Results for The Hafslund Group (HNA) -Third Quarter 2003
Main features for the group in the Third Quarter
Figures in NOK unless otherwise stated.
Profit performance
Operating profit before depreciation (EBITDA) was 473 million (222 million), an improvement of 251 million from the third quarter of 2002. The operating profit of 241 million is an improvement of 232 million compared with last year.
The network business shows a profit improvement of 63 % compared with the same quarter last year. The positive development from increasing the efficiency of operations continues, and the annual operating expenses and investments have been reduced by 58 % compared with the beginning of 2002. Up to the third quarter Network has recorded the allocated income throughout the year based on historical power consumption. From the third quarter this will be recorded to income linearly throughout the year. This change in estimate will produce a profit improvement of 98 million compared with the same quarter last year. The result for the fourth quarter will give a corresponding decline in profit. The profit development within Power Generation of 34 % is due to higher achieved sales prices with a generated volume almost the same as last year. Power Sales show a profit improvement compared with last year, in spite of the decline in volume sold. Growth within Hafslund Security continues, and the number of new domestic alarm customers increased by 18 % this quarter. Hafslund Security showed an improvement in operating profit before depreciation of 65 % compared with the second quarter. Altogether Hafslund Contracting and Hafslund Services show a profit improvement of 16 million.
Profit from share investments and associated companies was 53 million (-114 million). The result is largely due to development in the value of the venture portfolio, mainly associated with the group's owner commitment in Renewable Energy Corporation (REC) and Scanwafer.
The group profit for financing costs was 294 million (-105 million). Pre-tax profit this quarter was 86 million (-330 million), and profit after taxes was 36 million (-191 million). This corresponds to earnings per share of 0.18 (-0.99). Diluted earnings per share correspond to earnings per share.
MAIN FIGURES PROFIT/LOSS (NOK million)
| PROFIT/LOSS | 3rdQtr 03 | 3rdQtr 02 | Per 3rdQtr 03 | Per 3rdQtr 02 | 2002 | |
| Operating Revenues | 1,633 | 1,212 | 6,988 | 4,728 | 7,228 | |
| Wages and other staff costs | 187 | 242 | 668 | 632 | 792 | |
| Other operating expenses | 968 | 648 | 4,753 | 2,960 | 4,786 | |
| Restructuring costs | 4 | 100 | 25 | 100 | 74 | |
| EBITDA | 473 | 222 | 1,542 | 1.036 | 1,576 | |
| Depreciation | 233 | 214 | 680 | 641 | 849 | |
| Operating profit | 241 | 9 | 862 | 395 | 727 | |
| Income share invest and ass. Companies | 53 | -114 | 120 | -172 | -108 | |
| Income before financing costs | 294 | -105 | 982 | 223 | 619 | |
| Net financing costs | -208 | -225 | -653 | -607 | -874 | |
| Income before taxes | 86 | -330 | 329 | -383 | -254 | |
| Taxes | -50 | 139 | -102 | 94 | 175 | |
| Period's income after taxes | 36 | -191 | 226 | -290 | -79 | |
| Profit/loss attributable maj, interests | 35 | -194 | 213 | -286 | -76 | |
| Profit/loss attributable min, interests | 1 | 3 | 13 | -4 | -3 | |
| Earnings per share (NOK) | 0.18 | -0.99 | 0.09 | -1.46 | -0.39 | |
| No, of shares (in 1.000) used in compute of EPS | 195.2 | 195.2 | 195.2 | 195.2 | 195.2 | |
Cash flow - Investments and capital structure
Free cash flow from operational activities in the third quarter was 675 million, an improvement of 291 million from the corresponding period last year. The increase in the cash flow is due to improved operations along with reorganisation costs in last year's quarter amounting to 100 million. The group had a cash flow after investments of 713 million this quarter, an increase of 267 million from the same period last year.
Net interest-bearing debt at the end of the third quarter was 11.2 billion including interest-bearing assets of 1.0 billion, and is a decrease of 0.5 billion this quarter and 1.0 billion from the turn of the year. The average interest on loans at the end of the quarter was 5.95 %, and the portion of interest-bearing debt with a flowing rate of interest amounted to 34 %. At the end of the quarter Hafslund has a total capital of approximately 19.9 billion, which is in keeping with that at the end of the second quarter. The equity ratio is 30.3 %. This quarter 442 637 of Hafslund's own B class shares have been sold to employees in connection with a general share purchase scheme. After this Hafslund has 986 644 if its own B shares, corresponding to 0.51 % of the total outstanding shares and 1.24 % of outstanding B shares.
The unaudited interim report is in compliance with Norwegian accounting principles and has been compiled according to the same principles as the annual report for 2002. The interim report complies with the Norwegian accounting standard for such reporting.
BALANCE SHEET AND CASH FLOW (NOK million)
| BALANCE SHEET | | | 30.9.2003 | 30.9.2002 | 31.12.2002 |
| Intangible assets | | | 3,117 | 3,198 | 3,157 |
| Fixed assets | | | 12,140 | 12,038 | 11,971 |
| Financial assets | | | 1,776 | 2,189 | 2,186 |
| Debtors/Receivables and stocks | | | 1,968 | 1,312 | 2,980 |
| Investments | | | 488 | 375 | 396 |
| Cash at bank etc, | | | 444 | 570 | 149 |
| Total assets | | | 19,933 | 19,682 | 20,840 |
| Called-up and fully paid share capital | | | 4,346 | 4,302 | 4,273 |
| Retained earnings/profits | | | 1,684 | 964 | 1,297 |
| Provisions for liabilities and charges | | | 274 | 273 | 491 |
| Long term liabilities | | | 11,678 | 8,401 | 10,698 |
| Current liabilities | | | 1,950 | 5,742 | 4,081 |
| Total liabs, & shareholders equity | | | 19,933 | 19,682 | 20,840 |
| STATEMENT OF CASH FLOW | | | 3rdQtr 03 | 3rdQtr 02 | Per 3rdQtr 03 | Per 3rdQtr 02 | 2002 | |
| EBITDA (operating profit before depreciation) | | 473 | 222 | 1,542 | 1,036 | 1,576 | ||
| Change in net working capital | | 241 | 228 | 345 | -100 | -1,433 | ||
| Cash flow from operational activities | | 714 | 451 | 1,887 | 936 | 143 | ||
| Operating investments | | -40 | -67 | -186 | -162 | -202 | ||
| Aquired companies-expansion activities | 1 | 0 | -42 | -459 | -459 | |||
| Distributable cash flow from operational activities | | 675 | 384 | 1,659 | 316 | -518 | ||
| Cash flow share investments prior to purchase/sale | 6 | -17 | 74 | 48 | 14 | |||
| Net purchase/sale shares | 33 | 79 | 97 | 516 | 664 | |||
| Cash flow after share investments | 713 | 446 | 1,829 | 880 | 160 | |||
| Change in net interest-bearing debt | -164 | -89 | -603 | -585 | -89 | |||
| Paid financial items | -312 | -148 | -910 | -589 | -786 | |||
| Dividend - capital transactions | 0 | 0 | -21 | -229 | -229 | |||
| Cash flow after financing activities | 238 | 210 | 295 | -523 | -944 | |||
| Cash and cash equivalents at beginning of period | 206 | 361 | 149 | 1,093 | 1,093 | |||
| Cash and cash equivalents at end of period | 444 | 570 | 444 | 570 | 149 | |||
Business areas and operations
Network
Operating profit before depreciation (EBITDA) for Network activities was 401 million (246 million) in the third quarter. Mjøskraft was accountable for 30 million of this. Operating profit was 226 million (76 million). Total investments amounted to 53 million (75 million), of which 17 million concerned Mjøskraft. Of the year's income of 2 476 million, 77 % has been recorded as income at the third quarter, 23 % in the third quarter.
Through continued efforts to improve the efficiency of operating processes, adjusted for change in estimate, the business area has shown satisfactory profit progress compared with last year. This in spite of increased network loss costs due to the rise in power prices, and maintained high activity linked to clearing lines on the order of the Directorate for Fire and Electrical Safety. Line clearing will also take place through large parts of 2004.
The continued focus on increasing the efficiency of operating processes has led to a considerable improvement in the cash -flow connected with operations and investments. Compared with the beginning of 2002 this shows an improvement in annual rate of 58 % or 550-600 million in spite of the extraordinarily high costs for clearing lines in 2003.
The result from associated companies was -6 million (-3 million) and concerns the investments in Viken Fjernvarme and Oppdal Elektrisitetsverk.
Power Generation and Power Trading
Total operating profit before depreciation (EBITDA) for Power Generation this quarter was 122 million (91 million), while operating profit was 110 million (78 million). Achieved power prices in Norway increased 39 % compared to last year, while power generation was in keeping with last year. The result from power trading activities was -15 million (20 million). Total investments this quarter were 3 million (7 million).
Operating profit before depreciation (EBITDA) for the Norwegian power generation activities was 122 million (78 million). Operating profit was 108 million (70 million). Achieved nominal power price in the third quarter was 19.9 øre/kWh (14.3 øre/kWh). Corresponding spot price was 25.6 øre/kWh (14.4 øre/kWh). Volume-weighted achieved sales price was 20.0 øre/kWh (14.3 øre/kWh), while weighted spot price was 25.2 øre/kWh (13.9 øre/kWh). Power generation was 782 GWh (783 GWh), 5 % lower than the normal level. As a result of a long period with low precipitation into the Mjøsa, the reservoir level is somewhat lower than normal.
Power Sales
Operating profit before depreciation (EBITDA) for Power Sales was 17 million (6 million) in the third quarter. The result was -3 million (-15 million). This improvement has been achieved in spite of a reduction in volume of 25 % (off this 12% in household market) due to energy-saving, a mild quarter and some loss of customers. However a reduced cost base, somewhat higher margins and the sale of Hafslund Tele in the fourth quarter last year contribute to a modest improvement. Total sold volume was 1.7 TWh, a decline of 0.6 TWh.
Profit from associated companies was 1 million (-2 million), mainly coming from Gøta Energi Holding in Sweden (50 %).
Security
Operating result before depreciation (EBITDA) for Security in the third quarter was -6 million (-16 million), while the result was -25 million (-22 million). The number of domestic alarm customers increased by 18 % this quarter and amounts to 48 800 customers at the end of the third quarter. Hafslund Security is Norway's second largest player in the domestic alarm field. Total investments were 38 million, including acquisition costs for new domestic alarm customers.
Hafslund Security has been and will continue to be in a phase of strong growth. The result in domestic alarms at the end of the third quarter showed a positive cash flow. The operating profit before depreciation for the entire business area is expected to be almost in balance in the fourth quarter in spite of stronger growth within transport of valuables and associated costs for growth and phasing-in.
Contracting
Operating profit before depreciation (EBITDA) in the third quarter for Contracting was 2 million (-3 million) and the result was -1 million (-5 million). The work of increasing the efficiency of operations and adapting the business to the market continues. During the year, the total invoicing rate has risen from less than 60 % to almost 70 %, of which the external proportion is increasing.
Services
Operating result before depreciation (EBITDA) for Services this quarter was -6 million (-19 million). The improvement is due to an increase in the efficiency of work processes, including downsizing amounting to around 90 man-years.
Other business areas
Other business areas, which include corporate staff, the Job and Service centre, property management, Agriculture and Hafslund Manor along with costs in connection with cuts in the workforce, had a result before depreciation (EBITDA) this quarter of -41 million (-102 million).
Earnings from share investments & associated companies
Total earnings from share investments and associated companies this quarter was 53 million (-154 million). Of this, the result from associated companies amounts to -5 million (-5 million). The group's venture portfolio has shown good development in value this quarter with a result of 50 million. This is mainly due to the commitment in Renewable Energy Corporation (REC), along with the realisation of the shares in Scanwafer. At the end of the quarter the venture portfolio has a book value of 415 million and an unrealised loss of 21 million that has been recorded in the profit and loss account
MAIN FIGURES BUSINESS SEGMENTS (NOK million)
| BUSINESS SEGMENTS | 3rdQtr 03 | 3rdQtr 02 | Per 3rdQtr 03 | Per 3rdQtr 02 | 2002 |
| Network | 805 | 630 | 2.692 | 2,172 | 3,073 |
| Power Generation & Power Trading | 163 | 152 | 528 | 445 | 733 |
| Power Sales | 508 | 398 | 3.383 | 2,037 | 3,309 |
| Security | 91 | 61 | 226 | 148 | 203 |
| Contracting | 149 | 127 | 484 | 220 | 405 |
| Services | 80 | 100 | 270 | 243 | 349 |
| Other/elimination | -163 | -256 | -596 | -537 | -844 |
| Total operating revenues | 1,633 | 1,212 | 6,988 | 4,728 | 7,228 |
| Network | 226 | 76 | 699 | 405 | 505 |
| Power Generation & Power Trading | 94 | 98 | 347 | 272 | 484 |
| Power Sales | -3 | -15 | -17 | 20 | 73 |
| Security | -25 | -22 | -101 | -50 | -97 |
| Contracting | -1 | -5 | 22 | -5 | -30 |
| Services | -8 | -20 | -16 | -60 | -60 |
| Other business areas and restructuring costs | -41 | -103 | -72 | -188 | -148 |
| Total operating profit | 241 | 9 | 862 | 395 | 727 |
Important transactions
New Board member in Hafslund ASA
At an extraordinary General Meeting on 15 October 2003 the number of Board members elected by the shareholders was increased from six to seven persons. Mikael Lilius, President of Fortum, was elected as new Board member.
Sale of the hydropower business in the USA
In September an agreement on the sale of the group's three hydropower plants in the USA was made. The purchaser is the Canadian Brascan Corporation for USD 30 million, and the transaction will not have any particular effect on profit for Hafslund. The purchase is conditional on the necessary public approvals, and is expected to be completed in the fourth quarter. The sale represents an appropriate step in the announced work of freeing-up capital linked to businesses that lie outside Hafslund's core areas.
Ownership share in Renewable Energy Corporation and Scanwafer
In the Annual General Meeting held in REC on 25 September, a cash issue amounting to 33 million at a rate of NOK 110 per share directed at three large international investors was decided along with the assumption of a convertible loan from the same investors amounting to 255.5 million at a conversion price of NOK 118 per share. In addition a cash issue was carried out towards Hafslund and Good Energies through non-cash contribution in the form of ScanWafer shares valued at 319 million. After this, Good Energies and Hafslund will have ownership shares in REC of 44,64 % and 27,06 % respectively.
Organisational changes
Hafslund is strengthening its focus on customers and operations in order to support the company`s strategic focus on power and security services, and has accordingly undertaken changes to this effect. Hafslund`s main operational activities will be organised in the two business areas Operations and Markets.
The business area Operations will comprise all responsibilities concerning the group`s different activities related to the power network, power generation, construction, electricity security and installation.
The business area Markets will comprise all the sales and marketing responsibilities concerning power and security services directed towards private and corporate customers, including co-ordination of total sales efforts and strengthening of the group`s customer oriented activities.
In order to co-ordinate the group`s various activities related to business-, products- and HR development, two new special units have been established: the Business Development unit comprising Hafslund Venture, M&A and market intelligence, and the Organisational Development unit.
The changes will take effect from 10. November 2003.
PROSPECTS
The development in main key financial figures are largely in line with previously expressed goals.
The work of reorganising the group and realising synergies proceeds as planned. Annual synergies amounting to 430 million are expected based on planned and realised synergy measures. Their full effect is expected from 2004.
A continued low rate of interest is reducing the group's financial costs but will be partly offset by a decline in income within network activities. The phasing-in of these is almost concurrent, and 1 % point change leads to a net profit improvement of around 40 million
Continued large extraordinary costs for line clearance will also affect the result in network activities in 2004. Along with reduced income due to requirements from the authorities regarding increasing efficiency, this places great demands on maintaining efficiency improvement in operations in order to keep earnings at the level previously specified.
Oslo, 6 November 2003
HAFSLUND ASA
Board of Directors
The full report including tables can be downloaded from the following link: