VATTENFALL PRESENTATION - Analyst meeting SEB 2017-09-28

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VATTENFALL PRESENTATION - Analyst meeting SEB 2017-09-28
VATTENFALL PRESENTATION
     Analyst meeting SEB 2017-09-28
VATTENFALL PRESENTATION - Analyst meeting SEB 2017-09-28
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 PRESENTATION - Analyst meeting SEB 2017-09-28
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
VATTENFALL PRESENTATION - Analyst meeting SEB 2017-09-28
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
VATTENFALL PRESENTATION - Analyst meeting SEB 2017-09-28
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
VATTENFALL PRESENTATION - Analyst meeting SEB 2017-09-28
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
VATTENFALL PRESENTATION - Analyst meeting SEB 2017-09-28
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
VATTENFALL PRESENTATION - Analyst meeting SEB 2017-09-28
…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
VATTENFALL PRESENTATION - Analyst meeting SEB 2017-09-28
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
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VATTENFALL PRESENTATION - Analyst meeting SEB 2017-09-28
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

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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

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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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