• Comparable Operating Profit (Q2): EUR264 million, decreased by EUR40 million.

• Comparable EPS (Q2): Increased by 25%.

• Operating Cash Flow (H1): EUR876 million.

• Operating Cash Flow (Q2): EUR338 million.

• Financial Net Debt: EUR851 million, leverage at 0.5 times.

• Dividend Payout: EUR520 million paid in the second quarter.

• Hedge Price (2024): EUR43 per megawatt hour, 75% hedge ratio.

• Hedge Price (2025): EUR42 per megawatt hour, 60% hedge ratio.

• Capital Expenditure (2024): Expected to be EUR550 million.

• Fixed Cost Reduction Target: EUR100 million by end of 2025.

• Sales Gain from Divestment: EUR16 million from Indian solar assets.

• Liquidity Reserve: EUR7.4 billion, including EUR4.1 billion liquid funds.

• Warning! GuruFocus has detected 7 Warning Signs with FOJCF.

Release Date: August 15, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Fortum Oyj (FOJCF) demonstrated resilience in the second quarter despite lower power prices, supported by successful hedging and physical optimization.

• The company continued to implement its strategy by investing in clean energy, including the modernization of the Loviisa nuclear power plant and the inauguration of a wind farm in Finland.

• Fortum Oyj (FOJCF) successfully divested its stake in a 185 MW solar portfolio in India, recording a sales gain of EUR16 million.

• The company maintained a strong balance sheet with very low leverage, defined as financial net debt to comparable EBITDA at 0.5 times.

• Fortum Oyj (FOJCF) signed an agreement to sell its recycling and waste business for approximately EUR800 million, expecting a tax-exempt capital gain of EUR110 million.

Negative Points

• Fortum Oyj (FOJCF) experienced a decrease in comparable operating profit due to lower spot and hedge prices in the generation segment.

• The company's operating cash flow decreased compared to the previous year, with EUR876 million in the first half and EUR338 million in the second quarter.

• Fixed costs have increased somewhat due to inflation and other factors, impacting the company's cost structure.

• The Pjelax wind farm contributed negatively to the results in the quarter.

• The company faces challenges in the market with high volatility in Nordic power prices, influenced by factors such as nuclear plant maintenance and transmission capacity outages.

Q & A Highlights

Q: Is Fortum interested in large new nuclear projects in Sweden, especially given the lack of growth CapEx outside in the foreseeable future? A: Markus Rauramo, CEO, stated that Fortum is interested in new capacity if conditions such as technical, financial, and regulatory feasibility are met. The Swedish government's investigation aligns with Fortum's views, but more details are needed before any decisions can be made.

Q: Can you quantify the cost-cutting achieved in H1 this year versus H1 last year? A: Markus Rauramo, CEO, and Tiina Tuomela, CFO, explained that while fixed costs have increased due to inflation and other factors, they are confident in achieving the EUR100 million cost reduction target. The impacts will start to show in the latter part of the year.

Q: Have you made any progress on PPAs, particularly with Microsoft for their Helsinki data center campus? A: Markus Rauramo, CEO, noted that while there haven't been many large PPAs announced this year, the customer pipeline remains strong, and Fortum continues to work towards increasing long-term hedging.

Q: With the circular solutions sale and India sale, how does this affect your balance sheet strategy and potential shareholder returns? A: Markus Rauramo, CEO, stated that Fortum's balance sheet is strong, and they will continue to follow their dividend policy. The company will consider the higher end of the payout range when the balance sheet is strong and investment opportunities are limited.

Q: Can you provide more details on the optimization premium level in Q2? A: Markus Rauramo, CEO, mentioned that while they do not provide quarterly guidance, they are comfortable with the annual guidance of EUR6 to EUR8 per megawatt hour.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.