Three reasons Statkraft’s golden age is not over – despite the downturn
While the Norwegian group faces plenty of challenges there are sound causes for optimism about its future prospects, writes Ole Petter Pedersen
A huge deficit, subsidiaries no one wants to buy, downsizing. It’s not hard to find negatives about Statkraft these days.
When Birgitte Ringstad Vartdal stepped into the CEO role at the Norwegian state-controlled power giant on 1 April last year, she immediately began a clean-up.
Where her predecessor Christian Rynning-Tønnessen looked to ever-new markets and activities, the directive is now very clear: Statkraft will focus on what is profitable, in familiar markets.
Vartdal has secured the board’s support for a sharpening of the strategy. Statkraft is to be more focused, competitive, and financially robust.
The nightmare phase for any top executive
We are now in the phase every top executive dreads: the one where results fail to materialise after a new strategy has been implemented.
In this waiting phase, it’s easy to doubt: have we done the right things?
So far, the conclusion should be yes for Statkraft, despite its dismal second-quarter figures.
Only in 2020 did the company deliver a worse result after tax in the first six months of the year.
No choice but to clean up the portfolio
The company has always had significantly weaker profitability outside the Nordics. That couldn’t continue. Not even Statkraft has money for everything that’s attractive.
The fact that no one so far wants to buy Statkraft’s stake in the charging company Mer only underscores that selling is the right move. The question is just how far Statkraft will have to drop the price. In hindsight, it’s easy to mock this venture. Where were the critical voices when Statkraft tried its hand at end users? That’s not the market where the company’s strength lies.
Then come the write-downs, which, together with balance sheet costs and currency losses, drive Statkraft into a large deficit in Q2 – all very inconvenient.
Vartdal would surely have wished it otherwise, but market prospects are what they are. Lower price expectations have a strongly negative effect here and now.
But the red numbers in Q2 are more about accounting techniques than anything else.
Three reasons the future should be bright
There are several reasons why Statkraft can still look forward to the future.
- The company is increasingly outperforming the market. Statkraft only reports achieved prices over the past five years in total, while many other producers report this on an ongoing basis. Statkraft here makes a rather silly attempt to keep last quarter’s performance secret. There’s no reason for that. Based on the figures actually presented, we can roughly estimate that Statkraft was paid about 20% more than spot rates in the second quarter.
- International investments are starting to yield results. Total profit from international operations — everything outside Europe — is NKr1.3bn ($128m). That’s only 8% of operating profit, excluding special items. But it’s also 40% better than in the first half of last year. Wind power in Brazil, among other things, is becoming a significant factor.
- Costs are relatively low. Statkraft pays 14.4 øre to produce 1 kWh. Right now, that’s actually more than spot prices in three areas of Norway. But it’s also lower than what consultancy Thema suggests should be the new cost price, i.e. the price of concession power. In addition, Statkraft is cutting costs going forward. It’s tough for those who may lose their jobs, but in a company as large as Statkraft, it’s not unreasonable to tighten up from time to time. It’s been a while since the last time.
Underlying profit after six months of operation is over NKr15bn. That's lower than at the same time last year, but Statkraft’s margins remain solid in the long term.
Several projects are also in the pipeline. Once Statkraft eventually modernises its wind farms in Norway and Germany, the company will be able to earn significantly more from wind power than before.
The efficiency projects underway in Norwegian hydropower will allow the company to beat the market to an even greater extent, as production can be directed toward the hours with the highest prices.
That should increase Statkraft’s margins in the long term. That should be good news for the real shareholders – the citizens.
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