Sweden: Vattenfall Splits into Two Units

Vattenfall splits up its organisation into a Nordic unit and a continental European unit. This is one of several measures taken in response to developments in the European energy market. Vattenfall is also writing down SEK 29.7 billion of the value of the company’s assets as a consequence of market development and higher business risks.

Vattenfall is changing its organisational structure to achieve greater financial and strategic flexibility. As of 1 January 2014, the Group’s operations will be split up into two regional units: Nordic and Continental Europe/UK. The background to the changes is the increased uncertainty about the development of the single energy market in Europe, especially in continental Europe.

“The new structure will allow the regions to focus on their respective core issues and will open up opportunities for risk-sharing in Vattenfall’s continental operations over time.“ Vattenfall’s Chairman of the Board of Directors Lars G Nordström and CEO Øystein Løseth say in a joint statement.

Like other European energy producers, Vattenfall is affected by the increasingly gloomy market prospects. The company now makes the assessment that the market will not recover in the foreseeable future. To reflect the increasing business risks, future cash flows have been valuated using a higher discount rate. As a consequence of this, the company is writing down its asset values by a total of SEK 29.7 billion. The impact on the profit for the period is SEK 24.5 billion because of tax effects in conjunction with the impairment. The write-downs do not affect Vattenfall’s cash flow.

The write-downs carried out in the second quarter mainly concern:

•  Gas and hard coal-fired power plants in the Netherlands: SEK 14.5 billion,
• Hard coal-fired power plants in Germany: SEK 4.1 billion,
• Combined heat and power plants in the Nordic region: SEK 2.5 billion,
• Goodwill originating mainly from our trading operations: SEK 6.8 billion,
• Other assets: SEK 1.8 billion.

The underlying operating profit increased by 3.3 % to 16,950 million SEK (16,401 million SEK). Despite the substantial impairment losses. Vattenfall meets the targets on its capital structure. Vattenfall’s Chairman of the Board of Directors Lars G Nordström and CEO Øystein Løseth: “The impairments are significant and this is obviously a difficult task. But this is the reality we are facing and we have to react according to what we know about the marketplace today. It means that we must adjust the book value of our assets. It also means that we have to take steps that we deem are necessary to ensure in the long term a sustainable and strong Vattenfall”

Up to now Vattenfall has tackled the challenging market situation through consolidation and significant savings but further substantial measures must now be implemented.

Cost reductions and ongoing streamlining measures are being accelerated. The cost cuts planned for 2014 have been increased from SEK 1.5 to 2.5 billion. A new savings target of SEK 2 billion has been set for 2015. We have introduced a recruitment stop as well as major restrictions in the use of external consultants. Vattenfall has reduced its annual costs by SEK 7.5 billion since 2010. Investments for the upcoming five years have been reduced to SEK 105 billion compared to SEK123 billion for the period 2013-2017. Investment projects already approved will be prioritised with a continued focus on renewable energy.

[mappress]

Press release, July 23, 2013; Image: vattenfall