Vattenfall AB

The stable outlook reflects our assumption that Vattenfall's significant investments in low-risk electricity distribution and district heating networks, and its growing portfolio of wind farms, will translate into solid earnings growth. This should enable the group to maintain a financial risk profile in line with our expectations for the rating. The company's flexibility in making dividend payouts may mitigate any potential operating underperformance. Given the group's significant share of stable cash flows from electricity distribution and district heating, we consider an FFO-to-debt ratio of above 20% appropriate for the rating. We could lower the rating if we considered that Vattenfall's position in the power generation business was weakening, for example, if power prices deteriorate or if the planned expansion of

...Power price increases since 2016 have been key to the recovery of Swedish power company Vattenfall's earnings. Prices have materially improved since early 2016, when they hit a low. However, S&P Global Ratings remains cautious because it expects price volatility to increase due to higher penetration of renewables and more frequent extreme weather conditions in Europe, and because Vattenfall's large outright production from hydro and nuclear has a significant exposure to fluctuations in both carbon dioxide emission and power prices. We expect Vattenfall's credit metric headroom to recover by 2019. From 2019, we expect funds from operations (FFO) to debt to be sustainable at above 22% and debt to EBITDA at around 3x-4x because the planned capex will have passed its peak by then. We also expect revenue growth to turn positive, after being in constant decline since 2013. We expect more stable cash flows from 2019, when new renewable assets are commissioned. A considerable share of Vattenfall's...

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