Earnings Call: Q2 2020

Aug 19, 2020

Welcome to Fortum's Joint Webcasted News Conference on our Q2 results. My name is Ingela Ullwes, and with me here are also Morns and Rane from the IR team. This event is being recorded, and a replay will be available later on, on our website. As Uniper is a subsidiary of the Fortum Group, we are now, for the first time, reporting the group financials with the Uniper consolidated income statement. Our CEO, Marcos Rauramo and acting CFO, Timo Kartinen, will present the Q2 figures and go through the group performance. After that, we will open up for questions and answers. And as a reminder, you're also able to ask questions on our chat. So with further with no further comments, I welcome Markus to the stage. Okay. Thank you, Ingela, and welcome also on my behalf to this half year report webcast. This has been a very special half year. COVID-nineteen affects businesses globally, and many people and companies are struggling. Fortum as an international player is by no means immune, but so far, we have managed to have only a limited impact. I am personally proud of the performance of our employees who have done a tremendous job, and I can only say thank you. As this is my first result announcement as Fortum CEO, I would like to say a few words on my priorities before diving into our performance during the first half of the year. Fortum has developed substantially over the past few years and is now at the turning point. Following the major investment in the last years, this next phase of our corporate development will focus on creating value and delivering returns. Among our investments, Uniper is, of course, the most significant one. In March, we completed the majority transactions on Uniper. And as announced yesterday, we now hold a 75% stake in the company. In May, the Annual General Meeting of Uniper confirmed the reorganization of the Supervisory Board with Fortum now having 4 representatives. I would like to remind you that we have ruled out a DPLTA or squeeze out at least until the end of year 2021, and we stand by that. So now that Uniper is a strategic subsidiary and the 5th segment of the Fortum Group, it is certainly natural that my number one short term priority will be to have a joint strategy for the group in place by the end of the year. I want to build a strategy on the strengths of both companies, focusing on what we believe will create the most value for the group and our stakeholders going forward. I strongly believe that by working together, we can accelerate the group's transformation to become a leader in the European energy transition. We will continue to reduce our coal based production and pursue decarbonization through growth in clean energy, both power and gas. We will also continue to develop solutions that help our customers to decarbonize and move to a more circular economy. And as part of our joint strategy, we will set new climate targets for the whole group. I'm pleased that the strategy process with Uniper has gotten to a good start. However, we will come back to this by the end of the year at our Capital Market Day, which is to be held in the beginning of December. At the same time, we constantly work to secure the financial strength and flexibility of the group, which in this COVID induced uncertain market situation is even more important. Having a strong balance sheet and a solid investment grade rating of at least BBB flat continues to be a priority for Fortum. We are focusing on optimizing cash flow, maximizing our profitability, prioritizing our capital expenditure and continuing the optimization of our portfolio. I will return to these topics later in the presentation. My third priority is to further strengthen our leadership culture and give clarity and a common direction to our people throughout the joint strategy. We have highly competent and driven people at both Fortum and Uniper, and I believe that when people feel that they are trusted and appreciated, they will excel. Our open leadership building blocks, believing in each other, wanting the best for each other, also make it possible to expect the best from each other. And then I move over to Q2 of 2020. Year 2020 will be impacted by COVID-nineteen. Historical weakness, global GDP will decline, and it is still unclear how this will develop, and it is still too early to give any indication on the final impacts on Fortum. But we can say that this is a clearly disruptive situation. During the Q2, the very wet hydrology continued, especially in Norway, and caused an exceptional 84% drop in the Nordic spot power price. The area price in Finland and Sweden also declined, but to a lesser extent. At the same time, the CO2 price clearly increased during the Q2. While all of this widens the spread between the German and Nordic power power prices, it also increases the potential for a rebound in Nordic prices once the hydrological situation eventually normalizes. The low power prices affected the results of the generation segment negatively, but our fairly high hedge levels clearly cushioned the impact, and our achieved power price declined only marginally by 4%. The market uncertainty due to the COVID-nineteen pandemic continued, but has had hardly any effect on the Nordic power consumption and consequently very marginal impact on our Nordic operations. However, COVID impacted both our and Uniper's Russian operations. In Russia, power consumption declined notably as a result of the pandemic and OPEC plus decisions pushing down the electricity market price. Coupled with the weaker Russian ruble, the contribution from Russia segment clearly decreased from last year. Uniper reported their Q2 results last week, and I want to highlight that I will not go into details on their business performance because this was already extensively covered by Andreas and Sascha on August 11. However, we now report Uniper as a separate segment in the Fortum numbers. The results of Consumer Solutions and City Solutions segments were stable. As Uniper now is a subsidiary to Fortum, we have also consolidated Uniper's income statement as of Q2 2020. In Q2 last year and still in Q1 2020, Fortum recorded its share of Uniper result as a share of profits as an associated company. It is important to note that our Q2 2019 result included the share of results from Uniper's Q1 2019 results, €399,000,000 not their Q2 2019. This means that the EPS is not comparable on a year on year basis due to the volatility in result between the quarters. It is good to remember that Q1 and Q4 are the strongest quarters and Q2 and Q3 weakest result quarters for Fortum and also for Uniper. In the first half of twenty twenty, Uniper has contributed €0.65 to our EPS of €1.40 including all items. The change in working capital was mainly due to Uniper's trading and optimization business. And then to the Q2 highlights. Due to the ongoing COVID-nineteen pandemic, the exposure to risk and uncertainty in all risk categories has increased compared to the year end situation. Although there has been certain stabilization and partial recovery of prices in the Q2, market prices for Nordic electricity remain lower than at the beginning of the year due to lower commodity prices and European demand as well as the extremely wet, warm and windy winter in the Nordics during the Q1. Fortum's hedges, especially for the remainder of 2020 and for the year 2021, will provide some protection against short term fluctuations in the Nordic electricity and other commodity market prices. But if the pandemic continues longer than expected or results in a more severe economic downturn than anticipated, results will be negatively impacted as the hedge level for future years is lower. As I mentioned earlier, taking care of our financial strength and rating is a priority for us. At Fortum, we continuously evaluate and optimize our business portfolio as can be seen in the acquisitions and divestments we have made over the last few years. We will continue to do so with the aim of having a more focused business portfolio for the whole group in the future. Regarding our ongoing strategy, the work will continue throughout this year in collaboration with Uniper with them to communicate the outcome for the consolidated group at our Capital Markets Day planned to be held on 3rd December. This year, we have disclosed divestments amounting to SEK 1,200,000,000. That includes Johanso and Yerempa district heating, majority of Nordic wind portfolio and the recharge infrastructure. We are very satisfied, especially with the district heating transactions, as we have managed to sell them at attractive multiples, Joensu, 26x and Jarvenpa, 34x EBITDA. Some of these are already closed and will be some will be closed later this year. With these actions, we are increasing our portfolio focus and at the same time taking care of our balance sheet. During the Q2, we also disclosed that we continued the review of our business portfolio related to our 50% stake in Stockholm Exergi, and we have initiated discussions with the City of Stockholm. We are now in discussions with the city as the other owner of the business. We have a shareholder agreement in place, the terms of which are not disclosed, but we are quite free to explore all options. And this is what we want to do, evaluate our possibilities, and only after that, we will make decisions. The strategic review of our district heating assets and businesses in Poland and the Baltics continue as planned. And then over to the power demand development in our various operating regions. Impacted by COVID-nineteen, power consumption has declined across Europe. In the Central Western Europe, the decline has been about 10% for Q2 2020 compared to comparable period last year. However, in the Nordics, the impact has been negligible. In Russia, price zone 1, power demand in Q2 decreased 6% compared to Q2 2019, mainly due to the COVID-nineteen reducing economic activities and reduced oil production after OPEC plus decision. It is clear that there will be a recession in Europe, but how long and how deep, that is uncertain. And consequently, it is too early to say what the impact on power to mine and consumption will be. The impact is likely to vary depending on country. Here, we try to give a risk map of potential impact on our different segments from a recession following COVID-nineteen. This picture we already showed last time in Q1. So this is basically repeating many of the same messages as the impact on a group level has been limited so far. So far, we have not seen any impact in the form of credit losses. However, we will continue to monitor the situation very carefully. Only our Russia business has been hit through lower power demand that also resulted in lower power prices, especially in Tumen area, which is an oil and gas production area. So far, we have not seen there any impact in the form of credit losses either. Uniper already reported also that COVID-nineteen has had limited impact on their operations. Going over to the hydro reservoir situation. The Nordic reservoir levels at the end of July are clearly above normal. The Norwegian surplus and production pressure is the highest, while also the Swedish reservoir level is clearly above normal. Precipitation below normal level during spring reduced the inflows in Finland, where reservoirs currently are at the normal levels. The levels were around normal during the whole year 2019 but increased fast at the end of 2019 and in the beginning of 2020. The rapid change to exceptionally rainy, mild and windy weather started during last weeks of 'nineteen and continued throughout January February. Spring was colder than normal, and precipitation amounts were slightly below normal. This did not have any significant impact on the overall surplus in Norway and Sweden, but in Finland, the spring inflow realized below expectations and reservoirs remained at normal level. In the beginning of Q2, Nordic reservoir level was at 11 terawatt hours above the long term average, while at the end of Q2, the level was 9 terawatt hours above average. The production pressure continues to be extremely high, and currently, the level is 16 terawatt hours above the average. Then over to commodities. In Q1, coal prices have been affected by COVID-nineteen less than other energy commodities. But as COVID-nineteen induced demand, the destruction became more apparent during lockdowns, coal prices declined in Q2. Recovery only took place in the latter part of Q2 with most gains in the second half of June. Besides increasing LNG supply, coal has been affected by weakening global macroeconomic environment, increasing Chinese domestic coal production and increasing electricity production from nuclear and renewables in Asia. The structural reform of the Chinese coal sector has recently led to increase in coal mining capacity and lower appetite for imported coal. While China is relying on domestic coal, demand in traditional coal markets is muted. In the first half of twenty twenty, year on year imports were down in India, 22% and South Korea, 10%. In addition, European coal stocks are high and imports are lower. With regards to gas prices, COVID-nineteen has made an already bad situation worse. Gas prices have been driven by very strong supply growth in LNG and weak demand in East Asia. In 2019, Europe was the market with flexible gas demand and absorbed 95% of the increase in global LNG supply. In 2020, however, European storage levels are high and gas demand lower due to COVID-nineteen impact, so Europe's capability to absorb more LNG is saturated. In an oversupplied gas market, European storages have been absorbing excess supply. At the end of Q2, gas storage was 40% above the 5 year average. But as injection rates decreased in May, June, the threat of reaching full capacity this summer has diminished. Ukrainian storage capacity also proved useful this year. Recent year's weak gas price trend has been driven by the fast increase of global LNG supply coupled with slower growth in Northeast Asia. Similarly to coal, weak gas demand in Asia is related to growth in power production based on nuclear and renewables and slowing industrial production. Then I move over to CO2. During 2020, CO2 and year ahead gas price movements have been strongly linked by a coal to gas switching level. 2019 was the 1st year of operation of the market stability reserve, the instrument which continues to keep market tight at least until end 2023. Considering all other changes in the market, in 2019, coal to gas switching worked, and we estimate that approximately 80 megatons of CO2 emissions was avoided due to switching. The 2019 U. K. CO2 allowances were not auctioned last year due to the Brexit uncertainty, but will be auctioned this year together with the 2020 allowances. This increase is to supply temporarily during 2020. The MSR, market stability reserve, continues to remove a significant amount of allowances also during 2020 and will make the market much tighter during the coming years. And finally, discussions on European Green New Deal are supportive to the EUA price. And then to the Nordic spot and forward prices. It is important to distinguish the spot and front end development from the longer term products 2021, 2024. The Nordic spot prices have continued to fall in Q2 with the strongest decline in hydro denominated hydro dominated price areas, Norway and Northern Sweden. During Q2, the further out forwards consolidated and saw a mild recovery owing to strong development in CO2. COVID-nineteen has caused power demand to fall in many European countries, but the Nordic power consumption has practically been unaffected. The German Nordic spread for 2021 delivery has increased from €11 per megawatt hour during the start of the year to close to €20 per megawatt hour in July as the Nordic contract has become more influenced by continuing strong hydrological surplus and weak system spot price. If we then look at Fortum's performance in this environment, with spot prices decreasing from last year's Q2 levels by 84%, Fortum's achieved power price decreased only €1.4 from last year, well cushioned by our hedging. Lower economical activity lowered the Russian spot prices, which is also reflected in our achieved price of our Russia segment. Then I go over for a short review of the divisional performance. In generation, despite the 84% lower spot system price, the generation result declined only by €80,000,000 For the first half and last 12 month result was flat, supported by hydro production and hedges. And I'm very happy that generation division LTM RONA was over 12%. In Russia, power generation volumes declined by 23% and heat production volumes by 7%. Lower oil production and overall economic activity following the implementation of COVID-nineteen restrictions in April May had an adverse effect on power demand, while the supply from hydro generators was high in the second quarter. Heat volumes were negatively affected, especially by the warmer weather in the Chelyabinsk and Fuhrman areas. It is good to note that Uniper's Russia operations are reported in the Uniper segment. Despite the headwinds we were facing, Russia division LTM Rona stood at exactly 11%. Then for City Solutions, I start with Norway, where the district heating pricing is linked to the power price development, which is in this market environment resulted in a clear negative impact on the heat prices in Norway. In the Q2, the recycling and waste business improved results. We are very satisfied with the transaction to divest Johan Svero and Jarvimpa with multiples of 26x34x EBITDA, respectively. Just to repeat what I said before, Within City Solutions, we are conducting strategic reviews now for our district heating assets in Poland and Baltics as well as looking at strategic options for our 50% ownership in Stockholm Exergi. In Consumer Solutions, financial results continued to improve and reached the 11th consecutive quarter of EBITDA improvement year on year. I'm very happy about the success and focus of Consumer Solutions and all of its employees. The electricity sales volumes increased by 3%, mainly due to higher consumption in the Nordic household and Polish Enterprise Sector. Total sales revenues, however, decreased by 32% following the extremely low electricity price in the Nordics compared to the level in the Q2 of 2019. Competition in the Nordics continued to be intense with high customer churn. The COVID-nineteen pandemic increased market uncertainty, especially in the medium sized and small enterprises sector, but so far, no major negative implications on the business such as credit losses have materialized. And finally, to Uniper. Uniper's energy trading and optimization business accounts for more than 90% of the Uniper Group sales, which is the reason for the very high sales number of the Uniper segment. A substantial portion of Uniper sales arises from physical asset and contract portfolio optimization, which is accounted for on a gross basis. Let's shortly look at the bridge from Uniper numbers to Fortum numbers. There are 2 main points. Technically, you need to deduct the share of profits from associated companies as reported in Uniper's adjusted EBIT as well as Fortum's 43% share of Oskarshamn from Uniper's adjusted EBIT. To get to the comparable operating result reported in the Uniper segment in Fortum's financials. It is very good to note that Uniper's EPS contribution to Fortum in first half twenty twenty amounted to 0.65 euros per share, including all items, and this is out of the total of €1.40 per share for Fortum first half. For the last 12 months, including Q2, the Uniper EPS effect was €0.85 per share, including all items, and that's out of a Fortum total of €2 With this, I would now hand over to Timo to go through the numbers in more details. Thank you, Markus, and good morning to everybody online on my behalf as well. Let's first briefly go through the comparable operating performance for Q2 and the first half of the year. Markus already explained the bridge from Uniper reported adjusted EBIT numbers to this EUR 27,000,000 of comparable operating profit that we now, for the first time, include in our consolidated income statement. As we don't have any comparison numbers for historical periods, we will also not comment on the detailed performance, but rather, as Markus already did, refer to Uniper's own commentary and disclosure. Otherwise, all in all, our comparable operating profit for Q2 declined by €25,000,000 to the level of 207. Generation segment was lower, both because of lower prices and lower volumes. The stability of our achieved power price is a good testament to the quality and to the importance of our hedging activities in the increasing the stability and predictability of the cash flows and the results. As already discussed, the COVID-nineteen pandemic had an impact in our Russia segment through lower volumes and then through also lower prices and margins. On the positive note, in Russia, as also elsewhere, at least at the moment, we are not seeing any signs of increase in bad debts because of the pandemic situation. The foreign exchange had a minus €7,000,000 translation impact to our 2nd quarter Russian results. And all in all, so we were €32,000,000 below previous year. Consumer Solutions was marginally up. As discussed, City Solutions flat during the quarter. Then let's look at the first half year. Generation, roughly flat marginally lower because the Q1 was better than last year. All in all, we had higher volumes, but roughly €3 per megawatt hour lower achieved price. For Russia, the Q1 this year was on the level of last year, so the decline in first half numbers really is coming from the 2nd quarter results. On top of the items Markus already discussed, we have some impact in the Russian results also because of the lowering bond yields that have resulted then on lower average CSA payments. For the first half year, we had minus €4,000,000 translation effect in the Russian segment euro numbers. Also, as you remember and as Markus discussed, the City Solutions had a weak Q1 because of mild temperatures, low heating volumes and especially the Norwegian heating operations, where both the volumes were low, but also prices were low because in Norway, heat prices are linked to power prices. Also, as we divested the Johan Szu District Heating operations and that divestment closed in the beginning of the year, that divestment had roughly €10,000,000 impact on the first half year results compared to last year. Consumer Solutions continued to deliver steady increase and improvement of the business. And once again, here, even if these are first half year results, we consolidate only the Q2 of Uniper here. Then moving over to the income statement. Obviously, now and as Markus explained, we have previously consolidated Uniper on the profits from associates line pro rata or ownership, and now we start to consolidate through income statement fully and cash flow. So of course, the quarter on quarter and year on year comparisons will be difficult until we rotate over to after Q1 next year and when we will have 4 quarters of full consolidation behind us. We already discussed about the high levels of Uniper's sales activities coming from the contract portfolio and the fact that the large number of these asset and contract portfolio optimization transactions are accounted for on a gross basis. On top of that, certain items in Uniper's income statement have been regrouped when consolidating to Fortum's income statement. For example, sales numbers and materials and services are presented in 4th term income statement based on contract prices instead of spot prices. This regrouping increased the sales of approximately €4,400,000,000 in Fortcon consolidated income statement compared to the separately Uniper reported numbers. In the items affecting comparability for Q2, we have plus €154,000,000 changes in fair values of derivatives for hedging for future cash flow. We have €69,000,000 capital gains, and we also have plus €71,000,000 net impairment charges and reversals. So all in all, our profit for the period in Q2 was €379,000,000 and for the first half of the year on a healthy level of SEK 1,300,000,000. Then let's go through the development in our financial net debt and the main components of our cash flow. First, we have a bridge here explaining the impact of consolidating Uniper's net financial debt, and that consolidation happened at the end of Q1. Then we see that during first half, we created cash flow from operating activities before net margin liabilities of €120,000,000 also cash flow from divesting activities of €790,000,000 This €790,000,000 does not yet Aravempa district heating operations, which will add €375,000,000 to the divestment cash flow as it closes. Then the total will be roughly €1,200,000,000 These together cover and more than cover the paid investments during the first half year or €1,770,000,000 Consequently then, our financial net debt increased to the level of €7,770,000,000 and the increase was due to the dividends paid out from the group. We continue to target to have a solid investment grade rating of at least BBB flat. We have good access to capital, and we have ample liquid funds at €2,400,000,000 at the first half end and undrawn credit facilities of €5,400,000,000 As said already, our focus on cash flows continues, and we have already disclosed €1,200,000,000 divestments this year. Our total loan position at the end of Q2 was €9,250,000,000 The average interest cost for that gross debt portfolio was at 1.7 percent, And the interest cost has been coming down due to cheaper new debt that we have taken. The average interest cost for our euro loans was at 0.9%. We have only modest amounts of maturities during this year and next year. For current year, roughly EUR 600,000,000 of short term loans and for next year, EUR 500,000,000 of bonds. And then finally, the outlook before questions and answers. For our generation segment, Nordic hedges, we have 85% hedged at €34 per megawatt hour for the rest of 2020, and 65% hedged at €33 per megawatt hour for 2021. For comparison, 1 quarter ago, we reported 50% hedged at €34 for 2021. So that means that we have been able to increase next year's hedges in our generation segment by 15 percentage points and losing only €1 in the average hedge price. Uniper correspondingly has reported their Nudik hedges at 90% for €29 megawatt hour for 2020 and 80% at €28 for 2021. For Uniper segment, we also have already available for the 2022 hedges currently at 40% and €24 per megawatt hour. For the CapEx, we continue to estimate the annual capital expenditure, including maintenance but excluding acquisitions, to be at €700,000,000 level. And good to remember that this guidance does not include the Uniper segment CapEx. For the income tax rate, we estimate the comparable effective corporate income tax rate to be in the range of 20% to 25% now as Uniper is consolidated, and this corresponds to also Uniper's separate tax guidance. So we continue to focus on the balance sheet. We continue to focus on the importance of solid investment grade rating and focusing on our cash flows. Now we open for questions and answers. Thank you, Timo, and thank you, Markus. And with this, we will then open the Q and A session. Operator, we are now ready for the questions from the teleconference. So please go ahead. Thank you. Our first question comes from Louis De Schumacher, Societe Generale. Please go ahead. Hi, it's Louis De Schumacher here, Societe Generale. Couple of questions from my side. The first one, Marcus, what does 75 point 01 Percent Ownership of Uniper get you that you didn't have with 73.43 percent? Second question is on Stockholm Exergi. Can you just confirm if the city of Stockholm has any preemptive rights? Or are you free to sell your stake to anybody you want? And lastly, on the quite significant difference between your own hedge prices in the Nordics and Uniper's. You are substantially higher. Is this just a structural question, I. E. Uniper's absence of finished output? Or is there some other technicality like your operations are in a much better position to benefit from area differences, etcetera? Is there something maybe that you can do to improve Uniper's hedge prices in the Nordics? Okay. Thank you, Lueder. I'll give it a shot and Timo can add if I'm missing something. So with regards to the 75%, we have indeed increased slightly our ownership. However, our clear focus now is on creating a joint strategy, and that work is proceeding well. So crossing the 75% threshold doesn't have any other implications. We continue to stand by our earlier commitment not to do a DPLPA or a squeeze out until the end of 2021. So no changes from this point of view. With regards to XLG, we are indeed now in discussions of City of Stockholm. We are evaluating our options. We do have a shareholders agreement, but the details of that we are not disclosing. When it comes to the hedge prices, there are at least 2 things that are impacting it. 1 is, of course, the that we are in different areas. So Uniper is not in the finished price area. And actually, in the material, there is there are some points about where the also the realized prices have been and also the forward prices are at different levels in Finland and Sweden. And then the other one is timing, when have we respectively done the hedging decisions. I would still say in the big picture that now for the entirety, the purpose of the hedging actually is to create stability and visibility into the cash flows, which is important for us. And Q2 very well highlights that with the drop in system spot price of 84% and our achieved power price only dropping by 4%. So hedging gives stability and visibility. Sorry, can I just come back on the first one? I got that you went to 75% that you don't really want to go any higher in the near term future. But I still don't get why you did it. What was the motivation to get to 75.01, I. E, the benefit you have from the additional 1.6 percent? We already have the influence we want. We are now consolidate we consolidate both Uniper's balance sheet and profit and loss. We have done changes in the supervisory board. We have super majority in the company for all factual purposes. The fact that we went across the 75% doesn't have any other practical meaning. But of course, Uniper has been a good investment for us and continues to be so. Now we are focusing on the creating the joint strategy, focusing on cooperation, And I can say that, that has started from my point of view very well, and we are on the right track. Okay. Thank you. Thank you. Our next question comes from Sam Arie, UBS. Please go ahead. Hi, good morning. Thank you. And Marcus, congratulations on another very, very clear presentation. I have one question, but I'm going to admit there's a follow-up. So let me start with the main question. And you've said, I think, really clearly that your top priority is now the joint strategy with Uniper and to set climate goals for the group, which you will talk about at the CMD. But if I think about that, Uniper has already got a coal phase out strategy, excluding Russia. And you're already kind of in a process of selling off the bits of discrete heating assets that might have a fossil footprint outside of Russia. And when I look at the numbers, I think it's like 2 thirds of the group carbon footprint is in Russia. Yet when we asked Uniper about Unipero, their Russian business that results last week, they said that was the 3rd leg in their 3 legged stool and if they didn't have it, they'd sort of wobble over. And anyway, they implied they got no interest to exit Russia. So my question is what is your thinking on how a climate goal, an ambitious climate goal for the Fortum Group can sit with this large fossil footprint in Russia? And are you thinking that you can decarbonize the Russian assets somehow? Or should we think that Russia will at some point join the district eating assets in Eastern Europe on the list of assets under review? And sort of related to all of that, if Uniper doesn't want to dispose Unipero, then would that be the main reason you might one day need to go the route of a domination agreement? Thank you. Okay. That was well, first of all, thank you for the nice compliment. Indeed, our key focus is on creating the joint strategy, and I completely agree that there's a good foundation decarbonization targets that Europe has and the world has, we are very well positioned for that. It's clear also that we have work to do with the assets that need to be eventually phased out of the system. But there, we have for many parts of the company, we have clear parts laid out. Uniper has communicated very clearly what they're planning to do. National governments have made decisions. We need to give clarity to our 20,000 very skilled and committed people. So that's one important part. With regards to Russia, it is absolutely correct that Russia is important business for us. It is a big cash generator, well managed part of our company. Having said that, asset rotation is something we have done in all of our businesses. One example of this is that Fortum divested Tobolsk some years ago. So when typically, when we have completed some investments, then we can look constructively at what to do going forward. We do have substantial renewables license portfolio in Russia. So I think this is one of the natural directions where we would be heading. So now next focusing on the renewables part and of course, looking at other opportunities that Russia gives. But overall, this is a point where we will give clarity further clarity on the issue in the Capital Market Day. But I think what you can expect from us is that we continue all the time to develop our portfolio. So asset rotation across the board in all of our businesses is something we will all the time think of. So we have to justify, of course, to everyone why are we owning certain assets, developing certain assets and exiting certain assets. Then you had a follow-up. Yes, I did. My follow-up is just a little bit for fun, but I mean if I think about one of your other sort of Nordic region utility peers who very successfully exited their fossil businesses, They then had the problem of needing to pick up a new name for the group. They came up with as a sort of tribute to a famous Danish physicist. I wonder if there's a Finnish physicist that you've got in mind that you might want to rename the company to once you if you one day are able to leave Fortum completely out of fossil fuels? Yes. I have to say that I think Oersted has done a great job in their transformation. And I think you can see that Fortum both Fortum and Uniper have followed a similar path. So we have continued to invest in the future. We have, in a determined way, phased out assets that, in the long run, will not be part of the portfolio. But then to basically package all of this up, we will come back to many of these issues in the Capital Market Day. Now the focus very much is actually there. And like I said, I think the dialogue, the cooperation is working well. So I'm very eager and keen to continue to work on that path. Very good. So that was just for a bit of fun. So no famous Finnish physicists for the time being, but maybe in December. I'll come back to that in a few months then. Thank you, Markus. Thank you. Our next question comes from Artem Beletski. Sir, please go ahead. Yes. Hi, this is Martin Beletski from SVB. A couple of questions from my side. So first of all, looking at generation and hydro volume decline in Q2, that was a bit surprising given the hydrologic situation in Nordics overall. What is the picture looking at the second half of this year in general? So do you expect healthy volumes going forward? And then secondly, given the fact that in Q2 spot price were quite big, so did you hold back some generation due to, so to say, exceptional market condition in the quarter? And then two quick ones on Russia. Could you maybe talk about power generation in the region, 22% decline in Q2 was quite substantial. Do you see it as a lowest point for production? And then in terms of COVID impacts, how your Ruslanano joint venture is progressing? And do you expect any delays in terms of build out of renewables there? All right. I can start with I'll start with Russia part. So where we will be in second half, that we will see how corona plays out and what the impact will be. I think generally speaking, corona has touched us all. So I have to say that, that first of all, I feel strongly for everyone, I mean, every person inside Fortum and Uniper and everyone else who's really had to accommodate to this new situation, children, families, everybody, our elderly family members. So we've all had to stretch. Having said that, I think Fortuman and Uniper have done a remarkable job in corona. So we have moved for the office part, we have moved to remote working very, very fluently. And then people at our power plants with operations have done a remarkable job. And I'm happy to say that the annual maintenances have gone very well. So careful planning protection, special arrangements, we have been able to do what we had planned. Uniper reported that Berezovsky's reconstruction was impacted. I think that's the really the kind of the one part that I would lift up that has been impacted. Otherwise, we have been able to plan so and mitigate the corona impact. So that comes then to the Arusnana joint venture. So no, we are proceeding actually materially as planned. And of course, again, there special arrangements have to be made and across the Fortum, Uniper fleet, testing arrangements, protection, etcetera. Then for the hydro volumes and H2 picture, So it is indeed quite varying. We have record high Nordic reservoir levels, but then if I resolve it country by country. And if you just look now at the area prices for the last couple of days, we have in Finland, for example, we have had even early prices way above €100 at the same time when system prices have been in the single digit or low teens from day to day. So I think difficult really to say what the second half will look like. I would say that the situation can change very quickly. And if you look at historically at previous years, we can have big swings between year halves. So we shall see. The one thing I of course, I followed and we have followed is the Nordic German spread, and that has been really widened by the Norwegian hydrology. And now that there is commodity recovery and CO2 recovery, when the Nordic hydrology normalizes, then one could expect that the spread will tighten back to more normal levels. Our next question comes from Shatiya Sarintoulou, Exane. Please go ahead. Yes, thank you. And Marcus, thank you for your first results presentation and apologies for the background noise if you can hear it. A couple of questions from me as well. The first one, just following up on your decarbonization strategy and the joint strategy with Uniper. I appreciate you give us more details at the CMB, but just trying to get an idea of your thought process. I think at least from my point of view, when we look forward to compared to other utilities, maybe the region that in terms of the decarbonization of green strategy doesn't seem as convincing as some of your peers it's because there might not be as much investment going into additive climate CapEx, so new renewables to the same extent that we've seen other utilities. At the same time, you are very clearly focused on maintaining a BBB credit rating and you are doing asset rotation and disposals to achieve that. Overnight, we show RWE raise equity to actually accelerate the renewable investment. And I think that's been taken quite well by the market, judge from the reaction in the shares. So can you tell us a little bit of how do you see your strategy on that front? Do you have ambitions to actually invest more in renewables? And if the balance sheet is a constraint, which appears to be since you are making disposals, would you actually consider raising equity or reducing the dividend in order to be able to fund that? So that is my first question. And my second question is on the German, Nordic power price gap that you've mentioned today. And obviously, it's been a fixture on the Fortumakuch story for some time. In Germany, we now have the nuclear phase out and the coal phase out confirmed. So what it is that you expect that the market is not pricing in or is not expecting to close that gap? Because even if I look at the forward curve, so after 22, there is still quite a big gap between the German and the Nordic price. So what makes you believe that that gap will close? And what is the market missing on that front? Yes. And don't worry, actually, we heard you really well. So absolutely, I think there are 2 things that I am looking and we are looking in our strategy. 1 is the decarbonization when it comes to actually phasing out carbon intensive assets. But there, Fortum has been on a determined path to reduce its coal exposure. We have done the coal to different fuel switch in many countries with 1,000,000,000. We are on a Stockholm unit. We are on track to actually take out the coal in Espoo much faster than the Finnish government is expecting. And then Uniper has made huge outcomes or came out with very big and comprehensive plans on what they are thinking of doing. So phasing out the German hard coal assets with the exception of Dutton in 2022, 2025, UK 'twenty five as the national decisions are there and in Netherlands by the end of 2029. So I think there we are actually on a good track. And of course, we will comprehensively address this part also in the Capital Market Day, but big components are already there. So I think we are following what the national governments are deciding, and we have been And I would say that we are well positioned. We have the right competencies, right presence. We know our customers extremely well, both in Fortum and Uniper. And putting the big picture here, so when Germany is phasing out 40 gigawatts of coal and lignite, 10 gigawatts of nuclear, the need then to replace this with new clean energy is massive. Well, this will come mostly or a big part of it will come from renewables, but then also to support to take care of flexibility, take care of baseload, Also flexible assets like gas assets will be needed. That seems to be the logical solution at the moment. Flexibility, storage, renewables and then I think that can help tying all this together and coupling the different sectors who also need to decarbonize not only power, it can be hydrogen. And there's a lot of excitement around the topic at the moment, and governments seem to now think that this is the solution. And technically, it can be the solution. However, I would say that if we think that we're going to produce all of the hydrogen from green resources, that will mean even bigger renewables investments. So there are definitely spaces of growth possibilities that we will together explore all of these that I mentioned. And in addition to that, circular economy and sustainable materials. So these both legs, clean energy, sustainable materials are very important for the society. We'll come back with the details indeed in the Capital Market Day, but what I would say is that we already have the competencies and now we have an even enlarged presence together. So we are in a good position. When it then comes to how to finance, this our number one target now on the financing side is to make sure that we have a healthy balance sheet. We take care of our rating because that's important for our operations and access to capital. Capital as such is available at low cost. So we can see that after the corona outbreak, actually the bond markets have recovered remarkably and the new issue levels are even tighter than they were where we issued 1.5 years ago. When it comes to raising equity capital, we have no such plans as but RWE did a good job there with Tier 1. And then for the dividend, we target stable over time increasing net profit and thereby dividend as well. That is the target what we are doing. And we understand that for our investors, the stability of the dividend is important. But I'll leave it at that. And for the German spread, Timo can answer that. Yes. Thanks. Of course, the market and the spot market is very efficiently pricing the current situation. It's good to note that the Nordic system price, so that's heavily impacted by these hydro rich areas, as Markus already noted in the opening section of Midnorthern Norway and also Northern Sweden. So that's one thing. And it's there, especially now where we have had this excess hydro coming from the winter and now the late spring fight. That's one thing. If you look at the price spreads, for instance, Finnish area price to Germany or Southern Sweden to Germany, so clearly, even if they are still also big, but they are clearly smaller spreads than the Nordic system price. Then of course, pricing the future. So that's not naturally and normally a question is that what are the uncertainties views you take. We have had some interconnections coming online last year, and there is still a plan and ongoing work to increase the interconnections, all in all, to roughly 13 1.3 gigawatt effect by 2023 from today's level of roughly 7 gigawatts. So there is an ongoing program of building new interconnections. And obviously, then what is the net impact of these interconnections? Nobody can say in exact. And then it's a question of how much the market is pricing sort of the short term uncertainty, which is visible through spot prices and the longer term questions of how the system will work. The 3rd point I think what is visible this summer is that like there is a lot of discussion also, for instance, inside Germany is what is the strength of the grid inside Germany. So similarly, we have now seen that we also need grid improvements also inside the Nudik system so that the power could flow, especially from the northern areas of Nudik system down then to continent when there would be excess power available in the hydro. But the point I'm making here is that these are the factors that we put in into our long term analysis and forecast. Obviously, everyone else does the same way. But then it's the uncertainty and how much you pay the factors. I think that then decides the result of how you see the spread developing in the future. Okay. Thank you very much. Thank you. Our next question comes from Antti Kontin, YME. Please go ahead. Thank you, Antti. Kitas, I will answer in Finnish, and then I will translate into English. So let me just take the questions up. So So shortly in English, the question was how big of a loss could Uniper face with the Nord Stream 2. Uniper has evaluated the project risk and has made no changes in the value of its loan receivable. Uniper has paid in all of its obligations, so there is nothing more to do. So if activities were sanctioned, Uniper has no further obligation at the moment. Then for the question that has EU done enough in the case actually 24 EU countries now addressed the U. S. On the matter. And from our point of view, we think that when it comes to question of security of supply, then more supply is better than less supply. And actually, in the case of Nord Stream 2, the volume is about enough to offset the declining production in Norway, U. K. And the Netherlands. So from European point of view, this cash volume is needed to come from somewhere. Our next question comes from James Byrne, Deutsche Bank. Please go ahead. Good morning. I have two questions, please, and thanks for the presentation. The first is on the district heating operations. You've obviously sold 2 smallish networks, the Stockholm Energy Review. You're also reviewing your Polish and Baltic district heating operations. So wondering whether you could just remind us what's left after that and seeing as such a widespread disposal or on power price. So it's interesting if that is what you're saying. And just on that as well, do you not think the Nordic power price is as low as it is and that there's such a big gap with the gem prices just because there isn't really any fossil used for price setting purposes in Nordics anymore, because so much of the generation is there and much cost? Okay. So I'll take the district heating question first. So the philosophy we have followed is that we have done major investments investments into the various parts of our district heating operations in the recent years. And once we have utilized this investment potential, the assets are well invested, They're turned into waste energy or biomass or multi fuel fired. Networks are in good shape and the production assets are fully invested in, then there's not so much that we can do anymore, add value. So then we have come to the conclusion that for these type of assets where the development has been done, then we're ready to look at that at also Ownership Solutions. Then when it comes to what would be left after the Polish, Baltic and Stockholm review, if that would result in transactions. What we have then is the Espoo district heating business and Oslo. And a difference there is that Espoo is still going through the decarbonization path. So new production is needed, changes in the whole district heating system. There is growth potential going forward, potential synergies between the different operators in the capital area of Helsinki. For Oslo, Oslo is the one of the fastest, if not the fastest growing capital in Europe. So there is substantial demand growth. And also Norway is phasing out the oil heating when it comes to heating purposes. So there is significant growth potential also volume wise just because of that shift happening. Then for the Nordic power prices, yes, we would say so that it's absolutely right that there's very little fossil condensing power left, if any, in the Nordics. But Continental European prices and then underlying commodities continue to form the price anchor. However, then the various area prices are impacted by the hydrological conditions, conditions for renewables, congestion in transmission lines. But at the end of the day, it is Continental Europe that is the price anchor. And that's why we're saying that now with an extremely high reservoir level, Once that normalizes, then logically, the spread between Nordic system and Germany should come back. That's the essence of the message. Thank you very much. Can I just quickly follow-up on the heating for the ESPO and Oslo Networks? Should we expect those not to be put up for strategic review then? You've actually decided that you want to keep them because of the opportunities that you highlighted or things could still change over the next 6 months or so as you think about your balance sheet? We're happy to continue developing the assets, and we have made no further assessments to like of Poland, Baltics and Stockholm. So at the moment, no, we continue to be happy with these assets, and we like the development potential. Our next question comes from Elshim Amador, Bloomberg Intelligence. Please go ahead. Thanks for taking my questions. I have 2. The first one, I wanted to come back to what Sofia mentioned earlier in terms of your renewable development deployment. Now you've recently sold your wind portfolio in the Northeast. So do you plan to accelerate your wind and solar deployment outside of Russia in the next 5 years? I know you mentioned hydrogen, but that's more of a need to longer term, but like in the more immediate future outside of Russia. Do you have any wind and solar deployment plan? They're not strategic for Uniper, so I wonder what Fortum is doing there. The second question is on COVID impact, both in Russia and in the Nordic. I mean, we're still seeing the demand down year over year even in July August. What's your view on the recovery? And in terms of Nordic, you mentioned that Uniper has already pre hedged some of the 2022 volume. Has Fortum done it also for its generation business or not yet? Because I didn't see any 2020 hedges on your presentation. Thank you. For the good question. So with regards to renewables development, we actually have followed a capital recycling strategy in the Nordics as well as India for the wind and solar assets. So we actually we haven't sold all of the assets we own. We have sold majority of the equity. We continue to be the operator of the assets, and we continue to be a part owner. The idea behind this has been that now that we are taking the first steps in renewables, this way we can actually speed up the development. So we invest capital, and then once we have completed plans, then we can release capital. We find other interested investors to take majority of the equity, and then we can continue to develop. And I think one thing to look at, for example, and to understand the logic is that now we have been divesting stakes in units that are where the turbine size is, for example, are less than half of where we are today and a fraction of where the development will be in a couple of years' time. So we need to continue to keep up with that pace. So having said all of this, yes, we are interested definitely interested in developing our renewables presence actually in our whole operating area and now also in the enlarged Fortum Uniper Group. Then I'll hand over to Timo for the other question. Yes. Thank you. Regarding the COVID and specifically for the Nordic hedges, we will come out with 2022 Fortum Generation segment Nordic hedges in 1 quarter's time. So that has been the normal sequence when we give the hedge levels for further years. I think it's fair to say that, yes, we do hedge already before we disclose the numbers. So you could assume that there are some hedges done over time for 2022 and even further out already. But as I said, we will come out with the number in 1 quarter's time. Then in more general, obviously, we are following very closely both what we see through our operations, but also more generally how the COVID is developing. Naturally, it's so that the impacts are still visible in societies. And definitely, if we think of Russia, it's an interplay between direct COVID impacts and then the oil and gas markets globally and the production volumes. So we continue to follow those closely and also then the signals that we get internally. But I think also that as the COVID is impacting all the societies, so we're taking the external forecasts and evaluate on those basis. So we don't have a own separate top down view on how that might be developing. Thank you. Our next question comes from Vijalyn Kursch, Bernstein. Please go ahead. Hello. Hi. This is Pujalini and I'm from Bernstein. Thanks for taking my questions. I have 2. Firstly, on your oil free water nuclear plant, it appears that the offtake price for your share of the output from the plant is about €40,000,000 which is clearly out of the price in terms of the current forward prices. Can you firstly confirm your share price? And you mentioned that your exposure to Finland has contributed to higher achieved prices compared to Uniper. How do you see oilfield impacting the high area prices in Finland? And secondly, again on Stockholm Exergi, can you comment whether the sale is purely driven by balance sheet strengthening measures or whether you are not less committed to district keeping strategically? Okay. I'll start with the Oculator 3 nuclear. So we don't exactly communicate what the cost level is, but it's clear that compared to Ultivoto 1 and 2, all of these are the old Swedish units, this comes at clearly higher cost. So you can deduct a number that is close by from the information that TVO is disclosing. Of course, one has to then think of a nuclear plant as that it has a lifetime of several decades. So we will then eventually see the profitability and viability of such a project in the long run. Having a 1.6 gigawatt unit coming to the Finnish market, of course, does impact the balance. But in the on the Nordic level, at the same time when OTLO2 3 eventually is coming on stream, Sweden is closing down. Nuclear as well. Still on top of this, I would just remind that if you look at the power flows on a continuous basis and domestic production in Finland, Finland is typically an importer of 1 to 3 gigawatts of power at any given time. So also today, we are a big importer. So this balances out a little bit. Then with regards to Exergi, I already touched upon the rationale. So for any of our assets, if we see that we have fully exhausted the development potential and we see that markets may give values that otherwise for us are difficult to deliver to our stakeholders, then we can look constructively at this type of situation. So value creation actually is what is driving our thinking here. But then to make an assumption that we would have a sale of our stake in Stockholm Exergi is premature. So now we are evaluating the options. Thank you. Can I just have a follow-up on Old Kyoto? So when you say that as Old Kyoto comes online, I mean, if and when that happens, Sweden is also shutting down its nuclear plant. So does that mean Finland goes from a net importer to a net exporter maybe or the import ratio decreases? So coming back to what I said. So if you look at statistics history, Finland is an importer of, let's say, low or multiple gigawatts. So then whether Finland is an exporter, that remains to be seen and how other units would then be running. So that would be premature for me to evaluate. Our last question comes from Ndiya Lukacs, Morgan Stanley. Please go ahead. Good morning. Thanks for taking my question. Could you please give an estimate of how much of your power generation in Russia is used by the oil and gas industry, including or excluding Uniper? That's all for me. Yes. I can comment generally. I can't give an exact number, but both of our operations are actually in the oil and gas producing region. So it is a substantial part. However, it's good to remember that in the case of Fortum, if we think about our businesses in TUM and Chelyabinsk and Niagen, then Niagen is the one that is condensing power and serving basically serving industry. Then when it comes to Chelyabinsk and Tumen, these are combined heat and power systems where we get the CSA payments for the electricity part, but these are combined operations, albeit in oil and gas producing regions. And then for Uniper's units, some of them are in the regions, but there is more variance with Saturas, Smolensk, Yaeva, Berezovsky and Surbodskaya. Great. Thank you very much. Thank you, operator, and thank you for the questions. We seem to have some questions on the chat. So, Mans, if you would like to ask those. Yes. So we have a question from or actually, two questions from Filipe Akota from Energet. So first, relating to Nord Stream 2. And since this seems to be an important investment by Uniper, but how does Fortum as the parent company assess the situation and should Uniper pull out of the project? And the second question is then with relation to Fortum's increase in ownership in Uniper and what are the plans to further increase stake in Uniper after 2021? Okay. So again, in Nord Stream 2, Uniper is a financial investor. The loans are already fully paid in. Actually, the gas that would come through Nord Stream 2 will be needed in Europe. So one way or the other, Europe needs, from a security or supply point of view, alternative sources of gas, and it needs the gas. So we think from an energy security point of view, a, this is a commercial project and it is needed. Uniper is committed and believes that Nord Stream 2 will be finished and we also support that. So we stand by Uniper's commitment. With regards to the 75 joint strategy. So that is our main focus. But the ownership percentage now is exactly has less relevance because with the super majority, for example, in an AGM being achieved already earlier, then the relevance of the ownership is less. So now our focus is on the joint strategy creation, cooperation, finding benefits for both companies. And I can say that this is going well, and I want to for that, I want to thank both companies and their management and personnel. Thank you. Then on the chat, the other questions here have already been asked and answered. So no further questions. Now that there doesn't seem to be any further questions, I want to thank everyone for your participation here today. And on behalf of Fortum, wish you a very nice rest of the day. Thank you. Have a good day. Thank you very much.