VATTENFALL PRESENTATION - Analyst meeting SEB 2017-09-28
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WE EXIST TO… Power Climate Smarter Living Vattenfall will help customers reduce the need for fossil fuels and enable the next generation to live fossil free. This is the core of Vattenfall’s new guiding principle for the future that has now been presented by the Group management. 2
VATTENFALL AT A GLANCE • One of Europe’s largest producers of electricity and Vattenfall’s total electricity heat production in 2016: 119.0 TWh Finland 0.4 • 100% owned by the Swedish state Hydro power 0.4 Sweden 80.0 • Main products: electricity, heat, gas, energy services Biomass, waste 0.3 Wind power 1.0 Nuclear power 46.9 • Main markets are Sweden, Germany, Netherlands, UK, Hydro power 31.8 Denmark and Finland UK 2.0 Wind power 2.0 Denmark 1.0 • 20,000 employees Wind power 1.0 Netherlands 15.2 Wind power 0.4 Germany 20.6 Fossil-based power 14.7 Biomass, waste 0.5 Hydro power 0.1 Wind power 1.5 Fossil-based power 16.1 Hydro power 2.5 Net sales in 2016: Underlying operating SEK 139bn profit1 in 2016: SEK 22bn Hydro power Fossil-based power Biomass, peat, waste Nuclear power Wind power 3 1) Operating profit (EBIT) excluding items affecting comparability
A NEW VATTENFALL IS TAKING SHAPE A new Vattenfall is taking shape, both from a strategic and financial perspective. Vattenfall has moved from a heavy fossil- … and are further moving towards more based production towards a more quasi-regulated business with more sustainable portfolio in 2016 limited risk exposure going forward Vattenfall production mix 2015-2016 Vattenfall future value pools - EBITDA Fossil-based power 29% Nuclear power ~30% Non-regulated Hydro power ~43% 52% Wind power Biomass and waste 33% ~47% Quasi-regulated ~32% 19% 33% 24% ~25% ~23% Regulated 4% 5% 1% 1% 2015 2020 2015 2016 4
STRATEGY AND STRATEGIC TARGETS Vattenfall is well on track to meet its strategic targets until 2020 30 June Our strategic objectives and prioritised areas Strategic targets to 2020 2017 Increase customer Grow in renewables, 1 Customer engagement, NPS +2 (Net Promoter Score) +3 centricity and build maintain efficient a sizable position operations within 2 Aggregated commissioned new renewables capacity 597 in decentralized hydro and nuclear energy 2016-2020: ≥2,300 MW power and implement our CO2 3 Absolute CO2 emissions, pro rata, continuing 11.8 roadmap operations: ≤21 Mtonnes 4 ROCE: ≥9% (continuing operations) 4.2 5 Safety as LTIF (Lost Time Injury Frequency): ≤1.25 1.3 Develop culture, Reduce costs and improve 6 Employee Engagement Index: ≥70%1 … competence and brand operational efficiency 1) Only updated on an annual basis 5
OUR CONTRIBUTION TO UN’S SUSTAINABLE DEVELOPMENT GOALS Vattenfall focuses on six of the 17 sustainable development goals on a group level. On a local level, we are also contributing to five additional sustainable development goals1. • Vattenfall operates 2.8 GW of • Enabling our customers to produce and renewables capacity as of H1 2017 consume their own renewable energy • Strategic target to commission 2.3 GW • Launch of Powerpeers to trade locally of new renewables capacity 2016-2020 generated renewable electricity • Charging solutions for electric vehicles • Vattenfall aims at being climate neutral • Zero-CO2-cement with Cementa, Fossil- by 2050 and by 2030 in the Nordics free-steel with SSAB and LKAB, Green • Contributing to electrification of hydrogen with Preem transportation, heating and the industry • City partnerships with Uppsala, Berlin, • Vattenfall is active in partnerships with Hamburg and Amsterdam to help both cities and corporates achieve ambitious climate goals 1) Gender equality, clean water and sanitation, decent work and economic 6 growth, life below water and life on land
CHALLENGING MARKET CONDITIONS, BUT… Challenging market conditions with depressed electricity prices has lead to impairments Front year contract price (EUR/MWh) Total impairments of SEK 160.3bn EUR/MWh SEK bn China induced commodity boom Increase of German 40 100 High fuel prices 36.3 renewables, dropping CO2 prices, lower 35 32.9 90 demand 30.1 Financial crisis 30 80 Fukushima 19.3 70 25 23.8 Low coal prices, 60 20 8.3 strong hydro 22.0 28.9 50 supply 15 12.3 10.9 40 9.8 0.7 10.0 10 30 4.3 8.6 17.0 5 4.2 10.5 6.6 0.4 20 2.5 4.1 0.1 5.5 3.7 3.0 3.5 0.1 0 -0.3 1.5 0.0 10 0 -5 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2009 2010 2011 2012 2013 2014 2015 2016 Germany Nordpool SYS Thermal assets Goodwill Other Nuclear Renewable assets 7 Source: EEX
…STABILISED FINANCIAL DEVELOPMENT After several years of challenging market conditions leading to recognition of substantial impairment losses and pressure on profitability, profit levels have now stabilised Sales and underlying EBIT Earnings and return Debt SEK bn SEK bn SEK bn % SEK bn % 200 30 200 10 200 80 25 150 150 5 150 20 60 100 100 15 0 100 50 10 40 50 -5 50 0 5 0 0 -50 -10 0 20 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Net sales (scale on left) Profit for the year attributable to the owners of the parent Net debt Underlying EBIT (scale on right) Return on capital employed (%) Adjusted net debt Return on capital employed, excluding IAC (%) Debt/equity ratio, net (%) 8
THE ENERGY AGREEMENT – POSITIVE FOR VATTENFALL Targets Nuclear Hydro Renewables • Target of 100% renewable • Capacity tax1 abolished over • Real estate tax2 reduced to • El-certificate system prolonged - production by 2040 (annual two years beginning 2017 same level as other power 18 TWh added 2020-2030 production level corresponding • Adjustments to changes in plants (from 2.8% to 0.5% over • Connection charges for offshore to domestic demand) Nuclear Waste Fund payments a four year period starting 2017) wind discontinued • Sweden should have zero net under investigation • Expansion of hydro power • Facilitation of small-scale emission of GHG by 2045, • No “political phase-out” of should in first hand occur trough production and services for implying further electrification nuclear capacity increases in existing energy efficiency, storage and • A target for energy efficiency plants. “Nationalälvarna” still sales of power • Permission to replace reactors protected. for 2020-2030 to be set at existing sites can be given The energy agreement enables Vattenfall to take the lead in the transformation to a sustainability energy system in Sweden 1 & 2: Approx. SEK 3 billion respectively for Vattenfall in 2015 9
WE ARE RESHAPING OUR ASSET BASE TO MEET NEW MARKET REQUIREMENTS Commodity sales and Central Wholesale decentralized Production Grids markets solutions Grow • Wind • Regulated • Trading • Electricity retail • Solar • Non-regulated • Aggregation • Decentralized ✓ Customer attractiveness • District heating • Services Optimization solutions** ✓ Long term viability Marketing ✓ Strong Vattenfall capabilities ✓ Attractive returns Keep and develop • Hydro • Nuclear ✓ Long term viability • Gas retail • Gas condensing - Limited growth opportunities • Hard coal CHP * Non core - Limited long term viability • Hard coal - Not supporting the transition • Lignite * Hard coal CHP to be converted to gas end of economic life time **E.g. aggregation services, heat pumps and solar panels 10 Vattenfall Capital Markets Day, 19 September 2016
SIGNIFICANT GROWTH IN RENEWABLES A total of 2.8 GW are now in operation. With a further ~2 GW in development and construction or awarded, Vattenfall is well on track meeting its strategic long-term target on renewable capacity growth. Other Highlights H1 2017 Norfolk Vanguard2 ✓ Commissioning of UK-onshore wind farms Norfolk Boreas3 Pen y Cymoedd (228 MW) and Ray (54 MW) ~5.0 GW in development and Sandbank in Germany (288 MW) Thanet Extension Sandbank Plus ✓ Investment Decision Slufterdam (29 MW) Strategic target: 2.3 GW commissioned Hollandse Kust ✓ Newly established business unit (within BA renewables capacity 2016 - 2020 South Kyle Wind) for PV and Batteries to increase Other 1.6 GW growth in those areas Danish Kriegers Flak in development Wieringermeer and awarded ✓ More than one third of all capex in the first Danish Near Shore half of 2017 was invested in new 2.3 GW Aberdeenen Slufterdam 0.5 GW Horns Rev 3 in development renewables (wind, solar, biomass), in total Other and construction SEK 2.7 bn Pen y Cymoedd Ray Sandbank 2.8 GW 2.2 GW installed capacity 1) Danish Kriegers Flak expected commissioning 2021 2) Commissioning expected in 2025-2027 3) Commissioning TBD 2015 2016-2020/20211 2021-2025 11
ELECTRIFICATION IS AN ENABLER FOR SOLVING THE CLIMATE ISSUE Vattenfall aims to play a leading role given our strong position in heating, renewable generation and our “Nordic” heritage coming from a low-emitting region Electrification of the transport sector Electrification of heating Electrification of the industry ▪ Supports e-mobility growth with ▪ Energy efficiency achieved by switching ▪ Greater use of electricity by industry resulting reduction of CO2 as well as from gas, oil or electric boilers to heat can lead to fossil free steel, green solving pollution and noise issues pumps or district heating concrete and boost the production of ▪ Power to heat is an attractive solution non-fossil diesel to reduce the cost of heating 12
ATRACTIVE PARTNER IN THE ENERGY TRANSITION 13
GROWING IN BOTH LARGE SCALE AND DECENTRALISED SOLAR PV Growth strategy in solar decided in Q1 Strategic fit with Vattenfall’s purpose and 2017, consisting of two pillars strategy 1. Decentralized solar PV & storage ✓ Solar PV powers climate smarter living Offering solutions for commercial and ✓ Substantial experience in solar PV and residential customers. Besides winning storage already gained new customers Vattenfall will also leverage the existing customer base of 6 ✓ Attractive growth in our main markets, million. notably the Netherlands 2. Large-scale solar ✓ Leverage on synergies by installing solar Installing solar PV at our wind farms or PV at existing wind farms by using joint other existing sites offers synergies from grid connection, infrastructure etc. using joint grid connections and infrastructure. 14
INDUSTRIALISATION DRIVES COSTS AND REVENUES TO SUSTAINABLE LEVELS Decreasing revenue levels1 Key takeaways • The industrialisation of offshore wind is rapidly changing the competitive environment • Winning bid levels of 372 DKK/MWh (Vattenfall – Danish Kriegers Flak) and 54.50 EUR/MWh (Shell consortium – Borssele 3/4) considered new industry benchmarks • Offshore wind is experiencing a learning curve similar to other renewable technologies, from learning to fine-tuning • The development over the last years ensures offshore wind a long term position in the energy production mix, with benefits for the customers/consumers and the most competitive operators Vattenfall’s competitive advantage is based on three pillars: fast adaptation to the tender landscape, ability to decrease O&M costs applying latest business standards, lean and agile organisation set-up 1. Figures are only considering revenue streams and are not scope- adjusted, e.g., UK OFTO and grid charges. This might lead to 5-15% 15 correction factor, which does not question the trend as such
VATTENFALL HEAT IN NUMBERS Highlights Financial development (SEK bn)1 Key data ▪ Solid, semi-regulated, revenue streams Net Sales EBITDA Underlying EBIT >2m end customers 28.4 measured in dwelling equivalents2 ▪ A growing customer base 27.8 27.3 with low churn ▪ An accelerating contribution Growth by 50k new customers to climate smartness in 2016 ▪ An established platform to tap into new decentral heat 5.6 5.7 7.1 20.3 TWh Heat sold businesses 2.4 1.8 3.2 in 2016 2014 2015 2016 3,790 employees in 2016 Vattenfall is a European leader in district heating 1 Including condensing 16 2 Based on average household heat consumption
THREE CORE MARKETS WITH DIFFERENT CHARACTERISTICS Market characteristics Germany Netherlands Sweden (all market players) Total (space) heating market size (TWh)1 712 203 83 Dominating fuel gas/coal/waste gas/waste wood/waste/el. no gas grid Share of renewables in District Heating (DH)1 10% 1% 68% Average customer heat price €ct/kWh 8 10 7 Number of customer equivalents 1,7m 210k 230k Vattenfall’s market position #1 #1 #3 Growing Young Mature German market Dutch Market Swedish market A well balanced market mix allows Vattenfall to capitalize on growth opportunities 1 Source: Vattenfall analysis 17
HEAT: POTENTIAL FOR PROFITABLE GROWTH Residential heat market structure1 Our (current) footprint Sweden – mature DH market ▪ Strong growth in metropolitan areas expected (esp. Stockholm, Uppsala) 100% 100% 100% ▪ District heating providing CO2-free base supply, heat pumps taking 4% 2% larger market share 49% 30% Netherlands – young DH market 86% ▪ Strong growth in Amsterdam and surroundings (+6% p.a.) ▪ Ambition to replace gas by 2050; an opportunity for district heating 30% 52% growth 12% ▪ District heating with high usage of third party heat sources (waste, etc.), 4% growth of heat pumps Netherlands Germany Sweden
POSITIVE DEVELOPMENTS IN GERMAN NUCLEAR OPERATIONS IN H1 2017 Vattenfall has significantly reduced its business risks related to German nuclear operations Four positive developments ✓ EU has approved the new law regarding obligations for interim and final storage of nuclear waste ✓ SEK 17.2 bn payment made on 3rd July (event after Q2) to the public fund, thereby releasing Vattenfall from obligations for interim and final storage of nuclear waste ✓ De-fueling of the nuclear power plant Brunsbüttel: 300 MSEK provisions released ✓ Decision of German constitutional court: SEK 1.8 bn nuclear tax refund for the 20%- share in nuclear power plant Brokdorf ➢ Note: Decision unrelated to the arbitration proceedings at the ICSID1, where a decision is expected later in 2017. 1) ICSID: International Centre for Settlement of Investment Disputes (ICSID) 19
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