Vattenfall's interim report shows stable earnings despite a clear impact from a markedly deteriorating market situation.
Click to see Vattenfall's CEO Magnus Hall and CFO Anna Borg comment on the results of Vattenfall's first quarter of 2020.
Vattenfall's CEO Magnus Hall comments on the report as follows:
“Vattenfall has had good preparedness to meet the pandemic that we are currently experiencing. As an operator of societally critical infrastructure, we have an important mission to continue delivering electricity and heat even in extreme situations like this. During the quarter we worked to minimize the risk for our employees at the same time as we implemented our continuity plans to ensure that our critical operations can continue.
We have seen a substantial drop in prices in the electricity markets. It began back in January, driven by an unusually warm winter with a high level of precipitation and strong winds. In pace with the spread of COVID-19 around the world, the trend strengthened with a decline in electricity consumption resulting from the shutdown of society and poorer economic outlook. For Vattenfall, the negative impact of the large price declines during the quarter was largely countered by price hedges, but the effects can still be clearly seen in the quarterly result. Against the background of significantly deteriorated market conditions and uncertainty about the economic development, the Board of Directors proposed a revision of the previously proposed dividend for 2019 from 7.2 to SEK 3.6 billion, which was also approved by the Annual General Meeting.
Despite this development, profit for the period increased by SEK 0.5 billion to SEK 6.9 billion. The increase is mainly explained by higher earnings from the operating activities together with a one-off effect from the sale of nuclear power production rights in Germany. A lower return from the Swedish Nuclear Waste Fund had a dampening effect.
Underlying operating profit increased by SEK 0.5 billion to SEK 10.2 billion. Storm Alfrida, which affected many grid customers in Sweden at the start of last year, accounted for a large share of the comparison difference. Our growth in wind power made a positive contribution together with an earnings improvement in the sales operations. Nuclear and hydro power experienced a strong negative impact of lower electricity prices at the same time that production margins narrowed in the heat operations.
In Power Generation we have handled the more strained market situation by lowering the output at several nuclear power reactors. We also chose to delay the restart of Ringhals 1 following this year’s audit. However, owing to high reservoir levels and the impending spring run-off, hydro power has a high level of generation. Substantially lower electricity prices during the quarter were largely compensated by price hedging and higher earnings from the trading operations. Underlying operating profit decreased by SEK 0.9 billion to SEK 4.6 billion.
The sales activities remain stable, even though sales through home visits are strongly limited. A certain drop in volume has been noted for obvious reasons among our industrial customers. The Customers & Solutions segment reported an increase in underlying operating profit by SEK 0.6 billion, to SEK 1 billion. We are seeing improved profitability in our markets on the Continent and continued customer growth in Germany. During the quarter, for strategic reasons the UK customer base of our British sales company iSupplyEnergy was sold.
Vattenfall’s wind power generation increased during the first quarter supported by strong winds and new capacity from the Horns Rev 3 offshore wind farm in Denmark. Underlying operating profit for the Wind segment grew by SEK 0.7 billion to SEK 2.1 billion. Thus far we have not seen any significant impact from COVID-19 on our renewable energy investment projects. On the whole, however, today we have a very uncertain economic situation, which requires stricter prioritisation of projects. For example, we have decided to not participate in the Hollandse Kust Noord offshore wind tender in the Netherlands.
In the distribution operations, our operating expenses returned to more normal levels compared with 2019, when Storm Alfrida had a significant negative impact. Underlying operating profit was thereby SEK 0.8 billion higher and increased to SEK 2.1 billion. Operations are continuing according to plan and we are increasing our investments even though there is a risk for project delays due to the current situation.
The heat operations are stable in the prevailing situation. Naturally, they are also being affected by standstills in customers’ operations and difficulties with certain maintenance deliveries, for example. However, we have good cooperation with external partners to reduce risks in these areas. During the quarter we expanded in energy solutions, and we are seeing positive development of our investment in district heating in the UK. Underlying operating profit for the heat business was SEK 0.9 billion. Adjusted for SEK 0.5 billion in effects from the sale of the district heating network in Hamburg and the closure of Hemweg 8 in Amsterdam in 2019, this still leaves us with a decrease of SEK 0.1 billion compared with the corresponding quarter a year ago. The situation remains strained, with depressed margins for plants that generate electricity using fossil fuels.
Vattenfall finds itself in a situation with dramatically deteriorated market conditions. We are working intensively to align our costs, investments and risks accordingly. But our goal to enable fossil-free living within one generation remains.”
Business highlights, January–March 2020
- Continuity plans implemented amidst COVID-19
- Sale of 11 TWh in nuclear power production rights in Germany
- Final permit received for construction of the Kriegers Flak offshore wind farm in Denmark
- Vattenfall selected as preferred partner for a district heating project in Scotland
- Agreement to build one of Sweden’s largest solar parks
- Sale of energy retail business in the UK
Financial highlights, January–March 2020
- Net sales decreased by 3% (-5% excluding currency effects) to SEK 48,160 million (49,552)
- Underlying operating profit1 increased by 5% to SEK 10,187 million (9,673)
- Operating profit1 increased by 51% to SEK 12,313 million (8,168)
- Profit for the period increased by 7% to SEK 6,900 million (6,420)
- After the end of the quarter, Vattenfall’s Board of Directors revised its previous dividend proposal for 2019 from SEK 7,245 million to SEK 3,623 million. The proposal was adopted by the Annual General Meeting