amounts in MNOK) Q1 Q1 Year From operating activities 514 489 1 230 Change in working capital items 44 276 729 Cash flow from operating activities 558 765 1 959 Investments in tangible fixed assets (21) (18) (99) Other investments / sales 137 154 39 Cash flow from investments 116 136 (60) Change in short-term loans 0 (350) (450) New long-term loans 0 0 0 Repayment of long-term loans 0 0 (858) Dividends/other funding 0 0 (650) Cash flow from financing activities 0 (350) (1 958) Cash flow throughout the period 674 551 (59) Liquidity reserve at opening of period 202 261 261 Liquidity reserve at closing of period 876 812 202 EQUITY (Amounts in MNOK) Q1 Q1 Year Equity at opening of period 6 300 6 085 6 085 Result of the reporting period 446 423 1 115 Provision for dividends 0 0 (900) Equity at closing of period 6 746 6 508 6 300 Q1 E-CO QUARTERLY REPORT 09 6