Vattenfall Q2 Results 2008 Presentations by Lars G. Josefsson, CEO and Jan Erik Back, CFO
Main topics to be discussed 2 CEO Lars G. Josefsson: Sales & earnings Production volumes Nuclear update Moorburg update Transmission update CFO Jan Erik Back: Prices & hedge position P&L and EBIT development Investments Debt development & cash flow Q&A
Highlights Q2 2008 3 Net sales increased 9.9% to SEK 35,259 million (32,077). EBIT increased 11.4% to SEK 6,316 million (5,672). Profit after tax decreased 35.3% to SEK 4,043 million (6,252). Net debt increased by SEK 12,466 million to SEK 52,011 million compared with 31 March 2008.
Highlights Q2 2008 4 Return on Net Assets was 16.1% LTM (FY 2007: 16.6%) - well above target 11%. Return on Equity was 14.8 % LTM (FY 2007: 17.6%) - slightly below long-term target 15%.
EBIT development 5 Quarterly figures, SEK million 30 000 28 000 26 000 24 000 22 000 20 000 18 000 16 000 14 000 12 000 10 000 8 000 6 000 4 000 2 000 0 HEW consolidated Bewag consolidated GZE consolidated Danish assets consolidated Q4 2000 Q2 2001 Q4 2001 Q2 2002 Q4 2002 Q2 2003 Q4 2003 Q2 2004 Q4 2004 Q2 2005 Q4 2005 Q2 2006 Q4 2006 Q2 2007 Q4 2007 Q2 2008 Quarterly figures in SEK million, excluding items affecting comparability Last 12 month figures in SEK million, excluding items affecting comparability
Virtually unchanged electricity generation output 6 Q2 2008: 39.8 TWh Q2 2007: 40.0 TWh 0.3 0.4 10.4 9.9 17.9 17.1 41 % 11.1 12.5 Hydro Nuclear Fossil Other Other = wind, biofuel, waste
Higher heat sales for Central Europe 7 Q2 2008: 5.8 TWh Q2 2007: 5.3 TWh 1.8 1.8 4.0 3.5 Nordic Central Europe
Nuclear update - Germany 8 The two German nuclear power plants are still off-line. Reasons for the prolonged standstill are technical problems detected during the inspection and testing programmes: Cracks in valves Impermissibly mounted dowels The plants will remain shut down until all necessary renovation work is fully completed. Re-start date is still open. Q2 2008 financial impact totals approximately EUR 134 million (SEK 1 260 million) and H1 financial impact totals EUR 284 million (SEK 2 684 million) Krümmel (1,346 MW) Brunsbüttel (771 MW)
Moorburg CHP plant project 9 In November 2007 Vattenfall obtained a preliminary permit (a so called Vorzeitige Baugenehmigung ) to build Europe s technologically most advanced coal-fired CHP plant in Hamburg, Germany. At the same time Vattenfall signed an agreement with the State of Hamburg regarding additional environmental investments to further improve the environmental performance of the plant. Vattenfall began construction work and has already contracted EUR 1.6 billion. The plant will be built ready for CCS, which means that the CO2 emissions from the plant will be reduced to almost zero in the medium term. Due to the elections in Hamburg, the final environmental permits have been delayed. Since June that means the whole project will be postponed month by month. From Vattenfall s point of view, all necessary requirements for the needed emission licence for air emissions and water use for cooling purposes are being met. On 21 April Vattenfall took court action on the grounds of administrative inaction. At a court hearing on 16 July the authority undertook to resolve on the permits in September.
Potential sale of German Transmission operations 10 Facts Intended timing Assets: Figures 2007 (German GAAP) Potential investors Three criteria to be applied on investors July 25, 2008: Decision to approach potential investors for the German TSO, Vattenfall Europe Transmission GmbH (no final sales decision) Background: Ongoing EU debate about ownership unbundling -> status quo is no longer an option Purely entrepreneurial decision; NO agreement with EU End of July: Teaser sent out to potential investors Mid-August: Expression of interest from potential investors October/November: Indicative offers Expected closing (if applicable): first half 2009 Sales revenues: EUR 3,295.3 million, of which network fees: EUR 593 million Net profit/loss: EUR -127.9 million Significant profitability increase expected due to German regulator s improvement of equity return rates and regulatory framework Long-term oriented financial investors: e.g. pension funds, insurance companies, infrastructure funds Strategic investors: e.g. foreign grid operators, manufacturers of system components, infrastructure operators Investors must: have a long-term focus ensure substantial investments in network extention promote European integration of the electricity market by continuing to guarantee nondiscriminatory grid access. Please refer to www.vattenfall.de/stromnetzfakten for more information on transmission networks (English version is underway)
Squeeze out completed in Germany 11 The squeeze out of minority shareholders (3.19%) in Vattenfall s listed German subsidiary Vattenfall Europe AG, initiated in August 2005, was completed on 21 April 2008. Vattenfall AB now controls 100% of Vattenfall Europe AG. Vattenfall Europe AG has been delisted from the German stock exchanges. Number of persons at the management board (Vorstand) of Vattenfall Europe AG has been reduced to three from six. New Business Unit structure and new BU Heads appointed.
Financials Jan Erik Back, CFO
Consolidated income statement 13 Amounts in MSEK Q2 2008 Q2 2007 Change FY2007 LTM IFRS IFRS % Net sales 35,259 32,077 9.9 143,639 150,581 Cost of products sold 25,755 23,740 8.5 103,404 109,051 Gross profit 9,504 8,337 14.0 40,235 41,530 Operating profit (EBIT) 6,316 5,672 11.4 28,583 29,254 Operating profit, excl. IAC* 6,300 5,655 11.4 28,497 29,178 Financial income 740 845-12.4 2,276 2,099 Financial expenses -1,580-1,502 5.2-6,926-7,595 Financial net -840-657 -27.9-4,650-5,496 Profit before taxes 5,476 5,015 9.2 23,933 23,758 Taxes -1,433 1,237-3,247-5,332 Profit for the period 4,043 6,252-35.3 20,686 18,426 * IAC = items affecting comparability
Electricity price development 14 Monthly Spot Average 85 NordPool (SYSEUR) EEX 75 65 55 45 Higher spot prices compared with Q2-07 (Nord Pool 54%, EEX 97% 35 25 15 jan-06 apr-06 jul-06 okt-06 jan-07 apr-07 jul-07 okt-07 jan-08 apr-08 Daily Forward Closing Prices 100,00 90,00 80,00 70,00 60,00 50,00 Sharp increase in forward prices during Q2. 40,00 30,00 20,00 jan-06 apr-06 jun-06 sep-06 dec-06 mar-07 jun-07 sep-07 dec-07 mar-08 jun-08 ENOYR-09 EEXYR-09 ENOYR-10 EEXYR-10
Back to normal hydrological balance 15 Nordic countries TWh 40 30 20 10 0-10 -20-30 -40 System price Hydrological balance SYSSEK/MWh 1000 900 800 700 600 500 400 300 200 100-50 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 0
Oil, coal, gas and CO 2 allowances 16 USD 250 EUR 80 200 150 70 60 50 40 100 30 50 20 10 0 0 jan-06 apr-06 jul-06 okt-06 jan-07 apr-07 jul-07 okt-07 jan-08 apr-08 Oil (USD/bbl), Brent Front Month Coal (USD/t), API#2, Front Year Emission allowances CO2 (EUR/t), 2009 Gas (EUR/MWh), NBP, Front Year
Hedging position as of 30 June 2008 17 % hedged of planned electricity generation (percentage values are rounded) Nordic Central Europe 100% 100% 90% 90% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% remaining 2008 2009 2010 0% remaining 2008 2009 2010
EBIT Q2 2008 vs Q2 2007 18 SEK million 3 053 99 193 547 1 330 6 316 5 672 825 Q2 2007 Price Volume O&M Fuel Emission rights Other Q2 2008
EBIT Q1-Q2 2008 vs Q1-Q2 2007 19 SEK million 4 960 394 509 1 320 17 071 2 481 1 390 17 742 Q1-Q2 2007 Price Volume O&M Fuel Emission rights Other Q1-Q2 2008
EBIT Q2 2008 vs Q2 2007 secondary segments 20 SEK million 5 672 1 130 182 208 680 196 6 316 Q2 2007 Generation Heat Networks Markets Other Q2 2008
EBIT H1 2008 vs H1 2007 secondary segments 21 SEK million 17 071 477 284 470 441 119 17 742 Q1-Q2 2007 Generation Heat Networks Markets Other Q1-Q2 2008
Financial targets and outcome 22 Key Ratio Targets Q2 2008 Return on Equity (RoE) 15 % on average equity 14.8%* Return on Net Assets (RoNA, excl. IAC) Cash flow interest coverage after maintenance investments 11 % before tax (= 15 % RoE recalculated into the Groups RoNA requirement) 3.5 4.5 times 16.0%* 4.0* Credit Rating Single A category rating A2/A- Stable outlook Dividend pay-out 40-60 % 40.5 % *Q2 2008 figure = LTM
ROE analysis, 2002 2008 23 ROE analysis, LTM 140 000 120 000 Sw GAAP IFRS 25,00% 20,00% 100 000 80 000 15,00% MSEK Percentage 60 000 10,00% 40 000 20 000 5,00% 0 2002 2003 2004 2005 2006 2007 Q2 2008 Period Profit after tax Average Equity ROE 0,00% Please note: Figures according to Sw GAAP until 2003 and according to IFRS from 2004
Cash flow development 24 30 000 20 000 10 000 0-10 000-20 000-30 000-40 000 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2-99 2000 2001 2002 2003 2004 2005 2006 2007-08 Quarter/Year Free cash flow from operations - Rolling 4 quarter (1) Cash flow before financing activities - Rolling 4 quarter 1) Figures according to Sw GAAP until Q4 2004 and according to IFRS from Q1 2005
Investments Q2 2008 25 Total SEK12.7 billion By Business Group, % Maintenance / Growth, % 4,4 6,4 32% 44% 43% 57% 1,9 24% Electr and Heat Networks Other Centr Europe Nordic Other Maintenance Growth Other includes purchase of remaining minority shares in Vattenfall Europe AG (SEK 4.1 bn)
Net debt development SEK million 80 000 70 000 60 000 50 000 40 000 30 000 20 000 10 000 0 26 Q2 2007 Q4 2007 Q2 2008 Q4 2006 Q2 2005 Q4 2005 Q2 2006 Q4 2004 Acquisition of Bewag and GZE shares Acquisition of Elsam shares Dividend paid Capital Securities SEK 9.3 billion Q4 2000 Q2 2001 Q4 2001 Q2 2002 Q4 2002 Q2 2003 Q4 2003 Q2 2004
27 Questions and Answers
Back-up slides
Regulated and Non Regulated Business 29 Sales External 100% 80% 30% 38% 35% 41% 60% 40% 20% 70% 62% 65% 59% 0% Q2-08 Q2-07 Q1-Q2-08 Q1-Q2-07 Non Regulated Business Regulated Business 100% 80% EBIT excl. IAC 22% 22% 28% 27% 60% 40% 78% 78% 72% 73% 20% Regulated business: Distribution, Transmission and Heat Non regulated business: Generation and Sales 0% Q2-08 Q2-07 Q1-Q2-08 Q1-Q2-07 Non Regulated Business Regulated Business
Key data BG Nordic 30 Q2 Q2 % FY FY Amounts in SEK billion 2008 2007 Change LTM 2007 2006 Net sales 11.2 10.2 9.4 48.4 46.7 40.1 External net sales * 12.1 9.0 34.4 49.4 44.4 48.2 EBIT * 3.8 2.4 57.8 15.9 12.4 13.2 Net assets ** 92.7 83.7 10.8 n.a. 91.1 81.7 Electr. generation, TWh 22.4 22.8-1.8 93.1 91.1 85.8 Heat generation, TWh 1.8 1.8 0.0 10.2 10.7 8.5 Employees *** 9 508 9 458 0.5 n.a. 9 489 9 158 * Excl. intra group transactions ** At the end of the period *** Full time equivalents (FTE)
Key data BG Central Europe 31 Q2 Q2 % FY FY Amounts in SEK billion 2008 2007 Change LTM 2007 2006 Net sales 30.8 27.7 10.9 129.7 122.3 111.0 External net sales * 21.0 19.6 6.9 91.5 86.7 78.9 EBIT * 3.6 3.4 6.0 14.9 16.5 15.0 Net assets ** 81.6 75.1 8.7 n.a. 78.7 70.6 Electr. generation, TWh 17.4 17.1 1.8 76.8 76.6 79.5 Heat generation, TWh 4.0 3.5 14.3 25.9 25.5 26.7 Employees *** 22 222 22 327-0.5 n.a. 22 396 22 657 * Excl. intra group transactions ** At the end of the period *** Full time equivalents (FTE)
Consolidated balance sheet 32 Amounts in MSEK 30/6/08 30/6/07 Change 31/12/07 IFRS IFRS % Non-current assets 272,888 256,030 6.6 264,864 Current assets 81,044 66,451 22.0 73,372 Total assets 353,932 322,481 9.8 338,236 Equity 112,372 116,102-3.2 124,132 Interest-bearing liabilitites 75,968 67,996 11.7 67,189 Interest-bearing provisions 56,421 50,401 12.0 56,250 Pension provisions 17,849 17,415 2.5 17,735 Deferred tax liabilities 22,736 26,726-14.9 23,704 Other non-interestbearing liabilitites 68,586 43,841 56.4 49,226 Total equity and liabilities 353,932 322,481 9.8 338,236
Net asset development 180 000 160 000 140 000 120 000 100 000 80 000 60 000 40 000 20 000 0 33 Q2 2006 Q4 2006 Q2 2007 Q4 2007 Q2 2008 Q2 2005 Q4 2005 Q4 2004 MSEK Acquisition of Bewag and GZE shares Acquisition of Elsam shares Consolidation of Danish assets Q4 2000 Q2 2001 Q4 2001 Q2 2002 Q4 2002 Q2 2003 Q4 2003 Q2 2004
Consolidated cash flow statement 34 Amounts in MSEK Q2 2008 Q2 2007 Change FY 2007 LTM IFRS IFRS % Funds from operations (FFO) -666 4,932 34,049 28,073 Change in working capital 8,068 3,514 129.6-1,718 2,995 Cash Flow from operating activities 7,402 8,446-12.4 32,331 31,068 Investments -12,773-4,463 186.2-18,964-28,863 Divestments 131 191-31.4 925 988 Cash and cash equivalents in aquired/divested companies 5 2 9 Cash Flow from investing activities -12,637-4,272-195.8-18,037-27,866 Cash Flow before financing activities -5,235 4,174 14,294 3,202 Cash Flow from financing activities -2,775-9,625 71.2-18,662-2,773 Cash Flow for the period -8,010-5,451-46.9-4,368 429 Net debt at the end of the period -52,011-46,765-11.2-43,740-52,011
Return on equity 35 30% 25% Group - Return on Equity Six months interim accounts - 2008 Rolling 4-quarter IFRS excl IAC 20% 15% Rolling 4-quarter Sw GAAP excl IAC 10% 5% 0% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Period 2002 2003 2004 2005 2006 2007 Average 4-years (16 quarter) Sw. GAAP. IFRS from Q4 2004. Excl. IAC Requirement 15%
Break down of group liquidity 36 Amounts in SEK million As of June 30, 2008 Treasury Germany Poland Nordic Total % Cash and bank 913 669 575 841 2,998 13 Investments 2,300 16,455 248 894 19,897 87 Total 3,214 17,124 823 1,735 22,896 100 Unused committed credit facilities amount to 13,334 SEK million and other undrawn credit- and overdraft facilities amount to 11,390 SEK million.
Break down of group debt 37 Amounts in SEK million As of June 30, 2008 Treasury Germany Poland Nordic Total % Subordinated perpetual Capital Securities 9,330 9,330 12 MTN 650 650 1 EMTN 33,479 33,479 44 Liabilities to assoc. companies 7,088 4,688 11,775 16 Liabilities to minority shareholders 34 6,108 6,142 8 Commercial papers 1,444 1,444 2 Bank loans and others 3,905 5,685 3,557 13,147 17 Total 55,896 10,407 9,665 75,968 100
Adjusted gross and net debt 38 SEK million Gross debt Present value of net pension obligations (incl actuarial gains/losses) Mining & environmental provisions 50% of Hybrid securities = Adjusted gross debt Cash & short term investments German nuclear "Solidarvereinbarung" Minority owner s share of German nuclear subsidiaries cash position = Adjusted cash & short term investments = Adjusted net debt 31 June 2008 31 Dec 2007-75 968-67 189-17 988-17 073-12 230-11 975 4 665 4 671-101 521-91 566 22 896 22 659-3 217-3 224-3 622-3 531 16 057 15 904-85 464-75 662
Vattenfall debt maturity profile 39 SEK million 9 000 8 000 7 000 6 000 2007 06 30 2008 06 30 5 000 4 000 3 000 2 000 1 000 0 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 2037 Excluding loans from associated companies and minority owners June 30, 2008 June 30, 2007 Duration (years) 3,0 1) 3,5 Average time to maturity (years) 6,1 1) 6,3 Net debt (SEK bn) 52,0 46,8 1) Based on external debt. Excluding Capital Securities the duration is 2,4 years and average time to maturity 6,0 years.
CO 2 allowances EUR/tonne 40 35 30 25 20 15 10 5 0 40 jan-07 apr-07 okt-07 jan-08 apr-08 jul-07 2008 2009 2010 jan-06 apr-06 jul-06 okt-06
Group provisions (IFRS) 41 30 June 2008 SEK 97,006 million 30 June 2007 SEK 94,542 million 22736 2228 4776 7081 17849 30106 Pensions Nuclear Mining Taxes Other Personnel Legal 26726 1464 4415 6552 17415 26674 12230 11296
Key ratios 42 Key Ratios (% unless otherwise stated) Q2 2008 Q2 2007 LTM RoNA (1) 16.1 15.7 16.1 RoE (1) 14.8 19.9 14.8 Operating margin 17.9 17.7 19.4 Pre-tax profit margin 15.5 15.6 15.7 Cash Flow interest coverage after maintenance investments, times 1.1 8.4 4.0 FFO/net debt (1) 54.0 69.0 54.0 Equity/assets ratio 31.7 36.0 31.7 Net Gearing - Net debt/equity 46.3 40.3 46.3 Capitalisation - Net debt/net debt + equity 31.6 28.7 31.7 1) Q2 2008 value = LTM