Good morning, everyone, and welcome to Fortum's webcasted news conference on today's news on the agreement between German government, Fortum, and Uniper on the solution for Fortum's subsidiary, Uniper. My name is Ingela Ulfves, and I'm the head of IR at Fortum. This event is being recorded and a replay will be provided on our website later today. With me here in the studio is Fortum's CEO, Markus Rauramo. We also have our CFO, Bernhard Günther, joined online. Markus starts by presenting the key elements of the agreement as well as the next steps. After that, we will open up for questions through the teleconference. Please note the dial-in instructions in today's release and on the website. We have reserved a maximum of one hour for this call. With this, I now hand over to Markus to start.
Thank you very much, Ingela. Thank you everyone on this webcast for joining us this morning on such short notice. Fortum, the German government, and Uniper have today announced a new rescue package for Uniper. I would like to provide you with some more background and context to this announcement. As you all know, we are currently living through an unprecedented geopolitical crisis. Uniper has been particularly hard hit by the curtailments of Russian gas since mid-June. This is why in July, the German state, Fortum, and Uniper had agreed on a stabilization package for Uniper. Since then, we have been jointly working on implementing these measures. During the same time, Uniper's financial situation deteriorated rapidly and significantly in a way that none of us had foreseen back in July. No Russian gas volumes are being supplied through Nord Stream 1.
Both gas and power prices have been extremely high and volatile as a result. Uniper is currently losing almost EUR 100 million per day and has accumulated close to EUR 8.5 billion in gas curtailment losses so far. Consequently, new measures to resolve the situation were needed as both Uniper and Fortum were exposed to significant risks. A state-led solution, one in which the German state takes full control of Uniper, was therefore required immediately. Before I discuss the details of our revised agreement, I would like to thank the German government and our colleagues at Uniper, as well as the Finnish government for their support and hard work in recent days and weeks. For Fortum, the new solution to Uniper's problems is a defining moment.
Once successfully executed, it will be a clean start for Fortum and a clean cut from the recent past, exiting Uniper and the Pan-European presence. The divestment is a painful yet necessary step to reduce the substantial risks for Fortum and to secure a new future. Fortum will be able to refocus on clean Nordic power generation as its core business once the transaction is completed. Let's now look in more detail at what has been agreed. For us at Fortum, it was important that the solution will not require additional capital from Fortum or the Finnish taxpayers. In addition, we were looking for a long-term solution that allows Uniper to continue providing security of supply for its customers in Germany and Fortum to focus on its role as an indispensable clean energy provider to our customers in the Nordics.
Due to the run rate of the gas curtailment losses, Uniper needs a substantial capital injection. Consequently, the German state intends to inject EUR 8 billion of capital into Uniper SE at EUR 1.70 per share. This will substantially dilute all existing shareholders. To cover Uniper's daily loss making, the German state-owned bank, KfW, will provide required bridge financing to Uniper until the capital increase is implemented. Following this capital injection, the German state intends to buy all Fortum's shares in Uniper for EUR 1.70 per share, which corresponds to approximately half a billion EUR in total. As a result of the capital injection and the share purchase, the German state will own more than 98% of Uniper. As a part of the agreement, Fortum's EUR 4 billion loan to Uniper will be repaid, and the EUR 4 billion parent company guarantee will be released.
Furthermore, Fortum will have a right of first offer until the end of 2026 if Uniper decides to sell its Swedish Hydro and/or nuclear assets. The agreed transaction is naturally subject to customary regulatory clearances and approvals by Uniper's extraordinary general meeting. Closing is currently expected by year-end. On the next slide, I will explain how the agreed capital measures will be implemented. As I already mentioned, the German state will take a majority stake in Uniper. It will do so by subscribing approximately 4.7 billion new ordinary registered shares at nominal value of €1.70 per share against gas consideration of approximately EUR 8 billion. This will dilute all existing shareholders, including Fortum. Until this capital increase is completed, KfW Bank will provide Uniper with further liquidity support by increasing its existing credit facility to cover gas-related losses as needed.
In the second step, immediately after the capital increase, the German state plans to buy all Fortum shares in Uniper at nominal value for a total consideration of approximately EUR 500 million. As a result, the German state will become the new majority owner of Uniper with a share of approximately 98%. At that point, the change of control clause is triggered, and the German state will provide financing for the redemption of the EUR 8 billion credit arrangement provided by Fortum to Uniper. Fortum will be repaid the EUR 4 billion shareholder loan and the EUR 4 billion parent company guarantee will be released. As just mentioned, the transaction is subject to certain regulatory approvals as well as approval by the Uniper EGM. To summarize, the agreement, if successfully executed, ensures that the total loss for Fortum is capped on the equity level.
It will be a clean and comparably fast cut for Fortum. The divestment is painful, yet a necessary step to reduce risks and return to a stable footing. This step secures Fortum's future and ability to refocus on clean energy as its core business. I now would like to present the financial effects of this agreement for Fortum, which are shown on the next slide, and this I actually hand over to Bernhard.
Yes. Thank you, Markus, and hello from me as well. On this slide, you see the various financial effects. Fortum's financials for the continuing operations will no longer include any impact from Uniper operations, which are shown as discontinued. As you know from the H2 numbers, sorry, H1 numbers, Fortum has recorded significant accumulated losses, mainly in the form of provisions and fair valuation adjustments from Uniper, and these are also caused by the Russian gas curtailments. Further Uniper losses in the third quarter and onwards will accordingly have no effect on Fortum's group equity as these losses will be offset by the deconsolidation effect when Uniper is moved to discontinued operations. Based on Fortum's balance sheet as of the end of June, the deconsolidation effect would strengthen Fortum's group equity with around EUR 5 billion.
The parent company, Fortum Oyj's local GAAP equity, is negatively impacted by the divestment, however. Fortum has assessed that the equity remains at a sufficiently comfortable level so that it does not require any additional capital measures. Another effect of the divestment is that we will record the EUR 4 billion shareholder loan as a receivable, and the same will be applied to the EUR 500 million consideration from the sale of Fortum's Uniper shares until this is actually paid. Fortum will also restate its comparable quarterly information with the Q3 numbers. Now let me close with two words on the continuing operations on the last slide. For that, I think, I hand over back to you, Markus.
Thank you, Bernhard. Thanks, Bernhard, for going through the financial and accounting part. Following the divestment of Uniper, Fortum's operations will now focus on carbon-free, indispensable, and profitable Nordic energy infrastructure, as well as low-carbon district heating and sustainable industrial and customer solutions. In the current environment, our priorities are very clear. First, we need to stabilize the company. With the signing of today's agreement, we took another step to get back to a stable footing. Second, we need to recalibrate. In the future, our clear focus will be on clean Nordic energy. We also continue to pursue a controlled exit from the Russian market, as announced earlier this year. Third, we need to get traction again. We will review our strategy in light of the changed environment to overcome this crisis and forge a path towards a sustainable future.
Fortum's CO2 free generation assets are needed more than ever. We will keep on working hard to regain the trust of all of our stakeholders. With these words, I conclude my presentation, and over to you, Ingela.
Thank you, Markus. Thank you, Markus, and thank you, Bernhard. We are now ready to take your questions. Please state your name and your company before asking the question or in the teleconference. We also ask you to limit yourself to a maximum of two questions each. Let's begin the Q&A session. Moderator, please start.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Wanda Serwinowska from Credit Suisse. Please go ahead.
Good morning, Wanda Serwinowska, Credit Suisse. Congratulations on the deal, Markus. Two questions from me if I may. The first one is on the net debt for Fortum standalone basis. Can you give us the clean net debt figure as of end of H1 or end of last year, excluding the EUR 8 billion shareholder loan guarantee impact? The second question is, should we consider the deal as set in stone? I mean, is there any other points that needs to be still agreed on?
Okay. I can take the second point and I'll ask Bernhard to comment on the net debt and the various components there. I'll take the second one. If you wanna, Bernhard, comment on the first.
Yes. On the net debt, the numbers you will see in Q3 will be ones where this EUR 4 billion receivable that I mentioned for the shareholder loan won't be technically deducted from net debt. It will go up. But the underlying net debt, if you exclude this EUR 4 billion receivable, would be in an order of magnitude of EUR 2.5 billion for Fortum standalone.
Thanks, Bernhard, for the agreement. All parties are very committed to the agreement. Compared to the agreement reached in July, of course, things changed very rapidly. This agreement and the components from my point of view are simpler. The instruments are simpler. What they require is that we get the regulatory approvals, and we'll start that work now and then the Uniper EGM. Just making reference still to the July agreement, I felt throughout the whole process that all parties worked really hard to implement that as well. It became clear that the situation has changed so much and the capital needs became so big that we needed to modify.
We needed to work out a solution that works again for all parties, in a good way. Simpler, cleaner solution now.
Thank you very much. Just a very quick follow-up. On the net debt, Bernhard, apologies, did you mean the financial net debt or the adjusted net debt including provisions?
In my understanding, that's the adjusted net debt. Maybe, let's check and come back to that. Yeah. This has all been done now at great speed.
Thank you very much.
The next question comes from Iiris Theman from Carnegie. Please go ahead.
Yeah. Hi, this is Iiris Theman from Carnegie. Just one question basically that how does your liquidity and collateral needs look after this divestment? Does this basically help the situation so that you don't need to use Solidium's or the Finnish state's backstop capacity? Thanks.
Thanks for the question, Iiris. At the point when we arranged the EUR 2.35 billion liquidity facility from Solidium, the Nordic system price peaked at 280 EUR/MWh for next year. Now we're somewhere around 170, so we're 100 EUR lower. The liquidity need is lower. But I would say the market is still very uncertain and the war in Ukraine is going on. Nord Stream 1 is not delivering. Gas prices have come down similarly from at the same point a month ago going over 300, now at 170. We can't rule out that there wouldn't be further liquidity pressure.
We are happy that we have the EUR 2.3 billion liquidity facility in place which we of course have not had to draw until this point. We have more comfort on liquidity and the situation is clearly better than it was a month ago.
Okay. Thank you.
The next question comes from Vincent Ayral from J.P. Morgan. Please go ahead.
Hi. Good morning and, thank you for the presentation. Two questions. One is coming back in July, if I recall properly, it was made clear that the German government had committed not to, in an additional bailout situation, not to further economically dilute the shareholders. Here clearly we got further dilution. We could have had the stake bought, being bought back at more than just the nominal. What has been the rationale here for this change of stance? How do you look at this specific point? I believe minorities could potentially look at legal challenges in the future on that one.
The second question is regarding the liquidity measures, which was asked previously. I'm just doing a follow-up. The European Commission has flagged it as an area where they should bring emergency measures. Have you heard anything on a potential change in the rules? This could be a systemic issue. We haven't heard any specifics on the fifteenth of September. What can we expect and when on the collateral rules, please? Thank you very much.
Okay. It's a good point that we agreed on economically non-dilutive backstop instrument. Like I said earlier, my feeling is that all parties worked extremely hard to find solutions that would enable everybody to live up to the agreement. When the situation changed as or continued to deteriorate as it did with higher gas curtailments and higher gas prices, it became more and more difficult to find an instrument that could actually pass through state aid, competition, et cetera, solutions. It became more and more obvious that the capital needs for Uniper are huge. They were much bigger than anticipated in July.
KfW actually has provided, even if the July package has not been fully documented, KfW has provided facilities up to EUR 13 billion for Uniper so far. Germany has been providing the liquidity and now provided also then the capital structure solution to keep Uniper going on. From the Fortum point of view, this was then a complete package consisting of getting the certainty of being repaid the EUR 4 billion loan, releasing the EUR 4 billion guarantee, and then finding a solution for our equity exposure. We can't pick and choose one instrument at a time, but we had to look at the total package.
We are happy that Germany has been as committed as it has been to providing now the liquidity in form of loans and now is ready to subscribe to EUR 8 billion of fresh equity into the situation. With regards to the EU, state aid and EU, well, let's say the whole EU approach, it's a good point to raise that we do need EU-level solutions and we need national solutions and governments and companies need to work together to find a solution to the energy crisis we are facing, and which is caused then by the Russian attack on Ukraine and Russia using energy as a weapon against Europe. This is the total frame for the situation.
I do not think that the situation is over, coming back to my earlier point about having sufficient liquidity buffers. We need to solve Uniper. There we have an agreement. We need to solve Russia, and we need to make sure that we have sufficient liquidity.
Well, thank you.
Maybe Markus, just coming back to Wanda's question on the net debt.
The next question comes.
Sorry. Maybe I have to correct the numbers I've given were the financial net debt. I looked it up in our Q2 statement. Yeah, it's not the economic net debt. This was at EUR 4.2 at the end of Q2, but financial net debt was at EUR 2.4. The mechanics, however, are the same, no matter if you look at economic or at financial net debt. Thanks.
Thank you, Bernhard.
E.B. Please go ahead.
Yes. Hi, this is Artem Beletski from SEB. Actually, two questions from my side. First, is relating to parent company balance sheet. Could you comment what is the value of Uniper what you had by the end of last year, and also what is the book value of Russian assets in parent company? The other question is relating to EU's proposal relating to revenue cap on power generators of EUR 180 per MWh. Could you maybe comment at this stage what is your assessment of possible assets being impacted by this basically initiative? Thank you.
Again, I'll let Bernhard take the parent company balance sheet. What I will just say there is that we own our operations outside of Finland through various holding structures. The impact will not be direct on anything we would be doing, but of course, eventually will flow through to parent company. On the revenue cap of EUR 180 for an outright nuclear and hydro producer, EUR 180 would be a very good level. If our achieved prices were at EUR 180, that would be very good for our profitability. What would it do more broadly speaking?
Well, we know where the coming months and coming quarters forward prices are with the coal and gas prices being where they are. If the production cost of assets is higher than this, then this kind of cap would then mean reduction in supply. That would then mean that in the areas where this would impact, that would mean that demand has to then be curtailed one way or the other. Either demand has to flex or then there will not be the same supply.
My comment there would be that this would have to be very carefully thought through, what are the implications, and then have a plan how to deal with the commercial and industrial and social consequences of actually reducing the availability of energy through such a cap. Bernhard, if you wanna comment on the Uniper ownership and Russia-
Yeah.
Balance sheet values.
The next question comes from Louis.
No, sorry. Sorry, just one more answer to be given on this. I think you're referring to the parent company, i.e. Fortum Oyj, legal entity. As Markus said, neither Russia nor Uniper are held directly by Fortum Oyj, but there are intermediate holding companies in between, so there is no direct flow-through of these asset price movements, if there are any like now with Uniper, into the Oyj balance sheet. It goes through these different layers up. Of course, at a lower level, below Fortum Oyj, the original purchase has been accounted at the values that you know.
The next question comes from Louis Boujard from ODDO BHF. Please go ahead.
Yes, good morning. Thank you for taking my questions. Two questions on my side. The first one, you mentioned in your press release right of first offer on Uniper assets regarding hydro and nuclear assets. Could you please, in Sweden, give us a bit more details on the advantage of these options that is likely to run until 2026? On your side, what does that mean in terms of eventual purchasing price? Also, I was wondering, considering that, of course, a deal was needed, let's be clear on this, but considering that you lose a part of your potential earnings power, there is also eventually a question mark on the level of the dividend policy.
Do you think that it has to be sustained at the current level, considering at the same time that you will have to keep on investing quite sharply into the energy transitions? Don't you think that it could be eventually a good time eventually to come with a new dividend policy going forward? Thank you very much.
Okay. On the right of first offer for hydro and nuclear, the concept is that if Uniper were to start a sales process, the agreement says that then we have the right to make a first offer, and then Uniper will evaluate that and look at the merits of such an offer and decide whether they would transact with us or then whether they open a broader process. That gives us a possibility for bilateral discussions. Of course, Uniper has to evaluate that would such an offer be in the interest of all of its stakeholders. Normal process, but first with Fortum. On the point about the dividends.
Like before, also going forward, the dividend is balanced against two other points, and that's the balance sheet and growth. We have these three elements that have to be in balance. As a capital-intensive utility business, it makes sense for us to have debt on the balance sheet and to have that and to run our operations overall. We need a solid investment grade rating, so the balance sheet has to be in shape. Then we have to balance that if there is headroom available, how is that used between dividends and growth?
On that point, I would say that our Nordic platform and competencies in the Fortum segments gives us good possibilities for growth in clean energy and in industrial and commercial solutions going forward. That growth we then have to balance against the dividend, which we know that many of our investors value highly stable and predictable dividends. It's a balance of these three elements also going forward. We will look if there is a need to then work on the wording of the dividend policy, but that is something we then come back to if there is a need for that.
Thank you very much.
The next question comes from Pasi Väisänen from Nordea. Please go ahead.
Great, thanks. This is Pasi from Nordea. A couple of questions from my side. When looking at your current group structure after Uniper exit, what could be actually the sustainable long-term operating profit run rate for your Nordic Generation segment? And what are actually these growth investments you already highlighted at? Are you actually now changing your strategy and going to the offshore wind power in Nordic area? And practically, that would actually mean the cut to a kind of annual dividend payment. How come you are still keeping up that dividend promise regardless? I mean, the group structure has been changed and you obviously are lacking a growth story. And how long we should actually expect to get the new dividend guidance? Thanks.
On the operating profit guidance, you know that we do not give a number, but you know the Nordic Generation production volumes, 45 TWh ±, and then our heat business, our Consumer Solutions business and City Solutions business. From the hedge ratios that we have published and hedge prices, plus then the value of the open position, I would say it's a fairly straightforward calculation that one can make of what to estimate the comparable operating profit level also for the near-term years. With regards to the growth potential, we have been tapping into that growth potential that I mentioned already. We are growing in clean power.
We just finished the Kalax Wind Project. We have a 380 MW wind project going on in Pjelax-Böle. Battery recycling very big on European scale in Harjavalta. EUR 1 billion lifetime extension investments into Loviisa. Well, these happen to be in Finland, but that just highlights the good prospects actually in the Nordics for clean energy production. On the city solution side, I would still highlight the data center projects, the world's largest heat offtake from data centers that we have with Microsoft. These are some examples of what kind of growth projects we have going on at the moment. For more specifically, we will come back to the strategy in due course.
With regards to the point about the dividend, we haven't exactly made a dividend promise, but rather we have given the dividend policy, and that stipulates that we aim for a stable, sustainable, over time increasing dividend. But that is then based on the company's balance sheet earnings, and the growth prospects. It is not a commitment to a fixed dividend per se, but it should be evaluated annually, based on what the balance sheet and earnings potential and liquidity look like. Again, that is something we will do in due course, with our board, then once we get to that point of the year and to the dividend proposals, to the spring AGM.
Yeah, I hear you. Summing it up, you are not going to offshore wind power projects, and you might pay EUR 0.70-EUR 0.80 as a dividend going forward. Is that the kind of right conclusion?
We'll come back to what are the potential growth areas in due course. I would say that in the Nordics, there is good possibility to grow in clean power and customer solutions. On the dividend, we look at the three points, balance sheet, growth prospect, and the dividend. These have to be in balance on the short and long-term basis.
Yeah, fully understood. Thanks. That was all from my side.
Thank you.
If you wish to ask a question, please dial star five on your telephone keypad. The next question comes from James Brand from Deutsche Bank. Please go ahead.
Hi. Good morning. Thanks for taking my questions. I'm just wondering whether you could give us an update on what the latest discussions and news is around potential windfall taxes in Finland and Sweden. There seems to be lots of stuff in the press in different countries and some stuff in the Nordics. It'd be useful to get your update on where those discussions are. Thanks.
Thanks, James. I got the windfall tax part, but did you say what's the latest on, I didn't quite catch you in the beginning. Was it only windfall tax or something else also?
Yeah, just windfall tax.
Windfall tax. Yes. There's definitely, like I said earlier, we are facing a Europe-wide energy crisis and now governments are struggling with the high energy prices and how to help consumers, industries, commercial energy users in the situation that they are facing. I'm not surprised to see the discussions about price caps, windfall taxes, and the discussion around that. What I can pick up from the Finnish discussion is that it's quite a balanced discussion.
What at least some of the headlines I pick up is that on the government level, the government is then looking at, well, if something has to be done to support the customers, if then, if it is assumed that the companies are making big profits and they would be taxed, then the question is, well, how will these companies then be able to invest in growth and providing actually more energy, more competitive energy to the market? I would say that it's still wide open what would happen and how would happen.
What we know already, what are the announced facts, is that the government in Finland is providing VAT relief of about EUR 300 million for consumers, EUR 300 million of direct support for low income or high energy use customers. To help with the liquidity and margining needs, the government announced a EUR 10 billion package, which is then available for the margining needs for the market participants. A lot is happening and governments need to respond both reactively and hopefully proactively to the situation.
Great. Thank you very much.
The next question comes from George Hay from Reuters Breakingviews. Please go ahead.
Morning. Thanks for the presentation. Just wanted to basically, at the start of the year, you had a 78% stake in an asset worth almost EUR 15 billion. That's kind of gone down to nothing pretty much. To what extent do the kind of things that you are getting from this deal, such as the loans repaid and the deconsolidation effects, like, to what extent does that offset? I mean, if you're a normal Finnish taxpayer, how would you think about this?
That's a good question. At the year-end, indeed, year-end of last year, Uniper was trading at very high levels.
Yeah
When we look at our investment in Uniper, we have invested around EUR 7 billion into the equity. We've got about EUR 900 million in dividends throughout the years of ownership, and now we would recover through this agreement EUR half a billion for the shares. It is clear that we cannot be happy of what happened. This definitely has not gone as we had planned or I had anticipated, and we definitely need to be humble about that and acknowledge that things did not go the way we had thought.
The context of where this all happened is that, looking back at last year, Fortum Group produced its highest ever result in history, and half of that came from Uniper, and a big part of that came from the gas business.
Mm.
Russia had delivered gas every single megawatt hour that had been nominated for 50 years, both Russia and Soviet Union. The mistake we made was that we thought that Russia would act rationally when it comes to their energy sales. We did not expect, this was not something we had anticipated that the 50-year continuous gas and energy supply would be curtailed the way it was. Now we are seeing the damage caused by that, not only for Uniper and Fortum, but for the whole European economy. That's why we need to, as Europe, governments, companies, the society together, we need to work our way through this. We are humble facing this situation. We invested EUR 7 billion.
Now we have recovered somewhat more than EUR 1 billion altogether in dividends and as the purchase price for the shares. We are happy that we are recovering through this arrangement. We are recovering the EUR 4 billion shareholder loan, and we are recovering the EUR 4 billion parent company guarantee that we put in place. We are happy for the cooperation with the German government, who has then, through KfW, provided very big amounts of capital and liquidity to Uniper and is now stabilizing Uniper with an EUR 8 billion capital injection in form of equity into the company. Things did not go as we had thought. That's our message.
On the deconsolidation effect, presumably that is something to do with the mark-to-market on dividends or, sorry, on derivatives that is currently the case and you kind of you're extricated from that as a result of this. Is that the right way to look at it?
The deconsolidation impact is due to that Uniper already made provisions for the anticipated losses in Q3 and Q4 and from there onwards. Now when we deconsolidate, then we stop accumulating the losses at the end of Q2, and then we'll see the impact in the Q3 numbers. We are now, with this, we are then reversing the part that has happened and that was anticipated to happen after the end of Q2.
Right. Thank you.
Thank you.
Thank you, everyone.
The next question.
Now the last question from investors and financial international media. So with this, we are now concluding this session. Thank you all for participating. Have a nice rest of the day.
Thank you very much, everybody.
Have a good day.