Report to shareholders Third-quarter 2013

3

Contents: Highlights

3

Group summary

4

Business segments

5

Other matters and outlook

9

Profit and loss

10

Balance sheet and cash flow

11

Business segments

12

Notes to the accounts

13

Historical comparative data

17

Financial calendar and investor contact 20

2

REPORT TO SHAREHOLDERS THIRD-QUARTER 2013

Third-quarter 2013 highlights > EBITDA of NOK 633 million, compared with prior-year figure of NOK 382 million – with operating activities contributing an increase of NOK 143 million. > Improved power market generates achieved power price of NOK 0.25/kWh - up NOK 0.10/kWh on previous year. > Network with profit improvements of NOK 42 million due to changes in regulatory conditions. > Sale of shares in Infratek ASA for NOK 386 million generates profit of NOK 90 million in the quarter. > Power sales customers top one million mark - shareholding in Energibolaget i Sverige (EBS) raised from 49% to 100% in October.

Earnings per share

NOK 1.08

3

> Earnings per share

NOK

NOK mill.

> EBITDA

> Equity ratio

Key figures Q3 12

Q3 13 Profit and loss (NOK million)

Ytd 12

9 197

7 874

633 EBITDA

1 840

1 513

-268

431 Operating profit

1 245

483

-502

326 Profit before tax and discontinued operations

875

31

-580

210 Profit after tax

539

-216

1 854 382

2 380 Operating revenues

Ytd 13

Capital matters Equity ratio Net interest-bearing debt

31 %

28 %

9 804

9 579

2.76

-1.11

7.4

4.6

0.27

0.20

Per-share figures (NOK) -2.97 2.7

1.08 Profit (EPS) 0.1 Cash flow from operations Key figures

0.15

0.25 Power prices (NOK per kWh)

924

825 Hydropower production (GWh)

2 170

2 413

230

230 Heat production (GWh)

1 454

1 294

12 185

11 289

2 782

2 893 Power sales (GWh)

Figures are in NOK unless otherwise stated. Comparative 2012 figures appear in parentheses. Profit, balance sheet, and cash flow figures for 2012 have been restated pursuant to implementation of the revised IAS 19 pension standard.

Third-quarter 2013 summary Third-quarter 2013 results Hafslund posted EBITDA of NOK 633 million (NOK 382 million) in the third quarter. This represents a satisfactory result in a quarter normally characterised by high hydropower production, low demand for energy and stable Networks results. The underlying improvement from operating activities of NOK 143 million is primarily attributable to higher power prices and better regulatory conditions for Networks, and was achieved despite lower hydropower production. The result includes a profit of NOK 90 million on the sale of shares in Infratek ASA. The power price of NOK 0.25/kWh for Hydropower was up NOK 0.10/kWh on the previous year. Hydropower production was 11 per cent lower than normal, compared with normal in the same quarter last year. Adjusted for non-recurring items, the operating profit of NOK 431 million (loss of NOK 268 million) represents a year-on-year improvement of 26 per cent. The previous year’s operating loss of NOK 268 million includes extraordinary impairment losses and provisions totalling NOK 511 million for BioWood Norway AS and the Bio-El Fredrikstad waste-to-energy plant. Financial expenses of NOK 105 million (NOK 234 million) in the quarter reflect net interest-bearing liabilities of NOK 9.8 billion and a coupon rate of 4.0 per cent at the end of the quarter. Higher forward interest rates in the quarter impacted

4

the market value of the loan portfolio and reduced financial expenses by NOK 29 million (increase of NOK 102 million). Third-quarter profit 2010-2013 (excl. REC) (NOK million)

The tax expense of NOK 116 million (NOK 78 million) includes resource rent tax for the hydropower business of NOK 48 million (NOK 32 million). The effective tax rate on the

REPORT TO SHAREHOLDERS THIRD-QUARTER 2013

profit before tax of NOK 326 million should be viewed in the context of the fact that the profit of NOK 90 million on the sale of shares in Infratek ASA is non-taxable in accordance with the exemption model. The tax expense for the previous year includes a provision of NOK 183 million relating to an ongoing tax dispute. The profit after tax of NOK 210 million (loss of NOK 580 million) equates to an earnings per share figure of NOK 1.08 (NOK -2.97).

Cash flow and equity in the third quarter The cash flow from operations of NOK 15 million for the quarter includes an increase in working capital of NOK 436 million. At the end of the quarter working capital totalled NOK 230 million. EBITDA of NOK 633 million were NOK 182 million higher than the related cash flow from operations before changes in working capital. This was primarily due to payment of interest of NOK 84 million and a profit of NOK 90 million on the sale of shares in Infratek, where the capital released of NOK 386 million is included in the cash flow from investing activities. The resulting net cash flow from investing activities of NOK 193 million contributed to a cash flow of NOK 208 million which was used to reduce interest-bearing liabilities in the quarter. At the end of the third quarter net interest-bearing liabilities totalled NOK 9.8 billion. The graph below shows changes in net interest-bearing liabilities and working capital from the third quarter of 2010 until the third quarter of 2013. Net interest-bearing debt and working capital (in NOK billion)

Business segments > Production

Q3 13

Q3 12

Ytd 13

Ytd 12

Operating revenues

229

150

654

512

Gross margin

228

143

643

508

EBITDA

163

83

452

302

Operating profit

152

72

416

268

Operating profit hydropower

147

69

408

270

4

3

8

-2

0.25

0.15

0.27

0.20

825

924

2 170

2 413

7

4

19

9

NOK million

Operating profit power trading Power price (NOK/kWh) Production (GWh) Investments

Production posted sales revenues of NOK 229 million in the third quarter, an increase of 53 per cent against the previous year. The increase was attributable to higher power prices, and was achieved despite lower production. The operating profit of NOK 152 million (NOK 72 million) relates in the amount NOK 147 million (NOK 69 million) to hydropower production and NOK 5 million (NOK 3 million) to the power trading business. The achieved power price of NOK 0.25/kWh was up NOK 0.10/kWh on the previous year, and generated an increased results contribution of NOK 93 million. The achieved power price was NOK 0.01/kWh lower than the associated volumeweighted spot price on Nord Pool Spot for price area NO1. The third-quarter hedge ratio of 54 per cent resulted in a negative results contribution of NOK 3 million. 56 GWh of concessionary and compensatory power was sold at NOK 0.14/kWh (NOK 0.14/kWh) during the quarter. At 825 GWh, production was 99 GWh lower than in the previous year, which generated a negative results contribution of NOK 15 million. Production was 11 per cent lower than normal, in part due to low precipitation in Østlandet in the summer.

At NOK 24.0 billion, total assets were down NOK 0.6 billion in the quarter. Hafslund has a robust financing structure with long-term committed drawdown facilities. At the end of the quarter Hafslund had unused drawdown facilities of NOK 3.7 billion, which is deemed sufficient to cover both working capital requirements and the Group’s refinancing requirements over the next 12 months.

5

Hafslund hedges some of its hydropower production volume for the next 36 months in the forward market on an ongoing basis in order to reduce power price risk. In line with the Group’s hedging policy, the extent of hedging is expected to be significantly higher in the upcoming 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. The table on the next page shows the hedging position for the next six months:

REPORT TO SHAREHOLDERS THIRD-QUARTER 2013

Hedging position Hedge ratio as of 30.09.2013 Hedge price less market price as of 30.09.2013 (NOK/kWh)

Next 6 months

> Heat

45 % -0.007

NOK million Operating revenues

At the end of September the overall hydrological reservoir level in Hafslund’s catchment area was 93 per cent of the normal and total stored energy comprised 880 GWh. Based on production to date, expected availability in the power plants, current reservoir levels and a normal weather situation, production in the fourth quarter is expected to come in at around 620 GWh. Hydropower generation vs 10-year average (GWh)

At NOK 64 million, operating expenses in the quarter were up NOK 4 million on the previous year on the back of higher maintenance activities. At the end of the quarter Production had committed capital of NOK 4.4 billion (NOK 4.5 billion).

Gross margin EBITDA Operating profit Gross margin (NOK/kWh) Production (GWh) Investments

Q3 12

Ytd 13

Ytd 12

106

162

804

712

59

111

407

385

6

42

217

191

-43

-241

85

-174

0.30

0.24

0.30

0.32

230

230

1 454

1 294

1

97

39

189

Heat posted sales revenues of NOK 106 million in the third quarter. Adjusted for non-recurring items, this represents an increase of 11 per cent on the previous year. In a quarter characterised by low demand for energy, the operating loss of NOK 43 million is regarded as satisfactory. The previous year’s operating loss of NOK 241 million was impacted by non-recurring items relating to the late invoicing of the previous year’s consumption (NOK 58 million) and an impairment loss at Bio-El Fredrikstad (NOK 240 million). Adjusted for the above non-recurring items, the operating loss of NOK 43 million represents an improvement of NOK 16 million against the previous year. The improvement is primarily attributable to improved contributions as a result of higher power wholesale prices on Nord Pool Spot. To date this year the company has connected new district heating customers with a total annual district heating requirement of 24 GWh. In 2010 Hafslund Varme was granted a licence to construct a district heating centre at Jessheim in order to significantly expand district heating capacity. Lowerthan-expected demand and lower power prices are not generating sufficient profitability to justify the planned expansion of around NOK 150 million. The company is now consulting with the local authority and existing customers to identify alternatives for the area and individual customers. The Heat business area had committed capital of NOK 5.4 billion (NOK 5.3 billion) at the end of the quarter. District Heating

Q3 13

Q3 12

Ytd 13

Ytd 12

128

136

597

572

Heat pumps (GWh)

9

10

85

90

Biooil and biodiesel (GWh)

0

0

47

26

Pellets (GWh)

0

0

59

0

18

18

401

323

Waste and biofuel (GWh)

Electricity (GWh)

2

2

53

75

157

166

1 243

1 086

Production cost (NOK/kWh)

0.24

0.25

0.30

0.27

Sales price (NOK/kWh)

0.57

0.47

0.63

0.57

Gross margin (NOK/kWh)

0.30

0.20

0.31

0.28

Oil and natural gas (GWh) Total production (GWh)

6

Q3 13

REPORT TO SHAREHOLDERS THIRD-QUARTER 2013

The district heating price (including the distribution stage) was NOK 0.57/kWh in the quarter. The increase of NOK 0.10/kWh compared with the previous year is attributable to higher power wholesale prices on Nord Pool Spot. At 157 GWh, district heating production was down 9 GWh on the previous year on the back of slightly lower energy demand, despite growth in the connection of new customers. The fuel cost of NOK 0.24/kWh reflects a high base load quota from the waste-to-energy plant at Klemetsrud in a quarter characterised by low energy demand. This resulted in a gross contribution for district heating sales of NOK 0.30/kWh, up NOK 0.10/kWh on the previous year. The share of renewable energy sources in the quarter was 99 per cent, and 95 per cent over the last 12 months. District heating hedges some of its hydropower production volume on the futures market for the next 36 months on an ongoing basis in order to reduce power price risk. The extent of hedging may vary significantly, based on an overall assessment of market prices and prospects, where the intention is to achieve satisfactory prices and reduce fluctuations in Hafslund’s earnings. In the third quarter 86 GWh (55 percent) of production was hedged, resulting in a profit of NOK 0.2 million. The table below shows the hedging position in relation to net power price exposure for the district heating business for the next six months: Hedging position

Next 6 months

Hedge ratio as of 30.09.2013

37 %

Hedge price less market price as of 30.09.2013 (NOK/kWh)

-0.017

The table below shows the key figures for the two industrial heating plants in Østfold. The energy is delivered in the form of steam, district heating and electricity. Energy production of 73 GWh was 9 GWh higher than the previous year. The sales price of NOK 0.28/kWh was slightly higher than the previous year due a higher share of steam and higher steam price. At NOK 0.30/kWh the gross contribution was down NOK 0.03/kWh against the previous year due to around NOK 110 per tonne lower revenues from received waste. Industrial heat posted a gross contribution of NOK 22 million (NOK 21 million) in the third quarter, relating in the amount of NOK 16 million (NOK 17 million) to the plant at Sarpsborg and NOK 6 million (NOK 4 million) to Bio-El Fredrikstad. Industrial energy Sales price (NOK/kWh) Used waste (thousand tonns) Gross margin (NOK/kWh) Production (GWh)

*

Q3 13

Q3 12

Ytd 13

Ytd 12

0.28

0.26

0.26

0.27

33

35

97

100

0.30

0.33

0.29

0.32

73

64

212

209

The gross contribution (NOK/kWh) is higher than the sales price due to the fact that income from the receipt of waste is included in the contribution but not in the sales price.

7

> Network

Q3 13

Q3 12

Ytd 13

Ytd 12

Operating revenues

925

839

2 962

2 799

Gross margin

621

550

1 790

1 701

EBITDA

286

244

841

734

Operating profit

164

120

477

361

Result effect income surpluses/(shortfalls)

(44)

65

(164)

35

Investments

142

120

334

292

NOK million

Networks posted sales revenues of NOK 925 million (NOK 839 million) in the third quarter. The sales revenues and contribution reflect an income shortfall of NOK 44 million (income surplus of NOK 65 million). We refer to Note 2 later in the report for further information on income surpluses/shortfalls. Networks posted a gross contribution of NOK 621 million (NOK 550 million) in the quarter. Operating expenses of NOK 336 million reflect higher maintenance activities than in the previous year. EBITDA of NOK 286 million was up NOK 42 million on the previous year, due to better regulatory conditions. The table below shows the change in operating downtime over the last twelve months (X-axis) and the quarterly KILE cost (Y-axis). KILE is the quality-adjustment of the income ceiling for non-delivered energy. Supply quality was very good in the third quarter with fewer major outages. The KILE cost of NOK 16 million was on a par with the corresponding prioryear quarter. The total energy supply to end customers amounted to 2.8 TWh, which was roughly the same as the previous year. Service interruptions and related penalties

Networks has implemented the adaptations required to comply with the Competence Regulation before the deadline of 1 July 2013. The new Norwegian government has signalled that it wishes to abolish the staffing requirements of the Competence Regulation for power production and network companies, and replace these with general quality and safety requirements.

REPORT TO SHAREHOLDERS THIRD-QUARTER 2013

Assuming normal energy demand in the fourth quarter, the operating result for 2013 is expected to come in around 15 per cent higher than in 2012, based on the current net tariffs.

Power Sales – Volume sold (GWh)

Investments totalled NOK 142 million (NOK 120 million) in the third quarter. Networks had committed capital of NOK 9.0 billion (NOK 8.2 billion) at the end of the quarter.

> Markets

NOK million

Q3 13

Q3 12

Ytd 13

Ytd 12

Operating revenues

1 147

708

4 847

3 799

270

262

818

834

EBITDA

83

84

246

336

Operating profit

73

80

217

323

Operating profit power sales

65

59

197

259

- included value change derivatives

10

1

5

36

2 893

2 782

12 185

11 289

9

21

20

64

Gross margin

Sales volume (GWh) Operating profit billing and customer service

Markets posted sales revenues of NOK 1,147 million for the quarter, an increase of 62 per cent against the previous year. The increase in sales is primarily attributable to higher wholesale power prices on Nord Pool Spot. In a quarter featuring low demand, the operating profit came in at NOK 73 million (NOK 80 million). The customer base is continuing to expand and despite slightly lower margins (NOK/MWh) the contribution from power sales was on a par with the previous year. At NOK 187 million, year-on-year operating expenses were up NOK 9 million. In addition to more customers, the transitional phase is resulting in slightly higher costs for system operations due to the replacement of the Group’s customer service and invoicing systems. Costs of NOK 9 million were recognised relating to customer recruitment in the quarter. Power sales posted an operating profit of NOK 65 million, which equates to post-tax earnings of around NOK 56 per customer in the quarter (NOK 48). 2,893 GWh were sold in the quarter, which was up 4 per cent on the previous year. The sales volume relates 1,664 GWh (1,769 GWh) to the private segment and 1,229 GWh (1,013 GWh) to the business segment. At the end of the quarter Hafslund had around 939,000 customers through wholly owned companies and the company’s share of customers in partly owned companies. This represents an increase of 12,000 customers in the quarter and 47,000 customers against the end of the corresponding prior-year period.

Hafslund has exercised its purchase option to acquire the remaining 51 per cent of shares in Energibolaget i Sverige Holding AB (EBS). The share transfer was completed in October. Following the above transaction, Hafslund owns all the shares in EBS. Please see Note 5 later in the report regarding the purchase. Following the purchase of the remaining shares in EBS the power sales business has around 1,060,000 customers. Markets had committed capital of NOK 2.0 billion (NOK 1.3 billion) at the end of the third quarter of 2013. Committed capital will to a large extent vary in line with changes in working capital during the year as a result of fluctuating energy demand and wholesale power prices on Nord Pool Spot.

> Other activities

Q3 13

NOK million

Q3 12

Ytd 13

Ytd 12

(12)

(4)

(33)

(23)

Other acitivities

96

(294)

84

(272)

Total operating profit Other

84

(299)

50

(295)

Support

Other business posted an operating profit of NOK 84 million in the third quarter (loss of NOK 299 million). Hafslund sold all its shares in Infratek ASA during the reporting period. The sale released capital of NOK 386 million and generated a profit of NOK 90 million for Other business, as shown in the table above. We refer to Note 4 later in the report concerning historical results and dividends received from the investment in Infratek. On 7 October Hafslund entered into an agreement to sell the pellets factory (business transaction) on Averøya. The transaction had a virtually neutral effect on the income

8

REPORT TO SHAREHOLDERS THIRD-QUARTER 2013

statement and will be recognised in the fourth quarter. The previous year’s result for Other business in the table above includes NOK 271 million in impairment losses and provisions resulting from the decision to close down the pellets business.

Other matters > List of shareholders as of 30 September 2013

(1000’ shares)

The strategic focus on core business will further reinforce Hafslund’s role as a leading energy company, and underpin the Group’s renewable energy, infrastructure for energy and power market initiatives. Efficient and stable operations combined with organic growth make it reasonable to consider structural growth within core operations. The board believes that Hafslund has established a sound commercial and financial platform to secure satisfactory future performance and to meet the challenges the Group will face in the time ahead.

Total

Holding

Oslo Kommune

67 525

37 343

104 868

53,7 %

Fortum Forvaltning AS

37 853

28 706

66 559

34,1 %

5 201

4

5 205

2,7 %

3 802

3 802

1,9 %

5

1 579

1 584

0,8 %

Oslo, 23 October 2013

85

885

970

0,5 %

Board of Directors

588

588

0,3 %

321

428

0,2 %

397

397

0,2 %

Østfold Energi AS

A-shares B-shares

In addition to ongoing operating investments in existing business, the Group’s future investment requirements will be strongly impacted by statutory investments in AMS. The deadline for the final rollout of AMS has been set as 1 January 2019.

Odin MP Pensjon PK Folketrygdfondet Danske Invest AS Herdebred

107

Hafslund ASA New Alternatives Fund Total 10 largest Other shareholders Total

328 111 104

73 625

328

0,2 %

184 729

94,6 %

4 324

6 133

10 457

5,4 %

115 428

79 758

195 186

100 %

Hafslund ASA

Hafslund ASA had 6,827 shareholders at the end of the third quarter, of whom the ten largest owned 94.6 per cent of the share capital. Hafslund is listed on the Oslo Stock Exchange. The stock market value of NOK 9.1 billion at the end of the quarter is based on a price of NOK 46.80 for A shares and NOK 46.70 for B shares.

Outlook Hafslund’s financial performance is directly affected by fluctuations in the price of electricity. This applies to power production and district heating, while revenues from Networks are largely impacted by changes in the regulatory framework. The power sales market is highly competitive, and profitability is contingent on Hafslund’s ability to achieve further efficiency improvements and improve customer deliveries. Power prices are affected at any one time by the hydrological balance and macroeconomic conditions in the Nordic region and Europe, and relevant regulatory and political initiatives. On 30 September 2013 future deliveries of power were listed on Nasdaq OMX at NOK 340/MWh for the fourth quarter of 2013 and at NOK 310/MWh for 2014. Significant uncertainty attaches to future power price changes. In order to leverage market prospects more efficiently, and to hedge earnings and cash flows, Hafslund has gradually migrated from a spot policy to hedging some sales of produced energy.

9

REPORT TO SHAREHOLDERS THIRD-QUARTER 2013

> Condenced income statement Q3 12 1 854 (869) 985 4

Q3 13 NOK million 2 380 Operating revenues (1 253) Purchased materials and energy 1 127 Gross margin 119 Gain/loss financial items

(176)

(189) Salaries and other personnel expenses

(431)

(424) Other operating expenses

382 (650) (268) (132) (102) (234) (502) (78) (580) (2.97)

Ytd 13

633 EBITDA (202) Depreciation and amortization 431 Operating profit (134) Financial interest, etc 29 Change in market value loan portfolio

Ytd 12

9 197

7 874

(5 659)

(4 640)

3 538

3 234

111

87

(626)

(568)

(1 183)

(1 239)

1 840

1 513

(595)

(1 031)

1 245

483

(378)

(392)

8

(60)

(370)

(452)

875

31

(336)

(247)

539

(216)

2.76

(1.11)

210 Profit after tax

539

(216)

(53) Value change hedging instruments

(34)

1

30

(6)

(4)

(5)

0

(30)

0

(30)

(105) Financial expenses 326 Profit before tax and discontinued operations (116) Tax 210 Profit after tax 1.08 Earnings per share (in NOK) = diluted profit

> Condensed statement of comprehensive income (580) 7 3 10

(39)

Other comprehensive income that may be reclassified to profit or loss in subsequent periods

(10)

0 Change in actuarial pensions

(10)

0

Other comprehensive income that will not be reclassified to profit or loss in subsequent periods

(580)

171 Profit attributable to

535

(251)

(581)

171 Profit to shareholders of Hafslund ASA

536

(251)

(1)

0

535

(251)

1 (580)

10

14 Translation differences

(0) Profit attributable to minority interests 171

REPORT TO SHAREHOLDERS THIRD-QUARTER 2013

> Condensed balance sheet NOK million Intangible assets Fixed assets Financial assets Accounts receivable and inventory

30-09-13

30-06-13

30-09-12

31-12-12

2 490

2 478

2 440

2 432

18 263

18 281

18 190

18 365

233

589

613

657

2 544

2 179

1 845

2 871

467

1 067

873

223

23 996

24 593

23 962

24 549

Equity, majority

7 318

7 145

6 574

7 270

Equity, minority

18

18

25

19

Allocations for liabilities

3 448

3 440

3 918

3 317

Long-term interest-bearing liabilities

8 657

8 603

8 771

8 422

Short-term interest-bearing liabilities

2 289

3 179

2 381

3 119

Short term non-interest-bearing liabilities

2 267

2 208

2 293

2 402

23 996

24 593

23 962

24 549

Cash and cash equivalents Assets

Equity and liabilities

> Equity reconciliation NOK million Equity beginning of period

Ytd 13

Ytd 12

Year 12

7 289

8 131

8 131

Implementaction effect pension liabilities 01.01.12 Adjusted equity beginning of period Comprehensive income

(795)

(795)

7 289

7 336

7 336

535

(251)

443

(487)

(487)

(487)

(2)

1

(5)

7 335

6 599

7 289

0

Change, minority interests Dividend Other changes affecting equity Equity at end of reporting period

2

> Condensed statement of cash flow NOK million EBITDA Paid interest Paid taxes Market value changes and other items without cash flow effect Change in accounts receivables, etc. Change in liabilities, etc. Cash flow from operations

Q3 13

Q3 12

Ytd 13

Ytd 12

633 (84)

382 (73)

1 840 (374)

1 513 (376)

0

(103)

(253)

(352)

(98)

11

(17)

(12)

(361)

87

289

296

(75)

214

(46)

(174)

15

518

1 439

895 (667)

(180)

(297)

(490)

Net capital release shares, etc.

373

(2)

368

18

Cash flow investment activities

193

(299)

(122)

(649)

(808)

(7)

(586)

241

Investments (operation and expansion)

Change net interest-bearing debt and dicontinued operations

0

3

(487)

(484)

Cash flow financing activities

(808)

(4)

(1 073)

(243)

Change in cash and cash equivalents in period

(600)

215

244

3

Cash and cash equivalents at beginning of period

1 067

659

223

870

467

873

467

873

Dividend and other equity changes

Cash and cash equivalents at end of period

11

REPORT TO SHAREHOLDERS THIRD-QUARTER 2013

> Segment reporting Q3 12

Ytd 13

Ytd 12 512

150

229 Production

654

162

106 Heat

804

712

839

925 Network

2 962

2 799

708

1 147 Markets

4 847

3 799

(70)

52

9 197

7 874

10

(44)

2

2

(4) 1 854 18 1

(28) Other activities/eliminations 2 380 Total operating revenues 132 Production 1 Heat

(2)

(6) Network

(2)

3

74

67 Markets

197

201

48 Other activities

48 138 72 (241)

145

143

242 Of which, sales between segments

352

304

152 Production

416

268

85

(174)

(43) Heat

120

164 Network

477

361

80

73 Markets

217

323

50

(295)

1 245

483

(299) (268)

12

Q3 13 NOK million

84 Other activities/eliminations 431 Total operating profit

REPORT TO SHAREHOLDERS THIRD-QUARTER 2013

Notes to the accounts 1) Framework conditions and key accounting policies The consolidated financial statements for the third quarter of 2013, the period ending 30 September 2013, 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 2012. 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 2012, with the exception of accounting policies concerning accounting for pensions. In 2013 Hafslund changed its accounting policy for accounting for pensions as described in Note 1 to the shareholders report for the first quarter of 2013. Following the change, all estimate deviations are recognised in comprehensive income and the interest expenses and the expected return on pension assets have been replaced with an a net interest amount calculated by applying the discount rate to the net pension obligation (asset). Under the new pension standard IAS 19R the changes have been made retrospectively and the comparative figures for 2012 have been amended accordingly. The tables below show the effect of amended accounting policy for the accounting year 2012. Income statement NOK million

2012 restated

Q4 12

1

1

Q3 12

Q2 12

Q1 12

Increased operating result for: Production Heat

1

1

1

26

7

6

7

6

6

2

1

1

1

Other business/eliminations

23

6

6

5

6

Consolidated operating profit

57

16

14

14

14

Networks Markets

Increased tax expense

16

4

4

4

4

Increased profit after tax

41

11

10

10

10

2012 restated

Q4 12

Q3 12

Q2 12

Q1 12

Comprehensive income NOK million Increased profit after tax

41

11

10

10

10

Estimate deviations pensions

469

(11)

(10)

(10)

(10)

Change in comprehensive income

510

0

0

0

0

31 Dec 2012

30 Sep 2012

30 Jun 2012

31 Mar 2012

(397)

(1,104)

(1,104)

(1,104)

111

309

309

309

(286)

(795)

(795)

(795)

Balance sheet NOK million Increased pension liability Reduced deferred tax liability Net effect on equity

Following restatement, pension liabilities/assets that were previously recognised gross are now recognised net depending on the individual plan. This change reduced total assets by NOK 242 million as of 31 December 2012. The change has also affected the item Receivables and inventories in the assets side of the balance sheet. The change in pensions has no cash effect; however, individual lines in the cash flow statement have been changed to reflect changes made to the consolidated income statement and consolidated balance sheet.

13

REPORT TO SHAREHOLDERS THIRD-QUARTER 2013

2) Networks – income ceiling and income surpluses/shortfalls Under IFRSs special accounting policies apply to the accounting treatment of grid rental (regulatory income). Grid rental recognised in income in individual years corresponds to the volume delivered in the period, settled at the established tariff in force at any one time. Permitted income comprises the revenue ceiling established by the regulator (the Norwegian Water Resources and Energy Directorate – NVE) plus transmission costs (Statnett), Enova mark-ups and property tax less downtime costs. Income surpluses/shortfalls, which represent the difference between recognised grid rental and permitted income, are defined under IFRSs as regulatory liabilities/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. The tariffs are managed based on the rationale that the annual income will over time correspond to the permitted income. Income surpluses arise if the grid rental recognised in income is higher than the permitted income for the year and this will have a positive impact on the result. On the same principle, income shortfalls will negatively impact the bottom line. Networks’ result for the third quarter of 2013 includes an income shortfall of NOK 44 million. The result for the corresponding period in 2012 reflects surplus income of NOK 65 million. In the third quarter of 2013 Networks’ operating result includes an income shortfall of NOK 164 million (income surplus of NOK 35 million). At the end of the third quarter of 2013, Hafslund Nett's accumulated surplus income amounted to NOK 268 million.

3) Interest-bearing loans and interest and currency derivatives At the end of the third quarter of 2013, the value of the loan portfolio recognised in the balance sheet amounted to NOK 10,946 million, of which NOK 8,657 million related to long-term liabilities and NOK 2,289 million to current liabilities. The change in the fair value of loans boosted profits by NOK 29 million in the reporting period. The change in the fair value of interest and currency derivatives had a combined positive effect on results of NOK 7 million in the third quarter of 2013. In the third quarter of 2013 Hafslund’s credit spreads had an entry position of around 10 basis points for maturities up to one year and more than five years. For maturities of 2–4 years the entry position was around 5 basis points. NIBOR and swap rates rose by 10 to 15 basis points for maturities of up to 2 years and around 20 basis points for longer maturities. The net effect of the above was a slight decrease in the market interest rate (including Hafslund’s credit spreads) for maturities up to 1 year and an increase of around 10 basis points for longer maturities. 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 in the operating result. None of the Group’s loan agreements impose any financial covenants. As of 30 September 2013 the loan and interest derivatives portfolio was split between fixed and variable rates in the ratio 53/47. 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 an unused bank overdraft facility with Nordea of NOK 100 million. The Group has liabilities denominated in foreign currency. In addition, Group businesses conduct transactions that are exposed to currency fluctuations. Currently this applies in particular to EUR- and SEK-denominated trades in power and power derivatives. The Group’s treasury department is responsible for currency hedging, 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 the Group’s entire loan portfolio was valued at fair value through profit or loss. Since 2010 new borrowings have been measured at amortised cost and at the end of the third quarter of 2013 these amounted to NOK 5,312 million.

4) Business divestments On 25 June 2013 Hafslund ASA entered into an agreement to sell its entire shareholding of 27.6 million shares in Infratek ASA, equating to 43.3% of all outstanding shares in Infratek, at a price of NOK 14 per share. The Norwegian and Swedish anti-trust authorities approved the sale in July 2013 and the transaction was recognised in the third quarter of 2013. The sale generated an accounting profit of NOK 90 million, which has been recognised under the item Net financial items in the income statement and in the Other business segment. The recognised result from the investment until the time of sale has also been recognised under Net financial items. The table below shows the recognised profit/loss per quarter and dividends received (cash flow) for the investment in Infratek ASA:

14

REPORT TO SHAREHOLDERS THIRD-QUARTER 2013

Q2 13

Q1 13

Q4 12

Q3 12

Share of profit of associates

(5)

(2)

22

8

Dividends received (cash flow)

41

NOK million

Q2 12

Q1 12

Q4 11

Q3 11

6

0

23

2

Q2 11 6

41

28

On 7 October Hafslund completed the agreed sale of the pellets factory (business transaction) at Averøya. The transaction had a virtually neutral effect on the income statement and will be recognised in the fourth quarter. At the end of the quarter the book value of the pellets factory was recognised in the balance sheet under Property, plant and equipment.

5) Business acquisitions In October Hafslund exercised its purchase option to acquire the remaining 51 per cent of shares in Energibolaget i Sverige Holding AB (EBS), bringing its total shareholding in the company up to 100 per cent. The transaction will be recognised in the balance sheet in October. Provisional calculations indicate that the net cash outlay on the acquisition will be in the region of NOK 125 million. This value has been calculated based on the company value less the company’s net bank balances at the time of acquisition. The final value of the transaction is due to be finalised during the fourth quarter.

6) Financial instruments The following principles have been applied in the subsequent measurement of financial instruments recognised in the balance sheet: NOK million

Derivatives used for hedging

Assets at fair value through profit or loss

Long-term receivables Derivatives

22

Derivatives used for hedging

Borrowings Derivatives

Liabilities at fair value through profit or loss 5,634

32

468

2,019

2,019

32

467

467

2,954

2,976

Other financial liabilities

5,648

Total

5,312

10,946

1 357

1,357

6,669

12,349

14

Trade and other payables Total financial liabilities as of 30 September 2013

468

22

Cash and cash equivalents

NOK million

Total

22

Trade and other receivables Total financial assets as of 30 September 2013

Loans and receivables

46

Hafslund classifies its financial assets in the following categories; financial instruments, loans and receivables and financial liabilities. Derivative financial instruments are valued as either "at fair value through profit or loss" or "held for hedging purposes". Hafslund has three/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 presented under Loans and receivables in the above table. 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 Hafslund Produksjon and Hafslund Varme’s results. 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, as well as enters into hedging contracts in the business area Heat, for the next 36 months on an ongoing basis to reduce price risk. Hedging arrangements are recognised as cash flow hedging in accordance with IAS 39, while changes in value in hedging instruments are recognised in comprehensive income and are presented in the above table as Derivatives used for hedging purposes. The power sales business hedges the margins on all products offering customers various types of fixed price schemes or price caps for a fixed period of time. Hedging is carried out by entering into financial power contracts to purchase physical volumes

15

REPORT TO SHAREHOLDERS THIRD-QUARTER 2013

corresponding to the supply obligation to the customers. Financial power contracts are recognised at fair value through profit or loss and do not satisfy the requirements for hedge accounting. The Group enters into contract trading to hedge the margins on its customer portfolios. In a market characterised by major fluctuations in wholesale and forward prices, the fair value of future power contracts will vary in line with price changes on Nasdaq OMX. Towards the end of the third quarter of 2013 wholesale and forward prices rose, impacting the unrealised values of power contracts. A gain of around NOK 10 million was recognised in respect of increase in unrealised values in the third quarter. Gains on increases in the value of power contracts will be largely offset by corresponding reduced margins relating to 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 7) Operating assets A total of NOK 490 million has been invested in operating assets in the year to date, of which NOK 180 million relates to the third quarter. All the investments relate to operations and expansion.

8) Related party transactions The Hafslund Group enters into purchase and sales transactions with related parties as part of normal business operations. In 2013 Hafslund purchased goods and services from and sold goods and services to the City of Oslo. As of 30 September 2013, the City of Oslo owned 53.7 per cent of the shares in Hafslund ASA. Examples of sales to the City of Oslo include power sales, street lighting, and associated maintenance and investments, while purchases include waste heat from the Norwegian Wasteto-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

Sale of goods and services

Purchase of goods and services

Purchases recognised as investments

42

17

2

147

139

2

Trade receivables

Trade payables

23

14

Q3 13 City of Oslo Ytd City of Oslo

Prior to the divestment of the shares in Infratek ASA, transactions with Infratek were reported as related party transactions. Following the divestment of all Hafslund ASA’s shares in the Infratek group in the third quarter, transactions with Infratek will naturally no longer be reported as related party transactions.

9) Contingencies As part of the Group’s strategy to professionalise property operations, and further streamline the grid owner function, in 2006 and 2007 the Hafslund Group span off a series of properties from Hafslund Nett AS. A total of 58 properties were transferred to 11 different property companies organised as part of the Group’s property business. The shares in two of the companies were sold in 2006 and 2007 (Hatros I and Hatros II). Hafslund deemed the sale of the shares to be non-taxable in accordance with the exemption method. Nevertheless, the Central Tax Office for Large Enterprises (SfS) claimed that the sales were covered by the principle of assigning appropriate financial responsibility and that the profits on the sales are thus taxable. The case relating to Hatros II AS was heard by Oslo City Court in May 2013. The Court ruled against Hafslund on 24 June. Hafslund has appealed to the Court of Appeal and the case will be heard together with the appeal concerning a similar case concerning the sale of shares in Hatros I AS at the end of February 2014. During 2011 and 2012 Hafslund recognised total tax provisions of NOK 278 million relating to the above, which is in line with the rulings from Oslo City Court.

16

REPORT TO SHAREHOLDERS THIRD-QUARTER 2013

Historical quarterly information for the Group > Condensed income statement 3Q13

NOK million Operating revenues

2Q13

1Q13

4Q12

3Q12

2Q12

1Q12

4Q11

3Q11

2 380

2 810

4 007

3 592

1 854

2 292

3 728

3 112

2 269

(1 253)

(1 640)

(2 766)

(2 190)

(869)

(1 197)

(2 573)

(1 971)

(1 184)

1 127

1 170

1 241

1 402

985

1 095

1 154

1 141

1 085

119

6

(14)

51

4

25

57

(139)

(377)

Salaries and other personnel expenses

(189)

(213)

(224)

(283)

(176)

(201)

(191)

(236)

(190)

Other operating expenses

(424)

(394)

(366)

(513)

(431)

(409)

(399)

(559)

(379)

633

569

638

657

382

510

621

207

139

(202)

(195)

(198)

(229)

(650)

(186)

(194)

(199)

(203)

431

374

440

429

(268)

324

427

8

(64)

(134)

(115)

(130)

(117)

(132)

(137)

(123)

(114)

(123)

29

7

(27)

11

(102)

27

16

25

(66)

(105)

(108)

(157)

(105)

(234)

(110)

(108)

(89)

(189)

326

266

283

323

(502)

213

319

(81)

(253)

Purchased materials and energy Gross margin Gain/loss financial item

EBITDA Depreciation and amortization Operating profit Financial interest etc Change in market value loan portfolio Financial expenses Profit before tax and discontinued operations Tax

(116)

(115)

(105)

(118)

(78)

(74)

(95)

(115)

(61)

Profit after tax

210

151

178

205

(580)

140

224

(196)

(314)

Majority's share of profit

210

151

178

207

(581)

140

224

(193)

(313)

Minority's share of profit

(0)

(1)

0

(2)

1

(0)

(0)

(3)

(1)

1.08

0.77

0.91

1.05

(2.97)

0.72

1.15

(1.01)

(1.61)

Earnings per share (in NOK)

> Condensed balance sheet

Intangible assets

30-0913 2 490

30-0613 2 478

31-0313 2 472

31-1212 2 432

30-0912 2 440

30-0612 2 433

31-0312 2 390

31-1211 2 379

30-0911 2 381

Fixed assets

18 263

18 281

18 269

18 365

18 190

18 576

18 573

18 632

18 431

233

589

612

657

613

628

660

579

1 380

2 544

2 179

3 111

2 871

1 845

1 927

2 719

2 250

2 011

467

1 067

290

223

873

659

1 057

870

1 287

23 996

24 593

24 755

24 549

23 962

24 223

25 398

24 710

25 489

Equity, majority

7 318

7 145

7 420

7 270

6 574

7 163

7 515

8 108

8 284

Equtiy, minority

18

18

19

19

25

28

28

23

26

Allocations for liabilities

3 448

3 440

3 419

3 317

3 918

4 052

4 009

3 205

3 231

Long-term interest-bearing liabilities

8 657

8 603

8 070

8 422

8 771

8 810

8 822

9 047

10 181

Short-term interest-bearing liabilitis Short term non-interest-bearing liabilities

2 289

3 179

2 866

3 119

2 381

2 247

2 198

1 802

1 163

2 267

2 208

2 960

2 402

2 293

1 922

2 825

2 525

2 603

23 996

24 593

24 755

24 549

23 962

24 223

25 398

24 710

25 489

NOK million

Financial assets Accounts receivable and inventory Cash and cash equivalents Assets

Equity and liabilities

17

REPORT TO SHAREHOLDERS THIRD-QUARTER 2013

> Condensed statement of cash flow 3Q13

NOK million

2Q13

1Q13

4Q12

3Q12

2Q12

1Q12

4Q11

3Q11

EBITDA

633

569

638

657

382

510

621

207

139

Interest paid

(84)

(107)

(183)

(104)

(73)

(123)

(180)

(127)

(81)

(298)

Taxes paid Value change and other non cashflow effect Change in receivables Change in trade credit etc Cash flow from operations Investments (operation and expansion)

(125)

(128)

(7)

(103)

(89)

(160)

(98)

55

26

(80)

11

27

(50)

149

398

(361)

890

(241)

(1 250)

87

747

(538)

(280)

373

(75)

(676)

705

124

214

(852)

464

79

267

15

606

817

(660)

518

220

157

(271)

1 095

(180)

(199)

(111)

(418)

(297)

(198)

(171)

(396)

(288)

Sales of shares, assets

373

2

(7)

17

(2)

4

16

704

101

Cash flow to investments activities

193

(197)

(118)

(401)

(299)

(194)

(155)

308

(187)

854

(633)

410

(7)

63

185

(466)

(533)

3

(487)

Change interest-bearing debt and dicontinued operations

(808)

Dividend and other equity changes

(487)

11

Cash flow financing activities

(808)

367

(633)

410

(4)

(424)

185

(455)

(533)

Change in cash and cash equivalents in period

(600)

777

67

(651)

215

(399)

188

(418)

376

Cash and cash equivalents at beginning of period

1 067

290

223

873

659

1 057

870

1 287

911

467

1 067

290

223

873

658

1 057

869

1 287

Cash and cash equivalents at end of period

> Segment information 3Q13

2Q13

1Q13

4Q12

3Q12

2Q12

1Q12

4Q11

3Q11

229

234

191

243

150

197

165

197

282

Heat

106

194

504

395

162

156

394

291

109

Network

925

966

1 070

1 193

839

920

1 039

1 033

884

Markets

1 147

1 443

2 257

1 738

708

1 080

2 012

1 578

984

(28)

(28)

(14)

23

(4)

(61)

117

13

10

2 380

2 810

4 007

3 592

1 854

2 292

3 728

3 112

2 269

163

177

111

185

83

133

87

138

209

6

37

174

122

42

20

129

61

10

Network

286

283

272

311

244

245

244

211

248

Markets

83

71

91

54

84

109

143

41

46

Other activities/eliminations

95

0

(10)

(16)

(71)

3

18

(243)

(374)

633

569

638

657

382

510

621

207

139

Production

152

165

99

175

72

121

75

127

197

Heat

(43)

(5)

133

92

(241)

(22)

89

19

(29)

Network

164

162

150

180

120

122

119

88

118

Markets

73

62

82

48

80

104

138

36

41

Other activities/eliminations

84

(10)

(24)

(65)

(299)

(2)

5

(263)

(391)

431

374

440

429

(268)

324

427

8

(64)

NOK million Production

Other activities/eliminations Total sales income Production Heat

Total EBITDA

Total operating profit

18

REPORT TO SHAREHOLDERS THIRD-QUARTER 2013

Financial calendar 1.

Fourth-quarter 2013 report - 5 February 2014

2.

First-quarter 2014 report - 8 May 2014

3.

Annual General Meeting - 8 May 2014

3.

Second-quarter 2014 report - 10 July 2014

4.

Third-quarter 2014 report - 22 October 2014

Investor information 1.

Additional information is available from Hafslund’s website: o www.hafslund.no o You can subscribe to Hafslund press releases

2.

Group CFO, Heidi Ulmo o [email protected] o tel: +47 909 19 325

3.

Financial Director and investor relations contact, Morten J. Hansen o [email protected] o tel: +47 908 28 577

19

REPORT TO SHAREHOLDERS THIRD-QUARTER 2013

>

Hafslund ASA Drammensveien 144, Skøyen N-0247 Oslo, Norway Tel: + 47 22 43 50 00 Faks: + 47 22 43 51 69 www.hafslund.no emaiø: [email protected]

20

REPORT TO SHAREHOLDERS THIRD-QUARTER 2013