Fortum Oyj (OTCPK:FOJCF) Q3 2022 Earnings Conference Call November 10, 2022 4:00 AM ET
Company Participants
Ingela Ulfves – Head, Investor Relations
Markus Rauramo – Chief Executive Officer
Bernhard Günther – Chief Financial Officer
Conference Call Participants
Pasi Vaisanen – Nordea
Artem Beletski – SEB
Iiris Theman – Carnegie
Pujarini Ghosh – Bernstein
Wanda Serwinowska – Credit Suisse
Ingela Ulfves
Good morning, everyone, and welcome to Fortum’s Joint Webcast and News Conference for the Investor Community and Media on our Third Quarter and Nine Months Results for 2022. My name is Ingela Ulfves and I’m the Head of Investor Relations at Fortum. This event is being recorded and a replay will be provided on our website later today.
With me here in the studio is our CEO, Markus Rauramo; and our CFO, Bernhard Günther. The agenda is the following; Markus and Bernhard will together present Fortum’s figures and the group performance. And after the presentation, we will open for Q&A for investors, analysts and international media over the teleconference. After this Q&A session, we thank the international audience and we then switch to Finnish, and we’ll take questions from the Finnish media. We have reserved a total of 1.5 hours for this event with approximately one hour for the international audience and then the remaining 30 minutes for the domestic media.
So with this, I will now hand over to Markus to start.
Markus Rauramo
Thank you very much, Ingela. A warm welcome to our Q3 and nine-month investor call also from my side. Today, I want to address three topics that are of the highest importance for us and that we follow with great attention. I will start where I ended our last call. Our immediate priorities agenda is set to bring Fortum back to a stable footing. I will give you an update on how we are progressing and what our thinking is on the key elements.
Second, our market and regulatory environment is in upheaval. We saw record high commodity prices in Q3. Even though they have come down, they are still at very elevated levels also in the Nordics. This is a concern to energy intense industries, households and regulators alike. And as a consequence we are seeing political interventions. I will give you an update on the situation in the Nordics and share my reflections on the matter.
And third, I will close with an overview of the operational performance of Fortum’s continuing operations, which are the foundation for Fortum’s future success. Bernhard, will walk you through the numbers in more detail. He will give you a comprehensive overview of Fortum’s continuing operations and explain the mechanics of the Uniper deconsolidation.
Let me start now with our immediate priorities. You will remember these messages from our last call. In essence, our immediate priorities are divided in three steps. Most importantly, we had to stabilize our company following the direct and indirect consequences of the Russian war, and the full curtailment of Russian gas to Europe. We have made substantial progress paving the way for a stable footing.
First, we reached a long-term solution with the German government and Uniper to stabilize Uniper. The German state takes full control of Uniper and Fortum sells its ownership and at the same time gets back to shareholder loan and guarantees we provided to Uniper in total €8 billion. The divestment of Uniper is a painful yet necessary step to reduce the substantial risks for Fortum and to secure a new future. The agreed transaction is still subject to customary regulatory clearances and approvals by Uniper’s Extraordinary General Meeting. Closing is still expected in the second half of December.
Second, we agreed with our majority owner the Finnish state on a €2.35 billion bridge financing arrangement to ensure sufficient liquidity resources to be able to meet the increasing collateral requirements on the Nordic Commodities Exchange, NASDAQ in context of further price spikes.
As most of our liquidity still is tied up in Uniper, we had to take immediate precautionary measures to secure our financial flexibility. As the Nordic future prices rose to new record highs during the quarter, our collateral and margining requirements increased very rapidly.
Third, as our joint path with Uniper is coming to an end, we have to ensure that Fortum standalone has independent robust and sound standalone core operations. Today’s published set of figures confirms that the Nordic clean generation is strong, is performing well and our teams on sites are delivering. And this is exactly what is needed coming to the next step to get traction again and to regain the trust of our stakeholders in these unprecedented times.
One objective is the announced exit from the Russian market. What I can say is that we have healthy interest and that we are progressing with the divestment, but we are not quite there yet. The outcome in the end will depend on the approval by the Russian government. Further, high on our agenda is to ensure access to capital markets. A successful return to the debt capital markets will be the basis for a prosperous development.
The upcoming winter will challenge our societies and customers and us as a utility. My key focus is on safe and efficient Nordic operations to ensure security of supply for all of our customers. We are maximizing our efforts to achieve the highest possible availability of our plants this winter. Consequently any regulatory intervention has to be carefully thought through.
And finally, we will recalibrate our business by reviewing our strategy in light of the changed environment and forge a path towards a sustainable future. Fortum’s CO2-free generation assets are now needed more than ever. As said, the foundation for a sustainable future and for any strategic ambition is to restrengthen our financial position, which brings me to the next slide.
In essence, there are two elements supporting the substantial restrengthening of our financial position. First, and in the short term the €2.35 billion bridge financing arrangement with Fortum’s majority owner the Finnish state. This protects us from financial distress, in case we see substantial price hikes and respective margining costs in the Nordic markets again. It is effectively, an insurance for us against another collateral, squeeze that we as the management had to ensure. Therefore, we decided to draw on the first tranche of the liquidity facility to keep it in place in line with the terms and time lines set, by the Finnish state.
The long terms are quite tough. The effective annual interest cost including arrangement and commitment fees for the whole amount and duration, would be about 14%. The first minimum drawdown of €350 million of the loan, triggers a directed share issue of 1% of Fortum’s share capital, without payment for Solidium.
Solidium, which is the counterparty in the loan arrangement is a company under state control. As a consequence, the state’s shareholding would increase to 51.26% correspondingly diluting the ownership of other shareholders. The directed share issue requires an approval, by an Extraordinary General Meeting with a two-third majority of the shares and votes, represented at the AGM. The AGM will convene later this month on the 23rd
I know that some of you argue that this arrangement is not in the interest of the company and that other sources of financing would have been available at lower rates. I agree that the terms are tough, but we had to take precautionary measures and this was our last resort at the end of August.
The prices at NASDAQ commodities were setting new records every day with very thin liquidity and we were faced with multiple margining calls even per day with all our credit facilities drawn, and a rating with negative outlook. We reached a point, where it was not about minimizing interest rates, it was about ensuring Fortum as a major market actor in the Nordics. As such, I see the ability of our main shareholder to act as a lender of last resort, as a strong very strong signal towards our banks, bondholders, the rating agencies but also towards our minority shareholders.
In addition, I believe that the Finnish and Swedish states actions were a strong signal of support for our Nordic markets and helped to calm down the situation and to stabilize the market.
The second element on this slide, the divestment of Uniper will strengthen our financial position longer term.
On one hand, we will get €0.5 billion for the sale of Fortum shares in Uniper, €4 billion from the
repayment of the shareholder loan. In addition, our €4 billion parent company guarantee facility will be released. On the other hand, not visible on the slide, but tremendously important for our financial strength. We will substantially derisk our business profile following our planned exit from Uniper. An exit from our Russian business, will further strengthen the risk profile. These actions will enable us to reenter the debt capital markets again.
Please remember, that until the closing of the transaction, Uniper is fully funded by the German state-owned KfW Bank. KfW provides Uniper, which required liquidity support by increasing its existing credit facility to cover gas-related losses. Fortum is not transferring any cash to Uniper and is not affected by any further Uniper losses. The agreement with the German state ensures that the total loss for Fortum is capped on the equity level.
As you know the transaction is subject to certain regulatory approvals, as well as an approval by
the Uniper AGM regarding the equity capital injection. Uniper highlighted in its earnings call that they assume this to happen during the second half of December. To sum this up, both agreements restrengthen our financial position in the short term and in the longer term pave the way for a sustainable future for Fortum.
Now over to the market development on the next slide. The Russian war and gas supply curtailments have driven commodity prices high across the markets. The effects are most pronounced in natural gas with the natural gas with European winter gas prices, now trading close to €120 per megawatt hour. This is a substantial decrease to peak prices in August when Nord Stream flows dropped to zero, warm temperatures and high storage levels are obviously supporting this development.
The high gas prices have increased both demand and prices of other commodities coal, oil and power. The Nordic system price for power has strongly increased in the wake of Continental European and UK power prices. The recent lower precipitation in the Nordics support Nordic spot prices to follow Continental prices that are subject to gas short-run marginal costs. The deep uncertainty about supplies and further rising prices have become one of the most important policy areas for our economies. The factors at play simultaneously range from security of supply to geopolitics, inflation and climate objectives triggering short as well as long-term energy considerations, but also a political market interventions.
With political developments, market volatility and additional sanctions continuously in flux, the entire energy sector in Europe is faced with unprecedented short-term challenges. The current state of affairs also opposes far-reaching implications for the longer-term energy system and transition.
In this situation, utilities will continue to play a crucial part in diversifying energy supply to the EU, investing in domestic clean production and in developing critical infrastructures to increase the energy systems resilience. To tackle the impacts of the energy crisis on societies, EU countries have agreed on a set of emergency actions.
While crisis measures that help customers to deal with sovereign energy prices are undoubtedly necessary, it is crucial to implement them in a manner that does not lead to exclusion of capacity from the market and thereby even reasoning of electricity. Therefore, it is utterly important that regulation sets the right incentives to ensure sufficient supply, while at the same time, impacting demand. This will finally ensure reasonable pricing. The price is also an important signal for the demand.
Interventions such as price gaps can easily prevent needed demand reduction. We will do our part in the equation to ensure overall security of supply by maximizing our efforts for highest availability for the upcoming period. Looking at the situation in the Nordics. We see various measures to reduce demand in the short term and to increase supply for the long term, but we also see that governments are struggling with the implementation of the EU measures by December 1. It is also unclear how the implementation could look like. This creates uncertainty to companies that are subject to the revenue cap.
Consequently, it is very important that this energy crisis-related interventions are temporary and separate from the long-term structural reform of the power market design, which is about to start in the EU. Price and revenue caps and windfall taxes must not become permanent.
Still one back please. Yes. Thank you. Consequently, it is very important that this energy crisis related interventions are temporary and separate from the long-term structural reform of the power market design, which is about to start in the EU. Price and revenue caps and windfall taxes must not become permanent, as they would erode the energy industry’s possibilities to invest in the energy transition in the longer-term. For these investments to happen, companies need clarity and predictability, in this regard, carefully prepared and well-formulated regulation. The overall visibility and reliability of the regulatory environment is key.
Now over to the operational performance in the first nine months. What you see here are the comparable headline KPIs for Fortum Group’s continuing operations. So these exclude Uniper, which we deconsolidate this quarter following the Uniper agreement with the German state. 2021 figures are restated. This quarter was definitely another extraordinarily volatile quarter, characterized by market fundamentals. Overall, we have had very strong group performance across the headline KPIs in the third quarter and first nine months.
Starting from the balance sheet, and most importantly, our leverage, defined as financial net debt to comparable EBITDA is at 2.6 times, which in the context of the circumstances still is fairly good. From this quarter, we introduced an additional KPI. Financial net debt adjusted with Uniper receivable to comparable EBITDA. It includes the €4 billion shareholder loan receivable from Uniper that will be repaid upon completion of the transaction. This is at 0.8 times and well below our current target of below two times, indicating that our debt-bearing capacity will be robust once the deal is closed.
Q3 and nine-month profit was operationally strong across the segments. Our Q3 earnings gained from the high power prices in the Nordics, but the results are also the outcome of strong physical optimization in our Generation segment.
To sum it up. I am satisfied with the strong group performance in a volatile commodity market with an organization giving its best in serving our customers, working closely with our suppliers and maintaining our financial flexibility.
So with this I conclude my part and hand over to you, Bernhard.
Bernhard Günther
Thank you, Markus and a warm welcome also from my side. Today I will start as usual with an overview on our key comparable numbers of Fortum’s continuing operations, which excludes Uniper then I will briefly dive into the segmental overview and show you how this translates into our reported figures.
As Uniper has been a substantial part of Fortum’s balance sheet and income statement I will guide you through the deconsolidation and show you how this has impacted our P&L and balance sheet. And finally, I will close with the outlook section.
What you see here is the key financial overview summarizing the key comparable indicators of the consolidated Fortum Group’s continuing operations excluding Uniper. All numbers in the first nine months and the quarter improved compared to previous year’s figures.
Today, let me comment on some of the KPIs of the continuing operations. Let me start with what is new. We introduced a new KPI Markus just mentioned it. The financial net debt adjusted with Uniper receivable over comparable EBITDA. While at the same time we are still reporting also our normal ratio of financial net debt to comparable EBITDA.
We do this exercise to give you a better grip on what you should expect when the Uniper deal is closed. It is obvious that despite our strong operating cash flow the closing of the Uniper transaction will be a game changer also for our balance sheet.
Comparable operating profit. With the nine-month figures the result is up more than 20%. This is mainly driven by the Generation segment and the strong market price increase and the high price volatility.
With regard to the earnings per share let me highlight that this naturally includes our Russian segment. Here we have fairly high positive foreign exchange effects from ruble receivables and the closing of ruble hedges. Therefore, one should take this into account when analyzing EPS.
And finally to cash flow. Net cash from operating activities for Fortum’s continuing operations is clearly positive and in line with the higher increase of the EBIT numbers. Let me highlight two observations in this context.
First with the deconsolidation of Uniper the net cash from operating activities and the comparable EBITDA should develop quite simultaneously going forward. This is the case in particular compared to the past with Uniper as the seasonality in the gas storage business created substantial working capital swings.
Second, looking especially on the nine-month figures one can see an even stronger increase in the net cash from operating activities then the increase in EBITDA might indicate. The cash conversion is close to 100%. This is next to working capital effects mainly driven by lower paid income taxes compared to the same period in 2021.
The deconsolidation of Uniper has naturally impacted P&L and balance sheet. But before diving into the details a brief look on the segment overview.
The reconciliation on segment level confirms what I said before. The year-on-year delta is mainly explained by the Generation segment which obviously is the largest segment for Fortum standalone. Let me run you briefly through the segments on the nine-month reconciliation.
Generation. Comparable operating profit is up by €255 million despite lower power generation in the Nordics, especially, lower hydropower volumes. The lower volumes were caused by lower inflows and below average reservoir levels. Currently, hydro volumes are three terawatt hours down versus the previous year.
The operational performance and production volumes for nuclear generation were solid and at the same good level as in the first nine months of 2021. The achieved power price in the Generation segment increased by €13.4 per megawatt hour that’s 33% up following a very successful physical optimization and higher spot prices.
This is a very strong performance considering that we already have a fairly high hedge levels and are negatively impacted by significant price differences in Sweden between the high system price and the lower SC2 area spot price additionally low liquidity.
Russia. Comparable operating profit is broadly flat, which mainly is subject to the FX translation despite the expiry of CSA payments for Nyagan 1.
City Solutions. Comparable operating profit is down by €65 million due to two effects: firstly operational. Mainly as a result of clearly higher fossil fuel and CO2 emission allowance prices as well as lower heat volumes due to warmer weather, which one is only partially offset by the effect of higher power prices. Secondly, structural. We divested our share in Fortum Oslo Varme, the Baltic district heating business and our solar plants in India.
Consumer Solutions, the comparable operating profit is only marginally up as the effect of higher electricity and gas sales margins were nearly offset by higher cost. And finally, one word on the other operations segments not visible here, but worth mentioning. We divested our e-mobility business Plugsurfing and sold our remaining ownership in Recharge and recorded tax-exempt capital gains of in total €138 million. This is recorded in other operations in the third quarter 2022 results.
As these are recorded as items affecting comparability, it is not included here. Now over to the P&L segment. This is a reconciliation of the nine months comparable operating profit for our continuing operations, all the way down to the reported net profit. In essence, there are four elements to highlight.
Impairment charges recorded in Q1 are reflected in various line items. In the items affecting comparability, we have impairment charges, and reversals until now of €356 million. These are mainly Russia related. The stronger ruble rate increased impairments by €35 million compared to the first half of 2022. In addition to this, we have impairment charges in the share of profit and loss of associates and joint ventures mainly on the TGC-1 participation.
Capital gains, include the divestment of our stake in Fortum Oslo Varme that we disclosed in Q2 and the divestment of Recharge and Plugsurfing. Then, we have the changes in fair values of derivatives hedging future cash flows. They are now €450 million positive, only a fraction of what we have seen before the deconsolidation of Uniper.
The change in finance cost net relates mainly to foreign exchange gains from ruble receivables and the closing of ruble hedges. And finally, a negative effect of €391 million which is the respective tax impact. Consequently, at this stage, nine months reported net profit was at €1.6 billion.
Now, over to the deconsolidation of Uniper. Starting from the helicopter view. From a cash flow perspective, the Uniper divestment results in a loss from the investment of slightly below €6 billion. This includes the purchase of the shares of approximately €7.2 billion. The sales proceeds of €0.5 billion to be received and the dividends of approximately €0.9 billion received during Fortum’s Uniper ownership. This will ultimately impact the parent company Fortum Oyj’s equity. However, the equity remains at a sufficient level and does not require additional capital injections, as we have said earlier.
When it comes to the group’s consolidated IFRS balance sheet and income statement, it is important to note the following any further losses at Uniper will not affect Fortum. In previous quarters, Fortum has recorded significant accumulated losses in the form of provisions and negative fair value adjustments from Uniper mainly due to the Russian gas curtailment.
Losses recorded by Uniper in its third quarter and onwards are thus not having any impact on Fortum Group’s equity as these losses are offset by the deconsolidation effect. As you have seen Fortum’s financials for the continuing operations do not include any impacts from Uniper’s operations anymore. Since these losses exceed Fortum’s total loss from Uniper there is a positive deconsolidation effect for the isolated third quarter. That’s what we see on the next slide.
Looking at the reported income statement for discontinued operations, there are two elements, I would like to highlight. First, the deconsolidation effect is positive with €28 billion. It on the one hand includes the removal of Uniper’s negative asset value on our balance sheet, due to Uniper’s losses and provisions from gas curtailment and the fair value of the derivative financial instruments.
And in addition, it includes a positive effect of the expected sales proceeds of €0.5 billion. Second, the net profit from discontinued operations attributable to Fortum is positive in the magnitude of €5.5 billion for the isolated third quarter, due to the deconsolidation effect, while negative by minus €3.4 billion year-to-date, as we have already recorded higher losses in the previous quarters.
On the next slide, I want to highlight some effects on Fortum Group’s IFRS balance sheet. Due to the deconsolidation of Uniper, the total balance sheet has obviously changed significantly from more than €200 billion to some €30 billion. As the balance sheet, as of end of June, was not restated, I want to point out some obvious, but important facts.
Compared to Fortum’s balance sheet as of 30th of June 22, the deconsolidation strengthens Fortum Group’s equity by approximately €5 billion bringing group equity to a level of €6.5 billion. Shareholders’ equity is some €6 billion, below the level we saw at year-end. It was around €12 billion and therefore reflecting the financial loss from the Uniper acquisition in full. Compared to the balance sheet size now this is on a solid level. But what you can also see is that the balance sheet is
substantially derisked.
Just picking some line items. Derivative financial instruments on both sides are only a fraction compared to the level at the end of June down more than €160 billion on both sides. Provisions are down by more than 90% for operations nuclear and pensions. When it comes to our gross debt shown in the interest bearing liabilities it is only slightly down by about €1 billion as Uniper’s debt at the end of June was very low.
Liquidity reserves amount to €3.7 billion. This is in context with the current commodity price situation sufficient to cover for even substantial increases in margin call and collateral requirements. In addition to liquidity, the credit facility from Solidium in place adds a further headroom of €2 billion. What does not show here is that Fortum’s stand- alone liquidity position substantially improved compared to end of June as the net margining requirements came down due to our mitigation measures and decreasing prices.
At the end of June, net margining was at €2.9 billion and has slightly decreased as prices have come down further and we have shifted hedged power volumes from the NASDAQ Exchange to bilateral agreements.
Now, over to the financial net debt and the maturity profile. The upper graph shows the development of financial net debt. The starting point with the opening balance sheet at the beginning of 2022 includes €2.5 billion of Uniper debt that is the drawn from the that is drawn from the €4 billion shareholder loan.
In addition, the starting point includes €2 billion of deconsolidation effects, mainly Uniper’s liquid funds and margin receivables. During this year, Uniper drew down a further €1.5 billion. This together with divestment effects and dividend payment brings our financial net debt to a level of €5.8 billion.
Following the signing of the new agreement with the German State, the €4 billion shareholder loan to Uniper is now recorded as a receivable.
As Markus has mentioned the new KPI for financial net debt to comparable EBITDA including the receivable was 0.8 times at the end of September.
Once the Uniper deal is closed and we receive the €4.5 billion from Uniper we will be well below our target ratio of below 2x financial net debt over comparable EBITDA. Our gross debt is currently €12.9 billion with an average interest rate of 1.8% for the whole loan portfolio. The interest rate is up compared to last quarter as market interest rates have gone up and we drew the €350 million on the Solidium loan at substantially higher interest rates.
That loan facility will be used as a last resort or buffer and will only be further drawn if really needed. Liquid funds of €3.6 billion give us quite some buffer to manage power price swings without drawing on this facility. Overall the debt maturity profile might appear a bit front-loaded but we have extension options for various financing facilities which gives us flexibility regarding refinancing needs. Our rating `l continues to be a key objective for us.
Our BBB rating with a negative outlook is unchanged despite the new deal with the German State as it is still too early for the rating agencies to determine the full effect of the Uniper divestment. Rating agencies are waiting for the closing of the deal further progress on the Russia exit and eventually our updated long-term strategy including investment and growth trajectory.
So, with this over to the outlook section. The outlook section compares — comprises in essence three elements, hedging CapEx and tax rates for continuing operations. On the one hand the hedging part for the outright generation. Fortum’s successful hedging has continued to create predictability and visibility. The hedged prices for the Generation segment increased for this year by €11 and 23 hedges are up by €12 versus Q2.
We also disclosed 2024 hedges for the first time. For ’24, we have hedged 40% of the volumes at €38 per megawatt hour. New this quarter is also the updated CapEx guidance. As you remember we withdrew the CapEx guidance in the second quarter when Uniper canceled its result guidance. Now we are reintroducing a CapEx guidance for continuing operations for 2022 which is expected to be at €550 million including maintenance.
Maintenance CapEx continues to be in approximately €300 million range which is clearly below depreciation level.
And finally our tax guidance. This has been updated to reflect the changes in the group structure, i.e., the deconsolidation of Uniper. For 2022 the range is expected to be between 21% and 23% and for 2023 it’s between 20% and 23%.
With this, I conclude our presentation and we are now ready to start the Q&A session. Ingela over to you.
Ingela Ulfves
Thank you, Bernhard, and thank you, Markus, for your presentation. So, as said, we are now ready to take your questions. Please state your name and company before asking the question. And we also ask you to limit yourself to two questions each and then you can come back with more questions if we have time.
So with this, let’s begin the Q&A session.
Question-and-Answer Session
Operator
[Operator Instructions] The next question comes from Pasi Väisänen from Nordea. Please, go ahead.
Pasi Väisänen
Great. Thanks. This is Pasi from Nordea. To start with regarding the Olkiluoto sales volumes. So are you going to use an ordinary hedging policy for new Olkiluoto sales volumes and when this hedging is going to start?
And secondly, regarding the Russia segment. So what will happen if you’re not actually going to get the decent price for this operation? So are you going to wait for another year or closed operations, or sell it, whatever the price might be, and how much you actually have gas in Russia as of end September? Thanks.
Markus Rauramo
Okay. I can take the — I think I’ll take both of these questions. So, Olkiluoto, we of course know and it is UMM-ed continuously, Olkiluoto, TVO published their production plans on an hourly basis on their website. So this is something we take into account in our total volumes that we have available and then we apply our normal hedging policies. I wouldn’t go deeper than that. But the volumes and the production profile are visible to everybody.
And, of course, with regards to hedging, you know our policies. So we go up to levels of roughly 80% or so, because of the — also the volatility of our hydro production, so we would not be 100% hedged according to our production plan, because the production plans can be volatile.
With regards to Russia, we assessed the situation on our Russian operations back in February, communicated that we will not invest more and we will not finance our Russian operations. And in May, we thought that we will exit Russia.
And this is what we are now pursuing. We are in the latter part of this process, which has been a rather normal divestment process with our normal practices and the transaction is subject to Russian government approval. So this is where we stand with the process and this is the avenue we are pursuing.
Pasi Väisänen
And regarding the amount of gas in Russia?
Markus Rauramo
That we haven’t disclosed and cash and net debt would be normal elements included in a transaction.
Pasi Väisänen
Okay. That’s understood. Thanks.
Markus Rauramo
Thank you.
Operator
The next question comes from Artem Beletski from SEB. Please, go ahead.
Artem Beletski
Yes. Hi. And thank you for taking my questions. The first one is relating to generating performance in the quarter. And in the report you are stating that they basically had record high optimization premium. Could you maybe provide some further color on its magnitude? I think in the past you have been talking about sort of the normal level of a couple of euros per megawatt hour.
And the second question is relating to parent company and you still highlight that the equity is sufficient. But maybe you could comment on what is your current view in terms of distributable funds in parent company? And also could you provide what is latest fair value of Russian operations there as well? Thank you.
Markus Rauramo
Okay. So, maybe, I’ll start with the optimization and I’ll let Bernhard elaborate on the equity part and if you want to give more color on the record optimization. But I think the key point actually goes on that point, goes further back in time than just the third quarter.
So what we have said throughout the years is that, when we get more intermittent capacity in the markets there will be more volatility. And then flexible hydro assets and flexible assets overall will have high value, because of the optimization potential.
And the key point now in this financially very successful optimization versus, just hitting an average spot price is that, prices have been extremely volatile. So we have seen prices in the hundreds of euros per megawatt hour and very low in like levels of €10 or €20. And with having the hydro reservoirs and having the flexibility, then the more you’re able to capture the high prices of course the optimization impact becomes more visible.
So indeed you’re correct that we’re not talking about the historical single-digit euro per megawatt hour, but something more. And this takes us then to the, let’s say, longer term into the overall design of the market that how do we — how will the market be structured how is the relationship between suppliers and customers, what kind of contracts are we making, how do you combine intermittent capacity with dispatchable capacity with batteries with DSO services and so on.
That’s a longer story. And that will actually be a part — these are things we will then talk more about once we get to the point of our revised strategy and how we are approaching exactly these business opportunities.
And then, I’ll hand over to Bernhard on the equity and if you want to comment more on the optimization?
Bernhard Günther
I think there’s nothing I can add on the optimization, Markus. On the equity Artem, well, basically you mentioned what we are revealing on this throughout the year, yeah. So — and you know that like usual we only close the Oyj accounts or the legal entity accounts under Finnish accounting rules only once a year, per year and then this will be published as part of the annual report, and therefore, also no further comments on distributable funds.
But again, we are at a very comfortable level overall. That’s to be — that has been mentioned and is strongly reiterated. The fair value of our Russian assets well the probably these days there can be lots of arguments what the fair value of Russian assets is but the book value at least I can give you this as well as the one we of course consider to be the fair value this is now at €3.3 billion. And it has, yeah, recovered obviously also due to FX.
Artem Beletski
Okay. Very good. Thank you.
Operator
The next question comes from Iiris Theman from Carnegie. Please go ahead.
Iiris Theman
Hi. This is Iiris from Carnegie. Two questions please. So firstly, can you confirm that what is your expected net debt level at year-end? And secondly, could your Russian divestment be finalized by year-end? Thank you.
Markus Rauramo
Okay. So we haven’t given a time line on the Russian divestment. So what we are able to describe is what is the process, we have been having. We announced the target to exit Russia in May.
And then, we’ve had I would say, a normal divestment or M&A process where we have data rooms and we have management presentations good buyer interest with several buyers from Russia and outside of Russia.
And like, I’ve said before, now we are getting to the latter part of this process. And as we well know any transaction for our assets is subject to Russian government approval. So these are the steps that need to happen.
So we cannot give a timeline on when that would take place. But we are doing our own work according to our normal practices and very diligently. With regards to the expected net debt level for the year-end that we — of course, we don’t guide.
So what we said now is that when we introduced a new measure on net debt-to-EBITDA when we then take into account the Uniper loan as a receivable our net debt-to-EBITDA would now be at 0.8 x.
And if we treated as – not as a receivable then we are at 2.6 x which is above our target. But once the Uniper transaction closes we will well within our target. And then, we’ll see how Q4 goes and that will then have an impact on the year-end figures.
Iiris Theman
Okay. Thank you.
Operator
The next question comes from Pujarini Ghosh from Bernstein. Please go ahead.
Pujarini Ghosh
Hi. This is Pujarini from Bernstein. And thanks for taking my question. So my first question is on the Uniper deal closing. So I mean we know that you expect to close the deal by year-end. But could you provide some color around what has been going on in the background since the deal was announced?
And what gives you the confidence that you will be able to close it by year-end? And also, in terms of the loan recovery and then, getting the €500 million of sales proceeds from the government.
And in terms of your — the new KPI that you introduced, adjusting net debt for the Uniper receivables, so why are you also not taking the €500 million of proceeds from the government into this KPI? I mean are you less confident on getting that or I mean, what is it?
And my second question is on the hedge prices that you’ve disclosed. So we see that your 2022 and 2023 hedge prices have gone up quite significantly. But the 2024 hedge price seems to be quite low still. So is it because that you stopped rolling forward your hedges for 2024 because of the collateral needs or is there anything else going on with the 2024 prices? So yes those are my two questions. Thank you.
Markus Rauramo
Thank you. I think Bernhard can give a lot of color on what is happening with the Uniper transaction and the accounting treatment of the receivable €500 million. And I think the hedge prices also are yours. But – but I’ll say on a high level, what gives us the confidence is that the bond Uniper and Fortum are working towards this time line. So there’s clearly a strong indication that everybody wants to get the deal closed.
But it of course requires work and it requires authority approvals including EU. So there is work to be done but I have confidence that everybody is working in good faith to achieve that. And then I’ll hand to Bernhard on giving you more color on all the exciting discussions that are going on.
Bernhard Günther
Yes. Yes. So you asked well why are we confident that the deal would close before year-end. This is because we know that it is technically feasible i.e. the approvals we need and the other formal steps like the Uniper EGM that would be necessary for that can all be taken in a time line before the year-end.
And secondly, because we see that all the protagonists involved have the same interest there. So the German government Uniper and Fortum, we all have the interest to get this deal through the door as soon as possible. And there are no indications whatsoever that anybody would be blinking on that one.
So therefore we are as confident as we were in September, when this revised term sheet was announced. Of course the €500 million we will – we have as a basically expected sales price for the Uniper shares is a firm part of that deal. So we are not any less confident that they will come than the €4 billion receivable.
And on the hedge prices for 2024. You’re right to observe this. And I must admit I had the same question when I saw the initial numbers. It’s – we are continuing to hedge for 2024 but market liquidity is thin and we already started hedging for 2024 in late 2020. So the incremental hedged volumes we have added now in the last three months to 2024 don’t have such a huge impact.
Of course the – those volumes which we have hedged in the period between end of June and end of September have been hedged at much higher prices. But there already has been a kind of yes pre earlier level of hedges which came in since 2020 and they were obviously at lower prices.
Operator
Thank you. [Operator Instructions] Please state your name and company. Please go ahead.
Unidentified Analyst
Hi, thank you. Thanks for taking my question. It’s Anna [ph] from UBS. I’ve got a follow-up question on the hedges. I had a similar thought. But I was wondering if you could disclose the kind of level you have been hedging out more recently and how much kind of higher than the disclosed number you have for 2024?
And my second question is on the facility with the Finnish State. From what you say it seems that you would only take that if you had sort of further liquidity pressures. So can we assume from that that there’s not a requirement to draw down again from that? And if you did have to draw down would that come with further share issuance? Thank you very much.
Markus Rauramo
Okay. I can take the second part and I’ll let Bernhard then continue on the hedges. But you are correct that this is not required to be drawn. So it is a standby facility which was one of the very important features when we considered what was available. So out of the not attractive instruments this was in size and in terms the best solution for our company.
And if we draw on the facility there is – there are no further conditions attached to it. So this is it the cost and the share issue that we are now taking to the extraordinary general meeting. These are the only requirements for the loan. On hedges?
Bernhard Günther
Yes. On hedge levels yes we have consciously decided to yes give the information we have given. So therefore, we won’t publish period-specific hedge prices. I mean I think you can get some indication of these yes locked-in prices if you triangulate from the delta in volume and the delta in price to what then the incremental volume and price must have been.
And yes, one aspect coming back to the previous question, which I forgot to answer was the question on this new KPI of financial net debt adjusted with the Uniper receivable. Yes this is indeed not taking into account the additional €500 million that the sales price or the purchase price paid to us for the Uniper shares would be. This would improve the liquidity position on a like-for-like basis. So one of the many moving parts towards year-end that might improve those KPIs even further.
Unidentified Analyst
Thank you very much.
Operator
The next question comes from Wanda Serwinowska from Credit Suisse. Please go ahead.
Wanda Serwinowska
Hi. Wanda Serwinowska, Credit Suisse. Just one question from me. I think that the government — Finnish government is very reluctant to introduce a revenue cut. But at the same time, the work on the windfall profit taxes is ongoing. Can you confirm it? And is there any time line? Because what we have seen across Europe the government put a date Germany 18 of November UK 17 of November when can we get some clarity? Thanks a lot.
Markus Rauramo
We don’t — yeah, we don’t have actually clarity on what such instruments would be and what would be the regulation. So we are waiting. And I go back to what I said earlier that any measures they should be short term, they should be targeted and they should not impact the investing capability of companies and utilities actually to provide more low-cost affordable and reliable energy to the market. And any measures that are put in place should not either hamper the supply. And this is — I think this is something that the regulators and politics are now thinking about.
If I just think about what has been said €180 price cap in markets which have a lot of nuclear and hydro well this would not be — this would normally not hit — we would not be there. If you look at our hedge prices or achieved prices we are not at these levels then it’s completely different. And this is not neither prices that would exceed the €180 are not typically prices that consumers or industries see in the Nordics. Situation is very, very different in the continent. We see now — I think we saw the French front-month electricity price hit €930.
So a completely different problem setting than you have in the Nordics. So there may be a bit different levels of discussion depending on the market and what is the problem. I would say also in the Finnish context, the electricity imports from Russia were cut, coal imports from Russia were cut, biomass was cut and so on. And consumers are facing the increased costs already and are adjusting their — also their demand.
So we see that happening. People are rationing themselves their electricity consumption. And you have five million people instead of one government addressing the problem which actually works very dynamically and very well even if it’s painful. But let’s say getting everybody involved I think is a good way to do it.
Wanda Serwinowska
Can I go for a follow-up?
Markus Rauramo
Please do and your line is cracking a bit, but I heard you asking that can you ask a follow-up?
Wanda Serwinowska
Good. Cool. So on the €180 per megawatt hour revenue cap, would the story be different from next year given by how much you achieved power price increase for 2023 from what you just disclosed?
Markus Rauramo
Yes. So I mean this is the number I have heard and we — but there is nothing concrete on it. So there is no concrete proposal how that would work in which periods it would be applied what is the price is it the screen price or the achieved price or whatever we don’t know. That’s honestly the situation.
Wanda Serwinowska
Okay. Thank you.
Markus Rauramo
Thank you.
Operator
The next question comes from Iiris Theman from Carnegie. Please go ahead.
Iiris Theman
Hi. This is Iiris from Carnegie. I have still one question so thank you for taking my question. So your hydropower volumes were down by some 15% or 16% year-over-year. But your competitor Vattenfall for example reported higher Q3 hydropower volumes. And also I note that Uniper’s Nordic volumes were up. So did you optimize your hydropower volumes, so that your volumes could be higher in Q4 or can you explain that what do you think that is the difference between you and your competitors? Thanks.
Markus Rauramo
We have different portfolios. So Uniper and Vattenfall have the similarly Finnish volumes as we do have. So depending on which river areas you are in and even inside Sweden depending on where you are the rainfall, reservoir levels et cetera are different. So this is part of the explanation. And then all companies do their optimization in their own way. So there are three factors or more factors than impacting the volumes.
Iiris Theman
Okay. Thank you.
Operator
The next question comes from Pujarini Ghosh from Bernstein. Please go ahead.
Pujarini Ghosh
Thanks, again. So I have one remaining question on your dividend policy. So how are you thinking about your future dividend policy? Not trying to preempt your strategic review, but any color about how you’re thinking about it? And any initial thoughts or by when can we get a firm policy would be highly appreciated? Thank you.
Markus Rauramo
I go back to our priorities. So, what we’re working on right now is to make sure that we have a stable really robust platform that enables us then to do our work productively efficiently take care of the security of supply and then invest in the long term and pay dividends.
Now, we’re focusing on getting the Uniper transaction closed, Russia transaction closed, ensure liquidity, build a stable platform. Then when we think about our dividend, we need to look at three things. The balance sheet making sure that we have strong investment-grade rating that enables us the access to the debt capital market.
Then we need to look at that when we have cash flow how do we use it for growth and how do we use it for dividend and both in a sustainable way that can be communicated to our stakeholders. So, the long-term thinking stability building on that painting a long-term picture and all these three blocks have to be on a sustainable level.
We’ll concretely get back to this then in the turn of the year when we look at our situation there and our Board makes the assessment of what their proposal would be to the Annual General Meeting. So we’ll get back to this in due course. We have not made changes to our dividend policy for the time being but we’ll get to that point then in due course.
Pujarini Ghosh
Okay. thank you.
Markus Rauramo
Thank you.
Operator
There are no more questions at this time. So, I hand the conference back to the speakers for any closing comments.
Ingela Ulfves
Okay. So now it’s time to thank the international audience and then continue with the Finnish media. So at this point, I also thank Bernhard. Thank you for your participation.
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