Hafslund – Write-downs and provisions in 3Q12 and evaluation of continued operation of BioWood Norway AS
Hafslund's profit after tax for 3rd quarter 2012 will be negatively affected by NOK 551 million in extraordinary write-downs and provisions. The write-downs and provisions are a result of challenging market conditions and negative profit development within BioWood Norway AS and Bio-El Fredrikstad, and a tax provision following the developments of an ongoing tax dispute.
BioWood Norway AS
Hafslund’s pellets production plant BioWood Norway AS has since inception in June 2010 not provided satisfactory results. There are few signs of rapid improvement in current market conditions with oversupply and low pellet prices. The long-term contract market for pellets is also weak. The market condition, along with technical production difficulties where maximum capacity is not reached, explains the extraordinary write-downs of the production facilities and raw materials, and provisions related to agreements and disputes in the 3rd quarter of 2012 of NOK 271 million.
Market conditions and the challenges related to the operation of the pellet plant at Averøya makes it difficult to justify continued operation and further investments. The Board of Hafslund ASA has hence decided to initiate an evaluation of whether there is a basis for continued operation of BioWood Norway, or if the overall situation is of such a nature that the company should be wound up. Dialogue will be initiated with the employees, the County Council and other affected parties. If a liquidation of the operations is decided, liquidation costs in the region of NOK 25-30 million is expected in the 4th quarter of 2012. BioWood Norway achieved earnings before extraordinary write-downs and provisions in the 3rd quarter of 2012 of NOK -36 million.
The energy recovery plant Bio-El Fredrikstad was put into operation in June 2008. The plant has an annual production of 110-120 GWh industrial steam, district heating and electricity based on the utilization of industrial waste. The profitability of Bio-El Fredrikstad is strongly influenced by waste prices. Waste prices have continued to fall in 2012 with few signs of immediate recovery. The decline in waste prices is caused by overcapacity due to significant development of waste capacity in both Norway and Sweden. The decline in waste prices weakens the plant's profitability in both the short and longer term. It is therefore decided to write down Bio-El Fredrikstad with NOK 240 million in the 3rd quarter of 2012. A review of the plant’s operating conditions will be carried out with the goal of increasing the plant’s profitability.
Increased tax provision
Hafslund will recognize a NOK 183 million tax provision in the 3rd quarter of 2012 in connection with a disputed tax case involving the sale of shares in Hatros II AS in 2007. The tax provision is in line with the resolution received from the Central Office for Large Enterprises. Hafslund has in the 3rd quarter of 2012 lost a corresponding tax case in the District Court relating to the sale of shares in Hatros I AS in 2006. Tax of NOK 95 million in relation to Hatros I AS is previously expensed. Hafslund has appealed to the District Court the Hatros I AS tax case, and to the High Court the Hatros II tax case AS. For further reference, see also the discussion of tax matters in the report to shareholders for 2nd quarter 2012.
The profit before and after tax for 3rd quarter 2012 is negatively affected by write-downs and provisions of NOK 511 million and NOK 551 million respectively. Hence, Hafslund’s ordinary profit before and after tax will be lower than expected in the 3rd quarter of 2012.
Further details on Hafslund's 3rd quarter 2012 results will not be made public before the scheduled publication of the 3rd quarter 2012 results on 25 October.
Oslo, 16 October 2012
For further information:
CFO, Heidi Ulmo: tel. +47 909 19 325, e-mai: firstname.lastname@example.org
Senior vice president Corporate communications and public affairs, Johan Chr. Hovland: tel: +47 91763491, e-mail: Johan.Hovland@hafslund.no
Finance Director,Morten J. Hansen, tel. +47 908 28 577, e-mail: email@example.com