QUARTERLY REPORT

Transcription

1 QUARTERLY REPORT Agder Energi Nett is building a new substation in Åseral. QUARTERLY REPORT 4TH QUARTER

2 2016 HIGHLIGHTS Under IFRS, Agder Energi s net income in 2016 was NOK 251 million (controlling interest s share), compared with NOK 1,314 million in Operating revenues in that period came to NOK 8,668 million (2015: NOK 8,260 million). Overall, unrealised gains and losses on electricity, currency and interest rate contracts as well as on Euro- denominated loans reduced net income by NOK 542 million, in contrast to a positive contribution of NOK 530 million last year. In 2016, electric ity futures prices have risen significantly. This increases the value of the Group s future electric ity generation, but has resulted in significant unrealised valuation loss es on electricity contracts so far this year. For its internal reporting Agder Energi uses Norwegian generally accepted accounting principles (NGAAP), which it considers to present an accurate picture of its underlying operations. For 2016, Agder Energi s operating profit under NGAAP was NOK 1,811 (1,495) million. Pre-tax pro fit (NGAAP) was NOK 1,571 (1,302) million. Net income came to NOK 744 million, down marginally from NOK 746 mil lion in This was due to higher resource rent tax payable due to an increase in the spot value of electricity generated and an upward adjustment to estimated deferred resour ce rent tax. The company generated 8,880 GWh (8,995 GWh) of hydroelectric power during the year. In 2016 the average spot price (in the NO2 region) was 23.3 øre/kwh (17.7 øre/ kwh), up 32% from the previous year. Agder Energi has entered the German market through the acquisition of the companies Nordgröön Energie (61.4%), Markedskraft Deutschland (100%) and Entelios (100%). These acquisitions give Agder Energi a foothold in the value chain for flexible power, grid and balancing services and trade in renewable energy with Germany. In October, a decision was taken to carry out a major rehabilitation of Evenstad power station, which lies on the River Nidelva in Froland. The project, which will cost around NOK 80 million, will involve three generators from 1936 and Most of the project will be completed in Finansielle hovedtall Operating revenues NOK million EBITDA NOK million Operating profit NOK million Profit before tax NOK million Net income (controlling interest s share) NOK million Cash flow from operating activities NOK million Purchase of property, plant, equipment and intangible assets NOK million Capital employed 2) NOK million Operating margin % 11,3 28,0 22,2 Return on capital employed 3) % 7,8 18,5 13,3 Equity ratio % 22,8 25,4 23,6 FFO/Net interest-bearing liabilities 4) 18,2 19,2 25,1 1) Operating profit before depreciation and impairment losses. 2) At the end of the reporting period. 3) Before tax, based on profit/loss and capital employed for the past four quarters. 4) FFO is EBITDA adjusted for unrealised gains and losses on energy and currency derivatives as well as foreign currency loans + dividends from A and JV + financial income tax payable. QUARTERLY REPORT 4 TH QUARTER

3 Quarterly operating profit Accumulated operating profit NOK million 1000 NOK million Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q The Hydroelectric Power and Energy Management business areas The combined operating revenue of these business areas in 2016 was NOK 2,651 (2,508) million, while their operating profit was NOK 1,457 (1,350) million. Pre-tax profit amounted to NOK 1,377 (1,274) million. 2,079 GWh (2,361 GWh) of hydroelectric power was generated in the fourth quarter, down 12%. For 2016 as a whole, the figure was 8,880 GWh (8,995 GWh). The Group s hydrological resources (the amount of water and snow both in and outside its reservoirs) were around normal at the end of the year. All of Agder Energi s electricity is generated in the NO2 price zone. At the end of the year, overall reservoir levels in the price zone (for all power companies) were around 7% below the average for the past ten years. In 2016 the average spot price (in the NO2 region) was 23.3 øre/kwh (17.7 øre/kwh), up 32% from the previous year. Higher marginal costs for coal power generation and lower hydrological resources in the Nordic Region were the main reasons for the increase. A continued strong contribution from the Group s electricity price hedges meant that the prices achieved by the Group were higher than spot prices, as well as higher than the prices achieved in the same period last year. The tax expense was NOK 791 (600) million, which meant that the effective tax rate was 57.4% (47.1%). The tax expense rose due to a combination of higher pretax profit, higher resource rent tax payable due to an increase in the spot value of electricity generated and an upward adjustment to estimated deferred resource rent tax. Net income amounted to NOK 586 (674) million. NOK 464 (604) million was invested in property, plant and equipment in The main reasons for this reduction were lower investment in new projects, partly as a result of the completion of the Iveland 2 project, and a small decline in reinvestments and investments required by the authorities. During the reporting period, NOK 130 (230) million was invested in new projects. The Network business area The Network business area is responsible for developing, operating and maintaining the transmission and distribution grid in Aust-Agder and Vest-Agder. The business area s operating revenues in 2016 amounted to NOK 1,424 million, compared with NOK 1,161 million in The increase was due to a higher income cap. The income cap is set by the Norwegian Water Resources and Energy Directorate, and it mainly rose due to one-off factors that positively impacted the calculation of the permitted revenues of grid operating companies. Higher revenues were the main explanation for why operating profit rose to NOK 417 (212) million. During the first weekend of November, lots of heavy snow and powerful winds resulted in many trees being knocked onto electric ity lines. At the worst point, almost 10,000 households were without power. The bad weather caused around NOK 22 million of expenses related to energy not supplied (KILE) and fault resolution. In December the storm Urd resulted in a further NOK 7 million of such expenses. For the year as a whole, the cost of fault resolution and KILE was around NOK 14 million lower than the previous year. The business area invested NOK 676 (453) million in 2016, of which NOK 519 (299) million related to investments in new projects. NOK 211 (70) million was invested in the smart meter project. The figure for investment also includes NOK 109 (53) million invested in Honna substation. Agder Energi Nett has an option to QUARTERLY REPORT 4 TH QUARTER

4 Market prices in price zone NO2 Reservoir storage levels in price zone NO2 NOK/MWh % January February March April May June July August September October November December January February March April May June July August September October November December Average last 10 years let Statnett take over the substation once it is completed and operational. Including NOK 142 (90) million of customer contributions, gross investment in the business area was NOK 818 (543) million. Marketing and Business Development business area The Marketing and Business Development business area had turnover of NOK 5,780 (4,188) million in 2016, while operating profit came to NOK 71 (108) million. The main companies in this business area are LOS, Otera and Agder Energi Varme. The Group s venture capital portfolio also forms part of the business area. In June the electricity retailer LOS signed an agreement to acquire Telge Kraft, one of the leading suppliers of electricity to Swedish businesses. The acquisition was completed on 14 November. Telge Kraft has now been renamed LOS Energy. After the acquisition, LOS has balancing responsibility for 23 TWh in the Nordic market. LOS s total turnover in 2016 was NOK 3,486 million, compared with NOK 2,286 million The increase reflected higher prices and volumes at the company s existing operations, as well as a contribution of around NOK 410 million from the acquired business between the acquisition date and the end of the year. The company s operating profit was NOK 93 (100) million. Otera supplies contracting services for the installation, operation, maintenance and servicing of electricity, transport and communications infrastructure. The company made an operating loss of NOK 19 (20) million in 2016, on turnover of NOK 1,145 (996) million. The loss was due to Otera Infra, which was performed poorly in recent years. In the first quarter, the company reduced its headcount by around 50 workers. Both Otera s Swedish business and Otera XP were profitable, doing significantly better than in Agder Energi Varme s turnover in 2016 was NOK 101 (92) million, while its operating profit was NOK 21 (10) million. Some of the improvement was due to a NOK 6 million reversal of previous years impairments against Sørlandsparken. The company supplied 144 GWh (125 GWh) of energy. Above average temperatures led to less energy than expected being supplied in 2016, as was the case in However, customer growth helped to push up volumes, and the company signed agreements with Kanalbyen and Kvartal 42 in Kristiansand and Barbu Brygge in Arendal. Electricity price hedges made a positive contribution in the period. The business area invested NOK 21 (25) million. Cash flows and capital adequacy Cash flow from operating activities came to NOK 1,779 million in 2016, compared with NOK 1,502 million in The Group s profit before tax was significantly lower than in Profit fell because non-cash gains and losses relating to electricity, currency and interest rate contracts are recognised in the income statement. In 2016, Agder Energi converted some of its electricity price hedges from forwards to futures. This is the main reason for the increase in cash flow from operating activities. Meanwhile, an increase in capital tied up as trade receivables had a negative impact on cash flow. Our retail business, where both prices and volumes were higher at the end of 2016 than at the end of 2015, was responsible for most of the increase in trade receivables. Investment in property, plant and equipment and intangible assets amounted to NOK 1,397 (1,286) million. NOK 142 (90) million of this comprised investments in power distribution networks paid for by QUARTERLY REPORT 4 TH QUARTER

5 customers. On the statement of cash flows investments are presented gross, with customer payments included under net cash provided by operating activities. The Hydroelectric Power and Network business areas were responsible for over 90% of the investments in property, plant and equipment. Net cash used in investing activities totalled NOK 1,277 million, compared with NOK 885 million in This increase reflected both higher gross investments and lower receipts from sales. Net financial expenses in 2016 came to NOK 179 (171) million. The interest expense on the Group s debt portfolio was NOK 252 (273) million. High levels of construction activity meant that NOK 28 (31) million of construction loans were capitalised in relation to our own investments, reducing the net interest expense to NOK 224 (242) million. We made an unrealised gain of NOK 78 (10) million on interest rate swaps, because market interest rates rose. Investments in associates contributed a NOK 7 million loss (NOK 84 million gain). The deterioration reflected the profit made on the disposal of Småkraft in Average interest-bearing liabilities were NOK 8.4 (8.2) billion, and the average interest rate on the debt portfolio was 2.99% (3.34%). The Group had a liquidity buffer of NOK 2.0 (2.0) billion at the close of the year, consisting of unused credit facilities and bank deposits. Changes to accounting principles In the past, Agder Energi has classified all currency, electricity and interest rate derivatives as current assets or current liabilities. Upon reconsideration Agder Energi has decided to change this principle, and it now classifies derivatives expiring more than one year after the statement of financial position date as non-current. In 2016 Agder Energi changed the way in which it classifies gains and losses on currency contracts and foreign currency loans. These were previously considered financial items, but after a reassessment they are now classified as operating items. In June the Financial Supervisory Authority of Norway ordered Agder Energi to change the way in which it accounts for long-term electricity contracts denominated in Euros. Although Agder Energi believes that its past practice was in accordance with IFRS, the Group has nevertheless chosen not to appeal the decision and has therefore complied with the Financial Supervisory Authority s order in the presentation of its financial statements for the quarter. This change to the accounting principles is described in greater detail in notes 1 and 2. Operations and working environment At the close of 2016, the Group had 1,432 (1,294) full-time and temporary employees, representing 1,401 (1,270) full-time equivalents. The increase in 2016 mainly reflects the purchase of IPnett by the venture capital business and the acquisition of Telge Kraft by LOS. The sickness absence rate for the year was 3.6%, compared with 3.5% in the year-earlier period. 11 (13) incidents resulting in injury were recorded in The incidents occurred at Otera Infra (4), Otera XP (1), Agder Energi Vannkraft (4), Agder Energi Varme (1) and Otera AB (1). 7 (6) incidents resulted in a total of 356 (88) lost days. In addition, an incident that occurred in October 2015 caused 18 lost days in January. For the year, the total number of lost days was therefore 374 (88). The accident figures for 2016 are equivalent to a lost time injury frequency (number of LTIs per million work hours) of 3.5 (3.0), a total injury frequency (number of injuries, whether or not they resulted in lost time, per million work hours) of 5.4 (6.4) and an injury severity rate (number of days lost per million work hours) of 185 (43). Three falls were responsible for the majority of the lost days and for the high injury severity rate. Outlook Annual contracts in the futures markets indicate that prices in 2017 will remain relatively unchanged from From 2018 onwards, electricity prices are expected to be lower than in We expect the Group s hedging activities to make a significant, but declining, positive contribution. At the end of 2016, the Group s hydrological resources (water and snow) were close to normal, and going forwards Agder Energi expects the amount of power that it generates to fall from the high levels seen over the past three years down to more normal levels. The grid operating company s high income cap in 2016 was largely the result of various one-off factors that had a positive impact on the calculation of its permitted revenues. We therefore expect the income cap and profit to be lower in 2017 than in Kristiansand, 14 February 2017 The Board of Directors of Agder Energi AS QUARTERLY REPORT 4 TH QUARTER

6 INCOME STATEMENT (restated) (restated) Energy sales Transmission revenues Other operating revenues Unrealised gains and losses on energy and currency contracts Total operating revenues Energy purchases Transmission expenses Other raw materials and consumables used Employee benefits Depreciation and impairment losses Property taxes and licence fees Other operating expenses Total operating expenses Operating profit Share of profit of associates and joint ventures Financial income Unrealised gains and losses on interest rate contracts Financial expenses Net financial income/expenses Profit before tax Income tax Resource rent tax Tax expense Net income Of which attributable to non-controlling interests Of which attributable to controlling interest Earnings per share/earnings per share, diluted (NOK) QUARTERLY REPORT 4 TH QUARTER

7 COMPREHENSIVE INCOME Net income Other comprehensive income and expenses Cash flow hedges Translation differences Tax impact Total items that may be reclassified to income statement Remeasurements of pensions Tax impact Total items that will not be reclassified to income statement Total other comprehensive income and expenses Comprehensive income Of which attributable to non-controlling interests Of which attributable to controlling interest QUARTERLY REPORT 4 TH QUARTER

8 STATEMENT OF FINANCIAL POSITION (Amounts in NOK million) 31/12/16 31/12/15 (restated) Deferred tax assets Intangible assets Property, plant and equipment Investments in associates and joint ventures Derivatives Other non-current financial assets Total non-current assets Inventories Receivables Derivatives Cash and cash equivalents Total current assets TOTAL ASSETS Paid-in capital Retained earnings Non-controlling interests Total equity Deferred tax Provisions Derivatives Interest-bearing non-current liabilities Total non-current liabilities Interest-bearing current liabilities Tax payable Derivatives Other non-interest-bearing current liabilities Total current liabilities TOTAL EQUITY AND LIABILITIES QUARTERLY REPORT 4 TH QUARTER

9 STATEMENT OF CASH FLOWS Cash flow from operating activities Profit before tax Depreciation and impairment losses Unrealised gains/losses on energy, currency and interest rate contracts Share of profit of associates and joint ventures Tax paid Change in trade receivables Change in trade payables Change in net working capital, etc Net cash provided by operating activities Investing activities Purchase of property, plant, equipment and intangible assets Purchase of property, plant and equipment paid for by customers Purchase of businesses/financial assets Net change in loans Sale of property, plant, equipment and intangible assets Sale of businesses/financial assets Net cash used in investing activities Financing activities New long-term borrowings Repayment of long-term borrowings Net change in current liabilities Dividends paid Net cash used in financing activities Net change in cash and cash equivalents Cash and cash equivalents at start of period Cash and cash equivalents at end of period QUARTERLY REPORT 4 TH QUARTER

10 STATEMENT OF CHANGES IN EQUITY Paid-in Cash Trans- Retained Total for Non- Total capital flow lation earnings controlling controlling equity (Amounts in NOK millions) hedges differences interest interest Equity reported in financial statements at 31/12/ Adjustment to long-term electricity contracts Equity at 01/01/2015 (restated) Net income for the year Other comprehensive income and expenses Dividends paid Other changes in equity Equity at 31/12/ Equity at 01/01/ Net income for the year Other comprehensive income and expenses Dividends paid Other changes in equity Equity at 31/12/ QUARTERLY REPORT 4 TH QUARTER

11 BUSINESS AREAS OPERATING REVENUES UNDER NGAAP Hydroelectric power and energy management Network Marketing and business development Parent company/other/eliminationsr Group (NGAAP) OPERATING PROFIT UNDER NGAAP Hydroelectric power and energy management Network Marketing and business development Parent company/other/eliminations Group (NGAAP) NET INCOME UNDER NGAAP Hydroelectric power and energy management Network Marketing and business development Parent company/other/eliminations Group (NGAAP) Of which attributable to non-controlling interests Of which attributable to controlling interest QUARTERLY REPORT 4 TH QUARTER

12 RECONCILIATION OF FIGURES FOR BUSINESS AREA WITH REPORTED IFRS FIGURES OPERATING REVENUES Operating revenues under NGAAP Energy sales Surplus/shortfall in transmission revenues Unrealised gains and losses Operating revenues under IFRS OPERATING PROFIT Operating profit (NGAAP) IFRS adjustments to revenues (see above) Goodwill amortisation Other Operating profit under IFRS NET INCOME Net income (NGAAP) IFRS adjustments to operating profit (see above) Unrealised gains and losses on interest rate swaps Other financial income/expenses Tax Net income (IFRS) QUARTERLY REPORT 4 TH QUARTER

13 NOTES TO THE INTERIM FINANCIAL STATEMENTS NOTE 1 ACCOUNTING PRINCIPLES Agder Energi s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. The same accounting principles and calculation methods have been applied as for the annual financial statements for 2015, with the following exceptions: Classification of derivatives on the statement of financial position. In the past, Agder Energi has classified all currency, electricity and interest rate derivatives as current assets or current liabilities. As of 2016 Agder Energi has decided to change this principle, and it now classifies derivatives expiring more than one year after the statement of financial position date as non-current. Comparative figures have been restated. See Note 2. Recognition of long-term electricity contracts. As discussed in Agder Energi s 2015 annual report, the Group has contracts for physical energy sales that are settled in euros. Agder Energi does not consider the currency portion of these contracts to be an embedded derivative that must be separated from the host contract and be accounted for separately as an independent derivative. Under the old accounting practice, these contracts were recognised in their entirety on delivery. In June 2016, the Financial Supervisory Authority of Norway ordered Agder Energi to separate out the currency portion as an embedded derivative measured at fair value in its future financial reporting. Agder Energi disagrees with the Financial Supervisory Authority, and believes that its past practice is in accordance with IFRS. Nevertheless, Agder Energi has decided to comply with the Financial Supervisory Authority s order without appealing it. Comparative figures have been restated. See Note 2. Presentation of the effect on the income statement of currency derivatives and loans. Previously Agder Energi classified unrealised and realised gains and losses on currency derivatives and loans as financial items. Currency futures and foreign currency loans are used to manage the currency risk associated with future revenues from electricity sales. This link has become stronger in recent years and means that presenting currency gains and losses as operating items will provide more relevant information. Comparative figures have been restated. See Note 2. The financial statements of the parent company and subsidiaries adhere to Norwegian generally accepted accounting principles (NGAAP). Internal reporting to the management team is also based on NGAAP, and in the interim report the business areas are also presented using NGAAP. The accounts have not been audited. NOTE 2 IMPACT OF CHANGES TO ACCOUNTING PRINCIPLES As described in Note 1, Agder Energi has changed the accounting principles that it uses for: 1) Classification of derivatives on the statement of financial position 2) Recognition of long-term electricity contracts 3) Presentation of the effect on the income statement of currency derivatives and loans The impact of this on comparative figures in the statement of financial position and income statement respectively are shown in the tables below. QUARTERLY REPORT 4 TH QUARTER

14 31/12/15 Previously (Amounts in NOK million) reported Change Restated 1) 2) Derivatives (non-current assets) Derivatives (current assets) Equity Deferred tax Derivatives (non-current liabilities) Derivatives (current liabilities) Q Full-year 2015 Previously Previously (Amounts in NOK million) reported Change Restated reported Change Restated 2) 3) 2) 3) Energy sales Unrealised gains and losses on currency and energy contracts Energy purchases Unrealised gains and losses on interest rate swaps Financial expenses Income tax Resource rent tax Net income QUARTERLY REPORT 4 TH QUARTER

15 NOTE 3 BUSINESS AREAS Segment information is reported using the same segments as used in financial reports to the senior management team. Segment reporting is used by Agder Energi s management to assess the performance of the various business areas, and to allocate resources to them. See page 11 for tables showing the financial performance of the business areas. NOTE 4 ALTERNATIVE PERFORMANCE MEASURES Agder Energi s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The parent company and subsidiaries present their financial statements in accordance with Norwegian generally accepted accounting principles (NGAAP), and internal reporting to the management team is also based on NGAAP. The senior management team believes that NGAAP gives a better picture of the Group s underlying performance, since it does not include unrealised gains and losses on electricity, currency and interest rate contracts and on Euro-denominated loans used for hedging purposes. However, changes in the market values of the Group s trading portfolios are also included under NGAAP. Other than this, there are only minor differences between the figures reported under IFRS and NGAAP. The tables on page 12 show the reconciliation of reported IFRS figures with NGAAP figures. QUARTERLY REPORT 4 TH QUARTER

16 Design: Kikkut kommunikasjon, Front page photo: Jon Anders Skau Agder Energi P.O. Box 603 Lundsiden, 4606 Kristiansand Visiting adress (head office): Kjøita 18, 4630 Kristiansand Tel. no: Organisation number: NO QUARTERLY REPORT 4 TH QUARTER