shareholders’ report 3rd quarter 2016 · 3 shareholders' report third quarter 2016...

SHAREHOLDERS’ REPORT 3rd QUARTER 2016

2 SHAREHOLDERS' REPORT THIRD QUARTER 2016

Contents: Highlights 3

Group summary 4

Business areas 5

Other matters and outlook 9

Quarterly reports 10

Notes to the financial statements 13

Historical data 17

Financial calendar and

investor information 19


Third-quarter highlights 2016

> Historically high year-to-date profit after tax for the third quarter of NOK 1,019 million – up NOK 19 million on the same quarter the previous year.

> EBITDA of NOK 659 million on a par with the previous year.

> Networks' result up NOK 61 million on the same quarter in 2015.

> Energy production and demand slightly lower than the third quarter of 2015 due to

lower water flow and mild weather towards the end of the quarter.

> Power price for Oslo area (NO1) of 0.21 NOK/kWh up 0.11 NOK/kWh, from

historical low level in the comparative prior-year quarter.

> Introduction of automatic power meters (AMS) and construction of new generator

at Vamma proceeding according to plan.

> EBITDA

> Earnings per share

> Net debt / EBITDA last 12 months

663

796

971

695 659

-

200

400

600

800

1 000

Q3 15 Q4 15 Q1 16 Q2 16 Q3 16

1,21

2,11

2,52

1,40 1,31

0,0

0,5

1,0

1,5

2,0

2,5

3,0

Q3 15 Q4 15 Q1 16 Q2 16 Q3 16

3,4 3,3

2,72,8 2,9

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

31.09.15 31.12.15 31.03.16 30.06.16 30.09.16

Earnings per

share

NOK1.31

NO

K

NO

K m

ill.


Key figures

Q3 15 Q3 16 Income statement (NOK million) Ytd 16 Ytd 15

2 158 2 580 Operating revenues 9 581 8 545

663 659 EBITDA 2 324 2 124

427 425 Operating profit 1 636 1 452

348 383 Profit before tax and discontinued operations 1 479 1 256

237 255 Profit after tax 1 019 873

Capital matters

33 % 37 % Equity ratio 37 % 33 %

9 728 9 045 Net interest-bearing debt 9 045 9 728

Per-share figures (NOK)

1.21 1.31 Profit (EPS) 5.22 4.47

2.1 0.1 Cash flow from operations 9.7 10.6

Key figures

0.17 0.20 Revenues Hydropower (NOK per kWh) 0.22 0.19

3 302 3 184 Energy deliveries Network (GWh) 13 642 13 462

151 136 District heat production (GWh) 1 119 1 056

1 050 821 Hydropower production (GWh) 2 369 2 609

3 017 3 156 Power sales (GWh) 13 774 12 689

Figures in NOK unless otherwise stated. The figures for 2015 are stated in parentheses.

Third-quarter performance

Hafslund posted a profit after tax of NOK 255 million for the

third quarter, which was up NOK 19 million on the

corresponding prior-year period. This contributed to the best

year-to-date profit after tax for the third quarter since 2007. At

NOK 659 million, EBITDA were on a par with the previous year

(NOK 663 million). The power price for price area NO1 was

0.21 NOK/kWh (0.10 NOK/kWh), which was up 0.11 NOK/kWh

on the historically low level in the third quarter of 2015.

Networks' profit for the third quarter was NOK 61 million higher

than in the corresponding prior-year period. A strong result

from Networks and an increase in the power price offset

reduced production and energy demand in the quarter

following lower water flow and mild weather towards the end of

the quarter.

At NOK 42 million (NOK 79 million), financial expenses for the

quarter were down on the previous year, in part due to

exchange rate gains of NOK 26 million compared with losses

of NOK 33 million in the third quarter of 2015. Higher forward

interest rates have affected the market value of the portion of

the loan portfolio that is recognised at fair value, reducing

financial expenses by NOK 30 million (NOK 44 million). At the

reporting date Hafslund had net interest-bearing liabilities of

NOK 9.0 billion and an average coupon rate for the loan

portfolio of 3.3 percent.

The tax expense of NOK 127 million (NOK 111 million) includes

resource rent tax for the hydropower business of NOK 36

million (NOK 23 million). Based on the profit before tax, this

results in a tax rate of 33 percent (32 percent). The profit after

tax of NOK 255 million (NOK 237 million) equates to an

earnings per share figure of NOK 1.31 (NOK 1.21).

Earnings third quarter 2013–2016

(NOK million)

633656 663 659

210

71

237255

0

200

400

600

800

Q3 13 Q3 14 Q3 15 Q3 16

EBITDA Profit after tax


Cash flow in the third quarter

The cash flow from operating activities of NOK 22 million (NOK

402 million) in the third quarter includes NOK 550 million (NOK

140 million) in increased working capital in the quarter. At the

end of the quarter net working capital totalled NOK 516 million

(NOK 541 million). EBITDA of NOK 659 million in the third

quarter were NOK 86 million higher than the related cash flow

from operations before changes in working capital. This was

primarily attributable to the payment of interest of NOK 49

million. Along with a capital release of NOK 266 million from

the sale of business/shares, investments of NOK 392 million

contributed to net investments of NOK 126 million in the

quarter. At NOK 9.0 billion, net interest-bearing liabilities were

virtually unchanged during the quarter. The graph below shows

changes in net interest-bearing liabilities and working capital

over the last 13 quarters.

Changes in net interest-bearing liabilities and working

capital

(NOK billion)

Hafslund maintains solid financial key figures and had a net

liabilities/EBITDA ratio of 2.9 at the end of the third quarter.

This represents a decrease of 0.5 compared with the previous

year and a slight increase on the previous quarter. Hafslund

has a robust financing structure with long-term committed

drawdown facilities. Unutilised drawdown facilities at the end of

the quarter amounted to NOK 3.7 billion, which is deemed

sufficient to cover both working capital requirements and

refinancing of liabilities over the next 12 months.

Business areas in the third quarter

> Networks

NOK million Q3 16 Q3 15 Ytd 16 Ytd 15

Operating revenues 1 103 1 019 3 400 3 143

Gross margin 751 729 2 175 2 113

EBITDA 411 350 1 195 985

Operating profit 255 201 748 599

Energy deliveries (GWh) 3 184 3 302 13 642 13 462

Number of customers

('000) 693 686 693 686

Investments 254 222 605 595

Networks posted sales revenues of NOK 1,103 million (NOK

1,019 million) in the quarter. The energy delivery of NOK 3,184

GWh was down 4 percent on the previous year due to mild

weather towards the end of the quarter. At a total of NOK 355

million, costs of the overhead network (Statnett) and energy

purchases/network losses were up NOK 65 million on the

previous year. This generated a gross contribution of NOK 751

million (NOK 729 million) for the third quarter.

At NOK 340 million, operating expenses were down NOK 39

million on the previous year. The decrease should be viewed

in the context of integration expenses in the corresponding

prior-year quarter after the purchase of the Networks business

in Østfold, as well as the effects of a cost-efficiency project.

Third-quarter EBITDA of NOK 411 million were NOK 61 million

higher than the previous year.

Hafslund Nett’s security of supply is among the best of any

network operator in Norway. The table below shows the

change in operating downtime (X-axis) and the KILE cost (Y-

axis). KILE is the quality-adjustment of the income ceiling for

non-delivered energy.

KILE cost and operating downtime

The increase in the rolling number of operating stoppages in

the last 12 months is in part due to more storms in the period

under review than in the corresponding prior-year period. At

-1,2

-1,0

-0,8

-0,6

-0,4

-0,2

0,0

0,2

0,4

0,6

0

2

4

6

8

10

12

Q3 13 Q2 14 Q1 15 Q4 15 Q3 16

Working capital Net interest bearing liabilities

400

600

800

1 000

1 200

1 400

1 600

1 800

2 000

0

5

10

15

20

25

30

35

40

Q3 14 Q4 14 Q1 15 Q2 15 Q3 15 Q4 15 Q1 16 Q2 16 Q3 16

Quarterly penalties (NOK million) No. of outages last 12 months

Penalti Outages


NOK 30 million, the quarterly KILE cost was up NOK 13 million

on the previous year.

Investments for the quarter came in at NOK 254 million (NOK

222 million). The rollout and installation of smart meters are

proceeding well, and the initial stages have mainly been

completed as planned. Other AMS infrastructure has also been

installed in accordance with plan. At the reporting date,

cumulative investments in the AMS project totalled NOK 454

million.

Assuming normal energy demand for the rest of the year,

current network tariffs, forward power prices, synergy effects

from the Networks business acquired in 2014 and planned

maintenance levels, the operating profit for 2016 is expected to

come in around 25 percent higher than in 2015. Networks had

capital employed of NOK 11.3 billion at the end of the third

quarter.

> Heat


Operating revenues 67 76 737 646

Gross margin 47 61 471 397

EBITDA (12) 6 278 226

Operating profit (50) (30) 170 119

Gross margin

(NOK/kWh) 0.48 0.43 0.46 0.39

Total production (GWh) 136 151 1 119 1 056


Heat posted sales revenues of NOK 67 million in the quarter, a

decrease of NOK 9 million against the corresponding prior-year

period. Positive effects of a higher year-on-year power price

were slightly offset by negative contributions from hedging

activities. Lower district heating production of 15 GWh pushed

down sales revenues. At NOK 46 million, the gross contribution

was NOK 15 million lower than in the same quarter the previous

year. Operating expenses of NOK 58 million were NOK 3

million higher than the previous year, primarily due to higher

activities relating to improvement measures for the district

heating network, and maintenance and securing of facilities.

The operating loss of NOK 50 million represents a reduction of

NOK 20 million in a seasonally weak quarter due to a lower

energy delivery, rising fuel costs and higher maintenance

activities.

Energy mix and energy prices Q3 16 Q3 15 Ytd 16 Ytd 15

Waste (GWh) 131 130 649 628

Heat pumps (GWh) 0 8 74 89

Pellets (GWh) 0 0 36 41

Electricity (GWh) 3 12 320 278

Biooil, natural gas, oil (GWh) 0 1 40 20

Total production (GWh) 136 151 1 119 1 056

Production cost (NOK/kWh) 0.15 0.10 0.24 0.24

Avg. sales price (NOK/kWh) 0.58 0.48 0.71 0.63

Gross margin (NOK/kWh) 0.48 0.43 0.46 0.39

District heating production of 136 GWh was 15 GWh lower than

the previous year as a result of relatively mild weather towards

the end of the quarter. Operation of the base-load production

facilities was satisfactory; however, the fuel cost of 0.15

NOK/kWh was slightly higher than in the previous year,

primarily due to higher electricity prices, and a non-recurring

effect in the corresponding prior-year period relating to

compensation for previous years' fuel purchases. The district

heating price of 0.58 NOK/kWh was 0.10 NOK/kWh higher than

the previous year on the back of higher power prices in the

quarter. The volume-weighted power price in the quarter was

0.21 NOK/kWh, which is 0.11 NOK/kWh higher than the

previous year. This resulted in a gross contribution for district

heating of 0.48 NOK/kWh for the third quarter, which was 0.05

NOK/kWh higher than the previous year.

District heating – monthly production profile

(GWh)

* Normal = expected production in 2016, given normal temperature

conditions (average of the past ten years), as well as existing and planned

customer connections.

Hafslund hedges the price of some of its district heating

production. Please refer to Note 6 later in the shareholders'

report for further information on the company's hedging policy.

The hedge ratio in the third quarter was 93 percent (92 GWh).

Hedge trading contributed a loss of NOK 3 million (profit of

NOK 9 million) during the quarter. The table below shows the

0

50

100

150

200

250

300

350

J F M A M J J A S O N D

2015 236 205 186 123 99 56 41 42 68 129 176 206

2016 309 226 187 140 78 43 39 46 51

Mean * 273 242 216 139 92 50 40 43 70 132 190 253


hedging position in relation to net power price exposure for the

district heating business for the next six months:

Hedge position 0-6

months

Hedge ratio as of 30 September 2016 64%

Hedge price minus market price

listed 30 September 2016 (NOK/kWh) -0.039

Investments of NOK 78 million in the quarter relate to the

connection of new district heating customers and

reinvestments in the district heating network and production

facilities, including a major upgrade of the district heating

supply to the Sloreåsen and Storfjellet housing cooperatives. A

total of 15 new customers with a combined annual district

heating requirement of 11 GWh were connected during the

third quarter. Heat had capital employed of NOK 4.5 billion at

the end of the third quarter.

> Production


Operating revenues 167 176 519 503

EBITDA 113 119 355 300


Revenues (NOK/kWh) 0.20 0.17 0.22 0.19

Result from hedging

activity (5) 69 10 103

Production (GWh) 821 1 050 2 369 2 609


Production posted sales revenues of NOK 167 million (NOK

175 million) in the quarter. This represents a reduction of 5

percent on the previous year, primarily as a result of lower

production. Despite lower production in the quarter, the

operating profit came in at NOK 101 million, which was only

NOK 7 million lower than the previous year. This was

attributable to a higher power price (income) and lower

operating expenses. The year-on-year reduction in operating

expenses of NOK 3 million is in part attributable to high

preliminary project expenses in the comparative prior-year

quarter.

At 821 GWh, hydropower production was 11 percent lower than

the normal for the quarter and 229 GWh lower than the

previous year due to lower water flow. The Nord Pool Spot

price for price area NO1 was 0.21 NOK/kWh in the quarter, up

0.10 NOK/kWh on the previous year, which was a historically

weak quarter. Achieved income amounted to 0.20 NOK/kWh

(0.17 NOK/kWh) in the quarter and includes negative earnings

from hedging activities of NOK 5 million (earnings of NOK 69

million). The average hedge ratio in the third quarter was 46

percent. A total of 55 GWh of concessionary and compensatory

power was sold at an average price of 0.15 NOK/kWh (0.15

NOK/kWh) during the quarter.

Hydropower – monthly production profile

(GWh)

Normal = 10 years' hydropower history adjusted for efficiency

improvements.

Hafslund hedges some of its hydropower production. Please

refer to Note 4 for further information on the company's hedging

policy. The table below shows the hedging position for the next

six months:

Hedge position 0–6

months

Hedge ratio as of 30 September 2016 35%

Hedge price minus market price listed 30 September 2016 (NOK/kWh)

-0.019

At the end of September, the overall hydrological reservoir level

in Hafslund's catchment area was 91 percent of the normal,

while total stored energy amounted to 865 GWh. Based on

production to date, expected availability in the production

facilities, current reservoir levels and a normal weather

situation, production in the fourth quarter of 2016 is expected

to come in some what below normal levels, which is 690 GWh.

Investments of NOK 52 million (NOK 4 million) in the quarter

primarily relate to the new generator at Vamma. Vamma 12 will

produce more than 1 TWh, of which approximately 800 GWh

will replace production from old generators and around 230

GWh will relate to new renewable energy. Work to expand the

Vamma 12 generator is on schedule for completion before the

spring flood in 2019. The groundworks are essentially finished,

and ongoing work at the site involves concrete pouring in the

intake, final cleaning and the start of concrete pouring in the

suction tube. The work on the intake and the electro-

mechanical deliverables for the project is proceeding according

to plan. At the reporting date cumulative investments in Vamma

12 amounted to NOK 299 million.

At the end of the reporting period Production had capital

employed of NOK 4.6 billion.

0

50

100

150

200

250

300

350

400

J F M A M J J A S O N D

2015 215 188 212 233 352 359 369 330 351 239 204 239

2016 231 210 177 257 341 332 283 288 250

Mean 211 174 160 225 363 353 350 328 247 238 220 232


> Markets


Operating revenues 1 273 887 4 995 4 235

Gross margin 392 390 1 257 1 165

EBITDA 131 145 462 468


Operating profit power sales 86 118 351 349

Operating profit support

functions 25 6 44 58

Number of customers ('000) 1 084 1 045 1 084 1 045

Sales volume (GWh) 3 156 3 017 13 774 12 689

Markets posted sales revenues of NOK 1,273 million in the

third quarter, an increase of 43 percent against the previous

year. This is primarily due to an increase in power prices

compared with the previous year, and slightly higher volumes

due to the acquisition of 39,000 new customers over the last

12 months.

In total, 3,156 GWh was sold in the quarter, up 5 percent on

the previous year. Hafslund had 1,084,000 customers at the

reporting date, 365,000 of whom were outside Norway. A total

of 4,000 new customers were acquired in the third quarter,

bringing the total for the year to date to 34,000.

The operating profit of NOK 111 million (NOK 125 million)

represents a good result in a quarter normally characterised by

low energy demand. Power sales' operating profit of NOK 86

million (NOK 118 million) equates to an operating profit of

around NOK 79 (NOK 112) per customer for the quarter. The

result reflects slightly lower power margins, higher sales and

marketing activities, and slightly higher operating expenses

than the previous year. The result includes income of NOK 25

million (charge of NOK 2 million) in changes in the value of

power derivatives which are recognised at market value in

accordance with IFRSs. Please refer to Note 4 for further

details of the accounting treatment of hedging of end user

contracts.

Power sales – volume

(GWh)

Markets had capital employed of NOK 1.3 billion at the end of

the third quarter. Capital employed will to a large extent vary in

line with changes in working capital during the year due to

fluctuating energy demand and wholesale power prices on

Nord Pool Spot.

> Other business


Coporate functions (10) 2 (34) (23)

Other acitivities 18 21 35 84

Total operating profit Other 8 23 1 61

The Other business area posted an operating profit of NOK 8

million (NOK 23 million) in the quarter. Other business' result

primarily derives from the around NOK 20 million accounting

profit (before transaction costs) on the sale of Sarpsborg

Avfallsenergi AS.

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

Q1 Q2 Q3 Q4

2014 2015 2016


Other matters

> List of shareholders as of 30 September 2016

('000) A shares B shares Total Shareholdin

g

City of Oslo 67 525 37 343 104 868 53.7 %

Fortum Forvaltning AS 37 853 28 706 66 559 34.1 %

Kommunal

Landspensjonskasse

(KLP)

5 327 3 953 9 280 4.8 %

MP Pensjon PK - 1 979 1 979 1.0 %

Folketrygdfondet 60 734 794 0.4 %

Avanza Bank AB 109 354 463 0.2 %

Nordnet 70 351 421 0.2 %

Greenwich Land

Securities AS 84 323 408 0.2 %

JP Morgan Chase Bank 21 333 354 0.2 %

New Alternatives Fund,

Inc 328 - 328 0.2 %

Total 10 largest 111 377 74 077 185 455 95.0 %

Other shareholders 4 051 5 681 9 731 5.0 %

Total 115 428 79 758 195 186 100 %

Hafslund's market capitalisation of NOK 15.1 billion on the Oslo

Stock Exchange at the reporting date was based on a price of

NOK 77.75 for A shares and NOK 77.00 for B shares. At the

end of September 2016 Hafslund ASA had 6,254 shareholders

and owned 263,289 treasury B shares and 1 treasury A share.

Outlook

Hafslund is a pure-play energy and infrastructure company with

a leading position as Norway's largest networks, district heating

and power sales company, and is a medium-sized power

producer. The regulated networks business accounts for

around half of Hafslund's employed capital. Networks

guarantees Hafslund a stable return in a period marked by low

power prices and uncertain economic conditions.

Over the next few years Networks and power sales will face

significant regulatory changes, including the introduction of

AMS, and greater differences between the Networks and

power sales business. The power sales business is exposed to

tough competition, and profitability and growth will be

contingent on the company's ability to further develop and

enhance its activities. Power sales is pursuing a long-term

Nordic growth strategy. The growth strategy for the power sales

business remains in place, despite the planned IPO of Markets

will not be implemented as planned in 2016.

Over time, Networks' long-term earnings are influenced by the

business area's relative cost efficiency compared with the rest

of the networks industry, interest rate fluctuations and changes

in public regulations. Production's and Heat's earnings are

directly impacted by changes in power prices and the

production volume. At the end of the third quarter of 2016 the

listed power price in price area NO1 for deliveries of power in

the next 12 months was 0.24 NOK/kWh, compared with 0.21

NOK/kWh for the previous 12 months.

Hafslund will substantially ramp up its investments over the

next two years. In addition to ongoing investments in

operations and expansion, the Group's future investments will

be characterised by statutory investments in AMS of around

NOK 2.4 billion and the construction of a new generator at

Vamma with an investment framework of NOK 920 million in

the period leading up to 2019. Compared with the average

annual investment level (excluding acquisitions) of NOK 1.0

billion for the years 2013 to 2015, average annual investments

are expected to rise to around 2.1 billion for the years 2017 to

2018, and 1.5 billion in 2016.

The profit after tax for the fourth quarter is expected to be

slightly lower than the previous year on the back of positive

non-recurring effects the previous year, while the result for

2016 as a whole is expected to be better than 2015.

The Group's strategy is to continue organic and structural

growth in order to promote the development of the Group's

activities. The Group's long-term dividend policy is to make

stable distributions which over time equate to at least 50

percent of the net result for the year.

Oslo, 24 October 2016

Hafslund ASA

Board of Directors


> Consolidated income statement

Q3 15 Q3 16 NOK million Ytd 16 Ytd 15

2 158 2 580 Operating revenues 9 581 8 545

(836) (1 268) Purchased materials and energy (5 310) (4 441)

1 322 1 312 Gross margin 4 271 4 104

19 28 Gain/loss financial items 107 78

(221) (180) Salaries and other personnel expenses (633) (733)

(457) (501) Other operating expenses (1 421) (1 325)

663 659 EBITDA 2 324 2 124

(236) (233) Depreciation (687) (646)

(0) (1) Impairment losses (1) (26)

427 425 Operating profit 1 636 1 452

(123) (72) Financial interest, etc (214) (300)

44 30 Change in market value loan portfolio 57 105

(79) (42) Financial expenses (157) (195)

348 383 Profit before tax and discontinued operations 1 479 1 256

(111) (127) Tax (460) (383)


1.21 1.31 Earnings per share (in NOK) = diluted profit 5.22 4.47

> Consolidated statement of Other comprehensive income


(48)

(29) Value change hedging instruments

(111)

71

34

(38) Translation differences

(75)

31

13

7 Tax

28

(19)

(1) (60) Other comprehensive income that may be reclassified to profit or loss

in subsequent periods (158) 83

- - Change in actuarial pensions (2) -

-

- Tax

1

-

-

-

Other comprehensive income that will not be reclassified to profit or

loss in subsequent periods

(2) -

236 195 Profit attributable to 859 956

235 195 Profit to shareholders of Hafslund ASA 859 956

0 0 Profit attributable to minority interests 1 0

236 195 859 956


> Consolidated balance sheet

NOK million 30.09.16 30.09.15 30.06.16 31.12.15

Intangible assets 2 890 2 966 2 909 2 933

Fixed assets 19 297 19 133 19 404 19 302

Financial assets 459 1 164 593 841

Accounts receivable and inventory 1 875 1 727 1 615 2 752

Cash and cash equivalents 421 337 527 724

Assets 24 941 25 328 25 048 26 552

Equity, majority 9 288 8 372 9 093 9 009

Equity, minority 4 16 3 4

Allocations for liabilities 3 679 4 043 3 663 3 528

Long-term interest-bearing liabilities 7 719 8 136 7 409 8 330

Short-term interest-bearing liabilities 1 794 1 989 2 059 2 156

Short term non-interest-bearing liabilities 2 458 2 772 2 821 3 526

Equity and liabilities 24 941 25 328 25 048 26 552

> Equity reconciliation

NOK million Ytd 16 Year 15

Equity beginning of period 9 013 7 877

Comprehensive income 859 1 646

Change own shares - 9

Dividend (587) (487)

Change, minority interests - (13)

Other changes affecting equity 6 (19)

Equity at end of reporting period 9 291 9 013

> Consolidated statement of cash flow


EBITDA 659 663 2 324 2 124

Paid interest (49) (53) (277) (331)

Paid taxes 0 (29) (362) (257)

Market value changes and other items without cash flow effect (38) (40) (99) (64)

Change in accounts receivables, etc. (269) 65 771 930

Change in liabilities, etc. (281) (204) (457) (324)

Cash flow from operations 22 402 1 900 2 078

Investments (operation and expansion) (392) (296) (942) (772)

Net capital release shares, etc. 266 12 394 12

Cash flow investment activities (126) (284) (548) (760)

Change net interest-bearing debt and dicontinued operations (2) (46) (1 070) (1 236)

Dividend and other equity changes - - (586) (487)

Cash flow financing activities (2) (46) (1 656) (1 723)

Change in cash and cash equivalents in period (106) 72 (303) (406)

Cash and cash equivalents at beginning of period 527 265 724 743

Cash and cash equivalents at end of period 421 337 421 337


> Segment reporting

Q3 15 Q3 16 NOK million Ytd 16 Ytd 15

1 019 1 103 Network 3 400 3 143

76 67 Heat 737 646

176 167 Production 519 503

887 1 273 Markets 4 995 4 235

(0) (30) Other activities/eliminations (70) 18

2 158 2 580 Total operating revenues 9 581 8 545

15 23 Network 40 50

0 0 Heat 0 4

0 - Production - 2

61 34 Markets 136 173

83 60 Other activities 181 249

160 116 Of which, sales between segments 357 479

201 255 Network 748 599

(30) (50) Heat 170 119

107 101 Production 322 266

125 111 Markets 396 407

23 8 Other activities/eliminations 1 61

427 425 Total operating profit 1 636 1 452


Notes to the financial statements

1) Framework conditions and key accounting policies

The consolidated financial statements for the third quarter of 2016, the period ending 30 September 2016, have been prepared in

accordance with International Financial Accounting Standards (IRFSs) as established by the EU and include Hafslund ASA and

its associates and subsidiaries. This interim report, which has not been audited, has been prepared in accordance with IAS 34,

Interim Financial Reporting. The interim financial statements do not provide the same scope of information as the annual financial

statements and should therefore be viewed in the context of the consolidated financial statements for 2015. The accounting

policies and calculation methods applied in interim reporting are the same as those described in Note 2 to the consolidated annual

financial statements for 2015.

2) Networks – income ceiling and income surpluses/shortfalls

Permitted income for the year

Electrical power is distributed via networks, which represent a natural monopoly within the individual network business' geographic

area. The Norwegian Water Resources and Energy Directorate (NVE) therefore establishes an income ceiling that represents the

maximum income level the networks businesses are allowed to collect in network rental, and which is intended to provide a

reasonable return on invested capital, and to cover normal operating and maintenance expenses. The regulated income ceiling,

plus re-invoicing of expenses from the overhead network (Statnett) are referred to as permitted income and established for the

year as a whole.

Actual income for the year

A networks company’s actual income (tariff income) comprises the tariffs, power consumption and actual transferred energy

volume in the company’s supply area. In accordance with IFRSs, income is recognised in the Networks business based on actual

income for the year, and not permitted income as described above. However, the tariffs, or network rental, are established based

on the premise that over time actual income will correspond to the permitted income for the Networks business.

Annual income surpluses and deficits

Permitted income will normally deviate from actual income for the year due to the effect of the weather and temperatures on the

transmitted volume in the network. If actual income is higher than permitted income, this results in an income surplus; and if it is

lower, in an income deficit. Under IFRSs, income surpluses and income deficits are defined as regulated liabilities or assets that

do not qualify for balance-sheet recognition. This is justified on the grounds that a contract has not been entered into with a

particular customer and therefore the resulting receivable/liability is theoretically contingent on a future delivery.

At the close of 2015, Networks had an accumulated income surplus of NOK 873 million. The accumulated income surplus is

expected to be significantly lower in 2016, in part due to positive non-recurring compensation following the consolidation of the

Networks business in Østfold in 2014. This compensation is called harmonisation income, and NVE has notified Hafslund Nett

that it will receive compensation of NOK 619 million. This will reduce accumulated surplus income correspondingly. Harmonisation

income is allocated by NVE to offset loss of income in the form of reduced future income ceilings for the merged company.

3) Interest-bearing loans and interest and currency derivatives

At the end of the third quarter of 2016, the value of the loan portfolio recognised in the balance sheet amounted to NOK 9,588

million, of which NOK 7,277 million related to long-term liabilities and NOK 2,311 million to current liabilities. The change in the

fair value of loans boosted profits by NOK 30 million in the reporting period. The change in the fair value of interest and currency

derivatives had a combined negative effect on results of NOK 12 million in the third quarter of 2016. In the third quarter of 2016

Hafslund’s credit spreads narrowed by around 15 basis points for maturities of less than one year, and by around 25 basis points

for maturities of 2 to 4 years, and by around 20 basis points for longer maturities. The NIBOR and swap interest rates rose by

respectively 10, 16 and 25 basis points for terms of 3, 6 and 12 months. For terms of 2 to 7 years the interest rate rose by around

25 to 30 basis points and slightly less for longer terms. The net effect of the above was that the market interest rate (including

Hafslund's credit margins) was virtually unchanged for terms of less than 1 year and more than 6 years, while it rose by around

10 basis points for terms of 1 to 6 years.


The change in the fair value of loans is recognised in income as financial expenses, while the change in value of interest and

currency derivatives is recognised in income as net financial items before the operating result.

Hafslund has a drawdown facility of NOK 3,600 million with a syndicate of six Nordic banks that matures in 2018. The company

has negotiated favourable terms and no financial covenants attach to the loan agreement. The facility is intended to be used as a

general liquidity reserve. Hafslund also has a NOK 200 million overdraft facility with Nordea that had been utilised in the amount

of NOK 83 million at the end of the reporting period.

Some of Hafslund's businesses carry out transactions that are exposed to fluctuations in exchange rates. Currently this applies in

particular to EUR- and SEK-denominated trades in power and power derivatives. The Group’s central finance department is

responsible for managing the Group’s overall foreign exchange exposure on behalf of the individual operating units, and performs

all transactions with the market. In the case of foreign currency borrowings, principal amounts and basis interest rates are hedged

using basis swaps when borrowings are taken out. Until 31 December 2009 Hafslund's entire loan portfolio was valued at fair

value through profit or loss. Since 2010 new loans have been measured at amortised cost. At the end of the third quarter of 2016

these comprised NOK 6,536 million.

4) Financial instruments by category, including hedging

The following principles have been applied in the subsequent measurement of financial instruments for financial instruments

recognised in the balance sheet:

NOK million Derivatives used

for hedging

Assets at fair value through profit or loss

Loans and receivables

Total

Long-term receivables 217 217

Derivatives 31 46 77

Trade and other receivables 1 567 1 567

Cash and cash equivalents 421 421

Total financial assets as of 30 September 2016 31 46 2 205 2 282

NOK million Derivatives used

for hedging

Liabilities at fair value through profit or loss

Other financial liabilities

Total

Borrowings 3 052 6 536 9 588

Derivatives 11 11

Trade and other current payables 2 166 2 166

Total financial liabilities as of 30 September 2016 3 063 8 702 11 765

Hafslund classifies its financial instruments in the following categories; financial assets, loans and receivables and financial

liabilities. Derivative financial instruments are valued as either "at fair value through profit or loss" or "for hedging purposes".

Hafslund has four main groups of derivatives; power derivatives, interest and currency derivatives, and forward contracts relating

to el certificates. Spot contracts used in the purchase of el certificates are recognised under cash and cash equivalents in the

table above.

Several of the Group’s results units are exposed to risk associated with the power market. The inherent exposure to the market

primarily derives from the Group’s ownership of power and heat production facilities, networks business and power sales to

customers. In recent years the power market has been relatively volatile, which has increased the desire for greater predictability

regarding the Production and Heat business areas. Some of the power price is hedged in order to reduce the risk relating to future

cash flows from the sale of power. Hafslund hedges some of its hydropower production volume and enters into hedging contracts

in the Heat business area for the next 36 months in order to reduce the power price risk. In line with the Group ’s hedging policy,

the extent of hedging is expected to be significantly higher in the next six months than in the ensuing period. The extent of hedging

may vary significantly, based on an overall assessment of market prices and prospects, where the purpose is to achieve

satisfactory prices and reduce downside risk in Hafslund’s earnings. Hedging arrangements are recognised as cash flow hedging

in accordance with IAS 39, while changes in value in hedging instruments are recognised in other comprehensive income and are


presented in the above table as Derivatives used for hedging purposes. The Group has introduced frameworks for hedging

hydropower production volumes for up to 15 years to further reduce the risk relating to future cash flows.

The power sales business hedges the margins on all electricity products offering customers various types of fixed price schemes

or price offers for a fixed period of time. Hedging is carried out by entering into financial power contracts to purchase physical

volumes corresponding to the supply obligation to the customers. The Group enters into contract trading to hedge the margins on

its customer portfolios. Financial power contracts are recognised at fair value through profit or loss. A gain of NOK 25.4 million

was recognised in respect of changes in the unrealised value of power contracts in the third quarter of 2016, compared with a

loss of NOK 2 million in the same quarter the previous year. Gains deriving from changes in the value of power contracts will

largely be offset by a corresponding reduction in the unrealised value of end-user contracts. However, the Group’s end-user

contracts are not deemed to fall within the scope of IAS 39 and are recognised in accordance with the lowest value principle.

The table below shows financial instruments at fair value through profit or loss based on valuation method. The levels are:

1. Listed price in an active market for an identical asset or liability (level 1). 2. Valuation based on observable factors other than listed prices (level 1) either directly (prices) or indirectly (derived from

prices) for the asset or liability (level 2).

3. In cases where it is not appropriate to employ the quoted share price or the transaction value, shares are valued on the

basis of discounted future cash flows, as well as the Group's own estimates.

NOK million Level 1 Level 2 Level 3 Total

Financial assets at fair value through profit or loss:

Power derivatives 13 23 36

Foreign exchange derivatives 10 10

Total assets 13 33 46

Financial liabilities at fair value through profit or loss:

Borrowings 3 052 3 052

El-certificate derivatives 33 33

Power derivatives 5 5

Foreign exchange derivatives 8 8

Interest rate derivatives (35) (35)

Total liabilities 38 3 025 3 063

5) Proposed State Budget with amended tax rates

The Norwegian government's proposed Budget presented on 7 October 2016 includes a reduction in the general corporation tax

rate from 25 percent to 24 percent from 1 January 2017. To compensate for the proposed reduced tax rate, it is also proposed

that the special tax rates for resource rent tax for hydropower production be increased to 34.3 percent. The will reduce the Hafslund

Group's deferred tax liability in the balance sheet. The effect on the deferred tax liability as a result of the changed tax rates will

be recognised in the financial statements in the fourth quarter when the Storting adopts the Budget in December.

6) Sale of subsidiaries in Other business

On 25 July 2016 Hafslund completed the sale of Sarpsborg Avfallsenergi AS (SAE) to Sarpsborg Infrastructure AS. SAE is a

waste-to-energy plant in Sarpsborg, in Østfold municipality, which delivers energy in the form of industrial steam to the Borregaard

industrial area. The agreed purchase sum, on a debt-free basis, is around NOK 280 million. The transaction generated an

accounting profit of around NOK 20 million before transaction costs, which was recognised in Other business in the third quarter

of 2016.

7) Retirement benefit obligations, liabilities and assets

At the year-end Hafslund obtains updated actuarial calculations from the Group's actuary and normally updates its calculations of

the pension liability on an annual basis. However, Hafslund's continually assesses whether there have been any material changes

in the economic assumptions on which the annual calculation is based. At the end of the third quarter of 2016 the interest rates in

the OMF market were lower than at the start of the year, which could result in a reduction in the discount rate of around 0.6

percentage points. However, the return on pension funds was slightly higher than estimated, and the assumptions for the salary


adjustment and adjustment of the National Insurance Scheme’s basic amount (G) have been reduced. Taking into account all

these changes, Hafslund has decided not to adjust the calculation of the net pension liability at the end of the quarter.

8) Operating assets

Investments in operating assets for the third quarter and first nine months of the year came in at NOK 392 million and NOK 942

million respectively. All the investments relate to investments in operations and expansion.

9) Segment information

Hafslund reports business areas as operating segments. The power sales business. Hafslund Hedging AS, was transferred from

Production to Markets effective the first quarter of 2016. The change was made retrospectively and the comparative figures for

2015 and 2014 have been restated accordingly. The table below shows the items that have been transferred from Production to

Markets.

NOK million Q4 15 Q3 15 Q2 15 Q1 15 Year 15 Year 14

EBITDA 25 2 4 5 36 35

Operating profit 25 3 3 4 35 32

10) Related party transactions

Hafslund enters into purchase and sales transactions with related parties as part of normal business operations. In 2016 Hafslund

has bought and sold goods and services from/to the City of Oslo, which owns 53.7 percent of the shares in Hafslund ASA.

Examples of sales to the City of Oslo include power sales, as well as associated maintenance and investments. Examples of

purchases from the City of Oslo include district heating from the Waste-to-Energy Agency (EGE). All transactions between the

parties are conducted on the arm’s length principle. The table below shows transactions with related parties:

NOK million Sales of goods and

services Purchases of goods and

services Purchases recognised as

investments Trade

receivables Trade

payables

Q3 2016

City of Oslo 26 6 1

Ytd

City of Oslo 104 42 1 15 6


Historical quarterly information for the Group

> Consolidated income statement

NOK million Q3 16 Q2 16 Q1 16 Q4 15 Q3 15 Q2 15 Q1 15 Q4 14 Q3 14

Operating revenues 2 580 2 779 4 222 3 360 2 158 2 610 3 777 3 605 2 507

Purchased materials and energy (1 268) (1 451) (2 590) (1 823) (836) (1 295) (2 311) (2 052) (1 261)

Gross margin 1 312 1 328 1 632 1 538 1 322 1 315 1 466 1 552 1 246

Gain/loss financial item 28 82 (2) 34 19 49 11 44 24

Salaries and other personnel expenses (180) (211) (242) (259) (221) (249) (263) (283) (127)

Other operating expenses (501) (504) (416) (516) (457) (430) (438) (553) (487)

EBITDA 659 695 971 796 663 684 777 760 656

Depreciation and amortization (234) (225) (229) (275) (236) (232) (204) (246) (382)

Operating profit 425 470 742 522 427 452 573 514 275

Financial interest etc (72) (73) (69) (125) (123) (81) (95) (165) (126)

Change in market value loan portfolio 30 17 10 33 44 33 28 (28) (11)

Financial expenses (42) (56) (59) (92) (79) (49) (67) (194) (136)

Profit before tax and discon. operations 383 414 683 429 348 403 506 320 138

Tax (127) (141) (192) (18) (111) (124) (149) (112) (67)

Profit after tax 255 273 491 411 237 279 357 208 71

Majority's share of profit 255 272 491 410 236 279 357 209 70

Minority's share of profit 0 0 0 1 0 (0) (0) (1) 1

Earnings per share (in NOK) 1.31 1.40 2.52 2.11 1.21 1.43 1.83 1.06 0.36

> Consolidated balance sheet

NOK million 30-09-

16

30-06-

16

31-03-

16

31-12-

15

30-09-

15

30-06-

15

31-03-

15

31-12-

14

30-09-

14

Intangible assets 2 890 2 909 2 923 2 933 2 966 2 956 2 962 2 970 2 892

Fixed assets 19 297 19 404 19 310 19 302 19 133 19 074 19 021 19 011 19 042

Financial assets 459 593 761 841 1 164 1 046 832 786 735

Accounts receivable and inventory 1 875 1 615 2 420 2 752 1 727 1 866 2 307 2 703 2 338

Cash and cash equivalents 421 527 1 676 724 337 265 1 060 742 601

Assets 24 941 25 048 27 090 26 552 25 328 25 207 26 182 26 212 25 609

Equity, majority 9 288 9 093 9 448 9 009 8 372 8 139 8 230 7 861 7 657

Equtiy, minority 4 3 4 4 16 15 16 17 18

Allocations for liabilities 3 679 3 663 3 613 3 528 4 043 4 018 3 937 3 858 4 039

Long-term interest-bearing liabilities 7 719 7 409 8 332 8 330 8 136 8 485 8 188 8 692 9 088

Short-term interest-bearing liabilitis 1 794 2 059 1 653 2 156 1 989 1 723 2 186 2 668 2 396

Short term non-interest-bearing

liabilities 2 458 2 821 4 040 3 526 2 772 2 827 3 624 3 117 2 410

Equity and liabilities 24 941 25 048 27 090 26 552 25 328 25 207 26 182 26 212 25 609


> Consolidated statement of cash flow


EBITDA 659 695 971 796 663 684 777 760 656

Interest paid (49) (84) (144) (88) (53) (105) (173) (110) (54)

Taxes paid 0 (226) (136) (87) (29) (123) (105) 74 142

Value change and other non cashflow effect (38) (68) 7 20 (40) (18) (6) (34) (8)

Change in receivables (269) 768 272 (1 017) 65 519 347 (749) (331)

Change in trade credit etc (281) (820) 644 500 (204) (808) 688 290 (37)

Cash flow from operations 22 265 1 614 124 402 148 1 528 231 368

Investments (operation and expansion) (392) (314) (236) (510) (296) (271) (205) (322) (253)

Net capital release shares, etc. 266 7 121 350 12 0 0 (20) (11)

Cash flow to investments activities (126) (307) (115) (159) (284) (271) (205) (342) (264)

Change interest-bearing debt and dicon. operations (2) (521) (547) 423 (46) (185) (1 005) 253 91

Dividend and other equity changes 0 (586) 0 0 0 (487) 0 0 (13)

Cash flow financing activities (2) (1 107) (547) 423 (46) (672) (1 005) 253 78

Change in cash and cash equivalents in period (106) (1 149) 952 387 72 (795) 318 142 182

Cash and cash equivalents at beginning of period 527 1 676 724 337 265 1 060 743 601 419

Cash and cash equivalents at end of period 421 527 1 676 724 337 265 1 060 743 601

> Segment information


Network 1 103 1 115 1 182 1 218 1 019 1 053 1 071 1 187 1 029

Heat 67 126 545 331 76 131 439 337 82

Production 167 199 152 151 176 176 150 221 193

Markets 1 273 1 368 2 353 1 704 887 1 247 2 101 1 898 1 198

Other activities/eliminations (30) (29) (11) (43) (0) 3 16 (38) 5

Total sales income 2 580 2 779 4 222 3 360 2 158 2 610 3 777 3 605 2 507

Network 411 400 384 403 350 332 304 378 345

Heat (12) 5 285 157 6 19 201 116 (9)

Production 113 147 95 91 119 117 65 153 129

Markets 131 124 208 92 145 137 186 85 153

Other activities/eliminations 16 20 (2) 53 43 80 22 28 39

Total EBITDA 659 695 971 796 663 684 777 760 656

Network 255 256 236 222 201 212 186 218 201

Heat (50) (30) 250 112 (30) (17) 166 82 (109)

Production 101 136 84 81 107 105 53 142 117

Markets 111 99 186 69 125 116 166 60 122

Other activities/eliminations 8 8 (14) 37 23 35 2 12 (57)

Total operating profit 425 470 742 522 427 452 573 514 275


Financial calendar

1. First Quarter 2016 Report – 3 May 2016

2. Annual General Meeting – 3 May 2016

3. Second Quarter 2016 Report – 12 July 2016

4. Third Quarter 2016 Report – 25 October 2016

5. Fourth Quarter 2016 Report and provisional annual result – 9 February 2017

Investor information

1. Information is displayed on Hafslund's website:

o www.hafslund.no

o To subscribe to press reports

2. Chief Financial Officer (CFO), Heidi Ulmo,

o [email protected]

o Tel.: +47 909 19 325

3. Head of Finance and Investor Relations, Martin S. Lundby

o [email protected]

o Tel.: +47 416 14 448

Hafslund ASA

Drammensveien 144, Skøyen

NO–0277, Oslo, Norway

Tel.:+47 22 43 50 00

Fax: + 47 22 43 51 69

www.hafslund.no

E-mail: [email protected]

http://www.hafslund.no/

mailto:[email protected]

mailto:[email protected]

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