Economy
Subsidiaries and associated companies
Climate change is the greatest challenge for the energy sector
Results for the financial year exceeded the predicted level
The energy and climate policies for the past year and the early part of the year 2008 will have a more profound impact on Finland and Helsingin Energia's operations than anything else for some time to come.
During the past year, a wide consensus was reached on the importance of combating climate change and minimising its side effects. The energy and climate change package with its historic impacts, prepared by the EU and presented by the European Commission earlier this year, has launched a debate on burden-sharing between nations. It seems that Finland's obligations will be substantial, bearing in mind that it has already taken steps to increase eco-efficiency.
Nevertheless, these considerable new priorities will not change the foundation of Helsingin Energia's operations, which is still based on combined heat and power generation (CHP). We have made the correct decisions in the past: cogeneration representing the best efficiency in the world, district heating and, as the latest product, district cooling. Eco-efficient cogeneration is one of our clear strengths, and it is in line with the EU targets of climate policy.
Eco-efficiency is also realised in our energy-saving activities. At our Energy Advisory Centre, we have promoted sensible use of energy for decades, providing impartial advice highly valued by our customers. In the year under review, Helsingin Energia was among the first companies to join energy efficiency agreements developed in co-operation with the Ministry of Employment and the Economy. Through the agreements, we have committed ourselves to actions that promote efficient use of energy in both energy production and energy services. Helen Sähköverkko Oy has joined the action plan for electricity distribution.
Maintaining the viability of energy supply areas is essential
Helsingin Energia continued to implement a significant investment programme in the Hanasaari energy supply area: we are developing the area with respect to coal store logistics and are building a new heating plant, which will be crucial for the security of district heating supply. The Suvilahti area has also undergone reorganisation. At the turn of the year, Helsingin Energia relinquished its administration of the Suvilahti power plant area and the gas plant area, to be taken over by the Helsinki City Real Estate Committee.
Safeguarding the functioning of energy supply areas is still essential in order to secure Helsinki's energy supply. The energy policies set their own special challenges to our energy supply areas in terms of space and functioning.
Specified operating model introduced
At the beginning of 2008, we introduced a specified operating model at Helsingin Energia to update the functions in electricity trade and portfolio management, as well as in district heating and cooling. Our operating models are now abreast of the times in all respects. The reform will improve our risk management and provide even better preconditions for using various instruments related to the energy trade. The reorganisation also gave our younger generation an opportunity to take over some of the responsibility.
The best results so far
Helsingin Energia's results exceeded expectations, and even proved to be the best in the company history. Our excellent profit trend rests on our successful operations in the electricity market, which are based on our policies in the course of several years. Our operating model has proved to be well-functioning, which has contributed to safeguarding a continued favourable profit trend.
The climate-based demands of the energy market and small amount of investments have tended to raise the market price of wholesale electricity. Helsingin Energia's actions have been opportune in this market situation. In retail sale of electricity, we have succeeded in maintaining the confidence of our existing customers and gaining many new ones through market-driven and competitive pricing.
The use of district heating has expanded at a steady pace in Helsinki along with urban development. However, high fluctuations in weather and the exceptionally warm winter diminished heat sales and the amount of cogeneration.
District cooling has also stabilised its position as a notable business. The growth in cooling was also favourable in the year under review. The cooling network was expanded further to new districts in Helsinki.
Unfortunately, urban development and increased use of cooling have also necessitated network construction work in areas of busy traffic. In future, we will pay an increasing amount of attention to minimising the inconvenience caused by our worksites and to their efficient management. We will also develop communication and availability of information about any network construction work to be carried out in the street area.
Profitability at a high level
Due to, for example, the demerger of network operations in 2006, it has been necessary to draw up consolidated financial statements on the entire Helen Group in order to assess Helsingin Energia's operations and its financial results. This will provide a correct picture of the financial position of the entire Helen Group. The consolidated financial statements include a brief summary of the operations of our key subsidiaries.
The Helen Group recorded excellent results. Free cash flow strengthened further, and the Group's profitability was maintained at a high level. Due to the capital intensity of the sector, a 20% return on capital invested must be regarded as good. However, it must also be stated that it is still average when compared to several sectors of heavy industry.
In the operations of Helen Sähköverkko Oy, which is our subsidiary responsible for the electricity network operations in the Helsinki area, growing concerns have been raised by a calculation model for monitoring the reasonableness of pricing in electricity network operations, drawn up under the leadership of the Energy Market Authority. The model does not take into account to a sufficient degree the special characteristics of Helsinki in the safeguarding of the value of fixed assets and in the observation of the preconditions for development investments in network operations.
The ownership structure of Suomen Energia-Urakointi Oy (SEU) underwent a significant change during the year under review, when the shares owned by Fortum Corporation were transferred to the current owners. In this connection, Helsingin Energia's shareholding increased to 60%. SEU's results for the financial year remained at the previous year's level. The results of Mitox Oy, our subsidiary responsible for energy metering operations, were in line with the targets. Both of the companies developed their business operations complying with the general trend in the energy sector, i.e., service production is becoming increasingly differentiated into separate, independent business operations.
Our Energy Advisory Centre, which gives impartial energy advice, moved to new, refurbished premises in Helsingin Energia's Main Building in connection with the renovation of the real estate Kiinteistö Oy Helsingin Sähkötalo. We will continue to strongly develop our energy advisory services as we regard them to be an important service for energy consumers, with more and more emphasis being laid on energy efficiency.
Near-future challenges
Other key challenges will include the rapid exit of a whole generation from working life. Expertise and the transfer of tried and tested knowledge will be increasingly important. It is imperative to maintain multiexpertise while acquiring new expertise in the midst of changes in the operating environment. Competition for skilled employees is stepping up.
The results of the annual Epsi Rating study indicate that we are on the right path in the development of our customer service. In the study, our retail customers' satisfaction in our operations and services rose to top figures. In the corporate image survey conducted in the energy sector, we also received the best general grade among the companies in the field. We will also carry on with our operations in such a way that our customers will be satisfied with us and have confidence in the way we operate.
I want to thank all employees of Helsingin Energia for the past year and especially for the excellent results, to which we all have contributed with our goal-oriented and cost-effective conduct.
Helsinki 18 February 2008
Seppo Ruohonen
