Loss-making Vattenfall says not in talks over Europe unit sale

STOCKHOLM Tue Feb 4, 2014 7:52am EST

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STOCKHOLM (Reuters) - Power company Vattenfall VATN.UL dismissed speculation that it was in talks to sell its struggling European assets after huge writedowns pushed it into a full year loss and stopped it paying a dividend to its owner, the Swedish state, for the first time.

Scandinavia's biggest utility is retrenching after betting roughly 22 billion euros ($30 billion) on a 15-year expansion drive in nuclear, coal and gas power generation only to be hit by the economic downturn and a German renewable energy drive.

Vattenfall has said it was looking at the possibility of bringing in investors to "share risk" in its continental and UK businesses, but that Sweden had not made a decision on this.

"We have stated earlier that this is a decision for the owner and we have no processes ongoing to look for investors at the moment," CEO Oystein Loseth said on a conference call after the company released fourth-quarter results.

Loseth, who will leave the company next year, said listing the unit could be an option in a few years if the Swedish state wanted to take that path, but that no decision had been made.

Vattenfall is splitting into two parts - a Nordic unit and a British-European one - and is considering selling its continental Europe and UK operations, sources have told Reuters.

Swedbank credit analyst Ingvar Matsson said speculation that Vattenfall would sell the business was a fair conclusion based on the new structure of the company.

"But it would be surprising if anything happened before the next election in Sweden," he said.

Swedes are due to vote in September with the Social Democrat-led opposition leading the center-right government in opinion polls. Neither has made public a clear view on whether it is in favour of Vattenfall selling non-Swedish assets.

TOUGH SELL

With many utilities across Europe suffering from the same structural challenges that face Vattenfall and which pushed the company into an annual operating loss of 6.5 billion crowns, finding buyers may also prove tough.

Surplus generating capacity and subsidised renewable energy have pushed down prices and squeezed coal and gas powered production while a sluggish economy has added pressure.

The Euro Stoxx European utilities index <.SX6E > has fallen 62 percent since the start of 2008.

"The entire, traditional business model, based on large-scale electricity generation in conventional power plants, is now ... being challenged," Loseth said.

Vattenfall took impairments of 30 billion Swedish crowns last year, much of it related to gas and hard coal-fired power plants at its Dutch subsidiary Nuon, which it bought for 8.5 billion euros in 2009.

It has also slashed annual operating expenses by more than 9 billion crowns over the last three years to cope with business conditions that Loseth has predicted will put pressure on European utilities until at least 2020.

The company, fully owned by the Swedish state, said underlying fourth-quarter operating earnings were 7 billion Swedish crowns ($1.07 billion) compared with 6.7 billion in the corresponding period of last year.

Fossil-based power made up 48 percent of Vattenfall's production in 2013, nuclear 29 percent, hydro power 20 percent and renewables just 3 percent.

(Additional reporting by Niklas Pollard; Editing by Louise Ireland)

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