A r i s e Wi n d p o we r A B | A n n u a l R e p o r t 2 0 0 9
Contents
Introduction by the CEO ... 5
Arise Windpower in brief ...6
Financial information in summary ...6
Description of operations...8
Business concept, goals and strategy ...8
Investment cost estimate ...9
Project portfolio ... 10
Directors’ report ... 14
Risks and uncertainty factors ... 16
Code of Conduct ...17
Consolidated accounts ... 18
Parent company accounts ...36
Proposed distribution of earnings ...42
Audit report ...43
Corporate governance report ...45
Ownership ...48
Board of Directors ...49
Group management ...50
Decisive events during 2009
■ Twelve Vestas V 90 turbines put into operation in the Oxhult wind farm at Laholm (24 MW/62 GWh/year)
■ General agreement signed with GE for the supply of 52 turbines
■ New issue brings in MSEK 328 for the Company, as well as an enhanced owner profile by means of the Third Swedish National Pension Fund
■ Five Vestas V 90 turbines put into operation in Råbelöv, Kristianstad (10 MW/28 GWh/year)
■ General agreement signed with Vestas for the supply of 60 turbines
■ Five GE turbines installed in Brunsmo, Karlskrona (12.5 MW/34 GWh/year)
■ Decision taken on construction of six GE turbines in Hylte, which are scheduled to be put into operation in November 2010 (15 MW/39 GWh/year)
■ The board of directors decides to apply for listing on Nasdaq OMX in spring 2010
March
June September
December
Arise Windpower is a leading company in the rapidly expanding Swedish wind power market. In addition to wind farms that have already been put into operation, the Company also has a healthy project portfolio of more than 900 MW in southern Sweden, where the conditions for building wind farms are particularly favourable.
The Company's business concept and strength is to deal
with the entire chain from project development to the sale
of environmentally friendly electricity, as well as exploit-
ing the large-scale benefits this creates in the form of low
investment- and operating costs, in addition to cost-effective
project development.
Introduction by the CEO
T
he previous year, 2009, was a commer- cially significant and eventful time for Arise Windpower, since we were able to pass a number of important milestones: 28 wind turbines with a total output of 61.5 MW were put up or work was started on their instal- lation, and the Company's financial posi- tion and owner profile has been enhanced as a result of a successful new issue in which The third Swedish National Pension Fund, among others, took part.The year also saw a significant reduction in the Company's investment costs for in- stalling wind turbines as a consequence of the long-term and comprehensive general agreements that were signed, and also the design improvements that had been made in the wind farms. Costs for servicing the turbines were also reduced during the year.
Overall, 2009 as proved that the industrial approach that characterises every aspect of Arise Windpower's operations produces ex- cellent results.
Completed in record speed
Starting operation of the Company's first wind farm in Oxhult in March was an im- portant milestone, and the first confirmation of the ability of the industrial organisation we have built up to deliver.
The wind farm was completed in record speed – just two years from permit applica- tion to start of operation. The twelve tur- bines were installed in a forest environment, generate 24 MW of power and supply renew- able electricity to approx. 3,000 individual family homes. In addition to the hardtested ability of Arise Windpower's organisation to deliver, the construction and operation of the Oxhult wind farm has also provided valuable experiences that we have now im- plemented into continued expansion of the Company's project portfolio. We have for example thinned out the portfolio by slightly increasing the spaces between the turbines in the wind farm – an adjustment that we be- lieve improves the efficiency and profitability of the entire portfolio.
An investment decision in an individual project is approved only when estimated re- turn will be in excess of 10 per cent on to- tal invested capital before tax. The savings and efficiency improvements that have been made allow us to achieve this level of profit- ability even with low winds.
Important agreements
In order to guarantee the rate of expansion and a competitive cost level during the con- tinued expansion of the project portfolio, a number of important agreements were entered into during the year. Among other things, the Company has signed general agreements with GE Energy to supply 52 wind turbines, and with Vestas for another 60 turbines.
These agreements will secure most of the Company's planned expansion over the next three years. In addition, five-year general agreements have been signed for the sup- ply of gravel and concrete, directly from the main supplier and without any intermediar- ies. Systematically utilising economies of scale is one of the main features of Arise Wind- power's business model. Signing these agree- ments has allowed us to reduce the Compa- ny's costs in terms of both investments and operation and maintenance.
Positive cash flow
In addition to the Oxhult wind farm, anoth- er two wind farms with a total output of 22.5 MW have been or are currently being put into operation in Råbelöv in Kristianstad and in Brunsmo in Karlskrona. Construction has also started on another 15 MW wind farm in Hylte, which are planned to be put into op- eration in November 2010.
Once these wind farms are in operation, Arise Windpower will be able to reach an- other milestone, as the Company will then have a positive cash flow and full cost cov- erage for current operation and project de- velopment. This means that new equity and borrowed capital will from this point on be used only for financing continued expansion of the project portfolio.
Active part in consolidation
The Swedish wind power market is fragment- ed and consists of a number of smaller and medium-sized wind power companies, often with major investment plans. The Company believes that there will be a consolidation of the market, and it is the ambition of Arise Windpower to play an active part in this.
The Company's existing portfolio should be supplemented by potential acquisitions.
In addition, a small number of fairly large wind farms outside our primary geographi-
cal areas, i.e. southern Sweden, may also be appropriate given that they have very good wind resources.
Cope with tough demands
What we have achieved over the last year clearly shows that the organisation is able to cope with the tough demands we make:
supplying quickly, at the right quality and on time and also with a high level of cost- effectiveness. With a skilled and experienced project organisation and a large-scale in- dustrial approach, Arise Windpower is well equipped to continue building, at a sustained high rate, the roughly 300 wind turbines we are determined to have in operation by the end of 2014. This would make us one of Swe- den's leading companies in the onshore wind power industry.
We look forward to sharing the future with active and interested shareholders.
Halmstad, February 2010
Peter Nygren CEO, Arise Windpower AB Peter Nygren, CEO, Arise Windpower.
Arise Windpower in brief
W
ith 2009 behind us, it can be con- firmed that over the year Arise Wind- power has erected twentytwo wind turbines in three projects, completed a new issue in an extremely difficult economic situation which has brought MSEK 328 into the Company be- fore emissions costs, taken on a number of employees, shaken off its label as a prospec- tive company, and also created an operation that generates a positive cash flow at EBITDA level. This final point is particularly as im- portant since investors in the Company can be secure that funds are used to build new and profitable wind farms.Arise Windpower is a leading company in the rapidly expanding Swedish wind power market. In addition to wind farms that have already been put into operation, the Compa- ny also has a healthy project portfolio of more than 900 MW in southern Sweden, where the conditions for building wind farms are par- ticularly favourable. The Company's busi- ness concept and strength is to deal with the entire chain from project development to the sale of environmentally friendly electricity, as well as exploiting the large-scale benefits this creates in the form of low investment- and operating costs, in addition to cost-effective project development.
The requirement of profitability is strict:
no new wind farms are built unless the in- vestment is expected to produce a return of at least 10 per cent of total invested capital. The expected return on the Company's portfolio exceeds this requirement.
2009 2008 2007
Summary of income statements
Net sales 29.7 — —
Operating result before depreciation (EBITDA) 1.7 – 15.4 – 7.1
Operating result (EBIT) – 10.8 – 16.0 – 7.2
Financial items, net – 0.6 9.5 1.2
Net result – 7.6 – 3.3 – 6.0
Summary of balance sheets
Total non-current assets 918.3 354.8 3.8
Cash and cash equivalents 341.3 408.9 44.8
Shareholders’ equity 680.3 373.6 48.2
Balance sheet total 1 348.1 824.3 49.8
Interest-bearing net liabilities – 258.7 118.9 44.8
Summary of cash flow
Cash flow from operating activities – 119.9 71.1 -5.4
Cash flow from investing activities – 567.6 – 334.3 – 3.9
Cash flow from financing activities 619.9 627.3 53.8
Key ratios
Installed capacity at the end of the period, MW 34 — —
Electricity production during the period, GWh 36.0 — —
Earnings per share, before dilution, SEK – 0.44 – 0.21 – 0.97 Earnings per share, after dilution, SEK – 0.44 – 0.21 – 0.97
EBITDA margin, % 5.8% neg. neg.
Return on employed capital, % 0.5% neg. neg.
Return on equity, % neg. neg. neg.
Equity/assets ratio, % 50.5% 45.3% 96.8%
No. of employees at the end of the period 21 15 3
For definitions of key performance indicators, see page 48
Extensive project portfolio allows for large-scale expansion
Arise Windpower's goal is, by the end of 2014, to have erected about 300 onshore wind turbines in the capacity range of 1.8–3.0 MW in good wind positions, corresponding to an investment of approx. BSEK 10 – 11.
In order to achieve this goal, the Company has signed about 250 land leases in southern Sweden since the start of 2006 and estab- lished an extensive project portfolio consist- ing of over 45 projects.
Large-scale and industrial expansion creates cost-efficiency
In order to ensure the future supply of the necessary input goods, Arise Windpower has signed general agreements with GE Energy and Vestas. The agreements are for 112 turbines for delivery during the period 2010 – 2012.
In so doing, Arise Windpower has secured a large part of its future requirement for in- put goods.
Having our own grid company and crane improves efficiency and reduces bottle necks
In addition to wind turbines, the Group also works on establishing the electricity grids re- quired for connecting the Company's wind farms to the national grid.
Having the necessary resources and skills in-house shortens lead-times and reduces the costs for grid connection.
In order to avoid delays in connection with erecting wind turbines, in 2008 Arise Windpower ordered its own specially adapt- ed mobile crane for building wind turbines.
Access to suitable cranes is currently restrict- ed on the market. It is expected that the mo- bile crane will be delivered in summer 2010.
Continuous work on reducing bottle- necks shortens the lead-time to the cash flow from our wind turbines.
Financing new wind farms by
means of owner contributions and loan agreements
Arise Windpower has a goal of financing projects using 25–30 per cent equity and 70–75 per cent borrowed capital.
Future contributions of equity and loaned capital will be used for direct investments in wind farms.
Price hedging of electricity sales 2010 2011 2012 2013 2014 2015 Total hedged electricity production (GWh) 96 149 149 131 61 44 Weighted average price of electricity price hedges (SEK/MWh) 514 463 469 452 430 435
Price hedging of certificate sales 2010 2011 2012 2013 2014 2015
Total hedged certificate production (GWh) 70 129 111 92 129 —
Weighted average price of certificate price hedges (SEK/MWh) 330 327 329 345 349 — Increased income stability as a result of
hedging future production
Arise Windpower's income is from the sale of electricity and electricity certificates. In or- der to manage the risk inherent in variations in prices, Arise Windpower has a policy of
hedging up to 60 per cent of future expected production in a falling hedging channel for up to five years. The Company's hedgings as of the end of December are shown in the table below.
Hedging 31 December 2009
Arise Windpower´s project portfolio
West coast (102)
Skåne/Blekinge (110)
East coast (83) Southern inland (133)
Benefits of location of project portfolio in southern Sweden
■ Good wind locations
■ A strong electricity grid that accom- modate the planned expansion of wind power without extensive investments
■ Low transmission costs
■ Minimal problems with icing compared with northern Sweden
■ Climate-wise, construction is possible year round and at a lower investment cost than in northern Sweden
■ Better transport infrastructure and stronger economy
■ An expected higher electricity price compared with the national average due to expected (July 2011) division of country into price areas
■ Synergies in:
– project development, e.g. permit management and wind measurement – construction through crane and transmission network
– operations and maintenance
Description of operations
A
rise Windpower is one of the leading companies in the rapidly expanding Swedish wind power market. We deal with the entire value chain in the establishment of new wind power assets, from project de- velopment to the sale of green electricity from our own friendly onshore wind tur- bines. The Company operates on a large, industrial scale and is results-orientated.As a consequence, the build-up occurs me- thodically, efficiently and simultaneously in many parallel projects. The organisation has all the key resources needed for fast, effec- tive project development. With the current trend with an evergreater focus on green measures in all parts of our society, we have considerable faith in our entire business concept.
Historical development
Arise Windpower has been actively involved in building wind farms since 2006. Since 2006 we have developed into a leading in- dependent operator in the Swedish wind power industry. In June 2006 the Company initiated project development operations af- ter the signing of a number of leases.
Vision
Arise Windpower's vision is to be one of Sweden's leading companies in onshore wind power in terms of both size and skills, and in this way to play a part in the global evolution into a sustainable society. The
Company intends to play an active role in the development and consolidation of a new, growing, wind-powered Sweden.
Goals
By leasing land in wind positions that are considered to be economically advantageous, Arise Windpower's objective is to erect ap- proximately 300 wind turbines in the 1.8 to 3.0 MW capacity range up to and including 2014, equivalent to an investment of about BSEK 10–11, with about 25–30 per cent of this expected to be equity. With about three hundred wind turbines in operation, the Company would produce about 2 TWh of green electricity each year - equivalent to the entire Swedish wind power development by the end of 2008.
Business concept
Arise Windpower's business concept is to be an integrated wind power company with control of the entire value chain: from pros- pecting and permit acquisition through to financing, erecting and operating the tur- bines, and also selling green electricity and long-term ownership.
The Company operates on a large, in- dustrial scale and is results-orientated, as a result of which expansion is occurring me- thodically, efficiently and simultaneously in many parallel projects. The organisation has all the key resources needed for fast, effective project development.
The Company priorities the construction of fairly large wind farms, mainly in excess of 10 MW, located in southern Sweden. Here there are advantageous wind conditions, and a robust electricity grid with low electricity feed-in costs, which is better than it is in the north of the country. In addition, the road network and infrastructure are both well developed, resulting in lower investments in other infrastructure components required when erecting wind turbines. The environ- mental impact during construction is also minimised, since equipment and materials do not need to be transported as far. There is also the fact that the planned division of Sweden into different pricing areas in July 2011 can be expected to result in higher elec- tricity prices in southern Sweden compared with the country as a whole.
Strategies for value-creation
Arise Windpower has the following strate- gies for maximising values for shareholders by means of the following value-creating measures:
■ A high-quality and focused project portfolio
■ An industrial approach and large-scale expansion
■ Organisational and financial strength
■ Focus on profitability
What is a wind power investment?
In order to achieve its financial goals, the Company wishes to use the following cost estimate to explain what Arise does and what day-to-day operations involve.
The profitability of a wind farm is depend- ent on many factors. Arise Windpower is ac- tively and continuously working to find an optimal design for each wind form in order to maximise the output, and the Company strives constantly to reduce investment and operating costs. The cost estimate therefore varies from one project to another and over time, based on the prevailing economic con- ditions and environmental factors.
To the right is an illustration of the main elements of Arise Windpower's returns goal and also a simplified cost estimate based on 1 MW. The Company believes that this repre- sents an average MW in the project portfolio and that the conditions for this are in line with the current actual level.
Central to the investment decision regard- ing building a new wind farm is the estab- lished returns requirement of an anticipated return of at least 10 per cent before tax of the total invested capital. The most important parameters affecting the anticipated return are wind strength, anticipated production, investment costs, operating costs and in- come level. Production-related operating costs consist of lease costs, costs for transmit- ting electricity and load balancing. Other operating costs consist primarily of service and maintenance, insurance, property tax and administration. All these operating costs are included in the above illustrative example analysis.
In the analyses it is assumed that the use- ful life for a turbine is 20 years. Foundations, electrical installations and roads however
Illustrative calculation for an average MW in the portfolio – 1 MW MSEK Key performance ind.
Investment 15.0 15 MSEK/MW
5 SEK/kWh
Revenues 2.3 750 SEK/MWh
3,000 MWh/MW
Operating expenses – 0.4 – 130 SEK/MWh
EBITDA 1.9 620 SEK/MWh
Interest expense – 0.6 6%
have a longer useful life, and if possible, a new wind turbine could therefore be in- stalled after 20 years at a lower total invest- ment cost. This is not taken into account in the above analysis. Electricity certificates are obtained for the first fifteen years, after which the income level is expected to fall over the last five years. In the above example
analysis, the wind turbines are expected to be financed by 30 per cent equity and 70 per cent borrowed capital.
Arise Windpower believes that the project portfolio as a whole is in a good position for wind, and with good finances that allow a good return given current levels of invest- ment costs, operating costs and earnings.
Key factors determining the return of the project
Wind speed/Output 6.5 – 7.5 m/s 2,400 – 3,600 MWh/MW
Operating cost 115 – 155 SEK/MWh Investment
13 –17 MSEK/MWh
Revenues 750 SEK/MWh
> 10% return on to- tal invested capital
before tax
Project portfolio
T
he projects are categorised according to the following criteria.In operation
Wind power projects where the wind farm has been handed over after trial operation and is now producing electricity.
Under construction
These are projects where the requisite per- mits have been obtained, an investment deci- sion has been made by the Company's board of directors, financing for equity and loaned capital is available and most of the project's total investment cost has been obtained.
Permits received
Projects that have been given the permits required in order to begin construction, but where this has not yet been started. In certain cases Arise Windpower is waiting for suffi- cient wind data to become available.
Permits pending
A permit application is initiated by the Com- pany applying to the relevant county admin- istrative boards and municipalities for per- mission to build the wind farm. Since Arise Elnät is planning to establish an electricity grid for most of the Group's projects, the Company also applies to the Energy Mar- kets Inspectorate for a concession to operate a grid. This stage ends once all the permits have been obtained or the application has been rejected.
Project planning completed
Once Arise Windpower has signed a land lease, design work is started on the site's de- tailed conditions for building a wind farm.
The area is analysed in detail and precise coordinates are established for the planned wind turbines. Wind studies are based ini- tially on theoretical charts, with actual wind measurements carried out later on using the Company's windmeasuring equipment.
Wind turbines
Total output (MW)
Anticipated production (GWh)
Commissio- ning/anticipa- ted comm.
Number Type 3 Output In operation
Oxhult 12 Vestas V90 2.0 24.0 62 Mar 09
Råbelöv 5 Vestas V90 2.0 10.0 28 Dec 09
Under construction
Brunsmo 5 GE 2.5 2.5 12.5 34 Mar 10
Fröslida 6 GE 2.5 2.5 15.0 39 Nov 10
Total 28 61.5 163
Number of projects
Number of wind turbines
Total output (MW)
Average out- put per turbine (MW)
In operation 2 17 34.0 2.0
Under construction 2 11 27.5 2.5
Project portfolio
Permits received 3 19 38.0 2.0
Permits pending 24 243 525.6 2.2
Project planning completed 15 106 211.1 2.0
Leases signed 3 32 95.0 3.0
Total portfolio 49 428 931 2.2
Status of the project portfolio as at 31 December 2009
Leases signed
Land leases have been signed following ne- gotiations between landowners and Arise Windpower. Long-term land leases have been signed for the entire project portfolio, giving the Company a right, though not an obligation, to erect wind turbines on the various properties.
For most of the projects, design work has started but is not yet complete. The pre- liminary study carried out by the Company before the land lease was signed generates a preliminary layout for the number of new wind turbines.
Wind turbines in operation and under construction
Arise Windpower currently has two wind farms in operation. The first wind farm built in Oxhult outside Laholm, which has twelve Vestas V90 wind turbines, each generating 2 MW of power. The total output therefore is 24 MW and anticipated electricity production is 62 GWh before completion of current align- ment work.
The Oxhult wind farm is situated on land leased primarily from Sveaskog, and the wind turbines are owned by Arise Windpow- er's fully-owned subsidiary, Arise Wind Farm 1 AB. The wind farm was put into operation in spring 2009.
During summer 2009 construction was started on roads, foundations and other infrastructure components for two parks, in Råbelöv outside Kristianstad and in Brunsmo outside Karlskrona. Råbelöv was put into operation at the end of December 2009 and it consists of five Vestas V90 tur- bines with a total output of 10 MW and an anticipated annual electricity production of 28 GWh.
The wind farm in Brunsmo, which con- sists of five GE 2.5 MW turbines, was erected in 2009 and it will be put into operation in March 2010. This wind farm has a total out- put of 12.5 MW and is expected to produce 34 GWh per year.
Arise Windpower currently has one project under construction. The Fröslida project in Hylte municipality comprises six GE 2.5 MW turbines with a total output of 15 MW and an anticipated electricity produc- tion of 39 GWh. Construction of the park was started in December 2009 and it is expected that it will be put into operation in Novem-
Directors’ report
The Board of Directors and the CEO of Arise Windpower AB (publ), corporate identity number 556274-6726, hereby submit the annual report and consolidated accounts for the financial year 1 January to 31 December 2009.
THE GROUP
Commercial operations
Arise Windpower AB is the parent company of the Arise Windpower Group, which consists of the wholly-owned subsidiaries Arise Wind Farm 1...8 which own and operate the turbines, Arise Elnät AB, Arise Service & Projectering AB and also Arise Kran AB. The parent com- pany prospects for suitable wind locations and deals with obtaining permits, assists with purchasing and procuring financing, facilities and contracts, and administrates and handles electricity sales for the group companies.
The subsidiary Arise Wind Farm 1 AB manages the twelve-turbine electricity-generating wind farm in Oxhult outside Laholm. In ad- dition, a five-turbine wind farm has been built in Råbelöv outside Kristianstad which was put into operation at the end of the year, and further five wind turbines in Brunsmo outside Karlskrona, which were erected in 2009 and is scheduled to be put into operation in March 2010.
The subsidiary Arise Wind Farm 3 AB was capitalised at the end of the year in order to build six wind turbines in Fröslida outside Hylte.
Arise Elnät AB has a concession to build the electricity grid that will transmit the electricity from the wind farms to the national grid.
In Knäred, Arise Elnät AB has constructed a facility with the capac-
ity to transform and transmit 130 MW of wind power production.
The facility is connected to EON’s 130 kV grid and, by adding to the transformer capacity, it can transmit another 70 MW.
Arise Service & Projektering AB owns the group's measuring in- struments and carries out wind measurements.
All the group’s operations are carried out in Sweden.
Net sales and earnings
Net sales were MSEK 29.7 (—). In addition, MSEK 13.3 (9.3) was capi- talised as work for the Company's own account.
Net sales are primarily attributable to the Oxhult wind farm, for which installation work was started in March 2009. Production from the Oxhult wind farm has been characterised by a worse than normal year for wind, in addition to extra optimisation measures and analy- sis, with a resultant reduction in availability. Optimisation measures aimed at improving production are in progress.
The operating result before depreciation (EBITDA) was MSEK 1.7 (– 15.4). Staff costs and other external expenses came to a total of MSEK – 41.7 (– 24.8). This increase is attributable primarily to the expansion of operations involving a greater number of projects and an increase in the number of employees.
The operating result (EBIT) was MSEK – 10.8 (– 16.0) which includes depreciation according to plan of MSEK – 12.5 (– 0.6). Net financial items was MSEK – 0.6 (9.5) and the loss before tax was MSEK – 11.4 (– 6.5). The loss after tax was MSEK – 7.6 (– 3.3), equivalent to a loss per share of SEK – 0.44 (– 0.21).
The total comprehensive income was MSEK – 6.9 (– 14.1) after the cash flow hedges of electricity, interest rates and foreign currencies increased the total comprehensive income by MSEK 0.8 net, compared
with a net reduction in total comprehensive income of MSEK – 10.8 during 2008.
Investments and depreciation
Net investments for the year were MSEK 568 (340) less grants received from the Swedish Energy Agency of MSEK 31 (of a grant of MSEK 50), of which MSEK 15.4 was paid out during 2009. The entire invested amount is related to the expansion of electricity production, apart from MSEK 4 (4) which was mainly for investments in measuring and office equipment.
Cash flow
Arise Windpower's cash flow from operating activities was MSEK – 120 (71) and cash flow after investments was MSEK – 688 (– 263). Interest- bearing liabilities during the period increased by MSEK 310 (290) due to utilisation of existing facility. The new issue brought the Company a net total of MSEK 310 (331), as a result of which cash flow for the year came to MSEK – 68 (364).
Financing and liquidity
By the end of the year, there were net liabilities of MSEK – 259 com- pared with net assets of MSEK 119 at the end of 2008. Cash and cash equivalents were worth MSEK 341 (409), in addition to which there was unused credit of MSEK 57 (367).
The equity/assets ratio on the balance sheet date was 50.5 per cent (45.3).
Taxes
Since Arise Windpower has only Swedish subsidiaries, tax has been calculated using a Swedish tax rate of 26.3 per cent.
Research and development
During the year, Arise Windpower has carried out research by work- ing with and actively supporting a professorship at Halmstad Univer- sity focused on onshore wind analyses. The group has also continued to work with Uppsala University on refining methods for assessing wind potential in forest areas.
The group also carries out internal development work in order to
improve knowledge about wind behaviour in different environments.
In addition, methods have been drawn up for accurate sound analyses and improved foundation design.
Employees
The average number of employees within the group during the year was 18 (7). The total number of employees at the end of the year was 21 (15). Additional information relating to the number of employees and salaries, remuneration and terms of employment can be found in Note 4 to the consolidated financial statements.
THE PARENT COMPANY
During the year, the parent company has continued operationally and formally to build up the group, been responsible for the main work involved in prospecting for suitable wind locations, reached agree- ments on leasing, produced impact assessments, worked on plans and construction permits, carried out procurements and provided group- wide services. Considerable work has gone into evaluating the Oxhult wind farm project, primarily in terms of design, siting, foundation design, noise, shadows and production.
PLU Energy Intressenter AB, which was previously acquired by means of a directed non-cash issue, merged with the parent company during the year.
Net investment for the year stood at MSEK 28.6 (9.6). The average number of employees during the year was 13 (4), and the company had 15 (6) employees at the end of the year. For details of the number of employees, salaries, remuneration and terms of employment, please see Note 4 to the consolidated financial statements on pages 26 – 27.
ENVIRONMENTAL IMPACT
The group’s core operations consist of producing and transmitting green electricity without creating emissions of carbon dioxide, dust or other substances to the air, water or ground. Operations consist of building and civil engineering works in connection with erecting wind turbines and related electrical installations, following the regu-
lations which apply for work of this type. The group only uses oils, chemicals and fuel in a few contexts: oil for lubricating the moving parts of wind turbines, products used in the land and civil engineer- ing work carried out by external contractors, and fuel for suppliers’
company vehicles and those belonging to the group. Operating wind farms has a direct environmental impact in terms of sound, shade and visual impressions.
Legal requirements
By owning and operating wind turbines and electrical installations, the group’s operations require permits and must be reported on in accordance with the Swedish Environmental Code. The group has all the permits required for its current operations.
RISKS AND UNCERTAINTY FACTORS
Arise Windpower classifies risks as external risks (politics, market conditions, climate conditions and competitors), financial risks (energy prices, certificate prices, currencies, interest rates, financ- ing, capital and credit) and operational risks (operation, operating expenses, agreements, disputes, insurance and other forms of risk management).
External risks
Arise Windpower believes that demand for wind power as a means of producing electricity will remain high for the foreseeable future.
The Swedish Energy Agency has set a target of 30 TWh of Sweden’s electricity consumption coming from renewable energy (compared with the current level of approximately 2 TWh) by 2020, requiring a significant expansion in the number of wind turbines.
Sensitivity to market conditions relates primarily to opportunities for access to equity and borrowed capital, with worsened conditions on the financial markets potentially making the raising of capital more difficult.
Arise Windpower’s revenues are dependent on actual output from its installed wind farms, which in turn depends on wind speeds in the locations concerned during the period. The amount of wind var- ies from season to season over the course of the year but also from one year to another. By building a portfolio of projects in different geographic locations and by performing extensive wind measure- ments prior to investment decisions, the risk of variations in output is reduced. However, unfavourable weather conditions and climate change can have a negative impact on electricity production, which in turn would affect the Company’s earnings.
In terms of competition, Arise Windpower is one of the few play- ers in the market which can provide landowners with an overall wind- power development solution including grid connection, large-scale turbine procurement and access to a mobile crane with the capacity to lift any wind turbine on the market within the size class of up to 3 MW. An industrial approach and the ability to control the con- struction of turbines are among the key requirements for the group’s continued competitiveness.
Financial risks
Energy price risk relates to a fluctuating electricity price market, pri- marily on the Nord Pool power exchange. The group addresses this risk by hedging a certain portion of planned production. Electricity certificate price risks are dealt with in a similar manner.
Foreign exchange risk within the group arises mainly when procur- ing turbines and when selling electricity on the Nord Pool power ex- change, both of which are normally priced in euros. In terms of flows, this risk will eventually even itself out to a certain degree, but in the meantime the group partly counters this risk by hedging foreign cur-
rency transactions. Interest rate risk has been addressed by largely hedging loans taken out to fixed interest rates via swap agreements.
For further information, see Note 11 to the consolidated financial statements on pages 30 – 33.
Operational risks
The risk of significant consequences due to downtime is deemed to be low, and will be reduced as production capacity is expanded in various locations. Arise Windpower is of the opinion that no dis- putes exist which could have a significant impact on the group’s financial position. The insurance held by the group includes con- sequential loss insurance, third party liability insurance, product liability, insurance against property damage and limited protection against environmental damage.
Arise Windpower believes that the size of the group and the com- position of the group management, with its in-depth operational knowledge and close, ongoing operational contact, reduces opera- tional risks.
THE WORK OF THE BOARD OF DIRECTORS
Information about the Company’s management and the work of the Board of Directors during the year can be found in the corporate governance report on pages 45 – 47.
INFORMATION ABOUT THE COMPANY’S SHARES Total number of shares, votes, dividends and new shares The total number of shares issued on 31 December 2009 was 21,426,070, of which 937,500 shares were held in the Company’s custody. Shareholders are entitled to vote using all shares held. All shares bring equal rights to dividends.
Share warrant programmes exist and as at 31 December 2009 these programmes gave a right to subscribe to an equivalent of 1,450,000 shares which, on full utilisation, gives a dilution effect of 6.3 per cent. However, one of the options agreements includes conditions to the effect that it is deemed that a maximum of 1,102,500 shares can be subscribed to (note 14), which would mean a dilution effect of 4.9 per cent.
Transferability
Neither the Company’s articles of association nor applicable legisla- tion include any restrictions on the transferability of the Company’s shares. However, the founders (Leif Jansson, Peter Nygren and Ulf Corné) have committed via a separate shareholders’ agreement be- tween larger shareholders to, among other things, a tag-along right which means that other shareholders who are party to the share- holders' agreement have the right to sell their holdings on the same terms as the founders. The agreement ceases in the event of a stock exchange listing.
Otherwise, the Company is not aware of any agreements between shareholders which limit the transferability of its shares.
Shareholders
Information about the Company’s shareholders can be found on page 48.
AGREEMENTS WITH CLAUSES ON CHANGES IN OWNERSHIP The group does not have any significant agreements which can be terminated in the event of a change in ownership. No agreements
exist between the Company and the members of the Board of Direc- tors or employees which stipulate remuneration in the event that the aforementioned tender their resignation, or are given notice without reasonable cause, or if their employment or appointment comes to an end as a result of a public takeover bid.
CODE OF CONDUCT
Arise Windpower places great emphasis on carrying out its operations in a sound manner, both legally and in terms of business ethics. The Company’s Code of Conduct emphasises the principles which gov- ern the Company’s relationships with employees, business partners and other interested parties. The Code of Conduct applies to both employees and members of the Board of Directors. The group’s sup- pliers, distributors, consultants and other business partners are also expected to observe and apply the Code of Conduct.
The Code of Conduct stipulates that bribes may not be paid, that the Company should take a restrictive approach towards gifts, and that all business dealings should be clearly shown in the Company’s accounts, which should be produced in a truthful, relevant and com- prehensible manner in accordance with generally accepted account- ing principles.
Arise Windpower takes a neutral position on political issues. Nei- ther the Company’s name nor its assets may be used to promote po- litical parties or the interests of political candidates.
The Code of Conduct also applies to the Company’s work for a sustainable society, which specifies that the group’s products and processes should be designed so that they use energy and raw materi- als efficiently, and that products should minimise waste and residues over their useful life.
Arise Windpower recruits and deals with its employees in a man- ner which is not discriminatory in terms of gender, race, religion, age, disability, sexual orientation, nationality, political views, ethnic origin, etc. The group encourages diversity at all levels. Child labour will not be tolerated, nor will work which is carried out under duress or threat. The freedom of association and the right to collective nego- tiations and agreements shall be respected.
Guidelines for remuneration for senior executives
Senior executives shall be offered a fixed salary that is in line with the market and based on the individual's responsibilities and role. Bo- nuses shall be based on goals attributable to and of relevance for the Company's operations. Other senior executives were paid bonuses in 2009 that may be no more than six months' salary calculated as an av- erage for the group. The founders will decline their bonuses for 2010.
Further details of the guidelines can be found on the Company's website under Corporate governance.
OUTLOOK FOR 2010
The group is well equipped for the continued expansion of onshore wind farms and the associated construction of electrical installations.
The challenge is to sustain the planned expansion at a sufficiently high rate. The group has the funds required for planned construction activities during 2010 and is able, without any further contributions, to erect turbines with an output of a little over 53 MW, in addition to the projects that are currently in operation or are being put into operation.
The group's continued expansion with the goal of erecting about 300 wind turbines by the end of 2014 requires new capital from a new issue and external financing. A stock exchange listing is also planned for 2010.
EVENTS AFTER THE BALANCE SHEET DATE
Due to climate conditions, the amount of available energy in the wind during the beginning of 2010 has been 25-35 per cent lower than in the corresponding period for a normal wind year, which has resulted in lower production levels than anticipated. At the same time the hedging level was temporary higher than normal. As a result, the Company has been required to purchase additional electricity on Nord Pool to comply with existing supply agreements, at a market price which occasionally has been very high. Aggregately, this is ex- pected to have a negative effect on the Company’s result of approxi- mately MSEK 2. The hedging level has been adjusted as from 1 March 2010.
The Company raised MSEK 4.3 in equity after the chairman of the Company's Board of Directors utilised some of his warrants at the beginning of the New Year.
CONSOLIDATED INCOME STATEMENT
Amount in SEK thousands Note 2009 2008
Net sales 29,652 —
Work performed by the company for its own use and capitalised 13,262 9,345
Other operating result 554 —
Total income 2 43,468 9,345
Staff costs 4 – 23,353 – 12,930
Other external expenses 5 – 18,388 – 11,824
Operating result before depreciation (EBITDA) 1,727 – 15,409
Depreciation of Property, plants and equipment 9 – 12,525 – 565
Operating result (EBIT) – 10,798 – 15,974
Financial income 6 7,402 10,805
Financial expenses 6 – 8,001 – 1,345
Profit/loss before tax – 11,397 – 6,514
Income tax 7 3,783 3,225
Net result – 7,614 – 3,289
Earnings per share (SEK)
Before dilution – 0.44 – 0.21
After dilution – 0.44 – 0.21
Number of shares at the beginning of the year 15,453,885 7,365,385
Number of shares at the end of the year 21,426,070 15,453,885
Earnings per share before dilution have been calculated using the profit for the year as a numerator. The average number of outstanding shares used to calculate earnings per share before dilution was 17,502,478 shares (2008: 12,859,635 shares). The Company has warrants which may bring about a dilution effect, though no such effect is reported since the Company has a negative net result.
The number of shares held by the Company has not been included in the calculation.
THE GROUP'S STATEMENT OF OTHER COMPREHENSIVE INCOME
Amount in SEK thousands 2009 2008
Net result – 7,614 – 3,289
Other comprehensive income
Cash flow hedges, unrealised changes in value 1,012 – 14,641
Income tax attributable to components in other comprehensive income – 266 3,850
Other comprehensive income for the year net after tax 746 – 10,791
Total of comprehensive income for the year – 6,868 – 14,080
The comprehensive income is 100 per cent attributable to the parent company's shareholders.
CONSOLIDATED BALANCE SHEET
Amount in SEK thousands Note 2009 2008
ASSETS
Non-current assets
Property, plants and equipment 9 898,061 342,946
Deferred tax assets 7 20,214 11,876
Total non-current assets 918,275 354,822
Current assets
Stock 10 973 —
Accounts receivable 7,038 —
Current tax assets 375 178
Other current receivables 11, 12 46,741 52,295
Prepaid expenses and accrued income 13 33,417 8,038
Cash and cash equivalents 341,308 408,922
Total current assets 429,852 469,433
TOTAL ASSETS 1,348,127 824,255
SHAREHOLDERS’ EQUITY
Share capital 14 1,714 1,236
Other capital contributed 705,531 392,455
Hedging reserve – 10,045 – 10,791
Accumulated loss – 16,927 – 9,313
Total shareholders’ equity 680,273 373,587
LIABILITIES
Non-current liabilities
Long-term interest-bearing liabilities 15 586,860 290,000
Provisions 16 3,400 —
Total non-current liabilities 590,260 290,000
Current liabilities
Current interest-bearing liabilities 15 13,140 —
Accounts payable 18,536 139,278
Other liabilities 11 38,799 16,353
Accrued expenses and deferred income 17 7,119 5,037
Total current liabilities 77,594 160,668
TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 1,348,127 824,255
Collateral pledged 18 905,265 481,358
Contingent liabilities 18 — None
CONSOLIDATED CASH FLOW STATEMENT
Amount in SEK thousands Note 2009 2008
Operating activities
Operating result (EBIT) – 10,798 – 15,974
Adjustment for items not included in cash flow 8 12,525 472
Income tax paid – 197 – 48
Cash flow from operating activities before changes in working capital 1,530 – 15,550 Cash flow from changes in working capital
Increase in stock – 973 —
Increase in current receivables – 4,372 – 55,301
Increase (+)/Reduction (–) in current liabilities – 116,073 141,992
Cash flow from operating activities – 119,888 71,141
Investing activities
Acquisition of Property, plants and equipment – 583,040 – 334,395
Government grants 15,400 —
Sale of Property, plant and equipment — 80
Cash flow from investing activities – 567,640 – 334,315
Financing activities
Increase in interest-bearing liabilities 310,000 290,000
Interest paid – 8,895 – 2,228
Interest received 8,666 8,759
New issue 310,143 330,769
Cash flow from financing activities 619,914 627,300
Cash flow for the year – 67,614 364,126
Cash and cash equivalents at the beginning of the year 408,922 44,796
Cash and cash equivalents at the end of the year 341,308 408,922
Interest-bearing liabilities at the end of the year – 600,000 – 290,000
Net liabilities / Net interest-bearing assets – 258,692 118,922
CONSOLIDATED SHAREHOLDERS’ EQUITY
Amount in SEK thousands Share capi-
tal
Other capi- tal contrib- uted
Hedging
reserve Accumulated loss
Total share- holders’ eq- uity
Opening balance on 01 January 2008 147 54,045 — – 6,024 48,168
Net result — — — – 3,289 – 3,289
Cash flow hedges
– Changes in hedging reserve during the year — — – 14,641 — – 14,641
– Income tax on change in hedging reserve during the year — — 3,850 — 3,850
Bonus issue 868 – 868 — — —
New issue 221 348,386 — — 348,607
Cost of new issue — – 18,255 — — – 18,255
Income tax in relation to cost of new issue — 4,801 — — 4,801
Option issue – cash-free — 3,929 — — 3,929
Option issue — 417 — — 417
Shareholders’ equity on 31 December 2008 1,236 392,455 – 10,791 – 9,313 373,587
Net result — — — – 7,614 – 7,614
Cash flow hedges
– Changes in hedging reserve during the year — — 1,012 — 1,012
– Income tax on change in hedging reserve during the year — — – 266 — – 266
New issue 478 327,992 — — 328,470
Cost of new issue — – 18,327 — — – 18,327
Income tax in relation to cost of new issue — 4,820 — — 4,820
Value adjustment of issued options — – 1,409 — — – 1,409
Shareholders’ equity on 31 December 2009 1,714 705,531 – 10,045 – 16,927 680,273
