Fortum Oyj's (FOJCF) CEO Pekka Lundmark on Q2 2016 Results - Earnings Call Transcript

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Fortum Oyj (OTCPK:FOJCF)

Q2 2016 Earnings Conference Call

July 20, 2016, 9:00 am ET


Sophie Jolly - Head, IR & Financial Communications

Pekka Lundmark - President & CEO

Timo Karttinen - CFO


James Brand - Deutsche Bank

Artem Beletski - SEB

Mikko Ervasti - DNB


Sophie Jolly

Welcome everybody to Fortum's January-June 2016 Result Event. My name is Sophie Jolly. I'm heading IR and Financial Communications here at Fortum. I'm today presenting the results. Here are with me CEO, Pekka Lundmark; and CFO, Timo Karttinen. We will have approximately one hour of time. The presentation will take 30 to 40 minutes and after that we will have a Q&A. Pekka, please?

Pekka Lundmark

Thank you very much Sophie. Dear investors welcome also from my part to this conference call.

I will start with a few general comments on the result and then I'll make a couple of remarks regarding our strategy and particularly I'm going to focus on the ongoing Ekokem acquisition because it marks a very important step in the implementation of our strategy.

But before that zooming into the second quarter operationally I would say that we are fairly happy with how things went. We had very high availability in our power plants actually in our nuclear power plants which we are -- which are fully owned the obvious ones we had almost 100% availability in one of the reactors it was actually 100% and the other one 99% so it was really good. Actually I have seen that the second quarter result is slightly below that of last year that comes from slightly lower volumes we had a little bit lower hydro volumes in Q2, nuclear was approximately on the same level as the year before. On the other hand in Q1 we had higher hydro volumes than last year. So all-in-all H1 volumes were pretty much on the same level as last year but specifically in Q2 we are slightly below last year. Russian Ruble pushes the euro result down a little bit and as you have seen the slightly lower achieved power price also plays a role there. But all-in-all no dramatic changes in any of these variables compared to last year.

There are some positive signs on the power price side driven by coal prices, driven by drier weather hydro conditions, and among the positive signs of course in the quarter is definitely also the Swedish agreement on energy policy. So there were positive things that happened in the environment during the quarter but then again of course towards the end of the quarter particularly the British EU exit vote increased the volatility and one consequence seems to be that the carbon price continues sliding downwards it's in the pretty low level now.

Before I go to strategy and Ekokem, the Swedish agreement on energy policy was really important one for us. The fact that the nuclear tax will be phased out and the fact that the hydro property tax rate will drop from 2.8% to 0.5% in addition to the tax base itself which will be lowered in a few years time. The combination of all these gives us a very positive outcome of the Swedish situation and this is exactly what we have been supporting that the policy would develop towards such a drags in weather different forms of Co2, free production would be treated more equally both on regulation and from taxation point of view. And there the Swedish agreement is clearly a step into the right direction.

There are still open things there, there are implementation issues, it's slightly unclear still as to how the effect will be on the nuclear waste cost side and it is also still unclear how in detail the new targets for renewables, additional renewables, 18 terawatt hours will be implemented and that of course will then also play into the overall results from our point of view, but the balance will be clearly on the positive side.

And one important piece of news during the quarter was also that now it has been confirmed that the Russian CSA payments for new capacity that we have a lot of in the country will be 10 years. There was, as you remember, a discussion that it could potentially be 15 years instead of 10 but it has now been confirmed that it will be 10 years.

Summary of the numbers in Q2. We had a slight drop in sales about 3%. Comparable EBITDA €209 million compared to €228 million the year ago for the reasons that I described, slightly lower volumes, slightly lower achieved price, and the translation effect of the Russian Ruble. Comparable operating profit €122 million compared to €143 million. But then when we move more downwards on the P&L, the share of profits of associates and joint ventures, I would like to highlight the fact that it was actually quite much higher than last year €38 million compared to €22 million. Of course the three most important companies reported on this line are our stakes in Norwegian Hafslund, in Fortum Varme in Stockholm, Sweden, and in TGC-1 in Russia.

There are quite many items that affect comparability, so Timo will in his part of the presentation zoom a little bit deeper into that. The reported earnings per share is only €0.06 but if we eliminate the items affecting comparability we come to in a way a number that we did not officially publish but you can calculate it that would be about €0.11 on a comparable basis, if you want to get an EPS that can be compared to what it was last year i.e. €0.13.

Then talking about our strategy, the picture that you have, you see here is a picture of various systems in a typical city. And when we talk about our capital reallocation and our strategy going forward of course one of the most important element, if not the most important element will be to look for consolidation opportunities in our existing businesses either in or close to our current home markets. So that target obviously remains there as a very high priority target.

But that business will always be dependent on the development of the wholesale price of electricity particularly in the Nordic markets. And that's why as we have said in our strategy definition we are also looking for other revenue streams that would diversify our earnings profile, so that it would not be as strongly dependent only on Nordic power prices as today's case.

We want to however view this in such a way that we always maintain the connection to our core and to the energy system that we know best. And when we look at the challenges that the typical cities today have they are many. They have big challenges in de-carbonizing their heating systems, their cooling systems. They want to offer new solutions for consumers, they want to offer a lot of new digital platforms for active consumers, and at the same time they want to increase the role of local fuels in the energy in the city energy system and this is where things like biomass and waste come into the picture.

These are challenges that the cities are facing and of course our goal is not to be a turnkey supplier of everything in the city, the challenges are so many that one company cannot possibly tell them also. We have chosen a few focus areas and we actually will keep on working on the exact focus in the coming quarters, but a couple of highlights about the things that we've been working on in the past few months. Of course the one very important element in our strategy continues to be the consumer business which we are now through the acquisition of Duon expanding to Poland which of course is an existing country for us, so we are adding a business that we know from the Nordic experience into a country where we are already present today through heating business and of course we have an ongoing investment into a waste energy plant in Poland as well. So this is how Duon fits into the picture, it expands the geographical scope of our consumer business into a country that we already know.

Then I just want to highlight, this is very small and the numbers here are not important in the short-term but this was a technology platform acquisition. Digitalization is one of the most important drivers of the whole world at the moment and Info24 not only gives us a platform for intelligent management of systems for electric traffic, but it also has potential to be a scaled up to a more wider scale IoT platform for energy, various energy services. So this was more for us a technology type of acquisition almost in a way R&D that you speed up through an acquisition of a pretty good platform.

But then when we move to the next one, then we are talking about first larger acquisition that we've recently made. Of course Duon probably €100 million or so is already of a meaningful size but Ekokem €700 million enterprise value for 100% of the shares is of course one order of magnitude more.

And this is now I would say a prime example of an acquisition that diversifies our revenue streams, it gives us access to new markets, but at the same time it has a very strong connection to our traditional core, the energy system. So it fulfills the criteria, the strategic criteria for the types of acquisitions that we want to make very well.

Let me explain this in a bit more detail, Ekokem is a company that is handling on recycling of materials and waste. They are specialists and Nordic market leaders in the recovery and final disposal solutions for waste. They are very strong in thermal treatment, high temperature thermal treatment of toxic hazardous waste, they are strong in soil remediation and environmental construction services, and they are as we are today in the waste to energy business. They have approximately 10,000 active customers in Finland, Sweden, and Denmark. So as such this acquisition does not diversify our geographical portfolio but it strengthen our position in our existing Nordic markets. But most importantly, it gives us in addition to the waste to energy revenue streams; it gives us access to new revenue streams which we have not been in previously.

The company had turnover of €258 million last year, comparable EBITDA of €57 million, and as you may remember the €700 million enterprise value of the acquisition for 100% of the shares represents approximately 11 times, this year's expected EBITDA. So from there you can calculate the EBITDA of this company is actually growing and we strongly believe that what we have acquired here or acquiring will be a platform for growth.

And one potential way that I emphasize that only one potential way to grow is to expand to places where we are to other places where we are currently in waste to energy.

We are big in waste to energy through our joint venture in Sweden, in Stockholm where we have two facilities that are burning actually over 1 million tonnes of waste each year and then we have the ongoing facility in Klaipeda in Lithuania and we have another ongoing project in Lithuania in Kaunas to be ready in 2019, and we have an ongoing project in Zabrze in Poland to be completed in 2018.

Kaunas will be completed in 2019 and these are all potential places that have very good and natural synergy with the offering of Ekokem. But on top of that in theory every waste to energy plant in the world has potential synergies with Ekokem.

In addition to the hazardous waste treatment, Ekokem has a pretty interesting and I would say quite unique concept even globally that they call circular economy village that was actually inaugurated only a few weeks ago. So this revenue or profit numbers that this circular economy village will produce are definitely not visible in their last year's result numbers.

This village that is now operating in Finland receives annually 100,000 tonnes of mixed waste, typically household waste. The waste goes first into a pretty automated, I would do almost call it a factory called eco-refinery that separates the waste, so that we get metals separated, we get plastics separated from the waste, we get biomass, and we get then the parts that here as you put that's energy waste i.e. the part that makes sense to be burnt into energy.

The biomass goes into a bio refinery where bio gas for transport purposes is produced. The plastic goes into a plastic refinery, where the plastics is separated, crushed, washed, and pressed into granules and after that sold as recycled plastics to the industry that will be able to use it as recycled plastics in their own production perhaps that way brand their products as very environmental friendly because they have waste and recycled plastics. And of course all these provide new revenue streams. But then the energy part of course or the part of the waste that does not have other uses, it then goes to the waste to energy plant and into the system that we are already in today.

And this concept, as I said, is fairly this way integrated is fairly unique in the world, it's highly automated and unlike the traditional utility business model which is then based on very large centralized production units and hence not very scalable, there are elements of a higher scalability in this concept. This all then of course needs to be verified and plans will be made as to how this will be scaled to more international markets.

But I wanted to take this time now and explain the background of this because this is clearly one key element in our future growth strategy. But I want to emphasize not forgetting the other key element which is definitely going to be the consolidation of our traditional generation business.

Then if I continue to the market conditions in the second quarter of 2016, the electricity consumption in the Nordic countries was more or less the same as last year; Q1 was actually quite much higher, so the H1 consumption was 3% up in the Nordic region compared to last year. We are still estimating that the long-term kind of direction is 0.5% per year, so even though the year, beginning of this year was so strong, it does not give us reason to change that estimate.

Market prices have recovered somewhat but they are of course still low. They have been supported by the hydro electrical situation and increased coal prices and as you've seen the average system spot price was 23.9 versus 20.7 last year and the same type of difference can be seen in the Finnish and Swedish area prices. But as I already pointed out in the beginning unfortunately the Co2 prices continue to drop and it is now only €4.5 per tonne.

On the Russian side electricity consumption has been more or less stable and the spot prices excluding capacity prices increased by 3% in the first price zone compared to the second quarter of last year.

At the beginning of 2016, the Nordic water reservoirs were at 98 terawatt hours which was 15 terawatt hours more than the long-term average and 18 terawatt hours higher than a year earlier.

Now when we are at the end of the second quarter, the reservoirs were actually 1 terawatt below the long-term average. But still as you can see on this picture quite much higher 14 terawatt hours higher than a year ago. A year ago what we then saw in the third quarter was extremely wet weather and lot of remaining snowmelt in the high altitude. Now of course nobody knows how the weather will develop from here but it is a fact that the remaining snow is on a significantly lower level than it was last year there is very little left at this time which means that it is quite unlikely that we would see even in a wet scenario quite similar development as we saw last year. But of course who knows where the weather will go.

Here is the price development you can see the peak in the beginning of the year because of the cold weather. But after that the spot prices have been between €20 and €25 and forwards have recovered a little bit from the very low levels where they were they actually were around €17 to €18 for the year 2017 to 2019 already but now they have been recovering a little bit but still they are of course in historical comparison on a fairly low level.

Our achieved prices were €30.5 in the second quarter compared to €31.1 last year as I already earlier commented that the spot prices were 15% up, but then when you add the effect of the area prices and hedges which plays a very important role here you get to the achieved price which was €30.5. And then again on the Russian side spot prices I already commented but the achieved prices for Fortum were in euro terms 11% below those of last year but in local currency in Ruble they were actually 9% up from last year.

And then finally, before I hand it over to Timo, the comparable operating profit bridges between '16 and '15, I start from Q2 last year's comparable operating profit €143 million both volumes and price were slightly lower than last year, which means that despite of the cost reductions that are actually proceeding according to the plans and we are looking of at least achieving €100 million that we are targeting for the whole company, a significant part of that being in generation despite that the comparable operating profit for Q2 is €16 million lower than last year coming from these two reasons.

City Solutions €4 million below last year, lower heat sales due to warm weather and lower achieved electricity price for the CHP plants. Russian result pretty much the same as last year. Here you have a strong effect from the currency. The Ruble effect is minus 9 million. So operationally we're looking at an €8 million improvement year-over-year for Q2. And that's then leased to this €122 million Q2 2016 comparable operating profit.

And then finally H1 we start from €486 million. Volumes in generation about to the same as last year but the achieved price for H1 almost €4 million lower that leads to €64 million lower results, City Solutions more or less the same. Russian result €90 million below last year but there are two items affecting comparability there. Last year €30 million higher CSA provision releases and then the Ruble effect on H1 level €20 million, so together €50 million. Eliminating these you get a Ruble denominated operational improvement of 31 million in H1. And the combination of all these leads to then €397 million comparable operating profit for the continuing operations.

And then over to you, Timo.

Timo Karttinen

Thanks, Pekka. Good afternoon everybody and welcome to this results conference on my behalf as well. Let's look at some of the important points you know or mainly second quarter numbers with also the first half. Starting from the comparable and reported operating profit. First our comparable operating profit by reporting segments: Generation €98 million, City Solutions €7 million, Russia €34 million, and then other consisting of headquarter cost and also the cost that we have for development, R&D, and building for the future minus €18 million and that then gives the total for the comparable of €122 million as we have already heard.

On the other hand the reported operating profit was €67 million. So that means that all-in-all we had minus €54 million of these items affecting comparability during the second quarter. And most of that you can say that almost all of that now during this quarter is coming from this fair value changes or derivatives in our Nordic power hedging, those hedges that do not get hedge accounting but get to be fair valued through the profit and loss. Mostly that is in generation as you can see the biggest gap between the comparable and reported operating profit in the segments is in the generation segment.

Then when we look at the first half year numbers, the comparable operating profit first half year €397 million and the reported €437 million, so there we have plus €40 million of these items affecting comparability and you may remember that during the first quarter, we had a bit of the €40 million of sales gains in these items affecting comparability meaning that all these other items including these fair value adjustments so they net fairly close to zero during the first half.

Then moving on to the income statement and I focus on a couple of lines here that we haven't touched yet mainly the share of profit of associates and joint ventures and the net financial expenses. Starting from the Fortum Varme, the joint venture 50:50 joint venture that we have with the City of Stockholm in Sweden. So as you may remember Fortum Varme was previously financed by shareholder loans from us. Then we made a decision with the City of Stockholm that Varme is getting external financing and they will repay back to us the shareholder loans and they did that most of it during last year and also quite a lot of that during the second quarter.

And as those payment were premature compared to the original program and the exchange rate environment, the exchange rates were lower than in the original loan agreements, Varme paid also compensation for us for the premature payment of the shareholder loans. And only during the second quarter 2015, they paid to us €26 million of these compensations and that is visible there in the financial expenses net 2015 reducing that from what it would have been otherwise. So even if it would show here that our net financial expenses have increased by €20 million actually discounting for this €26 million compensation that we got last year and didn't get any of that this year, out net financial expenses went down by €6 million.

And our actual interest expense during the quarter went down €15 million camped to last year. On the other hand then also our interest income went down by €7 million exactly because we didn't have the shareholder loss from Varme anymore. So that explains the change in the financial expenses.

Then looking at the share of profits from associates increasing from €22 million to €38 million. Of course when Varme was last year paying compensation to us, they make up the defect on their own profits of this compensation and we book 50% of after-tax Varme profits here on the associates and joint ventures line. So last year we booked €10 million profits from our profit share in Varme and that partly explains the increase in the share of profits from associates and that explains the increase in profits in Varme for this quarter. But our other associates also performed this year better than last year, Hafslund was performing €4 million better, and TGC-1 our share was performing €2 million better.

So all that then leads to the net profit €57 million for the quarter, €0.06 for EPS, and as noted before taking these items affecting comparability minus €54 million into account, if we wouldn't have had that, then the EPS would have been roughly €0.05 higher.

Then moving over to cash flow statement and there also a couple of points that are important to bear in mind to understand the quarterly cash flows. First during the quarter, we decided to pay €127 million worth of Kronas in Sweden regarding an ongoing tax dispute. Those that €127 million is booked as a receivable, there is no provision, so no profit and loss impact from that, we have solid external legal opinions supporting our view that we will ultimately win the tax dispute, and we will get the cash back, but we decided to pay that instead of separately applying the permit not to pay. We are getting some interest on that payment if and when we ultimately win that tax case. So that €127 million is visible on this other funds from operations line which is now €18 million only during the quarter, it would be €145 million without this cash tax payment.

Then the other thing there to be bear in mind during the quarter is that NASDAQ commodity exchange moved over from the start of the year to requiring cash collected out for everybody who is trading there in electricity derivates in the Nordic Electricity Exchange and that is because of the changes in European financial regulation.

Previously we were able to use bank guarantees for collateral. But now during the quarter we paid €92 million cash as cash collateral to NASDAQ because of this and €44 million out of this €92 million is negative in our change in working capital line because this is non-interest bearing, so it's booked as one item there in changing working capital. So our working capital would be improving by €22 million instead of decreasing by €22 million, if there wouldn't have been this cash collateral payment. And then the rest of this €92 million, so €48 million of this cash collateral payment as it is interest bearing it's booked there down in other investment activities in inside cash used in investing activities, so within this €134 million during the quarter minus €134 million that includes also minus €48 million out of this cash collateral payment to NASDAQ.

So once again altogether €219 million cash we used for these tax payments in Sweden and then NASDAQ cash collateral payments and those items are important to bear in mind when looking at our quarterly cash flows which just from the reported numbers would seem to be fairly low.

Then moving on to the debt portfolio, our total interesting bearing debt at the end of the quarter €5.2 billion, the average interest rate for whole portfolio is 2.5%, 3.5% down from 3.7% in at the start of the year, our external debt is mainly thick and as Euros or Swedish Kronas and that portfolio interest cost at the end of the quarter 2.1% compared to 2.6% at the start of the year. Then we have swapped €722 million worth of financing into Ruble that we used to finance our Russian activities and the cost of that financing including the cost of hedging the currency in those swaps was 12.2% at the end of the quarter, while it was 12.8% at the start of the year.

Looking at the maturity profile, you can see that we have no more bonds maturing this year. We have a bit over €300 million bonds maturing first quarter next year. We have and we continue to have a strong financial position. Our comparable EBITDA last 12 months €1.44 billion, our interest bearing net debt negative net cash position €934 million, our net cash has gone down quite a lot during the year but is mainly explained by the fact that during the second quarter we paid €977 million of dividends and then also we paid the €750 million maturing bond during the quarter.

While comparable net debt-to-EBITDA ratio currently minus 0.9 as the net debt is negative, you may remember that our target is to be around 2.5 in normal conditions. The capital employed where our long-term target is to be above 10% for the last 12 months minus 0.7. There it is important to bear in mind that during the second half of 2015, we had more than €950 million negative items affecting comparability coming mainly from the provisions and write-offs regarding the close of the season of Oskarshamn 1 and 2 nuclear units in Sweden. And on top of that, we also had more than €110 million negative impact in the joint ventures and associates line also coming from the Oskarshamn closure this season. And those negative items heavily impacted this last 12 months return on capital employed.

At the end of the quarter we had more than €6 billion of liquid funds in our balance sheet and we had committed credit lines totaling €2 billion, including a new revolving credit facility that we completed and signed during the quarter €1.75 billion.

And now then to the outlook and over back to Pekka.

Pekka Lundmark

Thank you, Timo. The most important things about the outlook before we take questions. I already mentioned earlier that we maintained the forecast, longer-term forecast 0.5% electricity demand growth. Of course it will in the future be supported by things like the electrification of traffic the speed of which will be hard to estimate.

Russia, I just confirmed that we maintain the target to have -- to get 18.2 billion Ruble operating profit for the segment including OAO Fortum will recommend our share of TGC-1 and we expect this to be reached during the years 2017 to 2018.

CapEx guidance is unchanged. This is excluding potential acquisitions of course €650 million of which maintenance CapEx approximately €300 million to €350 million.

Hedging we have increased slightly. Now during the quarter, the hedging percentages for 2016 we increased from the reminding of the year -- remainder of the year, we are now looking at 75% hedge that approximately to €29 per megawatt hour, and then in 2017, we are now at 45% hedged at €27. Of course here it's worth remembering that these percentages are rounded up to the nearest 5 percentage points which means that these are not that accurate that's one comment. And the other comment is that these percentages do not include the area price hedges.

And finally taxation. Effective tax rate guidance unchanged for the Group 19% to 21%. But then of course when we look at the effects the positive effect of the Swedish political agreement on reduction of both the nuclear and hydro taxes the effect of that is so significant that it should getting from up being neglected.

Okay. That's all and now and now operator we would be ready to take questions.

Question-and-Answer Session

Thank you. [Operator Instructions].

We will now take our first question from James Brand from Deutsche Bank. Please go ahead. Your line is open.

James Brand

Good afternoon. Two questions if I may. First see just on the 10th deal agreed around Swedish tax reductions. The comments at the time suggested that in exchange for reduced tax burden that utilities would have to meet additional investments in the nuclear stations in terms of methane heightened safety requirements and also spend CapEx refurbishing some of the hydro stations. I was wondering whether you could give some details on what that might mean to you in terms of how much CapEx you might have to be spending or your share of CapEx over next few years in each of the hydro in Sweden. My second question is on Oulujoki III, as I understand it that's going through a contesting phase this year. I was wondering whether there is any update on that process I suspect not or was it would have probably would have to come through on the TVO website, if there is an update that would be of interest. And second fold on Oulujoki III, when it does come online do you expect have much impact on the Finnish spreads? Thank you.

Pekka Lundmark

Thank you for the questions. If I start from the second one obviously we do not give estimates on the power price developments. So unfortunately we are unable to comment the second part of your question. But the first part the information is unchanged TVO has information from the supplier consortium that the plant is expected to be ready by the end of 2018 so that is unchanged.

Then when it comes to the Swedish situation you are quite correct that this is a package. It will almost automatically lead to now the operators making certain investment decisions on safety improvements that were actually triggered by Fukushima accident. So there will be certain new safety systems invested into actually force mark has already made the decision to make this safety upgrades. We have not disclosed and actually it is not our role to disclose to size of these investments. But what I can say though is that we are looking at still fairly long remaining lifetime for the these reactors after these investments and the depreciation that will come from these investments, the additional depreciation is very small compared to the positive effect of the lower tax.

When it comes to Hydro there is no automatic obligation to invest into anything but I would say on the contrary that this will make certain investments quite attractive from a financial point of view. There is still quite a lot of old hydro capacity. There is even 100-year-old turbines in certain power stations and they are usually pretty good investment from return on capital point of view when you refurbish them you can increase the capacity, you can the increase the reliability of the stations and the fact that the variable cost of hydro production in Sweden will go down of course will increase the number of potentially attractive investments.

Timo Karttinen

Let me know the detail there is no formal connection between the political decision to take away the nuclear effects in two years, and then safety or other investments in the nuclear power plants. But separately the Swedish Nuclear Safety Authority had declared that if this is Fukushima related safety investments are not done in a certain time period then these, all these Swedish reactors will have a limited time span that would end or would have ended some time mid next decade. So these are formally not connected but of course they are now there is the political decision that the nuclear tax will be taken away then there is more economic opportunity really to consider and do the safety investments.


Thank you. We'll now take our next question from Artem Beletski from SEB.

Artem Beletski

Yes this is Artem Beletski from SEB two questions from my side. So first one relating to this favorable tax situation from Sweden. Is it so that you don't have any further insight at this stage what will be profile of tax scott (ph) what comfortable with dry and nuclear and may be when you could get this type of information. And then the second question is relating to Russia and this season would come to see as a payment period which has been kept at 10 years. Are you now more comfortable in reaching this EBIT target for 2017 and 2018 following this outcome? And may be just a remainder do I remember it correctly just you actually assumed that CSA period would be extended for 15 year when you gave out current guidance for Russia?

Pekka Lundmark

If I ask the Russian question and Timo will then comment the Swedish tax situation. We are fairly confident about the '17, '18 target if we would not be we would obviously change it. But it's not that simple that now because of this decision now we would be so much more confident because we also have to remember that we have the divestment of Tobolsk which is quite significant divestment actually in Q1 and we are working on the structure all the time. We were still in the beginning of this year bringing in new capacity. So we have been following this all the time and both before and after this confirmation that it will be 10 years we have been confident that '17 to '18 time frame is achievable. But of course from profitability point of view for the first 10 years this is a positive decision.

Timo Karttinen

And to the first question yes it is true that we don't have any further insight. As you may remember the political decision is that the nuclear capacity tax will be taken away over a two-year period starting from next year and likewise the hydro tax will be reduced over a four-year period. But we don't have more insights for more detailed breakdown as to how and when that would happen. My own assumption is that if not before but then when we see the next years Swedish budget of course then we get clarity at least what is in line for next year.


Thank you. We will now take our next question from Mikko Ervasti from DNB. Please go ahead your line is open.

Mikko Ervasti

Thank you very much. A couple of questions from my side. First on the M&A pipeline. You mentioned that the consolidation of this of normal generation capacity in addition to these recent City Solutions related deals. So can you please comment on the -- what the pipeline looks like, the multiple situation what kind of competition there is for these assets because not much has been happening recently and now about one year after the fact that you joined the team to execute these things there hasn't been that much of this activity. And then another question on the hydro balances you always refer to the market situation in the Nordics as you should about. Can you please comment on your own hydro balances because you had relatively low hydro volumes in recent quarters but overall levels have come down? So have you sort of prepared your own reservoir capacity for some production later or have you buyed back it or what has been happening there? Please explain. Thank you.

Pekka Lundmark

Okay. Thank you. I will take the M&A question and then Timo will continue in the hydro balance. You say that not much has happened but I would still say that €700 million acquisition of Ekokem is for one quarter actually quite a lot and you say that we've been working on this for a year now but while it's three quarters to be exact but still your point is valid that we have not published any larger scale consolidation transactions on the traditional side.

And it's really impossible to estimate that if and when those come, we are keeping our eyes open. There are several interesting things that we are looking at that moment but actually very well understand there is of course no way I could mention any names or speculate on any multiples. It is more important for us to do good deals than just to do deals.

We are not in hurry to spend the capital that we have, we feel that Ekokem is an excellent move and it is a fairly sizable move but of course there is more room to maneuver in the coming quarters, this is unfortunately all I can say about this topic. And then Timo on hydro.

Timo Karttinen

Yes related to our own hydro balances as you know we haven't published and we are not directly commenting on what is the situation in our own hydro reservoirs but I think now I don't have the statistics here on paper or in my head but I think that the hydro production volumes during the second quarter, they were somewhat lower than last year but I think that they were still fairly close to normal as you may remember already second quarter last year we had -- we and the market had quite a lot of hydro volumes. And even more so if you go to the first quarter, I think that we made a record first quarter hydro production in our own hydro power plants during the first quarter this year. So those of course we have published and we have commented.

So we have had quite a lot of hydro volumes of course the our volumes in our reservoirs do not always exactly match what is Nordic volumes in general that is depending on the rain variability in the regions and of course then details of how do we dispatched but I said those we do not comment in more detail.


Thank you. [Operator Instructions].

There are currently no questions in the queue at this time.

Sophie Jolly

Well thank you. Thank you everybody for joining, if you have further questions IR, the whole IR team is happy to help. Pekka, Timo, thank you. And I wish you everybody a nice evening and good bye here from Helsinki, a very sunny Helsinki this time. Thanks. Bye.

Pekka Lundmark

Thank you.

Timo Karttinen