Fortum Oyj (FORTUM.HE), the Finnish state-owned power firm, reported a strong monetary place regardless of going through decrease energy and hedge costs in its latest earnings name.
CEO Markus Rauramo and CFO Tiina Tuomela mentioned the corporate’s second quarter and half-year outcomes, emphasizing profitable hedging methods, strategic investments, and a concentrate on clear power and decarbonization initiatives. Regardless of a decline in comparable working revenue, Fortum’s monetary internet debt remained low at €851 million, and the corporate reported ample liquidity reserves.
Key Takeaways
- Fortum’s hedging and optimization methods have been efficient within the face of low energy costs.
- Investments in modernizing the Loviisa nuclear energy plant and shutting the final coal-fired unit in Finland underscore the corporate’s dedication to scrub power.
- The corporate’s monetary place is robust, with a low debt degree and vital liquidity reserves.
- Fortum goals to cut back mounted prices by €100 million by 2025 and is exploring new nuclear capability in Sweden.
- The latest divestments haven’t considerably impacted Fortum’s steadiness sheet, and the corporate follows a dividend coverage primarily based on earnings per share.
Firm Outlook
- Fortum is serious about new nuclear capability in Sweden, pending feasibility and financing fashions.
- The corporate has a three-year funding pipeline steering of €1.6 billion, which can be adjusted primarily based on funding ranges.
- Fortum’s dividend coverage can be mentioned in reference to the full-year outcomes, sustaining a spread of 60% to 90% of comparable earnings per share.
Bearish Highlights
- Decrease energy and hedge costs have led to a decline in comparable working revenue.
- Mounted prices have risen as a consequence of inflation and restructuring impacts, with bonuses now paid out after a hiatus in 2022.
Bullish Highlights
- The primary half of the 12 months confirmed improved earnings, pushed by greater inside fees and earnings within the round resolution enterprise.
- Renewable enterprise benefited from a gross sales achieve from the divestment of India photo voltaic property.
- Shopper options section and different operations improved, with greater electrical energy gross sales margin and higher round resolution enterprise outcomes.
Misses
- The era section skilled a decline in working revenue, although this was partially offset by greater hydro volumes.
Q&A Highlights
- CEO Rauramo mentioned the potential for a 40-year contract for distinction (CFD) in Sweden’s nuclear sector.
- There’s vital curiosity from industries in hedging in opposition to worth volatility via energy buy agreements (PPAs).
- Fortum is having discussions with purchasers about long-term hedging for his or her power prices.
Fortum’s earnings name painted an image of an organization navigating market volatility with a robust monetary basis and a strategic concentrate on clear power. The corporate’s dedication to decreasing prices and exploring new alternatives in nuclear power, whereas sustaining a conservative strategy to its steadiness sheet and dividends, positions it to climate present market challenges and capitalize on future development alternatives.
InvestingPro Insights
Fortum Oyj (FOJCF) continues to reveal monetary resilience and strategic foresight within the power sector. InvestingPro information highlights a market capitalization of $14.15 billion, indicating the corporate’s substantial presence available in the market. The present P/E ratio stands at 10.02, suggesting that the corporate is buying and selling at a low earnings a number of in comparison with a few of its friends. This could possibly be a gorgeous level for worth buyers in search of corporations with probably undervalued inventory.
An InvestingPro Tip price noting is that Fortum has maintained dividend funds for 26 consecutive years, which is a testomony to the corporate’s dedication to returning worth to shareholders and its capability to take action persistently. Moreover, the corporate’s liquid property exceed its short-term obligations, offering a cushion in opposition to monetary uncertainties and reinforcing the sturdy liquidity place talked about within the article.
Traders within the firm’s efficiency trajectory ought to contemplate that analysts predict Fortum can be worthwhile this 12 months, which aligns with the bullish highlights talked about within the article. For these in search of extra complete evaluation and extra InvestingPro Ideas, they will discover additional insights on Fortum at https://www.investing.com/professional/FOJCF, the place a complete of 11 ideas are listed to offer a deeper understanding of the corporate’s monetary well being and market potential.
Full transcript – Fortum Oyj (FOJCF) Q2 2024:
Ingela Ulfves: Good morning, everybody, and a heat welcome to Fortum’s joint webcast and information convention for the investor neighborhood and media on our second quarter and half 12 months outcomes. My title is Ingela Ulfves and I am Head of Investor Relations at Fortum. As at all times, this occasion is being recorded and a replay can be obtainable later right this moment on our web site. With me right here within the studio are our CEO, Markus Rauramo; and our CFO, Tiina Tuomela. Markus and Tiina will current the group’s monetary and operational efficiency in the course of the second quarter and the primary half of this 12 months. After the displays, we’ll open up for questions and we’ll begin with the capital markets viewers and worldwide media, after which, if wanted, we change to Finnish and take potential questions from the Finnish media. Okay. I now hand over to Markus to start out.
Markus Rauramo: Thanks very a lot, Ingela. A heat welcome to our investor and media name additionally from my aspect. I’ll begin by going via our monetary efficiency, the market fundamentals, and our technique execution. After that, Tiina will present extra particulars, particularly on the financials and the way this changed into leads to the primary half of 2024. Let me now begin with the quarterly highlights. The traditional patterns utilized to the second quarter, which is seasonally smaller consequence clever. Sometimes, energy costs are low at the moment of the 12 months as a consequence of melting interval and heat climate. This was additionally the case now. Our second quarter efficiency exhibits resilience, and regardless of decrease energy costs, we managed to report comparatively good outcomes supported by profitable hedging and bodily optimization. Contemplating exterior elements, I’m glad with our efficiency. Throughout the second quarter, we continued to implement our technique determinedly. Certainly one of our strategic priorities is to ship dependable clear power and we concentrate on optimizing and strengthening our core operations for energy era. This consists of investments like Loviisa nuclear energy plant’s low-pressure turbine modernization as a part of the plant’s lifetime extension. This modernization, introduced in Might, will increase each the full capability of the plant and the output throughout its lifetime. As a part of the Espoo Clear Warmth program, we closed down our final coal-fired unit used for district heating manufacturing in Suomenoja in Finland on the finish of April. Which means that our heating and cooling enterprise phased out coal in Finland one 12 months sooner than deliberate. In Might, we inaugurated our wind farm in Pjelax on the West Coast of Finland, which is the third largest within the nation. From the start of July, it began its business operations via the ability buy settlement with Finnish Helen. Our second strategic precedence is to drive decarbonization of industries. Throughout the second quarter, we introduced the event of a number of potential new websites throughout Finland, amongst others in Jyväskylä. These we will provide to clients for information heart or industrial use. We’ve a brand new slide on the location developments in our newest investor presentation, if you want to dig deeper into this subject. We additionally began preparations for a 2 megawatt hydrogen pilot manufacturing plant to be inbuilt Loviisa, scheduled for commissioning in late 2025. Throughout the scope of our third strategic precedence, to rework and develop, we proceed the implementation of our effectivity enchancment program with the goal to regularly decrease annual mounted price by €100 million excluding inflation by the tip of 2025 with the complete run price from the start of 2026. As well as, we efficiently divested our stake within the 185 megawatt photo voltaic portfolio and recorded a gross sales achieve of €16 million in our comparable working revenue. This was our final operational renewables enterprise in India. The remaining companies are a renewables improvement platform, EV charging providers and a few biobased options. Because the strategic evaluate continues for the round resolution companies, we’re additionally evaluating alternate options for these different remaining Indian operations. The remaining internet property for all of those companies whole roughly €130 million, of which the Indian internet property, together with ensures, quantity to roughly €30 million. In July, after the reporting interval, we signed an settlement to promote our recycling and waste enterprise to Summa Fairness for about €800 million. Based mostly on the steadiness sheet at signing, we’ll report a tax-exempt capital achieve of roughly €110 million. Nonetheless, the monetary capital achieve will rely upon the steadiness sheet worth at closing, which is predicted to happen within the fourth quarter of this 12 months. Following this divestment, we proceed with our priorities for capital allocation. We’ve a really sturdy steadiness sheet with very low leverage. Within the present funding local weather, our funding outlook for subsequent years is proscribed and we proceed to use shareholder returns primarily based on our dividend coverage with a payout ratio of 60% to 90% of comparable EPS. And as at all times, the Board of Administrators will determine on the dividend proposal to the AGM in reference to the complete 12 months outcomes 2024, which takes place on eleventh of February 2025. Subsequent I’ll undergo our essential figures. These are the acquainted comparable headline KPIs for Fortum Group’s second quarter and first half 12 months of 2024. All numbers on this presentation are for persevering with operations, if not in any other case talked about. Final 12 months, we had greater energy costs. So this 12 months, our comparable working revenue was decrease each for our first half 12 months and second quarter, the principle causes being decrease spot and hedge costs within the era section. On a optimistic observe, our hydro volumes elevated and each the buyer options and different operations segments improved their comparable working earnings. Our comparable EPS declined barely within the first half of this 12 months, however elevated by 25% within the second quarter. Our working money circulation decreased considerably in comparison with final 12 months and was €876 million in first half 12 months and €338 million within the second quarter. And eventually, the steadiness sheet, and most significantly, our leverage. Outlined as monetary internet debt to comparable EBITDA, it was at 0.5 instances for the final 12 months, which is on the identical degree as on the finish of final 12 months. Then over to the commodity markets. I additionally wish to say a couple of phrases in regards to the market improvement. Right here you see the principle commodities. After having seen a big decline final winter, European fuel costs moved greater in the course of the second quarter. This was additionally mirrored within the continental energy costs, whereas the influence on the Nordic costs was modest. Within the Nordics, the volatility of the spot energy worth remained excessive, particularly in Finland, because the market witnessed a number of days with very excessive and really low costs. The volatility was influenced by extended nuclear plant upkeep at Olkiluoto, vital outages in transmission capability and powerful spring water inflows. Regardless of the impact from these short-term points, we imagine that this elevated spot volatility will proceed. The futures market general developed sideways over the quarter, though volatility pushed by climate situations additionally performed a component. So with this, I finish my half and hand over to Tiina for extra particulars.
Tiina Tuomela: Thanks, Markus. Good morning, everybody, additionally on my behalf. I’ll now undergo our financials in additional element. Let’s begin with the important thing financials. So let me first touch upon among the comparable KPIs for our persevering with operation. Within the second quarter, our comparable internet revenue and comparable EPS elevated. That was primarily because of the higher consequence from our related corporations. Final 12 months, the related firm consequence was impacted by the decrease earnings of associates, primarily brought on by inflation adjustment in Swedish nuclear waste associated provisions in co-owned nuclear corporations. All different KPIs declined considerably, primarily affected by decrease energy and hedge costs. Our comparable EPS for the final 12 months was at €1.26 in contrast €1.28 in 2023, so barely down. As Markus already mentioned, our leverage continued to be very low at 0.5 instances. Now over to the revenue assertion to look into sure objects a bit extra element. As now we have disclosed associated to our effectivity enchancment program, you possibly can see from this revenue assertion that our annual mounted prices are barely above €1 billion. The goal is to cut back the mounted price base by €100 million excluding inflation. Throughout this 12 months, our mounted prices have elevated considerably, however with the actions in place, the mounted price base will begin to go down. As now we have disclosed, we’ll decrease our recurring prices base by greater than €50 million by the tip of this 12 months. In July, we introduced the divestment of our recycling and waste enterprise and it’s estimated to shut within the fourth quarter this 12 months. As soon as that is carried out, our mounted price base can be roughly €150 million decrease, that means that the brand new mounted price base excluding the recycling and waste enterprise can be €850 million. Regardless of this new decrease degree, we maintain our goal to cut back mounted price by €100 million by the tip of 2025 with the brand new run price from 2026. Within the second quarter, our finance price internet was optimistic. The primary causes had been the pre-tax curiosity revenue of €19 million from a tax case that we received in Belgium and €11 million from the nuclear associated objects. Taxes have been on the regular degree this 12 months. Final 12 months, within the second quarter, revenue tax bills included €225 million of adjustment associated to one-time tax impacts from the impairment of the Russian asset primarily acknowledged in Eire and within the Netherlands. Non-controlling curiosity was €2 million destructive within the second quarter. That is associated to the Pjelax wind farm. So then let’s take a look at the waterfall of the second quarter comparable working revenue for our segments. In comparison with the earlier 12 months, the results of our era section decreased whereas each shopper options and the opposite operations section barely improved. Within the era section, comparable working revenue decreased by €40 million to €264 million, primarily because of the decrease spot and hedge costs. Decrease nuclear volumes because of the prolonged outage in Olkiluoto’s third unit and better mounted prices negatively affected the consequence, whereas there was a optimistic impact from the upper hydro volumes, which partly offset the decline, The results of the renewable enterprise was positively impacted by the sale of our remaining share of the Indian solar energy portfolio. This comprised 4 solar energy vegetation in India with a complete capability of 185 megawatts. From this divestment, we recorded a gross sales achieve of €16 million in reference to the closing of the transaction. This was booked within the comparable working revenue. The results of the district heating enterprise improved primarily because of the greater gross sales worth for the ability in Poland. Decrease gas and CO2 price supported by greater share of the electricity-based warmth manufacturing in Finland additionally contributed to the consequence enchancment. Within the quarter, the Pjelax wind farm contributed negatively to the consequence. In our shopper options section, comparable working revenue elevated by €2 million to €12 million primarily because of the improved electrical energy gross sales margin. There was some destructive consequence results from decrease fuel margin and better mounted price. Final 12 months, the consequence was burdened by the regulated electrical energy worth cap for the tip customers in Poland utilized in 2023. Within the different section, comparable working revenue improved by €9 million and was €43 million destructive. The primary causes for the development had been greater inside fees for enabling perform providers and better earnings within the round resolution enterprise. When trying on the comparable working revenue for the primary half of the 12 months, the identical development continues. The era section consequence declined, whereas each shopper options and different operations section improved. Sadly, the deviation for the era section is far larger. The era section’s comparable working revenue decreased by €250 million to €777 million. The primary causes for the decline within the era section had been the clearly decrease spot and hedge costs, which had been partly offset by greater hydro volumes. The consequence was additionally negatively affected by a weaker power combine ensuing from the upper price nuclear volumes from Olkiluoto third unit. The results of the renewable enterprise was positively impacted by the €16 million gross sales achieve from the divestment of India photo voltaic property. The consequence contribution from the Pjelax wind farm was barely optimistic within the first half 12 months. The results of the district heating enterprise improved primarily because of the decrease gas and CO2 price, supported by extra electricity-based warmth manufacturing in Finland and better gross sales worth for the warmth and energy in Poland. Comparable working revenue within the shopper options section elevated by €38 million to €54 million, primarily because of the greater electrical energy gross sales margin, discontinuing of the regulated electrical energy worth cap for the tip customers in Poland efficient throughout 2023 and better gross sales margin of value-adding providers. This optimistic impact was partly offset by decrease fuel gross sales margin in Poland and better mounted price. Within the different operations section, the comparable working revenue improved by €50 million and was €68 million destructive. The development was associated to greater inside fees for enabling perform providers and better consequence within the round resolution enterprise. Then some feedback on our monetary place, debt and liquidity. Our monetary place could be very sturdy, and this helps our goal to take care of a credit standing of at the very least BBB. When contemplating our capital allocation, we steadiness between the leverage, investments and dividend, we at all times maintain the ranking in thoughts. Subsequent, let’s undergo the reconciliation of our monetary internet debt within the second quarter. Within the opening steadiness sheet on the finish of first quarter, our monetary internet debt was €528 million. Within the second quarter, the working money circulation was €338 million. This impact was barely offset by funding of €117 million. Within the second quarter, we paid our first installment of the dividend, €520 million. The change in interest-bearing receivables amounted to €28 million, whereas FX and different results totals €5 million. So on the finish of the second quarter, our monetary internet debt was €851 million and the ratios for the monetary internet debt to comparable EBITDA is at 0.5 instances for the final 12 months. our debt portfolio and the maturity profile, I wish to spotlight a couple of issues. We use bonds as our main supply of our funding. Our maturity profile continues to be very balanced and there are not any massive majorities in any single 12 months. All in all, our gross debt excluding leases totals €5.3 billion, €4 million down in the course of the quarter. On the identical time, our liquidity place is robust. We’ve ample liquidity reserve of €7.4 billion with €4.1 billion of liquid funds and €3.3 billion of undrawn dedicated credit score amenities and overdrafts. With the sturdy liquidity place, we’ll proceed to optimize our money and credit score strains. The general goal is to have ample and optimum liquidity whereas on the identical time attempting to attenuate funding price. We’re continuously monitoring and adjusting our liquidity primarily based on varied situations to make sure ample liquidity as a way to meet required wants. The price for our €5.3 billion mortgage portfolio is 4.2% whereas the curiosity revenue that we get for our €4.1 billion liquid funds is 3.8%, which implies that the web curiosity prices are in good steadiness. So with this, or — let’s take a look at the outlook part. The outlook part includes in essence 4 components; steering for outright hedges, an optimization premium, taxes, CapEx steering and our mounted price discount program. First, a reminder that our annual outright quantity is roughly 47 terawatt hours and now we have additionally disclosed new charges for various worth areas. These had been disclosed already in reference to our first quarter consequence, however this, only a reminder. Beginning with the hedges, on the finish of the second quarter 2024, the hedge worth for the rest of 2024 was at €43 per megawatt hour and the respective hedge ratio was 75%. The hedge worth for 2025 is on the identical degree than the final time at €42 and respective hedge ratio elevated by 10 share level to 60%. The annual optimization premium continues to be on the degree of €6 to €8 per megawatt hour and for the full quantity of 47 terawatt hours. Whereas the steering is for the annual degree, there may be quarterly variations. Our company tax price steering is unchanged. We count on the comparable efficient revenue tax price to be within the vary of 18% to twenty%. In Sweden, there can be a revision of the property taxes for subsequent 12 months. For Fortum, the rise of the property taxes can be roughly €25 million for the years 2025 to 2030. Which means that the rise is €25 million from 2024 to 2025 after which stays at that degree for a five-year interval, together with 2030. Then a recap of the steering for our capital expenditures. Our capital expenditure for 2024 is predicted to be €550 million. This consists of upkeep CapEx of €300 million. As we disclosed the divestment of the recycling and waste enterprise on 18 July, we additionally lowered our capital steering from 2025 onwards. The annual upkeep CapEx is predicted to be roughly €250 million in 2025 and onwards, which continues to be clearly beneath our depreciation degree. Capital expenditure for the guided subsequent three years 2024 to 2026 is predicted to be €1.6 billion, together with upkeep and excluding potential acquisition. The earlier steering was €1.7 billion. Please observe that if we might not disclose new funding mission, our capital expenditure would go down over time in direction of €300 million after 2026. And likewise, as talked about earlier than, we goal to cut back our annual mounted price by €100 million, excluding inflation, regularly till the tip of 2025 with the complete impact from the start of 2026. The divestment of our recycling waste enterprise will scale back the group’s mounted price base by roughly €150 million. So from 2025 onwards, the brand new mounted price base can be roughly €850 million. Regardless of this, the price discount goal of €100 million is unchanged. And as I already talked about, we count on to cut back our mounted price base by greater than €50 million already by the tip of 2024. This was all for my presentation and now we’re comfortable to reply your query. So with this one, Ingela, over to you.
Ingela Ulfves: Thanks, Tiina, and thanks additionally, Markus. We’re now able to take your questions. So please state your title and firm earlier than asking the query. And we additionally ask you to restrict your self to 2 questions every. Then you possibly can come again for extra questions. So we’re prepared to start out. Moderator, please go forward.
Operator: [Operator Instructions] The subsequent query comes from Wanda Serwinowska from UBS. Please go forward.
Wanda Serwinowska: Hello, good morning. Wanda Serwinowska, UBS. Simply two questions from me. Congratulations initially on the outcomes. So the primary query, on the brand new nuclear in Sweden. Earlier this week, there was a proposal round new typical buildout in Sweden in nuclear. So the query is, is it one thing that Fortum can be serious about? Is Fortum serious about being in massive new nuclear in Sweden, particularly given lack of development CapEx exterior within the foreseeable future? And the second query is on the price chopping. I do admire you goal €100 million over the subsequent few years, however are you able to simply quantify how a lot have you ever achieved in H1 this 12 months versus H1 final 12 months? As a result of that is how we evaluate. It might be actually, actually appreciated if we might perceive what’s the incremental profit on the price aspect versus final 12 months, not versus what was earlier than excessive inflation. Thanks very a lot.
Markus Rauramo: Okay. Hello, Wanda, and thanks for the congratulations. So I can begin with the brand new nuclear in Sweden. We expect Dillen’s report is to the precise route. So the Swedish authorities investigation is mainly addressing the factors that now we have been elevating. So for brand spanking new baseload to return to market, we want, in fact, know-how. So there must be related know-how suppliers, vegetation obtainable. In order that’s one factor that we’re investigating in our research. We’ve been additionally elevating the query that there must be a financing mannequin as a result of the development instances are lengthy, there are price uncertainties, and with right this moment’s market costs, new nuclear isn’t possible. So some form of market mechanism, capability CFD, one thing is required. So I’d say proper route alongside the strains that now we have been advocating, however I’d say that that is form of a excessive degree indicative consequence. There must be way more element for one thing actually to occur. Then I believe additionally what is required is bigger dialogue within the — from the power authorities’ and ministries’ perspective that what are the — all of the impacts on the entire power system if ever these form of mechanisms would go ahead. So what’s the influence available on the market, what’s the influence on present capability, how about versatile capability, how in regards to the intermittent capability. So directionally proper, however quite a lot of element nonetheless to return. We’re serious about new capability if situations are fulfilled so that there is technical feasibility and monetary feasibility and regulatory feasibility. And we’re nonetheless persevering with with our nuclear new construct research. In order that’s a protracted option to go on all of those fronts. Then for price chopping, I’d describe it in order that we’re very comfy that we are going to obtain the €100 million comparable price discount. The actions are — both they’ve been deliberate and already are being in execution or we’re comfy that they’re coming now within the latter a part of this 12 months and subsequent 12 months to succeed in the run price in 2026. So good dedication from the management of the corporate. We — subsequent I’m discussing that with our senior management right this moment and the entire employees tomorrow. By and enormous, I’d say that you’ll begin to see the impacts largely now the €50 million run price. This may begin to are available in on the again finish of this 12 months as a result of issues now we have been doing, for instance, in shopper options and IT, the impacts, we’ll begin to see solely going ahead. So impacts, slightly bit backloaded actions will come extra linearly. However Tiina, do you wish to remark additional on the price discount?
Tiina Tuomela: Sure, positively. So that is just about on my focus and agenda as effectively, the follow-up, the actions, what now we have carried out and the way they, in a approach, flip to our forecast and numbers. And as Markus mentioned, so we’re assured that the influence begin to present the latter a part of the 12 months after which proceed in fact naturally subsequent 12 months. Perhaps one factor to focus on that if we have a look at the present numbers and stuck prices, so evaluating both the second quarter or the primary half 12 months, so the mounted price base have truly a bit elevated. And the rationale there’s primarily coming from the inflation. So inflation has been very excessive, as we all know, in 2023, and in addition that has impacted to our wage and personnel price. Then perhaps different factor to say, you would possibly recall that 2022, we did not pay any bonuses. So it impacted the extent in 2023 a bit decrease, and now fortunately now we have been within the place that additionally the bonuses have been paid. So this exhibits additionally that this type of inflation after which some one-time impacts after we do that restructuring and adjustments exhibits in our numbers, however they are going to regularly decline.
Wanda Serwinowska: Can I simply rapidly comply with up on the Sweden — on the Swedish nuclear? I imply, I believe the report was mentioning probably a 40-year two sided CFD at SEK800 per megawatt in 2023 costs. Is it a framework that you’d be proud of like a 40-year CFD or it is too early to say as a result of you do not know the know-how, CapEx and so forth and so forth?
Markus Rauramo: Precisely. So that is the case. We — in fact, we all know, we’re fairly effectively knowledgeable about development prices and the obtainable applied sciences. So now we have been doing very thorough work visiting related suppliers and development websites world wide. And we all know that development prices are excessive, development instances are lengthy, and the know-how and worth uncertainties are excessive as effectively. So what we’re actually in search of is that’s there credible know-how, is there modularity, scalability, repeatability, how a lot confidence can one get on the development price and development time and what’s the division of threat. Then in the case of what can be precisely a degree of a CFD or capability mechanism, when you begin to get the sensation on what’s the know-how, what are the gear prices, then you possibly can solely actually correctly opine on what’s the degree of a compensation mechanism and whole income. So we’re not wherever near these factors to even have educated opinions about that, to not point out about any funding selections. So they’re someplace out sooner or later.
Wanda Serwinowska: Sensible. Thanks very a lot.
Operator: The subsequent query comes from Harry Wyburd from BNP Paribas (OTC:) Exane. Please go forward.
Harry Wyburd: Hello, good morning, everybody. It is Harry Wyburd from Exane. So two from me please. So firstly, might you replace us on whether or not you’ve got made any progress on talks or have something within the pipeline on PPAs? And particularly, you’ve got clearly signed an settlement with Microsoft (NASDAQ:) for waste warmth on their Helsinki information heart campus, whether or not there’s been any progress there on probably signing a PPA with them. After which second one’s in your steadiness sheet, and I wish to perceive whether or not the round options sale being agreed and the India sale as effectively has altered your pondering there. I assume you are beginning to get very near successfully zero internet debt. Have that modified your view on what you would possibly do on particular dividends, on share buybacks, on acquisitions or are we nonetheless simply in, I assume, the behavior of being on the prime finish of your dividend payout ratio? Thanks.
Markus Rauramo: Okay. Thanks for the query. So perhaps I will begin with the round options query, after which go to PPAs, and Tiina, if you wish to touch upon that as effectively. So certainly, the steadiness sheet is already sturdy, €850 million of internet debt and the EV for the round resolution enterprise was €800 million. So steadiness sheet even after that can be even stronger, and I famous that in my half as effectively. So we proceed to comply with our dividend coverage, 60% to 90% of the comparable EPS. And when the steadiness sheet is robust and there is not a heavy pipeline of investments, we might then use the upper finish of that payout vary. And if the steadiness sheet can be softer and investments much less or investments extra, then we might use the decrease finish of that vary. On the subject of any selections or indications of the dividend to be paid out from this 12 months, that in fact is one thing that we then talk about with our Board and Board proposes to the AGM with — in reference to the full-year outcomes at first of subsequent 12 months. So that is the time after we would begin speaking about that. Then close to PPAs, sure, we see the sturdy decarbonization electrification pipeline in metal, chemical compounds, information facilities, battery factories. The demand outlook appears very sturdy, and we get huge quantity of incoming inquiries. Then the precise PPA realization is dependent upon how the buyers are making their selections. So the bigger PPAs, we might sometimes announce as releases and there have not been many now throughout this 12 months that will have reached that degree, however the buyer pipeline appears to be sturdy. Something you wish to add on the PPA?
Tiina Tuomela: No. Properly, I believe it will be significant, as now we have mentioned, that that is one among our strategic targets to extend the long-term hedging as much as 20% by 2026. So that is nonetheless in working and what we do.
Operator: The subsequent query comes from Artem Beletski from SEB. Please go forward.
Artem Beletski: Sure. Hello, and thanks for taking my questions. I even have two to be requested. So the primary one is referring to optimization premium, and will you present some additional coloration on its degree in Q2 of this 12 months? So have you ever been, for instance, beating €6 to €8 vary as it’s guided for the complete 12 months? And the second query is referring to subject of business websites what you’ve obtainable with good grid connectivity. May you perhaps present some coloration of curiosity in direction of potential investments on that entrance, how huge it’s and particularly in the case of information facilities, are there many, for instance, discussions what you’re having proper now referring to this potential providing, so to talk?
Markus Rauramo: Sure. Thanks, Artem, for the questions. So close to the optimization premium, we’re guiding the complete 12 months €6 to €8 per megawatt hour. So we’re not focusing on to offer quarterly steering or quarterly consequence of that, however we’re very comfy giving the €6 to €8 steering going ahead. In order that continues. Then close to the economic website improvement, so it’s precisely such as you implied in your query that the info heart — so apparently each the info use is rising quick and AI is likely one of the drivers there. So quite a lot of exercise with the worldwide information heart operators, so information suppliers, that appears to be probably the most lively section in our buyer portfolio. So quite a lot of curiosity and that is why now we have been additionally creating extra websites along with those we already spoke about within the first quarter. And we’re within the — in our IR deck, we offer a bit extra coloration on the place are these websites as effectively. So what we’re in search of is that we will discover websites the place you’ve sturdy grid connections. There’s potential additionally to be used of the surplus warmth that in fact can apply to apart from information heart use as effectively. And what now we have seen is that — I believe we thought that we will velocity up our clients or the buyers’ funding plans by two to a few years. Some are even saying that it is three to 4 years dashing up. In order that’s how a lot quicker you possibly can are available in if in case you have a website that’s already underneath improvement close to zoning and allowing and the connections. So we’re doing this along with both non-public or communal landowners. So we might purchase land after which promote it onwards or agree that there are back-to-back agreements, however that is one thing the place we predict we will actually assist with electrification and decarbonization investments.
Artem Beletski: That is clear. Thanks.
Operator: The subsequent query comes from John Campbell from Financial institution of America. Please go forward.
John Campbell: Hello. Good morning, everyone. It is John Campbell from BofA. Thanks for the presentation. I’ve received one query. I famous in your remarks you mentioned that you just imagine elevated spot volatility in Finland will proceed. Can I ask what you are seeing within the third quarter to this point, because it appears to me volatility is considerably softer? Thanks.
Markus Rauramo: Sure. Thanks for the query. So structurally, we see that what’s coming to the market continues to be renewables, so constructing versatile energy is troublesome. So batteries, in fact, batteries and storage and versatile use of electrical energy is rising, however versatile manufacturing is troublesome. And that is truly a subject each within the Nordics and EU by and enormous to suppose that what can we do to advertise that. After which if I’m going again to the very first query about nuclear, so constructing baseload energy is pricey and troublesome as effectively. So structurally, the factor that comes quick to the market is definitely intermittent energy. So structurally, there are developments that may enhance, proceed to extend the volatility, and that’s truly a subject that we additionally raised to the dialogue each in Finland, the Nordics, and the EU that we do not — we simply do not stroll there after which are stunned that customers and industrial clients have difficulties with the value volatility. So that is the purpose. After which it additionally comes again to the steering on the optimization premium. So each the monitor report and the outlook, we really feel very comfy giving that €6 to €8 steering primarily based on precisely what sort of volatility we assume going ahead.
John Campbell: Thanks.
Operator: The subsequent query comes from Harrison Williams from Morgan Stanley. Please go forward.
Harrison Williams: Hello. Good morning, everybody. Thanks for taking my questions. Harrison Williams at Morgan Stanley. So two from me, if attainable. Firstly, simply coming again to what you had been simply saying on elevated inventory volatility in Finland, if you end up trying on the PPA market, are you getting extra curiosity from gamers presently available in the market due to that trying to get a bit extra worth stability, or is it nonetheless predominantly dominated by new potential entrants similar to the info facilities, the batteries, the chemical compounds that you just talked about? In order that’s the primary query. After which secondly, in your steadiness sheet, as soon as once more, I believe, as was identified earlier, you would be in internet money with the disposal. And so given your credit score metrics let you go to, I believe, 2 to 2.5 instances internet debt to EBITDA, how comfy or how lengthy would you be keen to take a seat beneath that or considerably beneath that threshold earlier than you’d contemplate that perhaps investments aren’t there for the time being and would look to speed up distribution to shareholders? Thanks.
Markus Rauramo: Thanks. So good query in regards to the — so the place is the hedging curiosity coming from. If I’m going to really the short-term hedging ratios for this 12 months and subsequent 12 months, you possibly can see that we’re just about following the historic patterns, so for this 12 months, 75%, and subsequent 12 months 60% hedged, and that is with liquidity having been lowered massively within the electrical energy exchanges. So that is now bilateral hedging. So plainly for the short-term volatility administration, the energy-using industries are eager to proceed to hedge their power prices. So volatility is a matter that individuals wish to hedge in opposition to. Then for the long term hedging, we — so it is manifold. So we do see that we’re having intense discussions with purchasers who’ve huge funding plans and they should repair their enter prices. After which in fact this can materialize when the investments are carried out. Then there are incumbents who already are available in the market, they might have some alternative investments they usually wish to hedge their prices; identical factor there. So we see cautious consideration with the industries when they’re pondering precisely when to speculate and when to lock of their prices. If I’m going again slightly bit, as a result of I — in fact I take into consideration, okay, so why do the questions come up? Our indication of the 10-year hedging targets and the hedged volumes, it is a results of each us in fact wanting to offer predictability to our money flows, however it’s an consequence of the incoming inbound curiosity. So if there weren’t buyer curiosity for the medium to long-term hedging, then it will be futile to place out such goal. So for me, it appears like very firmly that the long-term curiosity is there, however then the buyers must fastidiously — or they’re fastidiously contemplating when precisely they lock their investments and take the selections and lock in long-term inputs. Then for the credit score metrics, so we have a look at the steadiness of steadiness sheet, investments, and returns to shareholders. And steadiness sheet is in good condition. So rankings are BBB+ and BBB flat; debt ranges are low and liquidity is nice. We do see the prospect for investments going ahead, however in fact we have to consider that on a steady foundation. So we attempt to give well timed steering on the funding pipeline. So now we’re saying that for 3 years, it is €1.6 billion, and that may then change over time relying on whether or not there can be kind of investments. After which for the query that when can we then come again to the problem, fairly quickly truly, on the newest or we’ll come again to that in reference to the complete 12 months outcomes and the Board’s proposal for the AGM for the dividend from this 12 months. So that may be a level to observe, however the dividend coverage is standing right this moment at 60% to 90% of the comparable EPS.
Harrison Williams: That is actually useful. Thanks very a lot.
Operator: The subsequent query comes from Deepa Venkateswaran from Bernstein. Please go forward.
Deepa Venkateswaran: Hello, thanks for taking my query. I had two questions. So that you shared an fascinating slide of the places of the websites within the investor presentation. So I had a query. I do not see Loviisa in right here. Would you even be contemplating any alternatives for behind the meter information facilities along with your absolutely owned nuclear plant? And the second query is, have you ever quantified in your — the three areas that matter to you, Finland, SE1 and SE2, what number of gigawatts of information facilities? So not simply your websites, however anyone else’s are prone to join and what is the influence on the ability demand by way of share enhance in comparison with the present ranges? Thanks.
Markus Rauramo: Sure. Thanks, Deepa, for the questions. So I do know that the dialogue, behind the meter dialogue globally could be very lively. That is — as an instance in concept, that is an possibility, however not — I do not see that there was like buyer demand for that significantly. So we are attempting to comply with the place the demand could possibly be, the place there’s land availability. In any other case, we’re creating in Loviisa. So we’re, for instance, this hydrogen mission, the two megawatts, so it is very small, however that is our first step into hydrogen. So that’s occurring truly in Loviisa. So general, I’d say Loviisa as such has the traits of a really welcoming society that’s used to work with heavy industries and nuclear, however all in all, the event appears to be very broad. So the demand to debate about websites appears to be very excessive. And that takes to the very fascinating query, which is the second level that, effectively, what are the indications and expectations of information heart development and demand development within the Nordics. And I’d say roughly that if I have a look at how most forecasters appear to see the problem is that it’s metal and aluminum and metals, chemical compounds, information facilities battery — or battery factories, information facilities, and e-mobility roughly in that order, give or take. And information facilities do not appear to function as excessive as you would perhaps suppose on these demand expectations. So I believe out of the expansion, the TSOs are estimating that the info heart demand development can be 13 terawatt hours. Let’s have a look at what occurs. What we will see is that the metal, aluminum, hydrogen tasks, they appear to take longer to materialize, and lots of of those are literally new corporations who’ve a novel enterprise mannequin they usually have their offtake contracts they usually wish to do the long-term procurement, however in fact, it takes time when you have to elevate the capital and new know-how, whereas the info facilities, even when it appears, the forecast appears smaller for the time being, however when you think about the worldwide information heart operators, in fact they’ve the capital they usually have the necessity right here and right this moment they usually want no new contracting constructions. So the info demand is rising, AI is pushing that forward, they usually have the capital, to allow them to make investments from their very own steadiness sheet. So I’d say perhaps smaller forecasted quantity, however extra linear execution in comparison with the extra chunky investments that then come from new kinds of companies, even when in conventional industries.
Deepa Venkateswaran: Okay. I imply, I believe it will be useful in the event you quantify it at a later stage, at the very least what it means in your area primarily based on the pipeline you are seeing, simply to place it in perspective of what is the demand enhance, at the very least within the areas that matter to you as a result of I believe the 13 terawatt hours is for your complete North Pole, is not it?
Markus Rauramo: That is right. True. Sure. Okay, we’ll see about that, if such indications can be found from public sources, however thanks for the precise suggestions. Respect.
Deepa Venkateswaran: Thanks.
Operator: The subsequent query comes from Louis Boujard from ODDO BHF. Please go forward.
Louis Boujard: Sure. Hello, good morning. Thanks for taking my query. Perhaps two on my aspect as effectively. Perhaps the primary one directed to Tiina, I assume. It is concerning the touch upon the CapEx after 2026 that you just did. I believe that — I admire, in fact, that you’ve got €1.6 billion CapEx plan over ’24 to ’26, however past ’26, my understanding is that you just talked about one thing like €300 million of CapEx envelope. Does it embrace the expansion as effectively CapEx or is the full CapEx or solely the upkeep CapEx? And if certainly, it’s the whole CapEx that’s anticipated to be €300 million onward after ’26, then why not take into consideration some funding that could possibly be extra short-term by way of potential new investments with renewables within the completely different areas the place you would be? The second query can be concerning the assure of origin, which have been a bit decrease over the previous few quarters. It is recovering slightly bit over the previous few months. I wish to perceive if it has any influence into your optimization premium for the time being and if the combo within the optimization premium now extra balanced towards flexibility and fewer balanced towards assure of origin. Thanks very a lot.
Tiina Tuomela: Excellent. Sure. Let’s begin with our CapEx steering. So mainly, we up to date our CapEx steering primarily based on the sale of the recycling and waste enterprise, and there we lowered the upkeep CapEx. So upkeep CapEx has been €300 million yearly and we scale back it to €250 million from 1st of January 2025 onwards. Then the remaining €800 million what now we have is said to development. And I believe what we state that except we are saying and announce in fact then the brand new investments, so then the general funding degree will go to €300 million, that means that roughly €250 million is the upkeep and a few €50 million the expansion path, however these are the selections now we have already made. So we all know that these are coming and doing and there is no uncertainty. However clearly, as Markus mentioned, that we’re planning and we’re doing additionally the pipeline, trying, in fact, our funding criterias, being very disciplined on this difficult market setting, so how we allocate our cash. However that is simply to point that that is what’s within the pipeline for the time being, however in fact, we’re working with the brand new ones as effectively.
Markus Rauramo: Okay. And I can — go forward.
Louis Boujard: Sorry, simply to make sure, so I ought to perceive that it is a minimal development CapEx that’s €50 million past 2026, after which you’ve extra CapEx that may come a bit later.
Tiina Tuomela: That is right. So that is — these are the investments with the expansion now we have already determined, and they’re underneath completion just like the Pjelax Bole is out of the CapEx for the time being.
Markus Rauramo: And in the long term, Loviisa is the form of — you would say that Loviisa stays there, so a part of it — a part of that funding can be development. So now, for instance, already with the determined lifetime extension associated investments, the capability of Loviisa can be rising. However then over to the Assure of Origin being decrease, in fact, that is the case, and we present it on our slides as effectively. So does that have an effect? So the most important a part of the optimization premium comes from the bodily optimization. Then now we have the ancillary providers, the grid providers, frequency management and others. After which so as of dimension, the GOOs, and in addition with these worth ranges, we’re comfy — very comfy giving the €6 to €8 steering, which suggests in fact that the bodily half is the most important one, and now we have been very profitable and proceed to count on that we will optimize with our versatile hydro capability. And that is one thing additionally the place we proceed to place focus each on the supply and the flexibleness and we’ll be investing in that as effectively. So ongoing investments into hydro and nuclear will proceed, and naturally we’re doing issues to even enhance the output and constantly enhance and keep the supply.
Louis Boujard: Okay. Thanks very a lot.
Operator: The subsequent query comes from Harry Wyburd from BNP Paribas Exane. Please go forward.
Harry Wyburd: Hello, everybody. Thanks very a lot for taking one quick follow-up. So sorry to labor the purpose, however simply wished to return again to the steadiness sheet and dividend, given it is, I believe, in my private opinion, a really, essential subject for Fortum. So taking account of every little thing you mentioned, and there is been a few questions on this, the impression I get is, you’ll stick with in all probability the excessive finish of the dividend payout ratio vary in the interim, while investments are low. And then you definately’ve received tasks like new nuclear in the long term the place CapEx would possibly enhance, and then you definately’d probably evaluate your dividend payouts when these begin to ramp up. And within the meantime, the sense I get, however you would verify whether or not or not my pondering is correct, is that you just’re type of harboring your steadiness sheet to be prepared for larger investments sooner or later. So is {that a} truthful mind-set about it that mainly we will have 90% payout ratio within the subsequent few years, adopted by a evaluate thereafter, and probably utilizing that steadiness sheet on natural tasks? Thanks.
Markus Rauramo: Sure. So thanks for the query. So I’d put it in order that, sure, the steadiness sheet is robust, so we acknowledge that. And it received stronger than we thought, quicker than we thought after all of the turbulence that occurred and the market situations the place we had been. So if I take into consideration the place we’re right this moment versus the two to 2.5 max degree, then I believe in this type of geopolitical uncertainty and market fragility, I might fairly be a bit conservative. So I’d not, in these circumstances, go all the best way to stretch it to the complete. Then we’ll in fact opine on the dividend in reference to the full-year outcomes. Now the dividend payout is tied to the comparable EPS. So we comply with that. However in fact, we have a look at the steadiness sheet versus funding potential, and we’ll in fact open our ideas in reference to dividend proposal as effectively after we get there. After which I will point out another factor. It isn’t instantly referring to the steadiness sheet energy per se, however the liquidity, and that’s that now the margining necessities have come down massively. So you would say that we’re just about at traditionally regular ranges, however we do wish to be able that if there’s market turbulence and liquidity wants would develop, we wish to be able that we will then lock in additionally greater costs and wouldn’t have limitations on what the liquidity permits us to do. So right here fairly be a bit conservative close to liquidity for the time being and be capable of make the most of all attainable situations.
Harry Wyburd: Okay. Many thanks.
Markus Rauramo: Thanks.
Ingela Ulfves: Okay. Thanks all in your questions. At first, I mentioned that if there can be any questions from the Finnish viewers or Finnish media particularly, then we might now change into Finnish and proceed with these. That’s not the scenario. So with this, I thanks all in your participation right here right this moment and want you, on behalf of Fortum, a very nice remainder of the day. Thanks a lot and bye.
Finish of Q&A:
Markus Rauramo: Thanks for the participation and all of the superb questions. Thanks.
Tiina Tuomela: Thanks very a lot.
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