As the year-end report for 2016 has been presented, Vattenfall’s full year can now be summed up. Significant impairments – related to, among other issues, the lignite divestment – contributed to a bottom-line loss, but even so, the past year meant a number of events that will affect Vattenfall’s future development in a positive way.
“Looking back we can conclude that significant progress has been made with a positive outcome for our company and our customers,” says Magnus Hall. “First, we completed the divestment of the lignite operations. The second, and a very important part for our future financial situation, is the Swedish energy agreement as it enables investments in life time extensions of nuclear, modernisation of hydro and investments into renewables. In addition, we also see a solution for the long term and medium term storage of nuclear waste in Germany.”
“We also participated in several tenders for offshore wind power, and I think we did that very successfully, creating a good pipeline of projects in an area where we want to grow. And we also had a general customer growth, so I think we have had a good year in this respect, which can be seen in an improved underlying operating profit compared to 2015,” says Hall.
Net loss but strong operating profit
In real figures, the result is disappointing with a net loss of SEK 26 billion. If the lignite operations are excluded, the loss is SEK 2.2 billion.
On the other hand the underlying operating profit was strong: SEK 21.7 billion.
“From a financial perspective, it is a big loss at a similar magnitude as in 2015 and the negative result would have been even larger if we had not divested the lignite business. But in terms of underlying operating result, which reflects the performance, we can really say that we delivered a good result, better than we had planned,” says Stefan Dohler, Vattenfall’s CFO.
Magnus Hall comments:
“It’s important to understand that we couldn’t obtain this good underlying operating result without the quite exceptional efforts from all employees that have delivered on both cost savings and growth. I am really grateful and proud of this.”
The difference of around SEK 43 billion between the negative operating profit and the positive underlying operating profit is explained by three main items: The lignite-related impairment in the magnitude of SEK 22 billion, additional provisions of around SEK 8 billion mainly related to German and Swedish nuclear operations and impairments on Vattenfall’s remaining assets of around SEK 12 billion. These are mainly related to the Moorburg power plant, hydro power assets in Germany, fossil-based assets in the Netherlands and impairment of the shareholdings in the German nuclear power plants Brokdorf and Stade.
Growth in Heat
Several Business Areas developed well during 2016, for example BA Customers & Solutions and BA Heat.
“Heat is in a very interesting position. We are represented in developing areas in Europe, such as Berlin, Hamburg, Amsterdam and Uppsala, so our customer base has grown. And we also benefited from lower fuel prices. Heat is sometimes an underestimated business for Vattenfall, but it is an important part of the future, so I am really happy that it is going in the right direction. The fact that we are now also investing in a new CHP plant, Marzahn, in Berlin clearly shows that we are committed to remain in this business in Germany and support the energy transition in the country,” says Hall.
Apart from a good underlying operating result, 2016 also brought a decreased net debt and a healthy cash flow, which in turn helps Vattenfall’s financial strength going forward.
“In this sense we are stronger now than we were a year ago since our risk-resilience has significantly improved. For the future this means that we have a solid base to grow and that we are in a better financial shape as a group,” says Dohler.
Challenges for the year ahead
For 2017, Magnus Hall sees a number of challenges; one being the concession to continue to run the Berlin energy network, another one being the Swedish energy agreement that now is pending to be turned into law, a process that Vattenfall will follow closely. Hall also stresses the need to continue to grow Vattenfall’s customer base in all areas.
“Also, we have the Foxtrot project which will be part of the efficiency gain in Vattenfall, where we will outsource a significant part of the internal administrative services. So we have a lot of challenges in shaping Vattenfall into what we want to be: an energy company for the future with attractive growth prospects. It’s quite amazing to see that we do have a lot of growth opportunities going forward. But it requires tough work,” says Hall.
“From a financial perspective the main objective is to see to that we can fund these growth opportunities. In order to enable that, we have to continue to deliver on our cost savings targets. A main disappointment for 2016 was that we couldn’t deliver a positive result from the Group, so we need to work on being not only leaders in growth but also leaders in cost,” says Dohler.
Watch the video interview with Magnus Hall and Stefan Dohler commenting the result: