Lower costs and stable production have led to Vattenfall’s underlying operating profit increasing by SEK 300 million to just over SEK 11 billion for the first six months compared with the same period last year. This may be seen as a positive development in view of the tough state of the market with low electricity prices and essentially unchanged market volumes, a situation which is weighing heavily on the energy sector as a whole.
At the same time, Vattenfall’s results are encumbered by significant impairments totalling SEK 30 billion, most of them attributed to the sale of the lignite business. This has led to a substantial deficit in the overall result: Vattenfall reporting a negative result after tax of SEK 22 billion for the first six months.
“We already highlighted the impairments for the lignite business when we announced the sale in April. In addition, we have now conducted the regular impairment testing, which has led to additional impairments. All in all, however, our underlying profits are stable and even somewhat better than last year,” observes Vattenfall’s CFO, Ingrid Bonde.
The lignite business accounts for SEK 21 billion of the total impairments of SEK 30 billion. The rest comes from operations such as the Moorburg coal-fired power plant in Hamburg (SEK 4.6 billion) and the German hydro power plants (SEK 2.3 billion).
“Despite this big impact of the lignite sale on our results, it is nevertheless better for us to sell this business than to retain it and continue to run it. Above all, however, the sale marks a turning point for Vattenfall, and we are now moving the company towards an increased proportion of renewable and CO2-free generation of electricity, which is also what our customers are demanding,” says Magnus Hall, Vattenfall’s President and CEO.
The sale of the German lignite business with almost 8,000 employees was the largest single change for Vattenfall during the first six months. Another important event that is impacting Vattenfall is the Swedish Energy Commission's agreement on future energy policy which means that the country’s long-term power generation will be entirely renewable and the tax on nuclear power, like the bulk of the property tax on hydro power, will be phased out. This agreement facilitated Vattenfall’s decision to invest in independent core cooling in Forsmark’s reactors and to extend their lifetimes. Equivalent measures are being prepared for Ringhals 3 and 4.
“This means that we will be able to continue using climate neutral nuclear power until Sweden is completely renewable,” says Magnus Hall.
Vattenfall has also decided to build a new offshore wind farm from the Scottish city of Aberdeen. Comprising an investment of more than SEK 3 billion, this is a step towards meeting the target of doubling Vattenfall’s wind capacity by 2020.
Work is continuing internally at Vattenfall to outsource some of the company's administrative operations within HR, Finance and Procurement. Tender enquiries will be sent to selected service providers after the summer, and the changes will be implemented early next year.
“I feel great sympathy for our employees who may be anxious about the uncertainty created by this lengthy process. However, at the same time it is important for us that the process, which will enhance our flexibility and cut our costs, is carried out in a correct and good way,” says Ingrid Bonde.
January–June in summary:
• Net sales of SEK 34,482 million (36,115) for the second quarter and SEK 80,411 million (81,492) for the first half of the year
• Underlying operating profit of SEK 2,907 million (2,966) for the second quarter and SEK 11,044 million (10,703) for the first half of the year
• Profit after tax of SEK -28,644 million (-28,812) for the second quarter and SEK -22,042 million (-23,825) for the first half of the year
• Electricity generation of 39.9 TWh (39.7) for the second quarter and 88.7 TWh (86.1) for the first half of the year
VIDEO - Magnus Hall AND Ingrid Bonde
Magnus Hall, Vattenfall’s President and CEO, and Ingrid Bonde, CFO, sum up the first two quarters of 2016.