Report on operations

Group

The Helen Group is a commercial entity, which consists of the parent company Helen Ltd and its subsidiaries Helen Electricity Network Ltd, Oy Mankala Ab, Suomen Energia-Urakointi Oy and Helsingin Energiatunnelit Oy. The associated companies of Helen Ltd are Liikennevirta Oy, Voimapiha Oy and Suomen Merituuli Oy,

Helen Ltd offers its customers electricity, district heating and district cooling, along with a wide range of services for small-scale energy production and the customers' own energy use and improving its efficiency. Helen Ltd produces energy at its power stations and other production plants located in Helsinki, as well as through its power assets. Helen Ltd is owned by the City of Helsinki.

Helen Electricity Network Ltd (100%) concentrates on electricity network operations in compliance with the Electricity Market Act and provides transmission and distribution services to its customers in almost the entire City of Helsinki. The net sales of Helen Electricity Network Ltd account for approx. 14% of the Helen Group's net sales.

Oy Mankala Ab (100%) is a hydropower company that owns the Mankala, Ahvenkoski, Klåsarö and Ediskoski hydropower plants by the Kymijoki River. Oy Mankala Ab's holding in Teollisuuden Voima Oy is 8.1%, in Suomen Hyötytuuli Oy 12.5% and in Suomen Merituuli Oy 50%.

Helsingin Energiatunnelit Oy (90%) serves the energy, water supply and telecommunication networks. The City of Helsinki's holding in Helsingin Energiatunnelit Oy is 10%.

Suomen Energia-Urakointi Oy (60%) is a service company specialised in electronic urban technology, providing design, installation, operation and data transmission services for networks and equipment related to electricity transmission, distribution and use. The other owners are Vantaa Energy Ltd and Lahti Energia Oy.

Financial year 2017

Although competition in the electricity retail market has continued to present a challenge, Helen has succeeded in increasing its customer numbers in both retail and corporate sales. This has required a significant increase in selling activities and in the number of customer contacts in different channels.

The growth targets for 2017 were met in the highly successful electricity sales, due to which the number of Helen's customers rose to a record level. The sales of district cooling services grew further. New energy services, such as renewable district heat, solar power plants and demand response services were also sold to business customers.

Helen's own operations were developed and their efficiency was enhanced. We adopted new operating models, for example, in ICT and invoicing services. In production and maintenance, we were able to reduce costs and improve Helen's competitiveness by developing out operations.

The security of electricity supply was excellent in Helsinki, and the availability of power plants continued to be high. The water supply situation was equal to a normal year, and the power plants of Oy Mankala Ab are undergoing the largest investment project for decades. The number of small-scale producers of solar power doubled during the year.

The interest of business and housing-company customers in cooling services has continued to grow. Helen meets the growing demand by increasing its production volumes. A new heating and cooling plant is currently under construction beneath the Esplanade Park. Thanks to the new heat pumps, waste energies from properties, homes and data centres can increasingly be recycled.

Group's profit trend

Helen Group's results were at the anticipated level, which was higher than in the previous year. The positive profit trend in the network business, the low market price of electricity and the increased fuel costs had a key impact on the performance.

The net sales for 2017 totalled EUR 805 million (EUR 782 million) and the operating profit stood at EUR 81 million (EUR 75 million). At 6,167 GWh, the electricity sales volume fell by 2% on the previous year. At 6,606 GWh, the district heat sales remained at the previous year's level, as did the district cooling energy sales at 141 GWh, and the electricity distribution in Helsinki at 4,404 GWh.

Group and parent company: Key figures 2017

  Group   Parent company  
  2017 2016 2017 2016
Net sales, EUR mill. 805 782 681 664
Operating profit, EUR mill. 81 75 51 53
Operating profit, % of net sales 10 10 7 8
Profit before appropriations, EUR mill. 60 52 66 45
Investments, EUR mill. 95 90 49 53
Equity ratio 72 71 76 75
Return on equity (ROE), % 3 3 4 3
Employees as of 31 December 1 144 1 269 888 1 017
Total equity and liabilities,
Balanse sheet, EUR. mill
2 732 2 720 2 584 2 564

Equity ratio % = 100 * own funds / balance sheet total
Own funds = shareholders' equity + untaxed reserves + depreciation difference deducted by tax liability
Return on capital invested % = 100 * (profit before appropriations + financing costs + tax) / average capital invested
Capital invested = shareholders' equity + interest-bearing debt

Investments

Helen is making investments in increasing the use of renewable energy in district heat production, recycling of energy with heat pumps and improving the security of supply in energy networks in particular.

Helen Group's investments totalled EUR 95 million. The investments in the production structure stood at EUR 45 million in 2017. A total of 26 kilometres of new district heating and cooling networks were constructed, and their share of all investments was EUR 14 million. Investments in the electricity network totalled EUR 33 million and those in the tunnel network EUR 2 million. Emission allowance purchases amounted to EUR 1 million.

Financing

In accordance with its financial policy, Helen Ltd manages the financing of its subsidiaries in a centralised way. The Group's equity ratio was 72%, and the amount of interest-bearing debts EUR 632 million at the close of the financial year.

The interest-bearing debts of Helen Ltd consist of the subordinated loan (EUR 157 million) taken out from the owner, a so-called senior debt (EUR 252 million) taken out from the owner, and loans taken out from financial institutions (EUR 98 million).
The subordinated loan taken out from the City of Helsinki can be repayed early, either partially or fully, if the borrower so wishes. The capital of the subordinated loan can only be repaid to the extent that the unrestricted shareholders' equity and the total amount of the subordinated loans at the time of repayment exceed the loss that is to be confirmed for the company's latest financial year or is included in the balance sheet of more recent financial statements. The annual interest rate for the loan is six per cent (6%).

The loan of Oy Mankala Ab taken out from the State Nuclear Waste Management Fund amounted to EUR 84 million at the end of 2017.

Shares

The registered and fully paid share capital of Helen Ltd is EUR 600 million. The total number of shares is 1,000. The City of Helsinki owns all the shares.

Key events during the financial period

  • The construction work at a pellet-fired heating plant in Salmisaari progressed when the installation of Finland's largest pellet-fired boiler began. This heating plant is one of the biggest investments in renewable energy in Finland, and it will be commissioned in early 2018. On completion, it will produce renewable district heat for the needs of about 25,000 one-bedroom flats. Wood pellets will replace coal use in Helen's district heat production.
  • Finland's largest heat pump plant, Helen's Katri Vala heating and cooling plant, was selected as part of the national peak load capacity system for the next three-year period. Thus, as part of the peak load capacity system, Helen will contribute to ensuring that Finland has a sufficient electricity supply by reducing the electricity consumption of the heating and cooling plant in exceptional situations, i.e. when peak load capacity is needed.
  • Helen is the first company in Finland to launch an electricity storage service intended for enterprises and concluded the first commercial agreements on implementing the service. When the customer does not need the entire capacity of its electricity storage facility, Helen can buy the extra usage time and bring it to the electricity market. The service can be acquired separately or as part of a solution suitable for the customer. The service can include, e.g., the production of solar electricity and demand response services related to the control of electricity consumption.
  • The first two-way charging point in Finland was opened in the Suvilahti district of Helsinki, in connection with Helen's solar power plant and electricity storage facility. The V2G (vehicle-to-grid) charging point enables not only charging of electric vehicles, but also using them as an electricity storage unit and taking part in the balancing of the electricity system.
  • Helen Electricity Network's new substation in Kalasatama was made ready for deployment. The substation will safeguard power distribution in the expanding district while piloting new fault management technology to automatically bypass faults in the electricity system of a major client site. The substation is equipped with its own solar power plant, and it utilises the waste heat of transformers in its heating.
  • The Ministry of Economic Affairs and Employment, the Energy Authority and Motiva have awarded Helen with recognition for its excellent energy-efficiency work. Helen's key achievement in energy efficiency during the period 2008–2016 was the Katri Vala heating and cooling plant that enables efficient utilisation of waste heat and recycled heat.
  • Finnish people regard Helen as the most sustainable brand among energy companies according to the largest survey in the Nordic countries concerning citizens' views on the responsibility of well-known brands. Helen was ranked highest in the industry in both of the scored categories, which are environmental responsibility and social responsibility.
  • In April 2017, Helen carried out an extensive customer survey among its residential customers. According to the survey, Helen's image among its own customers is excellent. For example, 92% of its customers regard Helen as more responsible than energy companies in general, and 94% consider Helen to be more reliable than energy companies in general. Helen was also ranked high for its customer orientation, proximity and favourable prices.

Employees

Helen Ltd had 888 (1,017) employees at the end of the year. The number of permanent employees was 852 (976), and the number of fixed-term employees 36 (41). The average number of employees was 962 (1,064). The considerable decrease in the number of employees was mainly due to the transfers of business operations implemented during the period under review, as well as a number of retirements. The average age of the employees was 46.7 (46.6) years, and the average length of employment was 16.6 (16.2) years. A total of EUR 49.3 million (EUR 53.0 million) was paid as wages and salaries in 2017.

Helen Electricity Network Ltd had 108 (105) employees at the end of the year. The number of permanent employees was 105 (101) and the number of fixed-term employees 3 (4). The average number of employees was 106 (104). The average age of the employees was 44.5 (44.0) years, and the average length of employment was 14.2 (13.8) years. Wages and salaries amounted to EUR 6.6 million (EUR 6.2 million) in 2017.

Suomen Energia-Urakointi Oy had 148 (148) employees at the end of the year. The number of permanent employees was 142 (145) and the number of fixed-term employees 6 (3). The average number of employees was 155 (155). The average age of the employees was 46.8 (46.9) years, and the average length of employment was 12.0 (12.4) years. A total of EUR 6.3 million (EUR 6.6 million) was paid as wages and salaries in 2017.

The rest of the subsidiaries, Oy Mankala Ab and Helsingin Energiatunnelit Oy had no employees at the end of 2017.

Research and development

The development of energy production focused on the planning of investments in renewable production forms and on the preparation of the decisions to be made to replace heat production in Hanasaari by year 2024. The options for the first stage are new investments in bio-based heat production, heat pumps and the storage of heat. We are also studying versatile heat pump solutions, electric boilers, geothermal heat, replacing coal with bio-based fuels, distributed microgeneration together with the customers, increasing energy efficiency in customers' operations, and the utilisation of purchased energies and waste heat, e.g. in data centres. Solutions related to the circular economy and the utilisation of waste heat are developed together with the customers to an increasing degree.

The project application prepared by Helen in cooperation with Helen Electricity Network Ltd and VTT with respect to the control of distributed resources, such as electricity storage facilities, solar power plants, charging of electric vehicles, and customers' electrical appliances, was accepted as part of the EU Horizon 2020 programme. The related four-year SysFlex project was launched in November 2017. Helen's goal in the project is to develop and demonstrate new market-driven flexibility technologies and products for the needs of the main grid and the distribution system.

Helen continued cooperation with the transmission system operator Fingrid Oyj in the aggregation pilot project for the balancing of energy markets. The objective of aggregation is to combine small-scale sites capable of balancing their electricity consumption or production, thus gaining financial benefits from taking part in the maintenance of the power balance in the electricity system. The pilot aims to gain practical experiences, e.g. from submitting aggregated bids, registering the sales and handling balance corrections, as well as information exchange between various parties in the balancing power market.

Helen is engaged in the EU project mySMARTLife to test new solutions for climate change mitigation in cities. The objective is that the solutions tested in Helsinki can be utilised in other cities in Finland and in other countries at a later date. Helen, e.g. gathered ideas from interested citizens for carrying out the expansion of the Korkeasaari solar power plant. It also produced a website visualising the Suvilahti energy system and an animation demonstrating the functioning of the solar power plant, electricity storage facility and an electric vehicle charging point. In addition, a housing company cooperation related to heat demand response in Merihaka progressed to its first stage and installations carried out in 20 dwellings. During the summer, we also successfully tested reactive power compensation at the Kivikko solar power plant.

Helen took part in Kasvupolku (Energy Growth Track), a joint growth programme for energy companies seeking new innovations, ideas and business models. Participation in the project is part of Helen's cooperation with growth companies aiming to identify new, promising partner enterprises, to increase common sales and to act as a facilitator of growth also through ownership arrangements.

Internal control and risk management

The aim of our risk management measures is to ensure the security of energy supply and safeguard and increase the value of the Helen Group in the long term. Within the company, risk management means a systematic and proactive way of identifying, analysing and managing uncertainties related to operations. Comprehensive risk management is a business-oriented, systematic and standardised procedure that steers decision-making and operations throughout the organisation.

It is the responsibility of Helen's management to ensure that the company has efficient risk management and internal control practices with regard to the extent and content of its economy and business operations. With regard to the extent and structure of its operations, the company has extensively assessed the most significant risks and uncertainty factors, as well as other factors affecting operational development.

Internal control and risk management have been organised by including risk-management thinking in all activities of the company. Operating principles and a risk management handbook have been drawn up for energy trading. The energy trading principles and associated risk management practices outlined in the risk management handbook have been approved by Helen's Board of Directors.

The comprehensive development programme for risk management includes, e.g., a risk maturity model and year clock. The maturity model assesses the present level of risk management and sets a target level for it. Improvement of risk management is based on measures that help to achieve the target level. The Management Group of Helen Ltd assesses the level of risk management annually.

The essential business risks are mainly associated with the high volatility and increasing unpredictability of the electricity market. Competition is becoming tougher also in the electricity retail market. Fluctuation of electricity exchange prices will cause business risks in wholesale and end customer sales and also in electricity procurement. The Helen Group is prepared for risks and uses derivatives to hedge procurement and sales. The most significant risks of fuel procurement are the volume risk and price risk. These risks are controlled, e.g. by means of procurement and derivative contracts. The key uncertainty in the long-term development of business operations is related to the targets set for carbon-neutral energy supply. Long-term investment planning is poses a challenge in a situation where the target and schedule are not clear.

Earnings-related pension insurances and a group life insurance were taken out at Keva. The rest of insurances are divided between four insurance companies. The insurance protection covers damages to property, damage due to business interruptions, damage to third-parties, personal injuries and vehicle damage. It has been ensured that the coverage and excess levels of the insurances correspond to the insurance companies' risk-bearing capacity. Some of the insurances were subject to competitive tendering in 2017.

Environment

Helen's long-term target is climate neutrality. In order to reduce emissions and increase the use of renewable energy, Helen makes progressive investments to utilise all the opportunities offered by new technologies. New energy production solutions are also developed together with customers. The energy production of Helen Ltd falls within the scope of the EU Emissions Trading Scheme (EU ETS).

The Industrial Emissions Directive (IE Directive) that entered into force at the beginning of 2016 made the emission limits of local emissions, such as particle matter, sulphur dioxides and nitrogen oxides more stringent, in many cases reducing the amounts to less than half of their previous levels. The particulate emissions of Helen Ltd have already been at a very low level and even below the new emission limits. The efficiency of the desulphurisation plants of the power plants was also increased. Reducing emissions of nitrogen oxides required significant investments in emissions reduction technologies.

The impacts of the local emissions from Helen's energy production on air quality in the Greater Helsinki area are monitored as part of the air quality monitoring carried out by the Helsinki Region Environmental Services Authority HSY. The results of the monitoring show that the impacts of energy production on the air quality of Helsinki are minimal.

At Helen Ltd, the production and distribution of electricity, heat and cooling has been certified in accordance with the ISO 14001 environmental management standard. Helen Electricity Network Ltd applies an integrated quality and environmental management system that complies with the ISO 9001, ISO 14001 ja OHSAS standards. The environmental impacts of all offices are managed with the Green Office environmental programme.

Annual General Meeting

The Annual General Meeting of Helen Ltd (1/2017) was held on 23 March 2017. In addition to the ordinary issues discussed at the meeting, the Annual General Meeting decided to add a new section, section 12, concerning corporate steering, to the Articles of Association of Helen Ltd.

KPMG Oy Ab was selected as the company's auditor. The auditor with the main responsibility was Kaija Pakkanen, Authorised Public Accountant.

The owner exercised its shareholder's power of decision (2/2017) in appointing the following persons as members of the shareholder's Appointments Committee on 12 June 2017: Mayor Jan Vapaavuori, City Manager Sami Sarvilinna, Ms. Tuuli Kousa, Mr. Paavo Arhinmäki and Mr. Tomi Sevander.

On 18 September 2017, the owner exercised its shareholder's power of decision (3/2017) in making the following changes to the members of the Board of Directors for the remaining term of office of the Board as of 1 October 2017:

Pekka Majuri to be replaced by Wille Rydman
Mari Holopanen to be replaced by Kaisa Hernberg
Annukka Mickelsson to be replaced by Daniel Sazonov
Jouko Sillanpää to be replaced by Sirpa Puhakka.

On 20 November 2017, the owner exercised its shareholder's power of decision (4/2017) by giving a binding instruction to the Board of Directors of Helen Ltd to the effect that in accordance with the proposal of the shareholder's Appointment Committee, Timo Rajala should be elected as a new member of the Board of Directors of Liikennevirta Oy.

Board of Directors

In accordance with the owner's decision of 18 September 2017, certain changes were made to the members of the Board of Directors of Helen Ltd for the remaining term of office of the Board.

The Board of Directors consisted of the following persons as of 1 October 2017:

  • Osmo Soininvaara
  • Hanna-Maria Heikkinen
  • Kaisa Hernberg
  • Marko Karvinen
  • Hillevi Mannonen
  • Timo Piekkari
  • Sirpa Puhakka
  • Wille Rydman
  • Daniel Sazonov

The owner exercised its shareholder's power of decision in appointing Osmo Soininvaara as Chairman and Wille Rydman as Deputy Chairman of the Board of Directors of Helen Ltd.as of 1 October 2017.

In 2017, the Board of Directors convened 13 times. Two of the meetings were email meetings. The attendance percentage of the Board members in Board meetings was 95.7%.

The Board committees

The Board committees are the Audit Committee and the Personnel and Rewards Committee. The committees help the Board in carrying out its duties. The board appointed the Audit Committee and the Personnel and Rewards committee from among its members. Both committees have at least three members.

The members of the Audit Committee are Hillevi Mannonen as Chairman, and Hanna-Maria Heikkinen and Mari Holopainen as members. After the owner had exercised its shareholder's power of decision on 18 September 2017 in changing some of the Board members as of 1 October 2017, the Board appointed from among its members Sirpa Puhakka as member of the Audit Committee to replace Mari Holopainen who had resigned from the Board of Directors. The committee meetings were regularly attended by the chief Financial Officer and the vice President, General Counsel, as the secretary of the committee, as well as by the auditor and any other experts that the committee had invited at any given time. The Audit Committee convened eight times during the year 2017.

The members of the Personnel and Rewards Committee were Pekka Majuri as Chairman and Osmo Soininvaara and Annukka Mickelsson as members. After the Annual General Meeting held on 23 March 2017, the Board elected from among its members Timo Piekkari as a new member of the Personnel and Rewards Committee. After the owner had exercised its shareholder's power of decision on 18 September 2017 in changing some of the Board members as of 1 October 2017, the Board appointed Osmo Soininvaara, Chairman of the Board, as Chairman of the committee, and Wille Rydman, Deputy Chairman of the Board, as committee member in accordance with the agenda of the committee. Timo Piekkari also continued as a committee member. The committee meetings were regularly attended by the CEO, and the Human Resources Manager as the secretary of the committee. The Personnel and Rewards Committee convened four times in 2017.

The term of office of the committees in one year, and it will end at the termination of the Annual General Meeting to be held in 2018.

President and CEO

Pekka Manninen, M.Sc. (Tech.) has acted as President and CEO of Helen Ltd.

During the financial period, a total of EUR 552,023 (EUR 546,351) was paid as salaries, fees and bonuses to the members of the company's Board of Directors and to the President and CEO and his deputy.

The Board of Directors' proposal for the distribution of dividends

The distributable equity of the parent company Helen Ltd stands at EUR 1,327,955,568.87, of which the profits from the previous financial years amount to EUR 34,357,493.85 and the profit from the financial year to EUR 42,425,681.57. The Board of Directors proposes to the Annual General Meeting that the company should pay a dividend of EUR 31,200.00/share, totalling EUR 31,200,000.00, and that EUR 45,583,175.42 should be held as retained earnings. The Board of Directors proposes that the distribution of dividends should take place on 30 April 2018. The liquidity of the company is good, and the Board of Directors takes the view that the profit distribution will not jeopardise the company's liquidity.

Outlook

According to forecasts, the electricity market will be very difficult for electricity producers in the next few years. The wholesale price of electricity will remain low in the Nordic countries in the next few years and investing in electricity generation will not be economically viable.

The share of imported electricity in Finland has risen in the past few years. Especially in wintertime, the domestic production capacity is not sufficient to meet the demand. Wind power that fluctuates according to the weather has seen very strong growth, while a significant amount of regulatable production has been withdrawn from the market at the same time. There has been an increasing need in the power system for production capacity that has reliable availability, e.g. for combined heat and power generation. Therefore, a value should be created for this kind of production in order to safeguard market performance also in the future.

The reform of the EU Emissions Trading Scheme (ETS) for the period 2021–2030 was approved in December. The new legislation will enter into force in early 2018. In Helen's view, it is excellent that emissions trading is strengthened. Emissions trading should be the primary means of control for energy production, and any overlapping and contradictory support systems should be minimised.

The directive proposals of the EU clean energy package will be completed in phases during 2018. The key issues of the directive, the criteria for bioenergy sustainability, will have a substantial impact on Helen's possibilities of utilising bioenergy in replacing fossil fuels.

The Ministry of Economic Affairs and Employment is currently preparing a legislative proposal on banning the use of coal in energy production by 2030, with a potential option of bringing the ban forward to 2025. According to the proposal, implementation of the legislation would compel the operators to carry out solutions that are too rapid and possibly inappropriate and would therefore have a very adverse effect.

The future tax solutions in Finland will also have a significant impact, on the ability to safeguard combined heat and power generation, which is needed especially in the winter conditions.

The results for 2018 are estimated to be slightly lower than in 2017.

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