Nuclear power, hydro power and wind power contributed to improved profits and fulfilment of financial targets
Profits for the first nine months of the year improved substantially compared to 2018. This increase is explained by increased profits in business operations compared to the previous year, as well as some one-off effects.
The underlying operations developed positively, with higher prices achieved, good generation and sales, as well as a solid contribution from the wind business.
“We are strategically and financially on the right path. This is shown in the result: SEK 14.4 billion, which is 60 per cent better than last year. Two one-off effects contribute to this, the divestment of the heat operations in Hamburg and the fact that we have also sold production rights for German nuclear. But the underlying result for the operations is also doing well, with an increased result in total, even if there is a mixed bag of ups and downs, ” says Magnus Hall, CEO and President of Vattenfall.
The divestment of the heat operation in Hamburg contributed SEK 3.1 billion to profits, while the sale of production rights for nuclear in Germany to E.ON’s subsidiary, PreussenElektra, contributed SEK 1.5 billion. On the other hand, profits were adversely affected by costs resulting from Storm Alfrida.
Largest contribution from nuclear power and hydro power
Improvements can be seen within operating activities in most areas compared to the first nine months of last year. The underlying operating profit rose from about SEK 15.3 billion to about SEK 16.9 billion, with the Power Generation segment accounting for about two thirds.
“We see a lot of improvements in the Power Generation business with higher prices partly due to the fact that our hedges have been more positive this year compared to last year. Trading is also doing better this year and we also see more wind assets up and spinning”, says Anna Borg, Vattenfall's CFO.
Improved results in most areas
Customers & Solutions increased its turnover through higher sales in most areas and particularly in Germany. The number of customers increased from 8.9 million to 9.4 million contracts in total. However, gas sales fell due to the warmer weather. The underlying operating profit landed at about SEK 600 million compared to about SEK 1.2 billion for the first nine months of 2018. Costs for growth activities, lower gas sales and higher costs for purchase of electricity in Germany had a negative impact on the underlying operating profit.
For Power Generation, which comprises hydro and nuclear power along with trading operations, the underlying operating profit rose to about SEK 11.3 billion for the nine-month period, against about SEK 8.5 billion for the corresponding period in 2018. The profit derived from trading improved from about SEK 620 million to about SEK 780 million. Electricity generation within nuclear power fell somewhat, due to a generator replacement in nuclear power reactor Ringhals 2.
For Wind, profits improved from about SEK 1.9 billion to about SEK 2.5 billion for the first nine months. The new wind farms, Horns Rev 3 in Denmark and Slufterdam in the Netherlands, contributed to increased generation.
Within Heat, both turnover and underlying operating profit increased as a consequence of the positive price effects within heat sales. The number of Heat customers also increased somewhat. At the same time, maintenance expenses increased in the Heat operation in Berlin, and the margins for coal-fired power generation are squeezed. The underlying operating profit for the period January to September was about SEK 320 million compared to SEK 260 million for the same period in 2018.
Distribution increased its turnover during the first nine months of the year. However, the underlying operating profit decreased for the period, primarily due to Swedish storm Alfrida at the start of the year, and landed at SEK 3.5 billion compared to about SEK 4.5 billion last year.
Important financial targets were met
For the past 12 months, the conditions for two important financial KPIs were met for the first time; return on capital employed (ROCE) and funds from operations in relation to adjusted net debt (FFO/adjusted net debt).
“This quarter is the first time that we are fulfilling these financial ratios in a rolling 12 months. I am extremely happy about that and I want to say a big thank you to all of you in the organisation for all the hard work that has been done to make this happen. Now we have to make sure that we can carry on this way for the rest of the year as well,” Borg says.
Return on employed capital (ROCE) amounted to 9.2 per cent measured on a rolling 12-month basis. The target for the full year is 8 per cent. FFO/adjusted net debt amounted to 24.5 per cent, the target range is 22-27 per cent.
Business highlights, January–September 2019
- Net sales increased by 12% (10% excluding currency effects) to SEK 120,181 million (107,071).
- The underlying operating profit amounted to SEK 16,889 million (15,256).
- Operating profit of SEK 19,715 million (13,430).
- Profit for the period amounted to SEK 14,373 million (8,907).
Business highlights, July–September 2019
- Net sales increased by 12% (10% excluding currency effects) to SEK 35,938 million (32,035).
- The underlying operating profit amounted to SEK 3,594 million (2,127).
- The operating profit amounted to SEK 8,677 million (3,680).
- Profit for the period amounted to SEK 6,700 million (1,782).