vattenfall capital markets day 2007 · 2020 forecast source: vattenfall incl. co2 trading....
TRANSCRIPT
© Vattenfall AB
Vattenfall Capital Markets Day 2007
Presentation by
Jan Erik BackCFO
Stockholm, 24 September 2007
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 2
Content
1. Current main issues
2. Steering model
3. Electricity prices & CO2
4. Financial challenges
5. Debt management
6. Summary & conclusions
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 3
Current main issues
• Increased cost for risk, tighter borrowing conditions for high risk.
• Energy sector safe-haven.
• Limited M-T impact foreseen on Vattenfall (L-T ease on M&A valuations?).Credit crunch
• German corporate income tax dramatically reduced 2008.
• Further real estate and production taxes proposed in Sweden.
• Tighter CO2 situation as of 2008. Dramatically increased cost.Taxes, CO2
• Public perception of the electricity industry.
• Nuclear trust challenge.
• Nuclear important risk diversification from CCS-dependency risk.
Trust, riskmanagement
• Operational excellence and “organic” generation growth in focus.
• Increasingly challenging to close large M&A (protectionism, valuations).Competitors
© Vattenfall AB
2. Steering model
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 5
Financial development
Growth
Consolidation
0
5
10
15
20
0 20 40 60 80 100 120 140 160 180
Revenues in bn SEK
RO
NA
(%)
1996
1997
1998
1999
2000
20012002
20032004
2005 2006
Wet yearsPrice decrease
DeregulationCompetition
German acquisitions
Substantial electricity price increases:- Trading system for CO2 allowances introduced.- Oil and gas price increases.- Coal price increases.
Regaining trustOperational challenges(nuclear,’ networks, sales)
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 6
Financial targets
Financial requirementcascaded per BU
Financial requirementcascaded per BU
3.5 – 4.5x pre-tax interest cover *)
Single-A rating commitment
15% RoE requirement
40-60% dividend policy
Strategic outlookCapacity management
Investment plansBusiness plans
Translated to RoNA requirement
Long-term targetscascaded per BU
Cash flowand capital allocation
Financial requirementcascaded per BU
Financial requirementcascaded per BU
Business planning targets 2010cascaded per BU
Financial requirementcascaded per BU
Financial requirementcascaded per BU
Milestone targets 2008-2010cascaded per BU *) after maintenance investments
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 7
Financial targets and outcome
Q2 2007
Single A category ratingCredit Rating
3.5 – 4.5 timesCash flow interest coverage after maintenance investments
11 % before tax (= 15 % RoE recalculated into the Groups RoNA requirement)
Return on Net Assets(RoNA, excl. IAC)
Return on Equity (RoE)
TargetsKey Ratio
15 % on average equity 19.9%1
15.2%*
7.6*
A2/A-Stable outlook
1) Q2 2007 figure = LTM
40-60 %Dividend pay-out 40 %
© Vattenfall AB
3. Electricity prices & CO2
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 9
Electricity prices, spot significantly lowerthan 2006….
Monthly Spot Average
15
25
35
45
55
65
75
85
jan-05 apr-05 jul-05 okt-05 jan-06 apr-06 jul-06 okt-06 jan-07 apr-07 jul-07
NordPool (SYSEUR) EEX
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 10
…while forwards look promising (driven by CO2, coal and oil)Daily Forward Closing Prices
20,00
25,00
30,00
35,00
40,00
45,00
50,00
55,00
60,00
65,00
jan-05 apr-05 jun-05 sep-05 dec-05 mar-06 jun-06 sep-06 dec-06 mar-07 jun-07
ENOYR-08 EEXYR-08 ENOYR-09 EEXYR-09
EUR/MWh
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 11
CO2 pricesEUR/ton
0
5
10
15
20
25
30
35
jan-
06
apr-0
6
jul-0
6
okt-0
6
jan-
07
apr-0
7
jul-0
7
okt-0
7
2007
2008
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 12
Electricity price areas in 2005 and 2020
2005 Actual
35 40
Medium
Low
High
2003-2005
2005 Actual
35 40
Medium
Low
High
2020 Forecast
Source: Vattenfall Incl. CO2 trading
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 13
Cost of NAP2
• Lower allocation of CO2 allowances than expected.• German electricity generating sector must carry the German burden. • Material financial impact on Vattenfall’s German operations, less in Nordic
and Poland
Germany Deficit of CO2-certificates:Estimated net cost (after tax) & cash flow effect
28-33 mn ton
400-500 MEUR p.a. from 2008
DenmarkDeficit of CO2-certificates:Estimated net cost (after tax)& cash flow effect
1.8 mn ton
26-28 MEUR
(approximately)
p.a. from 2008
PolandDeficit of CO2-certificates:Estimated EBIT effect
0.7-1.0 mn ton15-20 MEUR p.a. from 2008
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 14
Hedging position
Nordic
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
remaining 2007 2008 2009
Germany & Poland
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
remaining 2007 2008 2009
% hedged of planned electricity generation (percentage values are rounded)
© Vattenfall AB
4. Financial challenges
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 16
1) FY2006 adjusted for comparison: (A) ISU write downs 193 MSEK, (B) network write downs 1.020 MSEK, and (C) capitalised major revisions in Germany.
Satisfactory top-down earnings
• 19% RoE
• Whole-sale electricity price effects
Amounts in MSEK
Net salesDirect costsGross profitSales and administrationDepreciation 1)
OtherOperating profit, excl. write-down1)
RoE
FY 2006
135,80281,50254,30012,75915,2391,960
28,26218.7
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 17
Earnings are truly generation and heat drivenOutlook
2007200620052004
Generation
Heat
Services
Transmission
Distribution
Sales
Performers:Above requirement.
Different degree of challenges:Below requirement, and not closing the gap in the short-term.
Nordic
Germany
Nordic
Germany
Poland
Germany
Nordic
Germany
Poland
Nordic
Germany
Poland
Nordic
Network challenges:
• Tariff levels (regulators, public pressure).
• Increased investment expectations.
Sales challenges:
• Gross margin pressure.
• Cost-to-serve (scale).
Generation:
• Whole-sale el price driven.
• High content CO2 free (hydro, nuclear).
• CCS important for coal.
• Nuclear replacement.
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 18
Finalising financial integration
• Very long squeeze-out process of remaining minority shareholders in Vattenfall Europe AG (3%).
• Optimisation and further improvement of intra-Group cash management.
• Finalising “the Vattenfall model” for successful financial integration:
– Cross-border synergies in operations (fuel, purchasing).
– Cross-border synergies in support processes (IT, administration).
– Functional responsibilities.
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 19
The growth challenge
• Strong focus on maintenance, capacity replacement and life-time extensions.
• “Organic” growth added.(new power plants, capacity increases).
• Renewable energy growth (modest return, long lead-times).
• Continued high investment expectations within network businesses (limited return).
• Highly priced acquisition targets. Synergies important for value creation.
• Cross-border synergies to be further developed (to enhance value creation).
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 20
Capex plan
SEK 104 bn 2006-2010
7 0
2 9
5
0
2 0
4 0
6 0
8 0
10 0
12 0
Ge ne ra t io ninc . He at
N e t w o rks Ot he r
SEK 134 bn 2007-2011
SEK 57 bn(42%)SEK 71 bn
(54%)
SEK 6 bn(4%)
Poland Nordic Germany
• Boxberg power plant (675 MW)
• Moorburg power plant (1,640 MW)
• Reichwalde mine
• Nuclear capacity upgrade
• Network improvements
German and Nordic windpower
Life-time extensions generation assets in
Nordic and Germany
10 2
3 1
10
2 0
4 0
6 0
8 0
10 0
12 0
Ge ne ra t io ninc . He at
N e t w o rks Ot he r
SEK 42 bn(41%)
SEK 54 bn(52%)
SEK 8 bn(7%)
Poland Nordic Germany
Plus:
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 21
Electricity generation portfolio by fuel types
% of total
9
20
32
11
2
21
1
4
Lignite
Hard Coal
Nuclear
Hydro
Wind
Gas
Bio/Waste
Coal CCS
Oil
others
32
12
30
22
1
2
0
0
0
EU 273.161 TWh
Vattenfall 2007169 TWh
54 TWh
20 TWh
51 TWh
37 TWh
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 22
Rationale for growth
• Value growth opportunities through synergy generation (benefits of scale).
• Risk diversification through regional differences (mainly fuel and generation mix):
– Nordic: Weather and energy based via hydro power dependence.
– Germany: Capacity based with great coal competence and resources.
– Enter a new market
• Grow financial capacity to fund reinvestments and expanding capital intensive assets:
– Nuclear generation assets (life-time extension followed by asset retirement approaching fast).
– Thermal assets (typically 25 year lifetime, growing replacement needs in Germany).
– Network assets (increasing public and regulatory investment expectations).
• Increasing political and regulatory pressure require size to maintain dialogue (EU-level).
Maintained value creation and competitiveness.
© Vattenfall AB
5. Debt management
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 24
Net debt development
SEK million
0
10 000
20 000
30 000
40 000
50 000
60 000
70 000
80 000
Q4 200
0Q2 2
001
Q4 200
1Q2 2
002
Q4 200
2Q2 2
003
Q4 200
3Q2 2
004
Q4 200
4Q2 2
005
Q4 200
5Q2 2
006
Q4 200
6Q2 2
007
Capital Securities (Hybrid Securities)SEK 9.1 billion
As reported in Vattenfalls Annual and Quarterly reports
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 25
Adjusted gross and net debt
Reported gross debt (IFRS) 67 996 71 575 + PV of net pension obligations (incl actuarial gains/losses) 20 208 19 670 + Mining & environmental provisions 11 297 10 295 - 50% of Hybrid securities -4 555 -4 455 = Adjusted gross debt 94 946 97 085
Reported cash & short term investments 20 849 22 168 - German nuclear "Solidarvereinbarung" -3 147 -3 076 - Minority owner's share of German nuclear cash position -3 540 -3 594 = Adjusted cash & short term investments 14 162 15 498
Adjusted gross debt 94 946 97 085 - Adjusted cash & short term investments -14 162 -15 498 = Adjusted net debt 80 784 81 587Reported net debt 46 765 49 407
30 June 2007 31 Dec 2006SEK million
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 26
Adjusted net debt development in H1 2007
-81,6
17,7
-7,5 -7,6-0,5 -1,0
-0,3
-80,8
Adjusted net debt 31 Dec. 2006
Mining provisions and other environ-mentol under-takings
Cash flowfrom operating activities
Cash flow from investing activities
Dividend paid
Pension provisions and similar
Other Adjusted net debtJune 30 2007
SEK billion
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 27
Gross debt maturity profile
June 30, 2007 June 30, 2006Duration (years) 3,5 1) 3,4 Average time to maturity (years) 6,3 1) 6,3Net debt (SEK bn) 46,8 54,2
SEK million
Excluding loans from associated companies and minority owners
1) Based on external debt. Excluding Capital Securities the duration is 2,8 years and average time to maturity 5,9 years.
2006 Capital Securities2007 Capital Securities
0
2000
4000
6000
8000
10000
12000
2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036
2006 06 302007 06 30
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 28
Vattenfall historical and current credit curves
Source: Citi
0
5
10
15
20
25
30
35
40
45
50
'07 '09 '10 '18 '24
Spre
ad v
s M
id S
wap
s (b
p)
Credit Curve July 28 2006 Credit Curve Sep 14 2007
Secondary market
© Vattenfall AB
6. Summary & conclusions
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 30
• Satisfactory results but need for increased focus on operational excellence
• Taxes and CO2 cost emphasizes need for productivity improvement
• Create increased capacity for further growth
• Credit market turbulence has increased Vattenfall new issue price levels, but still fairly close to historical low levels
Summary & conclusions
© Vattenfall AB
Back up slides
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 32
EBIT has grown by a factor of six since 2000
Quarterly figures, SEK million
Quarterly figures in SEK million, excluding items affecting comparabilityLast 12 months figures in SEK million, excluding items affecting comparability
02 0004 0006 0008 000
10 00012 00014 00016 00018 00020 00022 00024 00026 00028 00030 000
Q4 200
0Q2 2
001
Q4 200
1Q2 2
002
Q4 200
2Q2 2
003
Q4 200
3Q2 2
004
Q4 200
4Q2 2
005
Q4 200
5Q2 2
006
Q4 200
6Q2 2
007
German HEW consolidated
German Bewag
consolidatedPolish GZE consolidated
Danish assets consolidated
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 33
Amounts in MSEK Q2 2007 Q2 2006 Change FY2006 LTMIFRS IFRS %
* IAC = items affecting comparability
Net sales 32,077 30,371 5.6 135,802 141,139Cost of products sold 23,841 21,884 8.9 96,844 103,196Gross profit 8,236 8,487 -3.0 38,958 37,943Operating profit (EBIT) 5,470 5,834 -6.2 27,049 25,194Operating profit, excl. IAC* 5,453 5,697 -4.3 26,676 25,117Financial income 845 681 24.1 3,839 3,992Financial expenses -1,300 -1,240 4.8 -5,363 -5,427Financial net -455 -559 18.6 -1,524 -1,435Profit before taxes 5,015 5,275 -4.9 25,525 23,759Taxes 1,237 -1,876 -5,667 -1,792Profit for the period 6,252 3,399 83.9 19,858 21,967
Consolidated income statement
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 34
Amounts in MSEK H1 2007 H1 2006 Change IFRS IFRS %
* IAC = items affecting comparability
Net sales 73,721 68,384 7.8Cost of products sold 51,576 45,224 14.0Gross profit 22,145 23,160 -4.4Operating profit (EBIT) 16,668 18,523 -10.0Operating profit, excl. IAC* 16,573 18,132 -8.6Financial income 1 631 1 478 10.4Financial expenses -2,580 -2,516 2.5Financial net -949 -1 038 8.5Profit before taxes 15,719 17,485 -10.1Taxes -2,232 -6,107 -63.5Profit for the period 13,487 11,378 18.5
Consolidated income statement
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 35
Amounts in MSEK 30/6/07 30/6/06 Change 31/12/06 IFRS IFRS %
Non-current assets 256,030 259,325 -1.3 251,893Current assets 66,451 59,525 11.6 71,273Total assets 322,481 318,850 1.1 323,166Equity 116,102 92,865 25.0 107,674Interest-bearing liabilitites 67,996 69,042 -1.5 71,575Interest-bearing provisions 50,401 46,899 7.5 49,217Pension provisions 17,415 17,211 1.2 16,877Deferred tax liabilities 29,247 39,202 -25.4 29,875Other non-interest-bearing liabilitites 41,320 53,631 -23.0 47,948Total equity and liabilities 322,481 318,850 1.1 323,166
Consolidated balance sheet
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 36
Amounts in SEK million
As of June 30, 2007 Treasury Germany Poland Nordic Total %
Subordinated perpetual Capital Securities 9,110 9,110 13
MTN 842 842 1
EMTN 35,174 35,174 52
Liabilities to assoc. companies 3,697 4,221 7,918 12
Liabilities to minority shareholders 45 4,533 4,578 7
Bank loans and others 910 6,697 146 2,620 10,374 15
Total 49,733 10,964 146 7,153 67,996 100
Break down of group debt
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 37
17211
25988
9307
39202
1685
4645 527417415
26674
11296
29247
1464
44156552
PensionsNuclearMiningTaxesOtherPersonnelLegal
Group provisions
30 Juni 2007
SEK 97,063 million30 Juni 2006
SEK 103,312 million
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 38
Hydrological balance
Hydrological Balance and System Price 1996 - 2007
-50
-40
-30
-20
-10
0
10
20
30
40
0
100
200
300
400
500
600
700
800
900
1000
System Price Hydrological Balance
SYSSEK/MWhTWh
1996 199919981997 2003200220012000 2004 2005 2006 2007
Updated per 16 Sept. 2007Source: Markedskraft A/S, Nord Pool
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 39
Comparable utility bond performance
Source: Citi
10
20
30
40
50
60
70
80
Jan-05 Apr-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07
Spre
ad v
s M
id S
wap
s (b
p)
Vattenfall '24 ENEL '24 RWE '18
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 40
Utility CDS performance
Source: Citi
M&A activity headlines
dominate the utility sector
Vattenfall announcetheir intent to
issue a Capital Security Worldwide
creditvolatility
Rumours of Enel New Issues
0
10
20
30
40
50
60
Jan-05 Apr-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07
Spr
ead
vs M
id S
wap
s(bp
)
VATFAL 5 YR E.ON 5 YR ENEL 5 YR RWE 5 YR
Vattenfall Capital Markets Day, 24 September 2007© Vattenfall AB 41
Hybrid bond performance
Source: Citi
0
50
100
150
200
250
300
350
400
450
Jul-05 Nov-05 Mar-06 Jul-06 Nov-06 Mar-07 Jul-07
Spre
ad v
s M
id S
wap
s (b
p)
Sued Vatfal Dong Bayer Henkel