CEO's review

This review is published in accordance with Fortum's January-June 2016 Interim Report on 20 July 2016.

Fortum’s President and CEO Pekka Lundmark:

“Some positive signs were seen during the second quarter, although the overall business environment continues to be demanding. The end of the quarter was also characterized by increased commodity market volatility partly explained by the British EU exit vote.
Operationally, the quarter met our expectations, as availability in our plants was good and ongoing projects progressed as planned. The comparable operating profit was somewhat below last year, mainly because of lower achieved electricity prices and lower hydro volumes compared to the second quarter of 2015.

We have now taken several important steps in the implementation of our new strategy. The highlight of the quarter was the agreement to buy Ekokem Corporation, a leading Nordic circular economy company specialised in material and waste recycling, waste-to-energy, final disposal solutions, soil remediation and environmental construction. Ekokem’s business is at the center of one of the most powerful global megatrends: the reuse of materials to save natural resources. The acquisition is a clear fit to Fortum’s business. It diversifies our revenue streams while maintaining a strong link to our traditional core – the energy system. Fortum obtained the required competition clearances in July, and we expect to be able to finalise the deal during the third quarter.
During the quarter Fortum also concluded the acquisition of the Polish electricity and gas sales company DUON, as part of our strategy to grow in electricity sales and related customer solutions. DUON offers us a good platform in the large and fast developing Polish market. The integration of DUON into City Solutions is ongoing.
In India, we have now defined the targeted scope of our solar investment program. We plan to allocate EUR 200–400 million of our growth capital to solar projects in the country, which offers some of the best solar resources available as well as sound government support for development of the solar sector.
In Sweden, the key political parties came to an agreement on energy policy in June 2016. Two decisions were particularly important for Fortum. First, it was decided that the tax on installed nuclear capacity will be phased out over two years starting in 2017. And second, the hydropower real estate tax will be decreased over a four-year period starting in 2017, from today’s 2.8% to 0.5%. A well-functioning market in the Nordic region requires fair treatment of different forms of production and the decisions were a good first step towards this goal.
We expect the energy sector transformation to accelerate in the future. Ekokem marks an important step in our capital reallocation after the divestments of the distribution businesses, and the work continues. At the same time when we lower the cost and improve the productivity of our existing operations, we will focus on further organic and M&A growth opportunities.“