28.10.2016 12:30
Stock Exchange releases

Fingrid Group's Interim report 1.1.-30.9.2016

Fingrid’s consolidated financial statements have been drawn up in accordance with the Interna-tional Financial Reporting Standards (IFRS). Unless otherwise indicated, the figures in paren-theses refer to the same period of the previous year. Financial development in January–September 2016 • The Group’s turnover in January–September was EUR 408.1 (427.7) million • The Group’s operating profit in January–September was EUR 124.6 (105.2) million • The Group’s profit in January–September was EUR 92.3 (67.4) million • Cash flow from the Group’s operations, after capital expenditure, in January–September was EUR 83.0 (65.7) million • Interest-bearing net borrowings amounted to EUR 1,030.5 (1,036.8) million at the end of the review period • Capital expenditure in January–September amounted to EUR 106.6 (100.4) million • The equity ratio at the end of the review period was 32.8 (32.5) per cent • Earnings per share in January-September were EUR 27,764 (20,278) Financial development in July–September 2016 • The Group’s turnover in July–September was EUR 110.8 (134.6) million • The Group’s operating profit in July–September was EUR 24.2 (23.1) million • The Group’s profit in July–September was EUR 14.9 (15.1) million • Cash flow from the Group’s operations, after capital expenditure, in July–Septemberwas EUR 9.6 (19.6) million • Capital expenditure in July–September totaled EUR 31.2 (32.6) million

KEY FIGURES
 
1-9/16
1-9/15
change %
7-9/16
7-9/15
change %
1-12/15
Turnover
€M
408.1
427.7
-4.6
110.8
134.6
-17.7
600.2
Capital expenditure, gross
€M
106.6
100.4
6.1
31.2
32.6
-4.4
147.5
- of turnover
%
26.1
23.5
 
28.1
24.2
 
24.6
Research and development expenses
€M
1.6
1.1
44.1
0.4
0.3
34.3
1.8
- of turnover
%
0.4
0.3
 
0.4
0.2
 
0.3
Average number of employees
 
337
320
5.3
347
323
7.4
319
Number of employees at end of period
 
339
316
7.3
339
316
7.3
315
Salaries and bonuses, total
€M
16.3
15.7
3.6
4.8
4.6
4.8
21.3
Operating profit
€M
124.6
105.2
18.5
24.2
23.1
5.0
162.6
- of turnover
%
30.5
24.6
 
21.9
17.1
 
27.1
Profit before taxes
€M
115.8
84.2
37.6
19.1
18.8
1.8
129.3
- of turnover
%
28.4
19.7
 
17.2
13.9
 
21.5
Profit for the period
€M
92.3
67.4
36.9
14.9
15.1
-1.2
103.6
Comprehensive income for the period
€M
97.1
71.5
35.7
16.5
16.1
2.6
109.1
Equity ratio
%
32.8
32.5
 
32.8
32.5
 
33.5
Interest-bearing net borrowings
€M
1,030.5
1,036.8
-0.6
1,030.5
1,036.8
 
1,026.6
Net gearing
 
1.4
1.5
 
1.4
1.5
 
1.4
Earnings per share
27,763.73
20,278.08
36.9
4,478.43
4,534.04
-1.2
31,150.79
Dividend, Series A shares
           
33,686.24
Dividend, Series B shares
           
16,038.49
Equity per share
215,944
202,535
6.6
     
213,822
Number of shares
               
– Series A shares
qty
2,078
2,078
 
2,078
2,078
 
2,078
– Series B shares
qty
1,247
1,247
 
1,247
1,247
 
1,247
Total
qty
3,325
3,325
 
3,325
3,325
 
3,325

 

 

CEO Jukka Ruusunen: “Import pressure from Sweden eased during the third quarter”

The Nordic system price for electricity nearly doubled in the third quarter of 2016 compared to the corresponding period a year ago. The increase was due to the weakened hydrological situation in the Nordics. The higher price of electricity in Sweden, as well as the increase in transmission connections between the Baltics and Sweden resulted in a decrease of roughly one fifth in imports to Finland from Sweden. However, exports from Finland to Estonia were down nearly 70 per cent. The price of electricity in Finland was at the previous year’s level.

Due to the market situation, situations between Finland and Sweden in the third quarter where electricity transmission is constrained, i.e. congestion hours, were only one third of the amount of the corresponding period. Congestion income, which reflects the adverse economic impact caused by the limited transmission capacity, on that border declined from EUR 81 million last year to approximately EUR 11 million in 2016. Fingrid’s actions to improve the reliability of DC connections have also produced results. We will continue with this development work in the coming years.

Fingrid received positive attention in the international arena. We placed at the top of the International Transmission Operations and Maintenance Study (ITOMS). We are among the best transmission system operators in the world for the 11th time in a row. In addition, we were nominated one of the top four electricity network brands in the world at an international energy sector brand seminar in Iceland. For a monopoly company like Fingrid, social reputation and confidence are central elements in safeguarding our operating capabilities, now and going forward. This helps us to serve our customers and Finnish society in the best way possible.

FINGRID GROUP’S INTERIM REPORT 1.1.-30.9.2016

Accounting principles

Fingrid’s interim report has been drawn up in accordance with the standard IAS 34 Interim Financial Reporting. In preparing this report, where the recognition of congestion income is concerned, Fingrid changed its accounting principles from those applied in its annual financial statements for 2015. The change was implemented as of the beginning of 2016. In other respects, the interim report complies with the same accounting principles as those used for Fingrid’s 2015 financial statements.

As a consequence of the change in the regulation governing Fingrid’s grid pricing, the company will include the congestion income received after 1 January 2016 as accruals in the “other liabilities” balance sheet item. Of the accruals, congestion income will be recognised in the income statement as other operating income when their corresponding costs, as defined in the regulation, accrue as annual expenses in the income statement. Alternatively, they are booked in the balance sheet against investments, as defined by regulation, to lower the acquisition cost of property, plant and equipment, which lowers the depreciation of the property, plant and equipment in question.

Financial result

The Group’s third quarter turnover was EUR 110.8 (134.6) million. Grid service income in third quarter totalled EUR 71.3 (56.5) million. Other operating income totalled EUR 2.5 (0.3) million. Costs during the third quarter amounted to EUR 103.3 (99.5) million.

Fingrid’s congestion income from connections between Finland and Sweden declined to EUR 35.6 (64.7) million as a consequence of the weaker hydrological situation in the Nordic countries during the third quarter; this reduced the differences in Finland’s and Sweden’s area prices. Fingrid’s congestion income from the connections between Finland and Estonia amounted to EUR 2.3 (3.4) million. Due to the change in the way congestion income is recognised, it will no longer be reported in Fingrid’s turnover as of the beginning of 2016.

The Group’s turnover in January–September was EUR 408.1 (427.7) million. Grid service income increased during the period under review to EUR 269.3 (232.2) million, as a result of the change in grid pricing enacted at the start of the year and due to the growth in electricity consumption. Other operating income totalled EUR 10.7 (2.2) million. The increase in other operating income resulted from the capital gain of EUR 3.7 million on the sale of property, plant and equipment and from EUR 5.4 million in recognised congestion income. Total costs between January and September amounted to EUR 318.8 (304.9) million.

Between January and September, electricity consumption totalled 61.8 (60.4) terawatt hours. Imbalance power sales amounted to EUR 106.5 (99.2) million. The growth in imbalance power sales resulted from an increase in the volume of imbalance power and higher imbalance power prices. Cross-border transmission income from the connection between Finland and Russia increased to EUR 14.0 (8.2) million. This was due to the new tariff structure that was introduced and to increased imports from Russia.

Imbalance power costs increased from the previous year’s level to EUR 84.2 (68.6) million, due to the increase in the volume and price of imbalance power. Loss energy costs amounted to EUR 44.8 (50.8) million. The declining loss energy costs have been affected by the lower price of loss energy procurement and the slightly lower volume of loss energy. At the end of September, approximately 101 (101) per cent of Fingrid’s projected loss energy procurement for the remainder of 2016 was hedged at an average price of EUR36.9 (39.7) per megawatt hour.

The cost of reserves to safeguard the grid’s system security decreased to EUR 36.7 (42.0) million. The reason for the decreased cost was an interruption in the procurement of the automatic frequency control reserve until the end of August, as well as the lower procurement cost of frequency controlled reserves for normal operation and disturbances due to high availability on the markets. Depreciation amounted to EUR 73.8 (69.9) million. Grid maintenance costs grew to EUR 15.0 (11.3) million, due to higher costs arising from maintenance projects carried out as preventive maintenance on substations and from cutting down trees along power line right-of-ways. Personnel costs increaced due to the increased number of personnel and were EUR 20.2 (19.0) million.

 

Turnover and other income (€M)
1-9/16
1-9/15
change %
7-9/16
7-9/15
change %
Grid service income
269
232
16.0
71
57
26.2
Imbalance power sales
107
99
7.3
32
29
8.1
ITC income
9
11
-12.6
2
4
-60.9
Cross-border transmission income
14
8
70.0
3
1
190.1
Finland-Estonia congestion income*
0
3
-100.0
0
0
-100.0
Finland-Sweden congestion income*
0
65
-100.0
0
40
-100.0
Peak load capacity income**
5
6
-9.7
2
2
-0.9
Other turnover
4
3
10.5
1
1
-1.5
Other operating income
11
2
383.3
2
0
654.7
Turnover and other income total
419
430
-2.6
113
135
-16.1

 

Costs (€M)
1-9/16
1-9/15
change %
7-9/16
7-9/15
change %
Purchase of imbalance power
84
69
22.8
26
21
26.0
Loss energy costs
45
51
-11.8
14
20
-29.2
Depreciation
74
70
5.5
26
24
7.9
Cost of reserves
37
42
-12.7
13
13
-0.3
Personnel costs
20
19
6.1
6
6
6.2
Peak load capacity costs**
5
6
-14.8
2
2
-15.2
Maintenance costs
15
11
32.3
6
4
29.8
ITC charges
8
7
14.3
3
3
7.0
Other costs
31
30
2.5
9
8
10.4
Costs total
319
305
4.5
103
100
3.7
Operating prot, excl. the change in the fair value of commodity derivatives
100
125
-19.9
10
35
-71.8
Consolidated operating profit, IFRS
125
105
18.5
24
23
5.0

 *A change was made in how congestion income is reported, and it is not reported in the turnover as of the beginning of 2016.
** Peak load capacity income and costs are related to the securing of sufficient electricity supply during peak consumption hours in compliance with the Finnish Peak Load Capacity Act.

 

The Group’s operating profit in the third quarter was EUR 24.2 (23.1) million. Profit before taxes was EUR 19.1 (18.8) million. Profit for the period was EUR 14.9 (15.1) million and comprehensive income was EUR 16.5 (16.1) million. The Group’s net cash flow from operations, with net capital expenditure deducted, was EUR 9.6 (19.6) million during the review period.

The Group’s operating profit during the period was EUR 124.6 (105.2) million. Profit before taxes was EUR 115.8 (84.2) million. The biggest differences from the corresponding period last year are explained by changes in the market value of derivatives (change EUR +54.7 million), the growth in grid service income (change EUR +37.1 million), and the elimination of congestion income from the turnover (change EUR -68.1 million), due to the change in how congestion income is reported. Profit for the period was EUR 92.3 (67.4) million and comprehensive income was EUR 97.1 (71.5) million. The Group’s net cash flow from operations, with net capital expenditure deducted, was EUR 83.0 (65.7) million during the review period. The equity to total assets ratio was 32.8 (32.5) per cent at the end of the review period.

The Group’s profit for the review period is characterised by seasonal fluctuations, which is why the profit for the entire year cannot be directly estimated on the basis of profit from the period under review.

Investments and maintenance

The project to reinforce the grid in western Finland, an investment totalling EUR 260 million, is progressing according to plan, and most of the projects will be completed this year. There are a total of 17 projects under way in 2016. Co-ordinating these projects, as well as planning and implementing outages, has been extremely challenging. The outages required for the commissioning of the projects have, whenever possible, been scheduled on weekends to minimise the impact on society.

Several new investment decisions were made during the period under review. The electricity supply for Äänekoski’s new bioproduct mill will be secured with the construction of a new 110 kilovolt transmission line between Äänekoski’s Koivisto and Laukaa’s Vihtavuori substations. The investment costs for the new transmission line are EUR 4.6 million and the project will be completed at the end of 2017. Olkiluoto’s 400 kilovolt switching station, which is outdated and has insufficient system security, will be modernised. The Olkiluoto substation is one of the most important grid nodes, with three nuclear power plants connected to it. The project, with an estimated cost of EUR 17 million, is due for completion in 2019.

Fingrid has concluded an agreement with Siemens Osakeyhtiö on the modernisation of Huutokoski’s 110 kilovolt switching station near Varkaus. The agreement is valued at approximately EUR 9.5 million, and the project will be completed in summer 2018. It will secure eastern Finland’s electricity supply. Fingrid has also made a procurement decision on the modernisation of the 110 kilovolt transmission line between Vanaja in Hämeenlinna and Tikinmaa in Valkeakoski, to be supplied by TLT Building Oy. The agreement is valued at roughly EUR 8 million and the project will be completed in autumn 2018.

Fingrid’s maintenance management is, by international standards, still world-class. Fingrid has placed at the top of the International Transmission Operations and Maintenance Study (ITOMS) for the 11th consecutive time now. This serves as a guarantee to Fingrid’s customers of high-quality electricity transmission at low costs.

The massive ERP and asset management IT system ELVIS, which integrates eight systems into one application, was launched in the summer and further improves Fingrid’s maintenance management. The unique system entity has sparked wide interest: representatives from close to 20 countries attended an event to introduce the project in September.

Power system 

Between July and September, electricity consumption in Finland totalled 18.2 (18.1) terawatt hours. Inter-TSO transmission in the same period amounted to 0.5 (1.3) terawatt hours. The total electricity transmission in Finland was 18.7 (19.3) terawatt hours. Fingrid transmitted a total of 15.9 (16.3) terawatt hours in its grid, representing 85.2 (84.3) per cent of the total electricity transmission in Finland. During this period, the volume of electricity Fingrid transmitted to its customers amounted to 15.5 (15.0) terawatt hours, which represents 85.1 (82.9) per cent of Finland’s total consumption.

In January–September, electricity consumption in Finland amounted to 61.8 (60.4) terawatt hours. Inter-TSO transmission in the same period amounted to 3.1 (4.2) terawatt hours. The total electricity transmission in Finland was 64.9 (64.5) terawatt hours. Fingrid transmitted a total of 51.3 (50.2) terawatt hours in its grid, representing 79.0 (77.8) per cent of the total electricity transmission in Finland. During this period, the electricity Fingrid transmitted to its customers amounted to 48.2 (46.0) terawatt hours, which represents 78.0 (76.2) per cent of Finland’s total consumption.

Between July and September, 4.0 (4.9) terawatt hours of electricity were imported from Sweden to Finland, and 0.2 (0.0) terawatt hours were exported from Finland to Sweden. In January–September, 12.9 (13.2) terawatt hours of electricity were imported from Sweden to Finland and 0.2 (0.2) terawatt hours were exported from Finland to Sweden. Transmission capacity between the countries was partly limited in August and September for about a month due to construction of the new 400 kilovolt power line and substations in northern Finland.

In July–September, 0.4 (1.2) terawatt hours were exported to Estonia. In January–September, 2.9 (3.8) terawatt hours were exported to Estonia. Transmission capacity between the countries was partly limited between 7–15 September, due to maintenance work carried out on Estonia’s internal network.

Between July and September, 1.0 (0.3) terawatt hours of electricity were imported from Russia to Finland and between January and September imports totalled 4.0 (2.9) terawatt hours. Transmission capacity from Russia to Finland was fully available during the reporting period, except for the period from 1–9 September, when it was partly limited due to scheduled maintenance work on the Russian side. Electricity imports from Russia were relatively low, as in the previous years. There are major intraday variations in import volumes, however.

According to Fingrid’s measurements and assessments, Finland’s total wind power production exceeded for the first time the hourly average production of 1,000 megawatts on the 27th of August. During that measured peak production hour, wind power made up some 16 per cent of Finland’s electricity production and was used to cover roughly 14 per cent of the total consumption. Finland currently has installed wind power production of more than 1,300 megawatts.

There were no major disturbances with extensive consequences in the grid during the period under review. 

Power system operation
1-9/16
1-9/15
7-9/16
7-9/15
Electricity consumption in Finland, TWh
61.8
60.4
18.2
18.1
TSO transmission in Finland, TWh
3.1
4.2
0.5
1.3
Transmission within Finland, TWh
64.9
64.5
18.7
19.3
Fingrids electrity transmission volume, TWh
51.3
50.2
15.9
16.3
Fingrid's electricity transmission to customers, TWh
48.2
46.0
15.5
15.0
Fingrid's loss energy volume, TWh
1.0
1.0
0.3
0.4
 
 
 
 
 
Electricity transmission Finland - Sweden
 
 
Exports to Sweden TWh
0.2
0.2
0.1
0.0
Imports from Sweden, TWh
12.9
13.2
4.0
4.9
 
 
 
 
 
Electricity transmission Finland - Estonia
 
 
Exports to Estonia, TWh
2.9
3.8
0.4
1.2
Imports from Estonia, TWh
0.2
0.0
0.1
0.0
 
 
 
 
 
Electricity transmission Finland - Russia
 
 
Exports to Russia, TWh
 
0.02
 
 
Imports from Russia, TWh
4.0
2.9
1.0
0.3

 

Electricity market

In the third quarter of the year, the average day-ahead Nordic market price (system price) of electricity between July and September was EUR25.23 (13.31) per megawatt hour and the area price for Finland was EUR 31.62 (30.13) per megawatt hour. In January-September, the average day-ahead market price for the Nordics was EUR 24.39 (20.66) per megawatt hour and Finland’s area price was EUR 30.76 (29.35) per megawatt hour.

Between July and September, congestion income between Finland and Sweden totalled EUR 11.3 (80.9) million. The substantial decrease in congestion income was affected by the lower area price difference between Finland and Sweden. This was partly due to the weakening hydrological situation in the Nordics and to the completion of the NordBalt transmission link between Sweden and Lithuania earlier in the year. Electricity transmission from Sweden to Finland declined by roughly one fifth in the third quarter of the year compared to the same period in 2015.

Roughly half of the cross-border transmission capacity between Finland and Sweden is generated by the Fenno-Skan high-voltage DC connections. They provided the electricity markets with almost their full capacity during the third quarter of 2016. Thanks to measures initiated at the start of 2016 to develop the reliability of cross-border transmission connections, the duration of three interruptions during the third quarter were kept very brief, and the availability of the connections has been clearly better compared to the corresponding periods in 2013–2015.

In September, the Ministry of Economic Affairs and Employment set up a working group to look into the opportunities of smart grids for the electricity market. The aim of the working group is to forge a common vision of future smart grids and to propose concrete measures for using smart grids as a means of increasing customers’ opportunities to participate in the electricity market and contribute to maintaining a secure supply of electricity. The members of the working group broadly represent the stakeholders in the sector. Fingrid actively participates in the group.

 

Electricity market
1-9/16
1-9/15
7-9/16
7-9/15
Nord Pool system price, average €/MWh
24.39
20.66
25.23
13.31
Area price Finland, average €/MWh
30.76
29.35
31.62
30.13
Congestion income between Finland and Sweden, €M*
71.1
129.5
11.3
80.9
Congestion hours between Finland and Sweden %*
40.0
46.9
27.6
70.4
Congestion income between Finland and Estonia, €M*
4.6
6.8
0.1
0.4
Congestion hours between Finland and Estonia %*
12.0
13.0
0.5
2.5

* The congestion income between Finland and Sweden and between Finland and Estonia is divided equally between the relevant TSOs. The income and costs of the transmission connections are presented in the tables in the financial result section


 

In the third quarter of the year, Fingrid used EUR 0.6 (0.2) million for countertrade. The majority of the countertrade costs was caused by the countertrade carried out to safeguard system security in connection with investment projects requiring interruptions in the power supply, but costs also arose due to several cross-border transmission disturbances.

Fingrid used EUR 3.2 (2.9) million for countertrade during the review period. 

 
Countertrade
1-9/16
1-9/15
7-9/16
7-9/15
Countertrade between Finland and Sweden, €M
1.0
0.5
0.0
0.0
Countertrade between Finland and Estonia, €M
0.1
0.8
0.0
0.0
Countertrade between Finland's internal connections, €M
2.1
1.6
0.6
0.2
Total countertrade, €M
3.2
2.9
0.6
0.2

 

Financing

The company’s credit rating remained high. This reflects the company’s strong overall financial situation and debt service capacity. The Group’s net financial costs between July and September were EUR 5.2 (4.3) million. Between January and September the Group’s net financial costs amounted to EUR 9.2 (21.1) million, including the change in the fair value of derivatives of EUR 4.6 million positive (EUR 5.8 million negative).

Interest-bearing borrowings totalled EUR 1,202.7 (1,138.5) million, of which non-current borrowings accounted for EUR 878.1 (939.5) million and current borrowings for EUR 324.6 (199.0) million.

The company’s liquidity remained good. Financial and cash assets recognised at fair value through profit or loss on 30 September 2016 were EUR 172.2 (101.7) million. The company’s liquidity was strengthened in September with bond issues totalling EUR 80 million, which will be used to repay long term borrowings maturing in the fourth quarter. The company additionally has an undrawn revolving credit facility of EUR 300 million to secure liquidity and a total of EUR 50 million in uncommitted overdraft facilities.

The change in the fair value of electricity derivatives during the period under review includes EUR 5.4 million from a dismantled hedge reserve resulting from the discontinuation of hedge accounting, as an item reducing the Group’s result.

The counterparty risk arising from derivative contracts relating to financing was EUR 15 (16) million. Fingrid’s foreign exchange and commodity price risks are mainly hedged.

Personnel

The total number of personnel employed by the Group averaged 337 (320), of which 285 (283) were in a permanent employment relationship.

Auditing

The consolidated figures in this Interim Report are unaudited.
 
Events after the review period and outlook for the rest of the year

Fingrid Oyj announced on 17 October 2016 that it will raise grid service fees at the start of 2017 by an average of seven per cent. The increase will be used to cover the company’s future investments and operating costs. Grid pricing is expected to remain stable in the future.

Fingrid Group’s profit for the 2016 financial period, excluding changes in the fair value of derivatives and before taxes, is expected to decline from the previous year. Grid service pricing for 2016 is set in such a way as to balance out the surplus that was generated in the previous regulatory period with a corresponding deficit. Comparability is also affected by the different way of recognising congestion income as of the start of 2016. Results forecasts for the full year are complicated especially by the uncertainty related to grid income, ITC income and cross-border transmission income, and to reserve and loss energy costs. In the Nordic countries, these are dependent on temperature variations as well as changes in precipitation and hydrological situation, which affect electricity consumption and electricity prices in Finland and its nearby areas, and thereby also the volume of electricity transmission in the grid. The company’s debt service capacity is expected to remain stable.

Notes: Tables for Fingrid’s Interim Report 1.1.-30.9.2016

Further information: Jukka Ruusunen, President & CEO, tel. +358 30 395 5140 or +358 40 593 8428
Jan Montell, Chief Financial Officer, tel. +358 30 395 5213 or +358 40 592 4419