Finnish energy giant Fortum's share price fell on Thursday morning after it posted a second-quarter net loss of 7.4 billion euros. German subsidiary Uniper's long-term gas contracts, largely based on deliveries from Russia, were a key factor in the collapse.
Fortum's operating profit fell to a loss of 9.14 billion euros in April-June. A year ago, the operating loss was just 840 million euros.
The majority-state-owned utility warned that heavy losses from Uniper's gas business will continue well into the autumn.
"The situation is not expected to ease until the beginning of October when the German government will implement a levy on all gas customers to cover 90 percent of the replacement costs for gas procurement," Fortum CEO Markus Rauramo said in a statement.
Uniper, which has been scrabbling to replace reduced Russian gas deliveries, earlier this month reported a 12.3 billion euro loss for the first half of this year, the biggest loss in Finnish corporate history.
Its stock price fell by 3.3 percent in Helsinki on Thursday morning.
"Underlying power business is healthy"
Fortum claimed a comparable operating profit of 574 million euros in the second quarter, "which shows that the underlying power business is healthy," said Rauramo. That figure does not include non-recurring expenditure items, including most of the Uniper losses.
Fortum's result was weighed down by massive losses at Uniper, Germany's largest importer of fossil gas. Its long-term gas contracts were largely based on deliveries from Russia, which have dropped sharply in response to European sanctions over the attack on Ukraine.
"Swift actions were required during the summer as Uniper's losses were accelerating and amounted to double-digit millions per day, which resulted in immediate, substantial liquidity needs. These losses are now reflected in our result on a multi-billion scale, partly as materialised losses and partly as impairments and provisions that will materialise as losses in coming quarters," Rauramo said.
In late July, Fortum agreed on a stabilisation package for Uniper with the German government, with the support of the Finnish government.
As a result, Fortum's ownership of the German firm will drop from 80 percent to 56 percent. It will, however, remain Uniper's biggest shareholder.
Opposition parties critical
The minister in charge of state ownership, Tytti Tuppurainen (SDP), said that the July compromise was the best possible under the circumstances and time constraints.
Finnish opposition leaders have criticised the deal. Finns Party chair Riikka Purra argued that the compromise was disadvantageous for Fortum and the Finnish state, which holds a 51-percent stake in the company.
MP Harry Harkimo, chair of the small Liike Nyt party, pointed out that Fortum's Uniper holdings had melted down from seven billion euros to 1.5 billion.
OP Bank senior analyst Henri Parkkinen told Yle that Fortum's huge losses did not come as a surprise as Uniper had published its own results last week, and the situation in the gas market has been well known.
Uniper has also suffered losses related to the Nord Stream 2 gas pipeline and its power plants in Russia.
Fortum said it is weighing the impact of a new decree in Russia that restricts investors in so-called "unfriendly countries" from divesting shares in energy projects.
In May, the firm said it would abandon Russia and was looking for a buyer for its assets there.