Release Date: October 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Fortum Oyj (FOJCF, Financial) achieved resilient results despite lower spot prices, thanks to successful hedging and a versatile CO2-free generation fleet.
- The company is progressing well with the lifetime extension of the Loviisa nuclear power plant, securing reliable Western alternative fuel supply.
- Fortum Oyj (FOJCF) is committed to exiting coal by 2027, with a significant investment in biomass technology at the CzÄstochowa plant in Poland.
- The company is actively developing industrial sites in Finland for data centers and sustainable aviation fuel projects, indicating strong future growth potential.
- Fortum Oyj (FOJCF) has a strong financial position with a low leverage ratio of 0.4 times, providing flexibility for future investments or shareholder returns.
Negative Points
- The generation segment's results were negatively impacted by lower spot and hedge prices, leading to a decline in comparable operating profit.
- Finnish and Swedish industrial power demand is still lagging, with delays in industrial investments, particularly in green transition projects.
- The company faces challenges with lower demand for environmental values, impacting the optimization premium.
- Fortum Oyj (FOJCF) is involved in legal proceedings against its former Russian subsidiary, which could take years to resolve.
- The company has not signed any new long-term power purchase agreements (PPAs) in the third quarter, indicating potential challenges in securing future contracts.
Q & A Highlights
Q: Can you comment on the small modular reactor (SMR) opportunities that Fortum currently sees, including the timeline, CapEx, and potential EPS impact?
A: Markus Rauramo, CEO: SMRs are part of our nuclear feasibility study, alongside large conventional nuclear plants. The first commercially available SMR could be the Hitachi 300-megawatt plant in Ontario, expected by 2028-2029. We need to see an operating reference plant before making investment decisions. Currently, production costs are higher than Nordic forward prices, and we are discussing regulatory and market design models with governments. We cannot yet comment on EPS impact.
Q: Has there been any development on signing new power purchase agreements (PPAs) with data centers?
A: Tiina Tuomela, CFO: We aim to increase long-term rolling hedge ratios to a minimum of 20% by 2026. There's significant interest in PPAs, but the typical period is currently five to eight years. No new long-term PPAs were signed in Q3, but discussions continue as part of our hedging strategy.
Q: Can you provide details on the Vestas settlement and its impact on cash flow?
A: Markus Rauramo, CEO: The settlement details are confidential, but it concerned only part of the original claim. The settlement was mutually satisfactory, avoiding arbitration. Tiina Tuomela, CFO, added that strong cash flow is expected in Q4 from various sources, including the Vestas settlement.
Q: What is Fortum's strategy regarding its conservative leverage levels and potential acquisitions?
A: Markus Rauramo, CEO: Our leverage target of 2 to 2.5 times is to maintain a solid investment-grade rating. We are open to selective growth in core operations, including potential acquisitions in hydro, nuclear, heating, and consumer solutions. We will discuss investments, balance sheet, and dividends with the Board at year-end.
Q: How does Fortum view the impact of increasing solar and wind production on system prices and optimization premiums?
A: Markus Rauramo, CEO: Increased renewables can lead to more volatility, which benefits our optimization premium. However, there is limited demand for pay-as-produced renewables. Tiina Tuomela, CFO, noted that environmental values fluctuate, but the optimization premium is mainly driven by market volatility, particularly in areas where Fortum has production.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
