Fortum Corporation (FOJCF.PK)
Q2 2010 Earnings Call
July 16, 2010 09:00 am ET
Tapio Kuula - President & CEO
Juha Laaksonen - EVP & CFO
Martin Young - Nomura
Neil Beddall - Barclays
Ingo Becker - Kepler Capital Markets
Lueder Schumacher - UniCredit
Per Lekander - UBS
Thank you and welcome to our conference call. We are here together, my name is Tapio Kuula and I have here together here with me here as well our CFO, Juha Laaksonen. And this is the report covering the first six months of 2010 and I hope that you have material available for you. And I will first start with overall report and then Juha will continue and then I will look at the future prospects, and after that as usual questions-and-answers.
Page number 3; you can see that we feel that the business environment is improving. There are clearly some positive signals especially from industry and you can see that the Nordic area, the Nordic power consumption has gone up by 6%. Still we are about 10 megawatt-hours behind consumption in 2008.
Also Russian power consumption has increased, increased by 4% and also positive price development. We will come back more in detail to that later. Spot prices have increased in Nordic area and forward prices have been pretty stable, and you can see the price development on next page, page number 4 and clearly the big difference between spot prices and forward prices.
If we turn to page 5, we can say that these first six months we are satisfied. The second quarter wasn’t probably as good as the whole six month period, but anyway the comparable operating profit was close to EUR 1 billion, EUR 990 million. We had lower hydro and nuclear volumes, of course you know that the hydro reservoirs have been lower and the nuclear volumes were lower because of those upgrade projects, especially because those upgrade projects in Sweden took longer time, and of course when they took longer time also they cost more. So in that sense there were two different consequences, negative consequences for the less volumes and higher costs. In the Russian division in this adjacent segment and in this division we have clearly positive development and of course we also have got some positive translation, fx from the Swedish Krona.
And our earnings per share has increased; now we are on the level of EUR 0.93 instead of EUR 0.78 last year and of course this is positive news for our shareholders. This includes non-recurring items about EUR 50 million.
Net cash flow from operating activities is lower than last year and this is due to financial items and realized foreign exchange, losses and Juha will come back to that more in detail.
Page 6, if we compare the comparable operating profit which is probably the most relevant figure to be compared, we see that we are slightly on a lower level than last year but overall of course one can easily see that this is pretty stable development.
And if we mentioned on list really some key events and highlights on page 7, we can say that clearly the development in Russia is well on track concerning the Russian economical development, but is especially if we look at what has happened in the sector, the power reform is proceeding as planned exactly in the beginning of this year. Our wholesale market was expanded from 50% to 60% and now in the beginning of July from 60% up to 80% is now open for competition and this is exactly in line with the original plan.
And probably even more important for us is the new rules and parameters for capacity market for new capacity which was decided in April and of course one can say that we can be very satisfied with that development both time wise and also concerning the substance and quantity.
Overall Fortum is very environmentally a friendly company; about 86% was now CO2-free production in Europe. This is slightly less than in previous year and really the reason being that now during the beginning of this year especially partly even during the second quarter we were using and producing electricity, using a cold condensing power plant, Inkoo and Meri-Pori. But even if we take into account the Russian operations about two-thirds of our power generated, our power generation is CO2-free.
Page 8, we have listed power consumption development in different countries and in different regions in Russia, and of course here you can see that the development in Nordic countries, especially Finland and Sweden and Norway, Denmark is of course not that big, practically in Nordic countries concerning electricity consumption has been positive.
In Russia, Tyumen area which is an oil and gas production area has been throughout, the financial price is very stable concerning power consumption and so it seems to be also now so no major differences either way. But in Chelyabinsk where we have about one-third of our business activities there has been significant increase in power consumption and this is of course mainly heavy metal industries, steel industries, et cetera.
On page 9, we can see the current water reservoirs and if we calculate, also snow reservoirs as they are estimated, we can say that today we are about 18 terawatt-hours below average, statistical average. And if you remember when we announced our backlist our first quarter results at the end of April, the deficit was about 30 terawatt-hours or a bit probably more than 30 terawatt-hours. So the deficit has in that sense decreased, but still really big deficit.