3/10. REPORT JANUARY september 2010

Transcription

1 3/10 INTERIM REPORT JANUARY september 2010 Net sales decreased by 16.9% to SEK 37,665 million (45,346) during the third quarter, but increased by 12.9% for the ninemonth period, to SEK 158,035 million (140,002) Operating profit rose 65.4% to SEK 5,829 million (3,524) for the third quarter and 11.9% to SEK 24,907 million (22,265) for the nine-month period. Excluding items affecting comparability, operating profit for the nine-month period rose 36.3% to SEK 30,220 million (22,177) Profit (after tax) rose 181.2% to SEK 1,749 million (622) for the third quarter, but decreased by 5.4% for the nine-month period to SEK 10,721 million (11,338). Excluding items affecting comparability, profit for the nine-month period (after tax) rose 42% to SEK 15,986 million (11,258)

2 CONTENTS CEO s message 1 Group 3 Electricity generation, sales of heat and gas 8 Wholesale price trend 9 The Group s operating segments 11 Consolidated income statement 16 Consolidated statement of comprehensive income 17 Segment reporting 18 Consolidated balance sheet 21 Consolidated statement of cash flows 22 Consolidated statement of changes in equity 23 Key ratios 24 Quarterly information 25 Key ratios on renewable energy generation in the Nordic countries; Exchange rates 26 Parent Company income statement and balance sheet 27 Accounting policies, risks and uncertainties, and Parent Company s interim report 28 Definitions and calculations of key ratios 30 Financial calendar Interim report January March 29 April 2010 Interim report January June 29 July 2010 Interim report January September 28 October 2010 Year-end report February 2011 Annual General Meeting 27 April 2011, in Stockholm For enquiries, please contact Øystein Løseth, President and CEO, tel Klaus Aurich, Head of Investor Relations, tel , or All comparison figures in this report pertain to the third quarter of 2009, unless indicated otherwise. Cover photo: Vattenfall s Forsmark nuclear power plant in Sweden; close-up of reactor core. Production: Vattenfall AB in co-operation with Intellecta Corporate. Photos: Vattenfall AB. Printing: Intellecta Tryckindustri. Copyright 2010, Vattenfall AB, Stockholm. This is a translation of the Swedish original. In the event of any discrepancy, the Swedish version shall govern.

3 STRONG THIRD QUARTER Net sales decreased by 16.9% to SEK 37,665 million (45,346) during the third quarter, but increased by 12.9% for the nine-month period, to SEK 158,035 million (140,002) Operating profit rose 65.4% to SEK 5,829 million (3,524) for the third quarter and 11.9% to SEK 24,907 million (22,265) for the nine-month period. Excluding items affecting comparability 1, operating profit for the nine-month period rose 36.3% to SEK 30,220 million (22,177) Profit (after tax) rose 181.2% to SEK 1,749 million (622) for the third quarter, but decreased by 5.4% for the nine-month period to SEK 10,721 million (11,338). Excluding items affecting comparability, profit for the nine-month period (after tax) rose 42% to SEK 15,986 million (11,258) 1) Items affecting comparability, net, amounted to SEK 5,313 million (+88 ) for the period January September, of which SEK 5,144 million is attributable to the sale of Vattenfall s transmission business, which was completed in May. During the third quarter, items affecting comparability amounted to SEK 79 million (+9). Third quarter 2010 net sales, profit, cash flow and debt The third quarter is the first quarter in which the corresponding quarter in 2009 includes Nuon. Consolidated net sales decreased by 16.9% to SEK 37,665 million (45,346), which is mainly attributable to the sale of the German transmission business, 50Hertz Transmission GmbH, which was completed in May 2010, and currency movements of SEK 4.2 billion resulting from the stronger Swedish krona. Operating profit rose 65.4% to SEK 5,829 million (3,524). Profit before depreciation and amortisation (EBITDA) rose 18.0% to SEK 10,764 million (9,123). The increase in operating profit is mainly attributable to lower fuel costs, lower operating and maintenance expenses, lower depreciation and lower sales and administration costs. Vattenfall s electricity generation increased by 1.3 TWh to 36.8 TWh (35.5), mainly as a result of higher nuclear power generation in Sweden. Lower electricity prices achieved had a negative effect on consolidated operating profit by approximately SEK 1.6 billion. Higher prices achieved in the Nordic operations were offset by lower prices achieved in Continental Europe. A large share of Vattenfall s generation is hedged through contracts previously entered into in the futures market. Currency movements affected operating profit negatively by SEK 0.4 billion. Profit for the period (after tax) rose 181.2% to SEK 1,749 million (622). Return on equity was 9.3%, and the return on net assets was 9.2% (last 12-month values). Vattenfall s long-term required rate of return on equity is 15% over a business cycle (5 7 years). The target return on net assets is 11%. The cash flow interest coverage ratio after maintenance investments was 3.9 on a last 12-month basis, which is within the target interval of Funds from operations (FFO) increased by 73.6% to SEK 6,939 million (3,997). Net debt decreased by SEK 5,916 million from 30 June 2010, to SEK 145,155 million, mainly as a result of the stronger Swedish krona. The net debt/equity ratio was 107.0% at 2010 (30 June 2010: 107.7%). For detailed information about net debt, see page 21. The Group s total investments amounted During the quarter we launched our new strategic direction and are now taking the next step in the company s development. Our goal is to strengthen the balance sheet, increase profits and value, and prepare Vattenfall for further growth in the future. Compared with a year ago, Vattenfall is reporting a strong earnings improvement for the third quarter. Øystein Løseth President and CEO INTERIM REPORT JANUARY september

4 to SEK 11,281 million (68,466). For more information about investment activities, see page 7. The operations of N.V. Nuon Energy (Nuon), which are consolidated in the Vattenfall Group since 1 July 2009, contributed SEK 640 million to operating profit during the third quarter of 2010 (SEK 3,000 million for the period January September). Excluding amortisation of surplus value, Nuon contributed SEK 1,597 million (SEK 4,942 million for the period January September). Nuon s wind power operations are part of the Wind business unit of Business Group Pan Europe (see page 11), and its energy trading operations are part of Supply & Trading (see page 15). Nuon s other operations conducted in the business units Exploration & Production; Power, Heat & Services; and Sales are included in Business Group Benelux (see page 14). Following is a breakdown of operating profit for Vattenfall s operating segments during the third quarter of 2010: Operating profit for Business Group Pan Europe increased by SEK 873 million to SEK 621 million. Operating profit for Business Group Nordic increased by SEK 877 million to SEK 2,516 million. Operating profit for Business Group Central Europe decreased by SEK 59 million to SEK 2,548 million. Operating profit for Business Group Benelux decreased by SEK 24 million to SEK 403 million. Operating profit for Supply & Trading increased by SEK 766 million to SEK 624 million. Operating profit for the segment Other decreased by SEK 128 million to SEK 77 million. For detailed information on the Group s operating segments, see pages Electricity generation, sales of heat and gas in Q Vattenfall s electricity generation increased by 3.7% to 36.8 TWh (35.5). Hydro power generation increased by 5.3% to 7.9 TWh (7.5). Nuclear power generation increased by 18.8% to 9.5 TWh (8.0), fossil-based power decreased by 4.1% to 18.7 TWh (19.5), and wind power generation increased from 0.4 TWh to 0.5 TWh. Electricity generation based on biomass and waste amounted to 0.2 TWh (0.2). Sales of heat increased by 13.5% to 4.2 TWh (3.7). Sales of gas increased to 6.0 TWh (5.3). For more information, see page 8. Electricity prices Compared with the third quarter of 2009, the average spot price on Nord Pool was 47% higher (EUR 45.90/MWh, compared with EUR 31.28/MWh). The hydrological balance improved during the third quarter to 12.8 TWh in September, from 22.8 TWh in July. In Germany, the average spot price (EPEX Spot) was 18% higher than the corresponding quarter in 2009 (EUR 43.83/MWh, compared with EUR 37.06/MWh). In the Netherlands, the average spot price was 24% higher (EUR 44.61/MWh, compared with EUR 36.04/MWh). Futures prices fell slightly in the Nordic countries as well as in Germany and the Netherlands. Futures prices for the 2011 and 2012 contracts in the Nordic market closed at the end of the quarter at EUR 45.59/MWh and EUR 42.75/MWh, respectively. In Germany, the corresponding contracts closed at EUR 49.92/MWh and EUR 51.88/MWh, respectively, while in the Netherlands the corresponding contracts closed at EUR 50.02/MWh and EUR 51.05/MWh, respectively. CO 2 emission allowances were traded at prices that were roughly 4% higher than during the third quarter of For further information and price charts, see page 9. Group, January September 2010 Net sales rose 12.9% to SEK 158,035 million (140,002). Currency movements affected net sales negatively by approximately SEK 8.8 billion. Operating profit rose 11.9% to SEK 24,907 million (22,265). Excluding items affecting comparability, operating profit rose 36.3% to SEK 30,220 million (22,177). Items affecting comparability amounted to SEK 5,313 million, net, of which SEK 5,144 million (EUR 531 million) pertains to an impairment charge that was taken during first quarter for Vattenfall s German transmission business. The sale of the transmission business was completed on 19 May The sum of items affecting comparability also includes a capital loss of SEK 93 million, which corresponds to the earned profit that accrued to the buyer of the transmission business. Currency movements had a negative impact on operating profit by SEK 0.8 billion. Profit for the period after tax decreased by 5.4% to SEK 10,721 million (11,338); excluding items affecting comparability, profit for the period after tax rose 42.0% to SEK 15,986 million (11,258). Funds from operations (FFO) increased by 12.3% to SEK 28,438 million (25,325). Net debt decreased by SEK 9,832 million to SEK 145,155 million compared with 31 December Electricity generation increased by 9.5% to TWh (115.2). Hydro power generation increased by 4.8% to 26.0 TWh (24.8), nuclear power generation decreased by 0.3% to 32.4 TWh (32.5), fossil-based generation increased by 16.0% to 65.2 TWh (56.2), and wind power generation increased to 1.3 TWh (1.0). Sales of heat increased by 16.4% to 28.4 TWh (24.4). Sales of gas amounted to SEK 41.2 TWh (5.5). For more information, see page 8. Important events during the third quarter of 2010 Amendment to Vattenfall s Articles of Association adopted by Extraordinary General Meeting At an Extraordinary General Meeting on 23 August, an amendment to Vattenfall s Articles of Association was adopted. For more information, see the press release issued by Vattenfall on the same day. New strategic direction and new organisational structure On 21 September Vattenfall presented a new strategic direction and a new, business-led organisational structure. Vattenfall will continue to be an integrated European company with a broad energy portfolio and with operations in generation, distribution, trading and sales, but will geographically focus on Sweden, Germany and the Netherlands, along with wind power in the UK and Denmark. The company will continue to work with all three of its products: electricity, heat and gas. Opportunities to 2 INTERIM REPORT JANUARY september 2010

5 Summary of Vattenfall s consolidated financial performance, cash flow and balance sheet Amounts in SEK million unless otherwise stated Q Q Change % Q1 Q Q1 Q Change % Last 12 months Net sales 37,665 45, , , ,440 Operating profit before depreciation and amortisation (EBITDA) 10,764 9, ,207 36, ,567 Operating profit (EBIT) 5,829 3, ,907 22, ,580 Operating profit excl. items affecting comparability 5,908 3, ,220 22, ,337 Financial items, net 3,261 2, ,292 7, ,287 Profit before tax 2, ,615 15, ,293 Profit for the period 1, ,721 11, ,831 of which, attributable to owners of the Parent Company 1, ,420 11, ,278 of which, attributable to minority interests Return on equity, % Return on net assets, % Funds from operations (FFO) 6,939 3, ,438 25, ,813 Cash flow before financing activities ,143 8,085 36,361 7,652 Free cash flow 7,260 7, ,491 21, ,927 Cash and cash equivalents plus short-term investments 42,855 59, ,855 59, Balance sheet total 528, , , , Equity incl. minority interests 135, , , , Capital Securities 9,081 10, ,081 10, Other interest-bearing liabilities 179, , , , Net debt 145, , , , Net debt/operating profit before depreciation and amortisation (EBITDA), times ) Last 12-month values. See pages for definitions and calculations of key ratios. divest businesses and assets that do not support the new strategic direction are being investigated. The aim of these divestments will be to reduce Vattenfall s CO 2 exposure and strengthen the balance sheet in the aim of being able to resume growth in 2 3 years time. Vattenfall will grow in energy types with low or lower climate impact, such as wind, nuclear, biomass, hydro and natural gas. Vattenfall has also decided to limit its investment programme for the coming five years ( ) to SEK 165 billion. The investment programme was worth SEK 201 billion. Further, a cost-cutting programme is being initiated with the aim of reducing annual operating expenses by SEK 6 billion. This will be achieved through cost reductions in purchasing and process improvements in operations and maintenance. Some of the cost reductions will be achieved by reducing the number of employees, where the goal is to do so through natural attrition. A new business-led organisational structure will take effect on 1 January The new organisation will lead to the assumption of greater responsibility, stronger earnings, lower overhead and administrative costs, and a sharper customer focus. New Executive Group Management The new Executive Group Management consists of: Øystein Løseth President and CEO Jonas Florinus Acting CFO Huib Morelisse Asset Development Tuomo Hatakka Production Harald von Heyden Asset Optimisation and Trading Torbjörn Wahlborg Distribution and Sales Anders Dahl Renewables Lars Gejrot Human Resources Elisabeth Ström External Relations and Communications Andreas Regnell Strategy Inauguration of Thanet the world s largest offshore wind farm On 23 September Vattenfall inaugurated Thanet the world s largest offshore wind farm offshore England s south-east coast. The wind farm comprises 100 turbines and has a capacity of 300 MW. Lifetime extension of German nuclear power and new tax on nuclear fuel The German government has decided to extend the lifetime of Germany s nuclear power plants by an average of 12 years. The decision was coupled with the introduction of a nuclear fuel tax and an obligation for nuclear power operators to make payments to an investment fund for renewable energy projects. For more information, see page 11. INTERIM REPORT JANUARY september

6 Sales, profit and cash flow Amounts in SEK million Q Q Change % Q1 Q Q1 Q Change % Net sales 37,665 45, , , Comment: Total net sales for the third quarter decreased by approximately SEK 7.7 billion compared with the same period in Net sales for Business Group Central Europe decreased by SEK 9.2 billion, which is mainly attributable to the divestment of 50Hertz Transmission GmbH (SEK 9.3 billion), which was sold in May 2010, and to the stronger Swedish krona. Net sales for Business Group Benelux decreased by SEK 0.8 billion, partly due to the stronger Swedish krona. Business Group Nordic reported an increase in net sales by SEK 1.5 billion, which can be credited to higher prices and volumes of electricity sales. In total, currency effects on net sales were negative by approximately SEK 4.2 billion as a result of the stronger Swedish krona compared with the same quarter in Amounts in SEK million Q Q Change % Q1 Q Q1 Q Change % Operating profit 5,829 3, ,907 22, Operating profit excl. items affecting comparability 5,908 3, ,220 22, Comment: Operating profit improved by SEK 2,305 million. Lower fuel costs, operating expenses, maintenance expenses and depreciation made a combined positive contribution of approximately SEK 2.5 billion. Lower sales and administration costs contributed approximately SEK 1 billion. Lower average electricity prices achieved had a negative impact of approximately SEK 1.6 billion. Currency movements had a net impact of SEK 0.4 million on operating profit. Cost of products sold 27,271 37, , , Comment: Of the total decrease, SEK 9.6 billion is attributable to the divestment of 50Hertz Transmission GmbH, which was sold in May Operating and maintenance expenses decreased by SEK 2.0 billion, which is partly attributable to the stronger Swedish krona. Net sales SEK million 250,000 Operating profit, excl. items affecting comparability SEK million 45,000 Return on equity incl. items affecting comparability/ Profit for the period SEK million % 10, ,000 36,000 8, ,000 27,000 6, ,000 50, ,000 9, Last 12 month values Quarterly values 4,000 2, Return on equity, 12 last 12-month values Profit for the period 6 attributable to owners of the parent company, quarterly 0 values INTERIM REPORT JANUARY september 2010

7 Amounts in SEK million Q Q Change % Q1 Q Q1 Q Change % Funds from operations (FFO) 6,939 3, ,438 25, Cash flow from changes in operating assets and operating liabilities (working capital) 4,832 7, ,899 7, Cash flow from operating activities 11,771 11, ,337 33, Comment: Compared with the third quarter of 2009, funds from operations (FFO) increased by SEK 2.9 billion, mainly due to an improved profit and effects from other items such as unrealised gains from derivatives and paid financial items. Changes in working capital affected cash flow by SEK 4.8 billion. An increase in inventories had a negative impact on cash flow (SEK 1.2 billion). This was offset by a decrease in operating receivables and an increase in operating liabilities (SEK 8.1 billion). Other changes, mainly the receipt of margin calls, affected cash flow by SEK 2.1 billion. Since the first quarter of 2010, changes in working capital include bilateral margin calls from Credit Support Annexes (CSAs). Previously these were reported in cash flow from financing activities. Bilateral margin calls resulting from CSAs affected working capital by SEK 1.1 billion during the third quarter and by SEK 7.7 billion during quarters 1 3 of The corresponding figures for 2009 were SEK 1.2 billion and SEK 3.4 billion, respectively. However, in the table above and in the statement of cash flows on page 22, the figures for 2009 have not been adjusted retrospectively. Amounts in SEK million Q Q Change % Q1 Q Q1 Q Change % Net financial items 3,261 2, ,292 7, Interest income from financial investments Interest expenses from loans 1,593 1, ,847 4, Interest received Interest paid 1,097 2, ,012 6, Average net interest income/expense per month Comment: The deterioration of financial items during the third quarter of 2010 is mainly attributable to lower market values of derivatives. This decline was offset by lower interest expenses for loans. The lower interest expenses are the result of lower average interest rates and the stronger Swedish krona. INTERIM REPORT JANUARY september

8 Financial position Amounts in SEK million Change % Cash and cash equivalents, and short-term investments 42,855 59, Committed credit facilities (unutilised) 9,260 10, Other credit facilities (unutilised) 8,101 10, Comment: The decrease in Cash, cash equivalents and short-term investments is attributable to, among other things, a reclassification in Q of the Credit Support Annex receivable from Short-term investments to Advances to suppliers (SEK 14.1 billion) and to exchange rate differences (SEK 2.3 billion). Committed credit facilities consist of a EUR 1 billion Revolving Credit Facility that expires on 23 February 2013 and a SEK 100 million bank overdraft facility that expires in December Vattenfall s target is to have no less than 10% of the Group s net sales, but at least the equivalent of the next 90 days maturities, in the form of liquid assets or committed credit facilities. Amounts in SEK million Change % Net debt 145, , Interest-bearing liabilities 188, , Average interest rate, % Duration, years Average time to maturity, years ) Excluding Capital Securities and loans from minority owners and associated companies. Including SEK 9,081 million in Capital Securities, the average interest rate is 3.5%, the duration is 4.5 years, and the average time to maturity is 6.5 years. These values pertain to Comment: Compared with 2009, net debt decreased by SEK 12,162 million, and total interestbearing liabilities decreased by SEK 30,472 million. Exchange rate differences accounted for SEK 17.2 billion of the decrease in total interest-bearing liabilities. Exchange rate differences have no significant impact on profit, since the largest share is reported as translation differences in equity hedges of net investments in foreign operations and the rest is swapped to SEK. Compared with 31 December 2009, net debt decreased by SEK 9,832 million. Net debt SEK million 350, ,000 Net assets SEK million 350, ,000 Amounts in SEK million Change % Equity attributable to Owners of the Parent Company 128, , Minority interests 6,652 6, Total 135, , Comment: Changes in equity are specified on page 23. Credit ratings The current ratings for Vattenfall s long-term borrowing are A (Standard & Poor s) and A2 (Moody s). Vattenfall s rating outlook is negative from Standard & Poor s and stable from Moody s. 210, , , ,000 70,000 70, Capital Securities Quarterly values 6 INTERIM REPORT JANUARY september 2010

9 Investments Amounts in SEK million Q Q Change % Maintenance investments 4,511 4, Growth investments 6,770 64, of which, shares 37 56, Total investments 11,281 68, Comment: The item shares in Q mainly includes the acquisition of shares in Dutch energy group N.V. Nuon Energy. The item Growth investments for Q3 includes the Thanet wind farm, which was inaugurated in September Specification of investments Amounts in SEK million Q Q Change % Electricity generation Hydro power Nuclear power 1, Fossil-based power 3,627 2, Wind power 2,504 2, Biomass, waste Other 543 1, Total Electricity generation 8,287 6, Heat Fossil-based power Biomass, waste Other Total Heat 925 1, Electricity networks Electricity networks 937 1, Other Total Electricity networks 937 1, Acquisitions of shares 37 56, Other, excl. shares 1,099 3, Total 11,281 68, Comment: Investments in electricity generation increased by SEK 1,610 million over the third quarter of Fossil-based power includes major investment projects, such as the Boxberg combined heat and power plant and the Moorburg power plant in Germany, and the Eemshaven gas-fired power plant in the Netherlands. Divestments Amounts in SEK million Q Q Change % Divestments of which, shares Employees Number of employees, full-time equivalents Change % Business Group Pan Europe 5,799 5, Business Group Nordic 5,334 5, Business Group Central Europe 20,586 21, Business Group Benelux 5,576 6, Vattenfall Energy Trading Other Total 38,438 40, Comment: The decrease in Business Group Central Europe is mainly attributable to the sale of Wemag AG and 50Hertz Transmission GmbH. The increase in Business Group Pan Europe is mainly attributable to safety enhancement measures in the nuclear power operations and organic growth in wind power. INTERIM REPORT JANUARY september

10 Electricity generation, sales of heat and gas Q Q Change % Q1 Q Q1 Q Change % Full year 2009 Electricity generation, TWh Hydro power Nuclear power Fossil-based power Wind power Biomass, waste Total Sales of heat, TWh Business Group Nordic Business Group Central Europe Business Group Benelux Total Sales of gas, TWh Business Group Nordic Business Group Central Europe Business Group Benelux Total Rounding differences of 0.1 TWh exist on certain items. Electricity generation Vattenfall s total electricity generation increased by 3.7% during the third quarter, to 36.8 TWh. Hydro power generation increased by 5.3%, and nuclear power generation increased by 18.8%. The increase in nuclear power generation is attributable to the Swedish nuclear power plants. The Brunsbüttel nuclear power plant in Germany is still off line, which was also the case during the third quarter of The outage at the 50%-owned Krümmel nuclear power plant in Germany did not affect consolidated volumes, since the plant is not consolidated in Vattenfall s accounts. Fossil-based electricity generation decreased by 4.1%. Sales of heat Sales of heat increased by 13.5% to 4.2 TWh. The increase is due to cooler weather during the late summer of 2010 compared with Sales of gas Sales of gas increased by 13.2% to 6.0 TWh. Essentially all sales of gas are in Business Group Benelux. Electricity generation, Q3 2010, % Heat sales, Q3 2010, % Hydro power 21 Fossil-based 51 Nuclear power 26 Other 1 2 BG Benelux 5 BG Nordic 24 BG Central Europe 71 1) Wind power, biomass and waste. Electricity generation, Q3 2009, % Heat sales, Q3 2009, % Hydro power 21 Fossil-based 55 Nuclear power 22 BG Benelux 3 BG Nordic 24 BG Central Europe 73 Other 1 2 1) Wind power, biomass and waste. 8 INTERIM REPORT JANUARY september 2010

11 Wholesale price trend Nordic, German, Polish and Dutch electricity spot prices , monthly averages EUR/MWh 100 Nordic, German and Dutch electricity futures prices EUR/MWh Nord Pool APX PolPX EPEX Germany 2011 Germany 2012 Nordic countries 2011 Nordic countries 2012 Netherlands 2011 Netherlands 2012 Sources: Nord Pool, European Energy Exchange (EEX) and APX Electricity spot prices in the Nordic countries, Germany, Poland and the Netherlands Spot prices are beginning to recover following the sharp price decline in late 2008 and early Average spot prices during the third quarter in the Nordic countries were 47% higher than in the same period in 2009 (EUR 45.90/MWh, compared with EUR 31.28/MWh). The hydrological balance improved during the third quarter, from 22.8 TWh at the end of July to 12.8 TWh at the end of September. Average spot prices in Germany were 18% higher than in the same period a year ago. German spot prices at EUR 43.83/MWh were the lowest among Vattenfall s markets. Spot prices in the Netherlands followed the movement in German spot prices and were 24% higher than a year ago. Average spot prices in Poland were 20% higher than in the third quarter of 2009, and at EUR 47.68/MWh they were the highest among Vattenfall s markets. The economic recovery and low temperatures benefited the price trend in Continental Europe. Electricity futures prices in the Nordic countries, Germany and the Netherlands Electricity futures prices in Vattenfall s markets traded at a level that was 3% lower than the preceding quarter. The spread between the closing prices for the 2011 and 2012 forward contracts decreased. The Nordic forward contracts for 2011 and 2012 traded at levels that were 3% and 2% lower, respectively, than the preceding quarter. German electricity futures prices for 2011 and 2012 were 2% and 3% lower, respectively, than the corresponding period a year ago. The Dutch forward contracts were 1% and 2% lower for 2011 and 2012, respectively. In general, activity was low in the futures market, as there is still uncertainty regarding the future trend in demand among the market participants. INTERIM REPORT JANUARY september

12 Price trend for oil, coal, gas and CO 2 emission allowances USD EUR Vattenfall s degree of price hedging in various markets per 2010 % Gas (EUR/MWh), NBP, Front Year CO 2 emission allowances (EUR/t), 2009/2010 Oil (USD/bbl), Brent, Front month Coal (USD/t), API2, Front Year Nordic countries Continental Europe 1) Remaining months. Price trend for oil, coal, gas and CO 2 emission allowances Commodity prices rose compared with the same period a year ago. The trend of rising gas prices was broken at the end of the second quarter. Despite this, gas prices during the third quarter were 20% higher than in the same period a year ago. Coal prices rose 18% over the third quarter of Oil prices were relatively unaffected by the 2010 hurricane season and traded at an 11% higher level than in the third quarter of The price of CO 2 emission allowances rose slightly during the quarter and was 4% higher than the same period a year ago. Vattenfall s degree of price hedging The chart above shows Vattenfall s price hedging of planned electricity generation in the Nordic countries and Continental Europe. Vattenfall continuously hedges its electricity generation through sales in the futures market. 10 INTERIM REPORT JANUARY september 2010

13 The Group s operating segments Business Group Pan Europe Amounts in SEK million Q Q Change % Q1 Q Q1 Q Change % Full year 2009 Last 12 months Net sales 5,507 4, ,264 15, ,113 22,752 External net sales 1 2,018 1, ,846 5, ,239 8,396 Operating profit (EBIT) ,845 1, ,113 4,220 Operating profit (EBIT) excl. items affecting comparability ,025 1, ,968 4,255 Electricity generation 2, TWh of which, nuclear power of which, wind power ) Excluding intra-group transactions. 2) Of electricity generation during Q1 3, Vattenfall disposed over 23.5 TWh (23.2 TWh), while the rest went to the minority part-owners or was deducted as replacement power. Business Group Pan Europe comprises the three Group-wide business units Wind, Nuclear and Engineering. Business Group Pan Europe is also responsible for Vattenfall s European business development, focusing on efficient use of energy and biomass. Business Group Pan Europe accounted for 7.6% of the Group s operating profit in Anders Dahl is Head of Business Group Pan Europe. Operating profit Q3 Operating profit improved by SEK 873 million. Operating profit for the Nuclear business unit improved, mainly as a result of higher average prices, increased volumes, and lower operating and maintenance expenses. Operating profit for the Wind business unit was lower as a result of higher depreciation, among other things. This was partly compensated by higher volumes during the period. The loss of revenue 1 caused by the outages at the Krümmel and Brunsbüttel nuclear power plants in Germany is estimated at approximately EUR 113 million (approximately SEK 1 billion) for the third quarter of The corresponding loss of revenue resulting from Swedish nuclear power plants is estimated at approximately SEK 0.7 billion. 1) Calculation of the loss of revenue is theoretical and is based on the average level of spot prices and planned generation during the period. Electricity generation, Q3 Electricity generation increased by 19.0% to 10.0 TWh (8.4). The increase is mainly attributable to higher nuclear power generation as a result of greater availability. Generation can increase further when the remaining problems in the three units are remedied. The Brunsbüttel nuclear power plant in Germany continues to be off line, which was also the case during the third quarter of The outage at the half-owned Krümmel nuclear power plant in Germany did not affect consolidated generation volumes, since the plant is not consolidated in Vattenfall s accounts. Wind power generation increased by 0.1 TWh to 0.5 TWh. The Thanet offshore wind farm in the UK, with capacity of 300 MW, and the Stor Rotliden land-based wind farm in Sweden, with capacity of 78 MW, are now operating. Important events Q3 On 23 September Vattenfall inaugurated Thanet the world s largest offshore wind farm offshore England s south-east coast. The wind farm comprises 100 turbines with total installed capacity of 300 MW. The inauguration was held at sea, with Vattenfall s CEO Øystein Løseth and the UK s Secretary of State for Energy and Climate Change Chris Huhne among the inauguration speakers. On 27 September the One Tonne Life project was launched on the initiative of the three companies A-hus, Vattenfall and Volvo Cars. The project will demonstrate how one household can reduce its carbon footprint to a level of 1 tonne of carbon dioxide per person and year (compared with an average of 6 8 tonnes per person and year in Sweden) and still maintain their ordinary lifestyle. In Denmark, Vattenfall passed a new milestone with the inauguration of Dræeby Fed, the largest wind farm on the island of Fyn, at the end of September. Dræeby Fed is part of Denmark s Repowering programme, in which Vattenfall is replacing old wind turbines with new, more efficient turbines. The new 2.3 MW turbines will be able to deliver seven times as much electricity as the older ones, with anticipated annual generation of 24,000 MWh. All turbines are now in place at the Stor Rotliden wind farm in Åsele, Sweden. The final turbine was erected in early September, making Stor Rotliden Vattenfall s largest land-based wind farm. The 40 turbines with combined installed capacity of 78 WM are expected to generate 240 GWh of electricity per year. The German government has reached an agreement with the country s nuclear power operators to extend the lifetime of existing nuclear power plants by an average of 12 years. For Vattenfall this entails lifetime extensions of 14 years for the Krümmel and Brokdorf nuclear power plants an 8 years for the Brunsbüttel plant. Vattenfall s ownership in these plants is 50%, 20% and 66.7%, respectively. The agreement is coupled with the introduction of a new nuclear fuel tax and an obligation for the nuclear power operators to make payments to an investment fund for renewable energy projects. It is estimated that the nuclear fuel tax will raise a total of EUR 2.3 billion per year, and for Vattenfall it is estimated to amount to approximately EUR 165 million per year through Payments to the fund are estimated to amount to approximately EUR 21 million per year in 2011 and 2012 and approximately EUR 14 million per year from 2013 to Vattenfall s share of the total installed nuclear power capacity in Germany is 7.2%. Vattenfall and Stadtwerke München (SWM) intend to start a joint venture company for the construction of DanTysk, an offshore wind farm in the North Sea. The total installed capacity could amount to 288 MW, and the first turbines are planned to be operating by The investment decision was made in October, and the wind farm is scheduled to be completed at year-end 2013/start of The total investment is estimated at more than EUR 1 billion. Vattenfall owns 51% and Stadtwerke München 49% of the shares. Vattenfall is responsible for the construction which is expected to start in 2012 and operation of the wind farm. INTERIM REPORT JANUARY september

14 Business Group Nordic Amounts in SEK million Q Q Change % Q1 Q Q1 Q Change % Full year 2009 Last 12 months Net sales 9,049 8, ,882 30, ,393 43,618 External net sales 1 9,639 8, ,922 32, ,064 50,236 Operating profit (EBIT) 2,516 1, ,075 7, ,504 11,670 Operating profit (EBIT) excl. items affecting comparability 2,459 1, ,015 7, ,117 15,361 Heat sales, TWh Electricity generation 2, TWh of which, hydro power of which, fossil-based power of which, biomass and waste Transited volume, excl. production transits ) Excluding intra-group transactions. 2) Of electricity generation during Q1 3, Vattenfall disposed over 27.8 TWh (26.9 TWh), while the rest went to the minority part-owners or was deducted as replacement power. Business Group Nordic conducts operations in Sweden, Finland and Denmark. The following business units are included in the segment: Hydro, Distribution, Sales, Heat and Services. Business Group Nordic accounted for 26.9% of the Group s operating profit in Torbjörn Wahlborg is Head of Business Group Nordic. Operating profit Q3 Operating profit improved by SEK 877 million. The improvement is mainly attributable to the Hydro business unit and is largely due to higher prices achieved. The Distribution business unit showed an improvement through higher tariffs and volumes. Operating profit for the Heat business unit improved as a result of a higher gross margin and lower amortisation in the light of an impairment charge that was taken at the end of 2009 for the Danish heating plants. Important events Q3 More than 190,000 of Vattenfall s customers in the Finnish electricity grid were affected by a power outage during the last days of July and first week of August caused by severe storms. Thousands of trees were downed and damaged the electricity network, requiring extensive repair work. The Nordic Heat business unit signed an agreement with Uppsala municipality in Sweden on long-term close co-operation in energy generation and use, which will lead to more sustainable use of resources in the municipality. Under the terms of the agreement, Vattenfall will maintain close and regular contact with the municipality for reviews and discussions about energy solutions in the expansion and new construction of homes and other buildings in Uppsala. Sales of heat and electricity generation Q3 Sales of heat increased by 0.1 TWh to 1.0 TWh (0.9). Electricity generation increased by 4.9% to 8.5 TWh (8.1), mainly due to higher hydro power generation and an increase in fossil-based power generation from the heating plants. Transited volume in the distribution operations increased by 9.3%, owing mainly to a recovery of industrial production in the wake of the financial crisis. 12 INTERIM REPORT JANUARY september 2010

15 Business Group Central Europe Amounts in SEK million Q Q Change % Q1 Q Q1 Q Change % Full year 2009 Last 12 months Net sales 24,905 35, , , , ,756 External net sales 1 16,650 25, ,402 84, , ,246 Operating profit (EBIT) 2,548 2, ,258 13, ,938 11,568 Operating profit (EBIT) excl. items affecting comparability 2,408 2, ,429 13, ,373 16,144 Heat sales, TWh Electricity generation, TWh of which, fossil-based power of which, hydro power of which, biomass and waste Transited volume, excl. production transits ) Excluding intra-group transactions. Business Group Central Europe conducts operations in Germany and Poland. The operating segment consists of the following business units: Mining & Generation, Distribution, Sales and Heat. Business Group Central Europe accounted for 67.8% of the Group s operating profit in Tuomo Hatakka is Head of Business Group Central Europe. Operating profit Q3 Operating profit fell by SEK 53 million. Currency movements resulting from the stronger Swedish krona affected the change in operating profit by SEK 320 million, net. The Mining & Generation business unit reported a lower operating profit, mainly as a result of lower average prices received. This was compensated somewhat by lower costs. The divestment of 50Hertz Transmission GmbH had a negative impact of SEK 373 million. The Heat and Distribution business units showed improvements in operating profit. In the Heat business unit this is mainly attributable to a positive price impact on electricity of higher heat sales, lower maintenance expenses, and to the fact that operating profit for 2009 included an impairment charge for a discontinued heat project. The improvement for Distribution is mainly attributable to lower costs. Important events Q3 In close co-operation with the agriculture company Bauern AG in Neißetal, Germany, Vattenfall began construction of a 700 kw biogas plant in Brandenburg. Bauern AG will be a part-owner together with Vattenfall and will also be responsible for providing the plant with biofuel derived from agricultural by-products. Since July Vattenfall has been working on providing a residential area in Berlin s Reinickendorf district with more than 10,000 smart meters in conjunction with the launch of Germany s largest smart metering project. For the first time in Germany, customers can now see their electricity consumption in real time on their TV screens, iphones and ipod touches, or via an online portal. Smart metering is one of several projects that Vattenfall is conducting in an effort to reduce its CO2 exposure. Vattenfall and the German government have reached an agreement and thereby concluded the international arbitration proceedings surrounding the construction of the Moorburg combined heat and power plant in Hamburg, Germany. Sales of heat and electricity generation, Q3 Electricity generation increased by 2.6% to 15.9 TWh (15.5) as a result of slightly higher availability in the power plants. Sales of heat increased by 11% as a result of cooler weather during the late summer compared with the same period a year earlier. Transited volume in the distribution operations increased by 4.1%. INTERIM REPORT JANUARY september

16 Business Group Benelux Amounts in SEK million Q Q Change % Q1 Q Q1 Q Change % Q3 Q Last 12 months Net sales 8,395 9, ,126 24,290 48,968 External net sales 1 6,792 7, ,150 20,446 41,958 Operating profit (EBIT) Operating profit (EBIT) excl. items affecting comparability Gas sales, TWh Heat sales, TWh Electricity generation, TWh of which, fossil-based power of which, hydro power ) Excluding intra-group transactions. Business Group Benelux conducts operations in the Netherlands and Belgium and consists of the business units Exploration & Production (mainly gas production); Power, Heat & Services; and Sales. Nuon s wind power and energy trading operations are now part of Business Group Pan Europe and the Supply & Trading segment, respectively. Business Group Benelux is consolidated in the Vattenfall Group since 1 July Huib Morelisse is Head of Business Group Benelux. Operating profit Q3 Operating profit fell by SEK 24 million. Excluding currency effects of SEK 42 million resulting from the stronger Swedish krona, operating profit improved by SEK 18 million. Excluding amortisation of surplus value, operating profit increased by SEK 196 million to SEK 353 million. Important events Q3 In early July Vattenfall through Nuon expanded its several-year agreement with Volvo Car Corporation. The agreement, which applies from 2010, covers electricity deliveries of 100 GWh per year and also includes the factory in Gent, Belgium. In July a new product was launched for customers who have both gas and electricity contracts, called CO2 OK Energy. All CO2 emissions resulting from customers use of gas is being offset by investments in renewable energy development projects. The electricity is generated by CO2-neutral energy sources, such as wind, solar and hydro. In August, Vattenfall decided to invest in a new gas-fired 435 MW power plant in Diemen, Netherlands. A heat line will be installed between Diemen and Almere to utilise surplus heat for residential heating. Sales of gas and heat, and electricity generation Q3 Electricity generation decreased by 28.6% to 2.5 TWh (3.5), mainly due to lower availability at the Hemweg power plant (unit 8). Sales of gas to end customers rose 13.2% to 6.0 TWh (5.3). Sales of heat increased by 0.1 TWh to 0.2 TWh, mainly as a result of an increase in the number of heat customers. 14 INTERIM REPORT JANUARY september 2010

17 Supply & Trading Amounts in SEK million Q Q Change % Q1 Q Q1 Q Change % Full year 2009 Last 12 months Net sales 16,690 16, ,692 44, ,781 84,011 External net sales 1 2,652 1, ,719 8, ,593 16,700 Operating profit (EBIT) , ,571 4,778 Operating profit (EBIT) excl. items affecting comparability , ,585 4,778 1) Excluding intra-group transactions. Supply & Trading has Group-wide responsibility for market access, price hedging, fuel purchasing, dispatching for the German and Dutch power plants, and trading for own account within mandates issued by the Board of Directors. The Supply & Trading operating segment accounted for 5.6% of the Group s operating profit in Stephen Asplin is Head of Supply & Trading. Operating profit Q3 Operating profit improved by SEK 765 million. The improvement is partly attributable to a realised profit from favourable contracts in trading activities that were previously entered into. Important events Q3 Vattenfall Energy Trading began optimisation of the new Thanet wind farm in England. Vattenfall Energy Trading sells electricity generation and the green certificates that are received in the British market. As of 23 August, Vattenfall Energy Trading is the first market maker on the Polish electricity exchange, PPX. This increases liquidity and creates opportunities for hedges, which is a prerequisite for continued development of the Polish electricity market. Other Amounts in SEK million Q Q Change % Q1 Q Q1 Q Change % Full year 2009 Last 12 months Net sales , ,127 1,311 External net sales Operating profit (EBIT) , ,544 1,028 Operating profit (EBIT) excl. items affecting comparability , ,544 1,028 1) Excluding intra-group transactions. Other includes Treasury operations and Other Group functions. Operating profit also includes unrealised changes in fair value of energy trading contracts, which according to IAS 39 may not be recognised using hedge accounting. Operating profit The SEK 128 million decrease in operating profit is attributable to, among other things, unrealised changes in the market value of energy trading contracts. INTERIM REPORT JANUARY september

18 Consolidated income statement Amounts in SEK million Q Q Q1 Q Q1 Q Full year 2009 Last 12 months Net sales 37,665 45, , , , ,440 Cost of products sold 1 27,271 37, , , , ,479 Gross profit 10,394 8,245 43,549 33,431 42,843 52,961 Selling expenses, administrative expenses and research and development costs 2 4,184 4,989 13,708 12,550 17,922 19,080 Other operating income and expenses, net , ,707 3,778 Participations in the results of associated companies ,144 1, Operating profit (EBIT) 3 5,829 3,524 24,907 22,265 27,938 30,580 Financial income ,036 1,731 2,138 2,814 2,407 Financial expenses 5 4,131 3,734 10,023 9,347 13,018 13,694 Profit before tax 6 2, ,615 15,056 17,734 19,293 Income tax expense ,894 3,718 4,286 6,462 Profit for the period 7 1, ,721 11,338 13,448 12,831 Profit for the period attributable to: Owners of the Parent Company 1, ,420 11,038 12,896 12,278 Minority interests Total 1, ,721 11,338 13,448 12,831 Earnings per share Number of shares in Vattenfall AB, thousands 131, , , , , ,700 Earnings per share, basic and diluted (SEK) Supplementary information Operating profit before depreciation and amortisation (EBITDA) 10,764 9,123 40,207 36,417 51,777 55,567 Financial items, net excl. discounting effects attributable to provisions and return from the Swedish Nuclear Waste Fund 2,858 2,292 6,487 5,507 7,994 8,974 1) Of which, depreciation, amortisation and impairment losses related to non-recurring assets 4,729 5,371 14,689 13,651 23,238 24,276 2) Of which, depreciation, amortisation and impairment losses related to non-recurring assets ) Including items affecting comparability attributable to: Capital gains/losses, net Impairment losses and impairment losses reversed, net , ,231 9,315 Other items affecting comparability ) Including return from the Swedish Nuclear Waste Fund , ) Including interest components related to pension costs ,297 1,226 5) Including discounting effects attributable to provisions ,382 2,544 3,398 3,236 6) Including items affecting comparability attributable to: Capital gains/losses, net Impairment losses and impairment losses reversed, net , ,231 9,315 Other items affecting comparability ) Including items affecting comparability stated above adjusted for tax , ,606 7, INTERIM REPORT JANUARY september 2010