Statkraft Investor Update Q3 2018
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Agenda Statkraft overview Strategy and investment ambition Funding and liquidity Financial update 3
Statkraft at a glance CONSOLIDATED CAPACITY 17 478 MW NORWAY SWEDEN POWER PRODUCTION 62.6 TWh UK IRELAND NETHERLANDS GERMANY 97% renewable USA FRANCE TURKEY NEPAL ALBANIA CREDIT RATING A- / BBB+ SOUTH EAST EUROPE INDIA S&P and Fitch NORWEGIAN STATE OWNED PERU BRAZIL 100 % EMPLOYEES 3 500 CHILE = Hydropower = Wind power = Gas power = Bio power = District heating = Solar power = Trading and Origination
Strong ownership support Statkraft 100% owned by the Norwegian State - Norwegian State rated Aaa / AAA / AAA Support through equity injections - NOK 14 billion in 2010 and NOK 5 billion in 2014, after parliamentary approval Ownership support Statkraft s corporate credit ratings - Uplift from both S&P and Fitch Revised dividend policy - Based on recommendation from Board of Statkraft - Reduced dividend payout ratio for non-norwegian hydropower earnings 5
Key credit strengths Owned by the Norwegian state (AAA/Aaa) Stable cash flow Strong market position Balance sheet flexibility 6 Historically strong support from owner Long-term industrial contracts stabilize cash flow A low-cost and flexible generator of renewable electricity Investment program adapted to financial capacity
Solid EBITDA despite volatile Nordic and European power prices Quarterly average electricity prices Underlying EBITDA incl. share of profit from equity accounted investments EUR/MWh 80,00 70,00 60,00 Nordics Germany Bn NOK 11,8 12,2 13,5 12,8 10,9 13,9 14,4 50,00 40,00 30,00 20,00 10,00 0,00 2010-012012-012014-012016-012018-012020-01 2010 2012 2014 2 016 2018 2020 2011 2012 2013 2014 2015 2016 2017* 7 Source: Prices from Nord Pool Spot, Nasdaq OMX and EEX as of Q4 2018. * Items in underlying EBITDA changed in 2017
Primarily a Nordic hydropower company Segments and underlying EBITDA* contribution 2017 European Flex Market Operations International power Wind power District Heating 70.0 % 2.9 % 2.9 % 3.1 % 2.3 % 8 * Excluding gain/loss from acquisitions/divestments of business activities
European flexible generation: Maximize value of hydropower assets Priority #1: Protect and improve value of Nordic hydropower Production assets with low marginal cost, high flexibility, great longevity and almost zero carbon emissions Unique optimizations skills leading to a premium price capture through an integrated business model Operate gas-fired power plants in Germany European flexible generation Europe s largest producer of electricity from hydropower 242 hydropower and 5 gas fired power plants totalling 15 580MW capacity 1/4 of Europe s reservoir capacity Priority #1: Protect and improve value of Nordic hydropower 9
Statkraft has a unique cost position 60 EUR/MWh 50 40 Average price Nordics 2018 (YTD Q3): ~ 42.8 EUR/MWh 30 20 10 0 Statkraft Statkraft production cash cost cost hydro 2017 2015 Cash cost gas Cash cost coal Cash cost nuclear 1 2 2 3 Full cost incl. depreciation: ~ 9.83 EUR/MWh 1 10 1 Annual Report 2017: Production cost 95 NOK/MWh. Production cost, incl. property tax and depreciation, excl. sales costs, net financial items and tax. This is divided by 7 years average output from power plants under own management. 2 Cash costs for coal and gas: Estimates for modern plants. 3 Estimates for nuclear plants in Sweden / Finland is around 17-22 EUR/MWh. In Sweden nuclear tax adds to this, but Parliament has decided to phase-out nuclear tax.
Securing long term revenues in the Nordics Nordic long term industrial contract Majority of Statkraft s 18 TWh/yr LTC portfolio expire in 2020 ~ 2.5 TWh/yr new longterm contracts entered 2017/2018 Statkraft is actively evaluating additional hedging opportunities Yearly average production in Nordics approx. 56 TWh for the period 11
Market Operations: Value creation through a market oriented and adaptable organization Market Operations Statkraft offer tailor-made solutions for power producers and consumers Serving needs across the whole value chain; from market access and hedging to green power supply Managing third parties renewable production: 20.000 MW Market access, Solar PV, Venture Capital, Dynamic Assets Management Portfolio (DAMP), Trading and Origination 12
International Power: Building a sustainable and profitable position Securing long term revenues International Power 27 hydropower plants and 4 wind farms in operation in Southeast Europe, South-Asia and South America More than 1.000 MW in operations Peru Chile Turkey Albania Brazil India Established positions in several emerging markets - Long-term economic growth - Rising energy demand - Increased demand for renewables Evaluating hydro-, wind- and solar power opportunities in selected markets 13
Wind power: Utility scale business model in Europe Wind Power Ensure strong North European onshore presence and major player in the Nordic wind power market with 790 MW in operation 11 wind farms in operations in Norway, Sweden and UK Solid track record in delivering projects on cost and time Existing Under construction Planned Europe s largest onshore wind power project under construction in Norway; Fosen 1000 MW ~1500 MW development portfolio in Ireland and UK 14
District Heating: Continue to strengthen profitability through efficient operations District Heating Harstad 17 plants in Norway and Sweden with ~1.1 TWh annual production Trondheim Namsos Stjørdal Limited capex going forward Increased profitability through optimization of existing portfolio Sandefjord Nannestad Gardermoen Ås Åmål Moss/Rygge Vagnhärad Trosa Kungsbacka 15
Positioning for growth 2016-2018 2019 + Consolidation Profitable growth PIP: Strengthening of: Competitiveness Cost efficiency Performance Reduced investment level Restructured international power Divestments Offshore wind SN Power Revised dividend policy Capitalize on our competitive advantages Maintain and reinvest in existing asset base Grow in renewable energy and market operations New business development 16
Cost reductions from the Performance Improvement Programme Estimated cost savings 2016-2018 540 Realised 260 Remaining 800 Target cost reduction Comments Estimated reduction of the cost base per Q3 2018 compared to 2015 baseline is approximately 540 MNOK Achieved cost reductions mainly through reductions in personnel, consultancy and travel costs and the ongoing exit of Offshore Wind Power The program is on track to deliver the targeted cost reductions of 800 MNOK 17
Large proceeds and financial improvements from asset disposals NOK million Proceeds from asset disposals Net Interest bearing debt 2 18 000 35 000 16 000 14 000 12 000 5 950 650 15 300 30 000 25 000 28 231 10 000 8 000 6 200 20 000 15 000 15 457 6 000 4 000 2 000 1 700 800 10 000 5 000 0 SN Power Triton Scira 1 Dudgeon Fjordkraft Knoll Total Proceeds 0 Q1 2017 Q3 2018 Q4 2017 Q1 2018 18 1 Excluding proceeds related to sell down from 50% to 40% in Q4 2014 2 Net Interest bearing debt from Interim Report Q3/2018
Agenda Statkraft overview Strategy and investment ambition Funding and liquidity Financial update 19
Statkraft s new strategy OPTIMISE HYDRO- POWER PORTFOLIO RAMP UP AS WIND AND SOLAR DEVELOPER GROW THE CUSTOMER BUSINESS DEVELOP NEW BUSINESS INITIATIVES 20
Hydropower and other flexible generation New hydro is challenged on costs, but the need for flexibility increases and provides a good starting point for a flexible hydropower player with market expertise Priorities: 1) Protect and improve value of Nordic hydropower - Focus on refurbishments, operational improvement, regulatory work, hedging 2) Opportunistic acquisitions or portfolio swaps - Restructuring Norwegian regional companies - Bid for French hydro auctions - Actively pursue acquiring hydropower in operation or in construction with particular competitive advantages 3) Operate gas-fired power in Germany 21
Massive ramp up as wind and solar developer Solar and wind become the cheapest way to build new power generation - huge growth expected in all countries Priorities: 1) Taking on a developer role - High value creation for Statkraft in the development phase - Develop and construct projects, and then partially sell down 2) Ramp up in onshore wind (6 GW) and solar (2 GW) - Wind: Substantial growth in Europe, and South America and India - Solar: Utility scale solar and commercial size distributed installations. 3) Hedge revenues of wind and solar to mitigate risk 4) Develop batteries and hybrid storage systems 22
Grow the customer business More complex energy markets and customers taking stronger interest in renewable energy. Statkraft well positioned with deep market expertise and renewable assets Priorities: 1) Significant ramp up of customer part of market operations - Take a position as a leading provider of market solutions for renewable energy for large customers - Provide market access, hedging, distributed energy solutions and green power supply to large customers 2) One of top three in District Heating in Norway and Sweden 3) Continue growth in EV charging through Grønn Kontakt 23
New opportunities in the energy transition Norway is an early mover in the energy transition, through decarbonisation and electrification Priorities: Develop new business arising from the green shift in Norway that has potential internationally: 1) Data centres: Develop, market and sell readyto-build data centre site prospects 2) Biofuels: Aim to produce 2nd generation biofuel from wood feedstock 3) Hydrogen: Investigate business opportunities in production of renewable hydrogen
Investment ambition 2018-2025 Investment ambition 2018 2025 subject to financial capacity: Average NOK 10 bn per year Committed to maintain current ratings NOK billion 12 10 8 6 4 2 0 2018 2019 2020 2021 2022 2023 2024 2025 Maintenance and reinvestments Decided investments Reserved Flexibility 25
Post investment ambition - predominantly a Nordic hydropower producer EBITDA Norway Nordic region excl. Norway Europe excl. Nordic region The rest of the world 2 % 14 % 2018 2025 7 % 77 % 15 % 17 % 10 % 58 % Generation Norway 2 % 11 % 8 % 16 % Nordic region excl. Norway 15 % Europe excl. Nordic region The rest of the world 79 % 9 % 60 % 26
Agenda Statkraft overview Strategy and investment ambition Funding and liquidity Financial update 27
Strong credit ratings A- / Stable BBB+ / Stable Maintaining current ratings with S&P and Fitch Strong support from owner CAPEX adapted to financial capacity Rating impact assessment completed prior to new investment decisions 28
Liquidity position Available liquidity and target Liquidity and market access NOK million 30 000 25 000 20 000 15 000 10 000 5 000 0 2013 2014 2015 2016 2017 Q3 2018 EUR million 3 000 2 500 2 000 1 500 1 000 500 Revolving Credit Facility Credit Line Cash and Cash equivalents 0 NOK 9.2 bn [1.0] Revolving Credit Facility with 10 core banks - Matures 2022 NOK 1bn [0.11] in committed credit line renewed on a yearly basis EMTN Programme EUR 6bn - EUR 3.1 bn available under current Programme No commercial papers outstanding Liquidity capacity target 1 : >1.5x projected payments over next six months 29 1 Liquidity capacity defined as cash and cash equivalents, plus committed revolving credit facilities, plus projected receipts for the next six months
Balanced debt maturity and mixed funding sources Debt maturity profile 30.09.2018 Distribution of funding sources 30
Funding overview Funding strategy Funding centralized on group level Flexibility through diversification of funding sources and maintaining sufficient back-stop facilities Funding need Funding sources Funding need going forward determined by cash flow from operations and capex NOK 2.7 bn redemption in Q2 2019 Norwegian bond and Commercial Paper market Euro bond market Swedish bond market Sterling and Swiss Franc bond markets considered 31
Agenda Statkraft overview Strategy and investment ambition Funding and liquidity Financial update 32
Key figures NOK million Q3 2018 Q3 2017 YTD 2018 YTD 2017 The year 2017 Net operating revenues and other income 5 656 4 650 18 817 16 651 23 350 Operating profit/loss (EBIT) underlying 2 679 1 437 10 069 7 476 10 824 Net profit 1 265 1 783 11 818 6 417 11 710 Nordic prices measured in EUR up 77% Q-on-Q Overall generation down 3% Q-on-Q Operating expenses down 7% Q-on-Q 33
Financial performance 9.7% 10.1% 10.6% 10.5% 12.5% 11.9% 13.2% 8.3% 6.5% 6.4% 6.7% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2016 2017 2018 12 months rolling ROACE of 13.2% - Improvement compared with the year 2017 due to higher underlying operating profit (rolling 12 months), primarily driven by higher Nordic power prices - Average capital employed stable 34 ROACE: Underlying EBIT last 12 months / Average capital employed
Price drivers and the German power market 120 Coal, ARA (USD/t) 25 CO2, EUA (EUR/t) 30 Gas, NBP/TTF (EUR/MWh) 100 20 25 80 60 40 15 10 20 15 10 20 5 5 0 Q1- Q2 Q3 Q4 Q1- Q2 Q3 Q4 Q1- Q2 Q3 Q4 Q1- Q2 Q3 2015 2016 2017 2018 0 Q1- Q2 Q3 Q4 Q1- Q2 Q3 Q4 Q1- Q2 Q3 Q4 Q1- Q2 Q3 2015 2016 2017 2018 0 Q1- Q2 Q3 Q4 Q1- Q2 Q3 Q4 Q1- Q2 Q3 Q4 Q1- Q2 Q3 2015 2016 2017 2018 Q3 2018 vs. Q3 2017 Coal, CO 2 and gas prices increased German power prices up by 63% 60 50 40 30 20 EEX, base (EUR/MWh) - Mainly related to higher gas and CO 2 prices 10 0 Q1-2015 Q2 Q3 Q4 Q1- Q2 Q3 Q4 Q1- Q2 Q3 Q4 Q1- Q2 2016 2017 2018 Q3 35
Nordic reservoir level % 100 80 60 Median 2017 2018 40 20 0 Q1 Q2 Q3 Q4 36 Rapid increase mid-quarter due to high precipitation Weather drier than normal in Q2 Nordic reservoir level (total market) at 87% of median at the end of September
Nordic system price, monthly average EUR/MWh 55 50 45 40 35 30 25 20 15 10 5 0 Q1-2015 Q2 Q3 Q4 Q1- Q2 2016 Q3 Q4 Q1-2017 Q2 Q3 Q4 Q1-2018 Q2 Q3 Nordic power prices 50.5 EUR/MWh, up 77% Q3 2018 vs. Q3 2017 37
Energy management 8 7 2017 2018 Q3 generation down 3% Q-on-Q Stormyr dam, Nedre Røssåga hydropower plant 6 5 4 Technology TWh Change in TWh Hydropower 12.0-0.2 3 Wind power 0.6 0.1 2 Gas power 0.5-0.3 1 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Bio and solar power 0.1 0.0 Total 13.1-0.4 38
Q3 net operating revenues and other income NOK million 5 915 Q3 2017 Q3 2018 +22% 5 656 4 650 4 106 247 223 284 172 212 277-39 Generation Customers Grid, sale of gas and other revenues -339 Trading & Origination Other operating income -308-441 Transmission costs Total net operating revenues and other income Sales revenues less energy purchase 39
NOK 2.7 billion in underlying EBIT NOK million 10 069 Underlying EBIT up NOK 1243 million Q-on-Q 7 476 Primarily driven by higher Nordic power prices. This was partly offset by lower contribution from Nordic origination, value reduction of long-term contracts in Brazil and negative effects from market access activities. +86% NOK 237 million in reduced opex Q-on-Q 2 679 1 437 Q3 2017 Q3 2018 YTD 2017 YTD 2018 40
Financial items Breakdown Net financial items Q3 2018 NOK million 282 402 105 199 214 Interest income Interest expenses Currency gains and losses Other financial items Net financial items Q3 2018 41
Q3 net profit breakdown Underlying EBIT Q3 2017 2018 NOK million Q3 Underlying EBIT Q3 2018 Net Profit Q3 2018 1 006 237 2 679 518 17 139 352 402 1 528 1 437 1 265 Q3 2017 Operating profit/loss (EBIT) underlying Net operating revenues and other income Operating expenses Q3 2018 Operating profit/loss (EBIT) underlying Unrealised value changes from energy derivatives Gain/loss from acquisitions/ divestments of business activities Impairments Share of profit/loss in equity accounted investments Net financial items Tax Q3 2018 Net profit Underlying EBIT +86% Q-on-Q Booked net profit affected by unrealised value changes from energy derivatives 42
Q3 segment EBIT underlying NOK million 2 939 Q3 2017 Q3 2018 1 442 39 63 190 99 147 301-101 -26-29 -671 European flexible generation Market operations International power Wind power District heating Industrial ownership 43
Q3 2018 capital expenditure 1 5% 13% NOK 1.6 billion 24% European flexible generation 28% Distribution of CAPEX in the quarter: - 60% new capacity investments - 39% maintenance/other investments - 1% shareholdings New hydropower capacity under construction in Albania 20% Wind power developments in Norway 39% Maintenance primarily within Nordic hydropower and Norwegian grid European flexible generation International power Wind power Other Industrial ownership Shareholding investments mainly related to Silva Green Fuel 44 1 Excluding loans to equity accounted investments Other includes District heating, Market operations and Other activities
Cash flow in Q3 NOK million 869 19 899 6 182 6 045 121 19 046 Cash reserves 30.06. From operations Investing activities Financing activities Currency exchange rate effects Cash reserves 30.09. 45
Summary Strong underlying performance in the quarter Robust financial position Solid foundation for growth phase Investment plan with large degree of flexibility 46
THANK YOU Investor contacts: Debt Capital Markets Funding Manager Stephan Skaane Vice President Tron Ringstad Phone: +47 905 13 652 Phone: +47 992 93 670 E-mail: Stephan.Skaane@statkraft.com E-mail:Tron.Ringstad@statkraft.com www.statkraft.com