Huge losses for energy giant Vattenfall

The company recorded a net loss of 18.1 billion kronor ($2.5 billion) during the third quarter of 2014.  This compares with a net profit of 1.6 billion kronor in the same three months of last year.

 

The Swedish owned energy firm has operations in Sweden, Germany, the Netherlands, Denmark, the UK and Finland and its announcement reflects tough conditions for the European utilities sector.

 

Vattenfall said it would try and turn things around by raising its cost-cutting target for next year. The company said it was continuing to review its investment programme.

 

"As we now present the results for the first nine months of the year, I can comment that like other electric utility companies, Vattenfall is experiencing difficult market conditions with weak demand, a surplus of generation capacity and historically low electricity prices," said Magnus Hall, President and CEO of Vattenfall in a statement.

 

Net sales in the third quarter were down by 6.3 percent from the level a year earlier to 34.7 billion kronor.

 

"Compared with the corresponding nine-month period a year ago, Vattenfall is showing a lower underlying operating profit, which is mainly due to lower production margins and lower production volumes. Lower costs have only partly compensated for these negative factors," added Hall.

 

Vattenfall said its profits were also down as a result of deciding to pay impairment costs totaling 23.1 billion kronor.

 

Impairment charges occur when companies pay more for assets than they turn out to be worth. Company accountants set the charges according to the difference between the expected value of an asset and its actual value, which can cause a huge dent in company profits.

 

Many energy providers in Europe have made huge asset write-downs in the last two years because of weak demand for electricity against a background of sluggish economic activity.  They have also been caught out by the US shale energy boom has pushed down the price of coal for power generation, undermining the profitability of new gas-powered plants and some investment programmes.

 

Vattenfall said it was facing charges "mainly for fossil-based assets".

 

The company said it was continuing to prioritize investments in renewable electricity generation and noted that it had recently decided to build the Sandbank offshore wind farm in Germany and another two land-based wind farms in Sweden.