2024Annual report

In 2024, Småkraft generated power revenue of EUR 54 million in 2024, a decrease of EUR 14 million or 20% compared to 2023 (EUR 68 million). The decrease is explained by lower power prices.

Production reached 1,811 GWh, a 20% increase compared to 2023. The average obtained spot prices per MWh decreased by 33% from EUR 45 EUR/MWh in 2023 to 30 EUR/MWh in 2024. Småkraft has production in seven different price zones in Norway and Sweden, and the obtained spot prices per MWh varied significantly between these areas.

In 2024, the mark-to-market valuation of energy derivatives, which hedge about 25%of the expected production for 2025 and 10% of 2026, resulted in a positive unrealized value change of EUR 25 million (compared to EUR 73 million in 2023). According to IFRS, these future hedge contracts, which will be realized in the coming years, are recognized in the Financial Statements at market value at year-end. However, production and revenue are not recognized until the date of production.

Småkraft is focusing on selected Alternative Performance Measures (APMs) to assess performance from operational activities. Please refer to appendix for details on these APMs. Adjusted power revenue showed a decrease of 7% for 2024 compared to 2023, highlighting the reduction in power prices in 2024 compared to the previous year.

Payroll and related costs remained at the same level as in 2023, at EUR 4.5 million. Depreciations and impairments for 2024 amounted to EUR 22 million (EUR 20 million in 2023). The increase is due to the depreciation of a larger portfolio of hydro power plants and a minor impairment related to six powerplants compared to 2023. Other operating expenses were reported at EUR 25 million, the same as in 2023.

The operating profit for 2024 was EUR 21 million, compared to EUR 76 million in 2023. Excluding unrealized value change on energy derivatives, Småkraft would have reported an operating loss of EUR 4 million, compared to a profit of EUR 2 million in 2023. Adjusted EBITDA was EUR 18 million, down from EUR 22 million.

Net financial items for 2024 reported a loss of EUR 42 million (EUR 41 million in 2023). Gross interest expenses in 2024 were EUR 20 million up from EUR 12 million in 2023. The increase in net interest expenses of EUR 7 million was partly offset by reduced negative impact of net foreign exchange losses and fair value changes of financial derivatives. Long-term financing granted in EUR implied a disagio on borrowings in 2024 of EUR 20 million (EUR 23 million in 2023).

Income tax reports an income of EUR 4 million in 2024 compared to an expense of EUR 8 million in 2023. The recognised tax positions are mainly deferred positions. Payable taxes as of 31 December 2024 were NOK 0 million compared to NOK 1 million per 31 December 2023.

Total comprehensive income 2024 was a loss of EUR 35 million in 2024, compared to a profit of EUR 7 million in 2023.

As of December 2024, consolidated total assets amounted to EUR 854 million (EUR 874 million).

Total non-current assets amounted to EUR 819 million (EUR 812 million). Current assets amounted to EUR 45 million (EUR 62 million). Taking into account time deposits presented as other receivables of EUR 8 million as per 31 December 2024 (EUR 7 million), total cash position was EUR 36 million (EUR 47 million).

Total equity amounted to EUR 368 million (EUR 386 million) a decrease of EUR 18 million, resulting in an equity ratio of 43% (44%).

Total liabilities amounted to EUR 496 million (EUR 489 million). Total borrowings increased by EUR 28 million to EUR 469 million (EUR 441 million).

Cash flow from operating activities amounted to EUR 13 million compared to negative EUR 22 million for 2023. This improvement is primarily explained by changes in working capital due to reduced cash outflow to landowners in 2024 compared to 2023, based on earnings from previous years.

Cash outflow from investing activities amounted to EUR 47 million, down from EUR 62 million, mainly due to investment in new power production capacity, either as acquisitions of operating companies or new builds.

The cash inflow from financing activities amounted to EUR 24 million, up from EUR 17 million. Shareholders contributed with new capital of EUR 32 million (EUR 68 million). The Group received EUR 61 million (EUR 123 in 2023) from new loan and paid EUR 36 million (EUR 120 million) in instalments on credit facilities.

Dividends of EUR 15 million (EUR 38 million) were paid to the shareholders.

The Group makes estimates and assumptions concerning the future. These estimates are based on the actual underlying business, its present and forecasted profitability over time, and expectations about external factors such as power prices, interest rates, foreign exchange rates and other factors which are outside the Group’s control.

The resulting estimates will, by definition, seldom equal the related actual results. There is use of judgement in the considerations related to recognition of deferred tax asset for tax losses carried forward, and considerations related to contingent liabilities. Please refer to note 3 - Key accounting estimates and judgements in the Consolidated Financial Statements for further information.

Småkraft is exposed to operational risks, such as failure of the power producing equipment or other vital equipment. To limit these risks, the Småkraft Group has well-established procedures and emergency preparedness plans. All power plants are insured, and production is covered by interruptions insurance. Considerable efforts have been made to manage the QHSE risks within the company.

Due to its significant growth, Småkraft is continuously working on financing initiatives with new equity and debt. Småkraft’s shareholders have committed to providing equity for at least 50% of the agreed price for upcoming investments. The company is actively working with banks and debt investors to finance the remaining part of the investments. In addition, several of the ongoing construction projects will be finalized and construction loan facilities will be rolled over to and refinanced with long term debt structures.

The Group is exposed to a range of financial risks: Market-, climate-, liquidity-, currency-, interest rate and credit risk. The financial risk management process focuses on the unpredictability of financial markets and aims to minimize potential adverse effects on the Group’s financial performance. To some extent, the Group uses derivative financial instruments to reduce certain risk exposures. Financial risk management is carried out at a Group level, where the financial risks are identified, evaluated and hedged in close co-operation with the Group’s operational units.

The board of Småkraft AS has established written principles for risk management of foreign exchange risk, interest rate risk and the use of derivative financial instruments and defined cash deposits as an integral part of our risk policy.

Significant volume, price, and foreign currency exchange risks are associated with the production and sale of electric power. Only a few of the Småkraft AS power plants have reservoirs, and unregulated power production is more exposed to fluctuations than regulated production of electric power.

Hydrology, power prices and capture rates remain the main risk factors for the upcoming periods.

Småkraft halted its hedging activities during the summer 2021, and during 2024 the company has adjusted some of its current hedges to better match its production volatility during the year. Reduced future power prices increase indirectly unrealized hedge loss. The reduction in future prices has decreased the unrealized losses and consequently improved Småkraft’s equity ratio by reversing preceding years derivative accruals.

Småkraft may also be affected by a changing climate, and the company has initiated several measures to identify potential risks and opportunities. Evaluation of new acquisitions and development opportunities are assessed in light of the expected changes in hydrology. During detailed planning of new plants, we now assess how climate change can affect the design criteria for new installations, both in form of increased run-of, but also the safety of installations in relation to extreme weather.

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of credit facilities, to ensure sufficient cash or cash equivalents at all times and for operations and to be able to finance its operations and investments in line with the Group’s strategic plan. At the end of 2024, Småkraft held cash and cash equivalents amounting to EUR 36 million including time deposits of EUR 8 million classified as other receivables. This is deemed to be sufficient funding for the Group’s current activity levels and committed capital expenditures during 2025. The Group aims to mitigate the market and liquidity risks through further cost reduction and efficiency improvement programs with a continued focus on capital discipline.

The Group operates internationally and is exposed to foreign exchange risk arising from various exposures to currency fluctuations, primarily with respect to EUR and NOK. The Group seeks to minimize these risks through currency hedging via financial instruments.

The Group’s exposure to the risk of changes in market interest rates primarily relates to its long-term debt obligations at floating interest rates.

The Group evaluates the level of interest rate hedging based on assessment of its total interest rate risk and currently has a combination of fixed and floating interest rates in order to limit exposure. The Board of Directors regularly reviews the interest rate hedging of the external financing and mandates administration to execute necessary changes. Including interest rate swaps entered into, the fixed-rate portion of the Group’s interest-bearing debt is approximately 56% as of 31 December 2024.

The current primary market for the Group’s services is hydro power production, which is sold through brokers to Nord Pool. The Group conducts ongoing credit evaluations of its power brokers and generally does not require significant collateral. Credit risk is considered to be limited.

The consolidated financial statements of the Group for the year ended 31 December 2024 comply with IFRS as endorsed by the European Union (EU).

The consolidated financial statements are comprised of the financial statements of the parent company Småkraft AS and its subsidiaries. Subsidiaries are all entities (including structured entities) over which Småkraft Group has control.

Småkraft Group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity, and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. Subsidiaries are no longer consolidated from the date when control ceases.

Profits and losses resulting from intercompany transactions have been eliminated, as well as unrealized gains on transactions between group companies. Unrealized losses are eliminated unless the transaction provides evidence of an impairment of the transferred asset.

When the Group acquired a controlling interest in another entity the transaction is accounted for either as a business combination or an asset acquisition depending on an assessment of the entity acquired. If the entity acquired includes the elements (input, process, and output) included in the definition of a business the transaction is accounted for a business combination, otherwise the transaction is accounted for as an acquisition of asset. In most transactions the group acquire a powerplant (with land rights) or several power plants, that do not represent a business under the definition in IFRS 3.

Functional and presentation currency

The financial statements are presented in EUR. The functional currency of the entities in the group is NOK or SEK. The subsidiaries in the group are consolidated into the functional currency of the parent (NOK) and then translated to the presentation currency, EUR. The currency differences arising in the translation to the presentation currency are presented in Other Comprehensive Incomes. Also, in the statement of equity the translation difference is included in retained earnings. All amounts are rounded to the nearest EUR thousand.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rate at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year-end exchange rates are generally recognised in profit or loss. Småkraft uses currency exchange rates from Norges Bank.

Property, plant and equipment is measured at historical cost less accumulated depreciation. Land is not depreciated. Historical cost includes expenditures that are directly attributable to the acquisition of the item. Borrowing costs incurred during the manufacturing of tangible non-current assets are capitalised until the asset is ready for its intended use.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. Repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred.

Depreciation is calculated using the straight-line method to allocate costs over their estimated useful lives. The assets’ useful lives are reviewed annually and adjusted if appropriate.

Gains and losses on disposals are determined by comparing actual proceeds with the carrying amount. Gains and losses on disposal are included in profit or loss.

The Group’s main lease type of agreements are related to water rights. The rights are considered intangible assets. Småkraft has elected to not recognise these types of agreements under IFRS 16 leases. The accounting treatment of the different water right lease agreements are described below:

Småkraft enters into water right lease agreements with landowners, which entitles the company to utilize the water in the rivers. The agreement typically has a period varying from 40 to 75 years, starting when the power plant is put into commercial operation.

When Småkraft has a commitment to pay rent to the landowners, we account for this as a regular cost as the commitment arises. Such commitment arises, when:

1. Gross agreement/revenue-based agreement: Småkraft pays landowner a percentage of the annual power plant revenue. Upon expiration of the agreement the landowners have the right to purchase the power plant with all rights and technical installations at a price based on certain specific conditions.
   
   Småkraft accounts for this land lease when the relevant power plant generates revenue, upon which this land lease bases.
   
2. Fixed amount agreement: Småkraft pays landowner a fixed annual amount. Upon expiration of the agreement the landowner has the right to purchase the powerplant with all rights and technical installations at a price based on certain specific conditions.
   
   Småkraft accounts for this land lease monthly based upon the agreed yearly payment.
   
3. Profit share agreement: Småkraft shares the yearly powerplant- profit with the landowner. Upon expiration of the agreement the landowners have the right to purchase the power plant with all rights and technical installations based on certain specific conditions.
   
   Småkraft accounts for this land lease type by calculating the actual profit for each individual power plant on a monthly basis. Småkraft then calculates the exact share of the profit, that the landowners have the right to receive. If Småkraft is in a position, where land lease should be paid to landowners, Småkraft accounts for the estimated payment as a cost.
   
   In the case that Småkraft has a profit share lease agreement, where there (still) is an accumulated loss on the powerplant, Småkraft has the right to offset all accumulated losses before paying out land lease rent to the landowners. This will represent a future benefit for the company, that Småkraft does not recognise as an asset. This asset will be off-balance. Any positive or negative changes in these off-balance items, will not be recognised in Småkraft’s books. In some instances, Småkraft may pay out loans or minimum payments to landowners. These loans are interest bearing loans and will be recognised as normal loans in the Group’s Financial Statements.

Financial instruments are recognised in the financial statements when the Group becomes party to contractual conditions relating to the financial instrument. Financial assets and financial liabilities are classified based on the type and purpose for holding the instruments at fair value, amortised cost or as a designated hedge accounting instrument (e.g. derivatives used for hedging financial risks).

The group classifies its financial assets in the following measurement categories:

• those to be measured subsequently at fair value, and

• those to be measured at amortised cost.

The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows.

For financial assets measured at fair value, gains and losses will be recorded in profit or loss. Financial assets recognised at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the income statement. Gains or losses arising from changes in the fair value of the financial instruments at fair value through profit or loss, including interest and dividends, are recognised in the income statement. Derivatives are always measured at fair value through profit or loss.

Financial assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognised directly in profit or loss.

Regular way purchases and sales of financial assets are recognised on trade-date, the date on which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.

For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Accounts receivables are measured at initial recognition at fair value. Accounts receivables are held with the objective to collect the contractual cash flows and therefore are subsequently measured at amortised cost using the effective interest method. For the purposes of impairment, the Group applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised from the date of initial recognition of the receivables.

The Group classifies all financial liabilities at amortised cost, except for derivatives which are at fair value and financial guarantees (see below).

These amounts represent liabilities for goods and services provided to the Group prior to the end of period which are unpaid. They are recognised at fair value. Småkraft does not subsequently measure at amortised cost using the effective interest method, as the difference is insignificant. Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period.

Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates.

Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguished or transferred to another party and the consideration paid, including any noncash assets transferred or liabilities assumed, is recognised in profit or loss as other income or finance costs.

Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period.

Group companies that are engaged in energy generation in Norway are subject to the special rules for taxation of energy companies. The Group’s tax expense therefore includes, in addition to ordinary income tax, natural resource tax and resource rent tax for those plants exceeding 10,000 KVA, currently only the Holmen power plant.

Income taxes

Income tax is calculated in accordance with ordinary tax rules and by applying the adopted tax rate. The tax expense in the statement of comprehensive income comprises taxes payable and changes in deferred tax liabilities and deferred tax assets. Taxes payables are calculated on the basis of the taxable income for the year.

Deferred tax liabilities and deferred tax assets are calculated on the basis of temporary differences between the accounting and tax values and the tax effect of losses carried forward. The initial recognition exemption for the tax effect on temporary differences relating to purchase of power plants applies if the transaction is treated as an asset acquisition (not a business combination).

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority.

Tax related to items recognised in other comprehensive income is also recognised in other comprehensive income, while tax related to equity transactions is recognised in equity.

Natural resource tax

Natural resource tax is a profit-independent tax that is calculated on the basis of the individual power plant’s average output over the past seven years. Natural resources tax consists of NOK 0.011 per kilowatt hour (KWh) to the municipality and NOK 0.002 per kwh to the county. Income tax can be offset against the natural resource tax paid. Any natural resource tax that exceeds income tax can be carried forward with interest to subsequent years and is recognised as prepaid tax.

Resource rent tax

Resource rent tax is a profit-dependent tax levied on the net resource rent revenue generated by each power plant. Resource rent tax is calculated with 57.7% of the resource rent income for each power plant. Negative resource rent tax is carried forward against future positive resource rent tax interest. Negative resource rent tax is included in the deferred tax asset, together with temporary differences regarding the power plant. Deferred tax assets related to negative resource rent tax and temporary tax differences are capitalised if it is probable that the power plant has resource rent income within a time limit of 15 years and is settled against future payable resource rent tax. Deferred tax liabilities/ deferred tax assets related to resource rent tax is calculated with a tax rate of 57.7%.

Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the reporting period but not distributed at the end of the reporting period.

Ordinary shares are classified as equity. Issuance of new shares are recognised when paid, based upon the decision by the General Meeting. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

The following standards and amendments were mandatory application for the first time for the reporting period commencing 01.01.2024:

• Supplier Finance Arrangements (Amendments to IAS 7 & IFRS 7)
• Lease Liability in a Sale and Leaseback (Amendments to IFRS 16)
• Classification of Liabilities as Current or Non-Current (Amendments to IAS 1)
• Non-current Liabilities with Covenants (Amendments to IAS 1)

None of the amendments listed above have had any significant impact on the financial statements.

Certain amendments to accounting standards have been published that are not mandatory for 31 December 2024 reporting periods and have not been early adopted by the group. These amendments are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

The use of reasonable estimates and judgements is a critical element in preparing the financial statements. Due to the level of uncertainties inherent in Småkraft’s business activities, management must make certain estimates and judgements that effect the application of accounting policies, results of operations, cash flows and financial position as reported in the financial statements.

Impairment testing of goodwill, property plant and equipment (PPE) and intangible assets

In performing the impairment assessment of the carrying amount of PPE and intangible assets, as disclosed in Note 15, the recoverable amounts of the cash generating units (“CGUs”), are determined based on fair value less cost of disposal. Significant judgements are used to estimate the long-term price forecast for power, production volumes and discount rates applied in computing the recoverable amounts of different CGUs. In making these estimates, management has relied on market development and estimates from external consultancies as disclosed in note 15.

Significant estimates are applied in the valuation of the Group’s long term power purchase and power sales contracts. The fair value estimate is based on the amounts for which the assets or liabilities could be exchanged at the relevant transaction date on the reporting period end. To the extent possible, the assumptions and inputs used, take into account externally verifiable inputs. However, such information is by nature subject to uncertainty, particularly where comparable market-based transactions do often not exist. In such cases Småkraft’s management is required to make market-based assumptions, see note 13.

Pension

The Group has an established pension scheme that is classified as a defined contribution plan. The pension scheme is in line with the requirements of the law. Contributions to the defined contribution schemes are recognized in the consolidated statement of profit and loss in the period in which the contribution amounts are earned by the employees. The defined contributions plan does not commit Småkraft beyond the amounts contributed.

• Total yearly production for all power plants with no future increases per plant. All plants are fully operational.
• Production values based on estimates, which rely on historical production values to the extent possible and otherwise estimates in hydrological reports.
• Normalized yearly production is estimated based on a 30-year average of historical production for as many available years as possible and technical due diligence assumptions.

Future power prices are computed using the following methodology. The first year is based on Nasdaq forward prices, and from year 2 onwards an average of three different power price curves from power market analysts (SKM, Volue Insight, and Thema) is applied.

A capture rate that reflects the discount to the market price the specific power station achieves because of its production profile. Normally, an average capture rate is used on a portfolio of power stations.

• Grid fee
• Property tax
• Landowner compensation
• O&M
• Overhead costs

Weighted Average Cost of Capital (WACC) for the current valuation is 6.6% for the Norwegian part of the portfolio compared to 6.7% used in the valuation last year. For the Swedish portfolio a WACC of 5.4% has been applied, compared to 5.9% used in the valuation last year.

Småkraft’s operations are largely dependent on precipitation, and changes in precipitation patterns may affect both our production and the price picture in the power market. Climate change is unpredictable and different scenarios will affect Småkraft’s production. Colder winters and dry summers may negatively affect Småkraft’s production, while milder winters and wetter summers may have a positive impact on Småkraft’s production. Climate change may also lead to more extreme precipitation and/or snowmelt, which may increase water loss over Småkraft’s dams. Climate change, as we are experiencing today, is moving in the direction of milder winters and wetter summers, resulting in increased production from our power plants. Climate risk is discussed in detail in Småkraft’s Sustainability Report and is considered not to have a significant impact on the impairment test.