Swedish power firm Vattenfall is to split its operation in two as a result of “increased uncertainty” about the European energy market, which the company predicts “will not recover in the foreseeable future”.
And the company also announced today that it is writing down SEK29.7bn ($4.5bn) off the value of the its assets “as a consequence of market developments and higher business risks”.
As of January 1, 2014, the group’s operations will be split into two regional units: Nordic and Continental Europe and the UK.
Vattenfall believes this change will give it “greater financial and strategic flexibility” in a time of “increased uncertainty about the development of the single energy market in Europe, especially in continental Europe”.
In a joint statement, chairman Lars Nordstrom and chief executive Oystein Loseth (pictured) said: “The new structure will allow the regions to focus on their respective core issues and will open up opportunities for risk-sharing in Vattenfall’s continental operations over time.”
Vattenfall explained the write-downs announced today by stating that “like other European energy producers, Vattenfall is affected by the increasingly gloomy market prospects”.
“The company now makes the assessment that the market will not recover in the foreseeable future. To reflect the increasing business risks, future cash flows have been valuated using a higher discount rate. As a consequence of this, the company is writing down its asset values by a total of SEK 29.7 billion.”
The write-downs include SEK14.5bn in relation to gas and hard coal-fired power plants in the Netherlands; SEK 4.1bn for hard coal-fired plants in Germany; and SEK2.5bn for combined heat and power plants in the Nordic region.
Nordstrom and Loseth said in their statement: “The impairments are significant and this is obviously a difficult task. But this is the reality we are facing and we have to react according to what we know about the marketplace today. It means that we must adjust the book value of our assets. It also means that we have to take steps that we deem are necessary to ensure in the long term a sustainable and strong Vattenfall.”
They added: “Up to now Vattenfall has tackled the challenging market situation through consolidation and significant savings but further substantial measures must now be implemented.”
The company has also scaled up its cost reductions and ongoing streamlining measures. Cost cuts planned for 2014 have been increased from SEK1.5bn to 2.5bn and a new savings target of SEK2bn has been set for 2015.
Vattenfall – which is best known for its wind business but is also active in biomass, nuclear, coal and natural gas – has also initiated a recruitment freeze and is to put “major restrictions” on the use of external consultants.
The company has cut its annual costs by SEK7.5bn since 2010. Investments for the next five years have been reduced to SEK105bn compared to SEK123bn for the period 2013-2017.