Fortum Corporation - Financial Statements 2004

Fortum Corporation STOCK EXCHANGE RELEASE 3 February 2005

Fortum Corporation - Financial Statements 2004

Excellent year for Fortum
- a good platform for going forward


The year in brief
- Operating profit EUR 1,914 million (+35%), including EUR 124 non-
recurring items
- Earnings per share EUR 1.44 (+58%)
- Strong operating cash flow of EUR 1,748 (1,577) million
- Proposed cash dividend EUR 0.58 per share (EUR 0.42 in 2003), up 38%
on previous year
- Plan to separate oil businesses through a share dividend (85%) and a
sale of shares (15%)


Key figures IV/04 IV/03 2004 2003
Net sales, EUR million 3,175 2,837 11,665 11,392
Operating profit, EUR million 564 420 1,914 1,420
- excluding non-recurring 564 386 1,790 1,360
items, EUR million
Profit before taxes, EUR 504 373 1,655 1,184
million
Earnings per share, EUR 0.41 0.27 1.44 0.91
Shareholders’ equity per 8.50 7.55
share, EUR
Capital employed 12,697 12,704
(at end of period), EUR
million
Interest-bearing net debt 4,896 5,626
(at end of period), EUR
million*)
Investments, EUR million 833 1,136
Net cash from operating 1,748 1,577
activities,
EUR million
Return on capital employed, % 15.6 11.4
Return on shareholders’ 17.6 12.3
equity, %*)
Gearing, %*) 64 85
Average number of employees 12,859 13,343
Average number of shares, 852,625 846,831
1,000s
*) the figure for 2003 includes the impact of the redemption of the
preference shares worth EUR 1.2 billion issued by Fortum Capital Ltd

2004 was a very strong year for Fortum. The company’s financial
performance continued to improve: both the operating results and cash
flow from operating activities were significantly strengthened. The key
financial targets, ROCE and ROE 12%, were clearly exceeded. The balance
sheet was further strengthened. During 2004, net debt decreased by EUR
730 million compared to year-end 2003 and Fortum’s gearing stood at 64%
at the year end.

The operating profits excluding non-recurring items of all segments
except Markets and Oil retail were higher than in 2003. The best
relative improvement was seen in the Oil Refining segment, driven by
high refining margins and good availability of refineries.

Power Generation and Heat segments also delivered substantially better
operating profits. The good results were due to operational efficiency:
utilisation of the flexible power production portfolio, successful
hedging, good availability at production units, as well as an improved
cost structure.

Development of the key market drivers was diverging. The average Nord
Pool electricity spot price was 21% lower than a year ago, at EUR
28.9/MWh. In the fourth quarter, the average Nord Pool electricity
price was 19% lower than a year ago at EUR 27.6/MWh, driven by
normalising water reservoirs and mild weather.

The international oil refining reference margin (Brent Complex)
continued very strong, 67% higher than a year ago, boosting the results
of Oil Refining. The average for 2004 was USD 4.5 (2.7)/bbl. However,
during November and December, the margin declined significantly, and
the average for the fourth quarter was USD 3.8 (2.3)/bbl. In 2004,
Fortum’s premium margin over the international Brent complex refining
reference margin was clearly higher than the average of some USD 2/bbl
in the last few years.

In 2004, the average Brent crude oil price was USD 38.2 (28.8)/bbl. In
the fourth quarter, the average for Brent crude oil was USD 43.9
(29.4)/bbl. The increasing price of crude oil led to inventory gains of
EUR 74 (13) million for the full year, despite an inventory loss of EUR
16 million in the fourth quarter.

The net cash from operating activities increased to EUR 1,748 (1,577)
million. However, the increase in cash flow did not fully reflect the
improvement in operating profit. This was mainly due to an increase in
working capital and in paid financial expenses and taxes. The increase
in working capital was driven mainly by higher oil prices.

A plan was announced to separate the oil businesses through a share
dividend and a sale of shares in April 2005. Fortum strengthened its
position in the Russian electricity company, OAO Lenenergo.


Net sales and results

October-December

Group net sales stood at EUR 3,175 (EUR 2,837 in October-December 2003)
million. The increase was mainly attributable to oil businesses and it
was driven by higher oil prices.

Group operating profit totalled EUR 564 (420) million. The operating
profit excluding non-recurring items increased by EUR 178 million to
EUR 564 (386) million. Earnings per share were EUR 0.41 (0.27), up 52%
on previous year.

Despite the significant fall in electricity market prices the results
for the power and heat businesses, both excluding and including non-
recurring items, were higher than during the corresponding period last
year. This was mainly due to successful hedging, increased electricity
and heat volumes and internal efficiency improvements.

Compared to the very good performance a year ago, Markets’ results
declined clearly, mainly due to tighter competition on the Nordic
electricity market as well as costs related to improvements of customer
service.

Oil Refining was boosted by stronger refining margins, but was weakened
by an inventory loss of EUR 16 million (EUR 14 million gain a year
ago).

January-December

Group net sales stood at EUR 11,665 million (EUR 11,392 million in
2003). Higher prices for oil products had a positive impact, whereas
the Group’s exit from gas trading, slightly lower electricity prices
and a weakened US dollar decreased the net sales.


Net sales by segment

EUR million 2004 2003
Power Generation 2,088 2,681
Heat 1,021 964
Distribution 707 688
Markets 1,387 1,634
Oil Refining 6,306 5,693
Oil Retail 2,374 2,203
Shipping and other Oil 339 308
Other operations 96 93
Internal invoicing -2,653 -2,872
Total 11,665 11,392


Group operating profit totalled EUR 1,914 (1,420) million. Operating
profit excluding non-recurring items stood at EUR 1,790 (1,360)
million, an increase of EUR 430 million over the 2003 figures. The net
amount of non-recurring items was EUR 124 (60) million, mainly
consisting of inventory gains arising from the increasing price of
crude oil and of a one-time compensation of EUR 29 million from other
parties in the new Finnish nuclear power unit relating to the existing
nuclear infrastructure.

Total electricity sales volumes were slightly above the previous year’s
level. There was a marked improvement in the results for Power
Generation despite a lower market price for electricity. This was
mainly due to successful hedging, the flexible production portfolio and
internal efficiency improvements.

Total heat sales volumes were at the same level as in the previous
year. The results for the Heat segment improved because of a rise in
Fortum Värme’s results, which was mainly due to internal efficiency
improvements, a better fuel mix and good power plant availability.

Distribution’s results were slightly higher than the previous year due
to internal efficiency improvements. The December storms in Finland
accrued costs of around EUR 3 million, split evenly between damage
compensation to customers and repair work.

The results for Markets declined compared to last year. The main reason
was tighter competition on the Nordic electricity market as well as
costs related to improvements of customer service. Furthermore,
Markets’ results in Norway were not satisfactory.

The oil refining margins, both the international Brent Complex refining
margin and Fortum’s premium margin, were clearly higher than in 2003,
which gave a major boost to Oil Refining. Other positive drivers for
the results were high refinery capacity utilization rates and the
increasing price of crude oil which led to considerable inventory gains
of EUR 74 million (13 million) for 2004.

The results for Oil Retail were higher than in 2003, but the ongoing
operating profit was EUR 11 million lower than in 2003. The sales
volumes of traffic fuels increased slightly, whereas the corresponding
margins decreased somewhat.

The Shipping and other Oil segment enjoyed higher freight rates, both
for crude oil and oil products. However, a weaker US dollar had a
negative impact on the results. SeverTEK contributed positively to the
segment’s results.

Operating profit by segment

EUR million 2004 2003
Power Generation 725 603
Heat 226 173
Distribution 258 247
Markets 26 35
Oil Refining 573 281
Oil Retail 48 44
Shipping and other Oil 107 79
Other operations -49 -42
Group 1,914 1,420

Profit before taxes was EUR 1,655 (1,184) million.

The Group’s net financial expenses were EUR 259 (236) million. They
include additional interest costs after redemption of the preference
shares issued by Fortum Capital Ltd as well as the effect of prepayment
of the private placement bonds issued in the US in 1992.

Minority interests accounted for EUR 31 (90) million of the results for
the period. The decrease mainly stems from redemption of Fortum
Capital’s preference shares, accounted for as minority interests before
the redemption. The minority interests for 2004 are mainly attributable
to Fortum Värme Holding, in which the City of Stockholm has a 50%
economic interest.

Taxes for the period totalled EUR 397 (325) million. The tax rate
according to the income statement was 24.0% (27.4%). Taxes for the
period include a decrease in deferred tax liabilities of EUR 41 million
due to the change in the Finnish income tax rate from 29% to 26% which
takes effect from the beginning of 2005. The tax rate would have been
26.5% excluding the decrease in deferred tax.

Net profit for the period was EUR 1,227 (769) million. Earnings per
share were EUR 1.44 (0.91). Return on capital employed was 15.6%
(11.4%) and return on shareholders’ equity was 17.6% (12.3%).


Reporting structure

In order to improve the transparency of its financial reporting, Fortum
adopted a new reporting structure in 2004. The number of reporting
segments was increased from four to seven. The new segments include the
following business units (names of the business units in brackets after
the segment name): Power Generation (Generation, Portfolio Management
and Trading, Service); Heat (Heat, Värme); Distribution (Distribution);
Markets (Markets); Oil Refining (Oil Refining, Components); Oil Retail
(Oil Retail); Shipping and other Oil (Shipping, other oil operations
including SeverTEK). In addition, the segment ’Other’ includes, for
example, Group administration and shared service functions.


POWER AND HEAT SEGMENTS

Fortum’s power and heat businesses are divided into four reporting
segments. Power is generated in Fortum’s own and partly-owned power
plants by the Power Generation segment and in combined heat and power
plants by the Heat segment. Power Generation sells the electricity it
generates and purchases electricity through the Nordic power exchange,
Nord Pool. The Markets segment buys its electricity through Nord Pool
and sells the electricity to private and business customers as well as
to other electricity retailers. Heat sells steam and district heat mainly
to industrial and municipal customers as well as to real estate companies,
and it sells the power it produces directly to end-customers and to
Nord Pool. Fortum’s distribution and regional network transmissions are
reported in the Distribution segment.


Market conditions

According to preliminary statistics, the Nordic countries consumed 386
(379) terawatt-hours (TWh) of electricity in 2004. This is 2% more than
in 2003 when consumption was low due to the higher price of electricity
in the beginning of the year.

During the fourth quarter, the average price of electricity in Nord
Pool, the Nordic power exchange, was EUR 27.6 (34.1) per megawatt-hour
or 19% lower than during the corresponding period in 2003. The
corresponding price decrease in electricity sold by Fortum was 5%.

The spot price for electricity in Nord Pool was fairly stable during
2004, averaging EUR 28.9 (36.7) per megawatt-hour (MWh), which was
approximately 21% lower than in 2003. The corresponding price decrease
in electricity sold by Fortum was 4%.

The year started with a considerable deficit in the Nordic water
reservoirs and continued with low inflows. During the autumn, heavy
rains brought the Nordic water reservoirs back to normal levels after
two years of deficit. At the end of 2004 the Nordic water reservoirs
were slightly above the average level and 16 TWh above the
corresponding level of 2003.


Total power and heat generation figures

Fortum’s total power generation was 55.5 (53.2) TWh, of which 54.4
(51.2) TWh in the Nordic countries. This represented approximately 14%
(14%) of the region’s total consumption.

At year end, Fortum power generating capacity in the Nordic countries
was 11,220 (11,186) MW, while its total capacity was 11,373 (11,329)
MW.

Fortum’s total power and heat generation figures are presented below.
In addition, the segment reviews include the respective figures by
segment.


Fortum’s total power and heat IV/04 IV/03 2004 2003
generation, TWh
Power generation 16.0 14.3 55.5 53.2
Heat generation 8.0 7.6 25.4 25.9

Fortum’s own power generation IV/04 IV/03 2004 2003
by source, TWh,
total in the Nordic countries
Hydropower 6.1 5.0 19.1 16.9
Nuclear power 7.1 6.3 25.8 23.8
Thermal power 2.4 2.8 9.5 10.5
Total 15.6 14.1 54.4 51.2

Share of own production, %, IV/04 IV/03 2004 2003
total in the Nordic countries
Hydropower 39 35 35 33
Nuclear power 46 45 47 46
Thermal power 15 20 18 21
Total 100 100 100 100


Total electricity and heat sales figures

Fortum’s total electricity sales amounted to 62.3 (61.0) TWh. Sales
volumes in the Nordic countries were 60.7 (58.6) TWh, representing
approximately 16% (15%) of Nordic electricity consumption during the
year.

Heat sales volumes in the Nordic countries were 20.2 (19.9) TWh and 3.6
(3.8) TWh in other countries.

The segments sell their electricity to Nord Pool or external customers
and purchase from Nord Pool or other external sources. In the table
below, Fortum’s Nord Pool transactions are calculated as a net amount
of hourly sales and purchases on Group level.


Fortum’s total electricity IV/04 IV/03 2004 2003
and heat sales, EUR million
Electricity sales 582 564 2,021 2,038
Heat sales 257 235 815 775

Fortum’s total electricity IV/04 IV/03 2004 2003
sales by area, TWh
Sweden 8.1 7.6 27.6 28.3
Finland 8.5 7.7 31.1 29.1
Other countries 1.0 1.0 3.6 3.6
Total 17.6 16.3 62.3 61.0

Fortum’s total heat sales by IV/04 IV/03 2004 2003
area, TWh
Sweden 3.2 3.0 9.6 9.5
Finland 3.1 2.9 10.5 10.3
Other countries 1.2 1.1 3.7 3.9
Total 7.5 7.0 23.8 23.7


Power Generation

Power Generation comprises power generation and sales in the Nordic
countries and the provision of operation and maintenance services in
the Nordic area and selected international markets.


EUR million IV/04 IV/03 2004 2003
Net sales 583 624 2,088 2,681
- electricity sales 491 487 1,699 1,871
- other sales 92 137 389 810
Operating profit 235 193 725 603
- excluding non-recurring 234 191 704 599
items
Net assets (at end of period) 6,258 6,391
Return on net assets, % 11.6 9.5


The segment’s power generation was 50.9 (48.8) TWh. At year-end the
segment’s power generating capacity totalled 10,030 (9,993) MW, of
which 9,890 (9,863) MW was in the Nordic countries and 140 (130) MW in
other countries.

ISO 14001 environmental certification was awarded in November to all
Fortum’s power generation in Sweden and Finland.

After the acquisition of additional shares in the Russian company OAO
Lenenergo Fortum’s holding in the company’s share capital is 30.7% and
its share of voting rights is 29.6%.

Fortum Service signed several new agreements during the year including
a 12-year
O & M contract for a waste-to-energy plant in the UK. It also received
ISO 9001 and ISO 14001 certificate covering its operations in Finland
and Sweden.


The segment’s power IV/04 IV/03 2004 2003
generation by source, TWh
Hydropower 6.1 5.0 19.1 16.9
Nuclear power 7.1 6.3 25.8 23.8
Thermal power 1.3 1.6 6.0 8.1
Total 14.5 12.9 50.9 48.8
of which in the Nordic 14.1 12.7 49.8 46.8
countries


Heat

Heat comprises heat generation and sales in the Nordic countries and
other parts of the Baltic Rim. Fortum is the leading heat producer in
the region. The segment also generates power in the combined heat and
power plants (CHP) and sells it to end-customers mainly by long-term
contracts as well as to Nord Pool. In Sweden, Fortum owns the company
AB Fortum Värme samägt med Stockholms stad, in which the City of
Stockholm has a 50% economic interest.


EUR million IV/04 IV/03 2004 2003
Net sales 320 292 1,021 964
- heat sales 249 227 785 728
- electricity sales 49 43 159 167
- other sales 22 22 77 69
Operating profit 84 80 226 173
- excluding non-recurring 82 79 224 176
items
Net assets (at end of period) 2,502 2,466
Return on net assets, % 9.2 7.3

The segment’s heat sales during the fourth quarter amounted to 6.9
(6.5) TWh and to 21.8 (21.1) TWh during the whole year. This shows the
significance of the first and last quarters of the year to the heat
business.

Power generation at combined heat and power plants (CHP) was 1.5 (1.4)
TWh during the fourth quarter and 4.6 (4.4) TWh during 2004.

The inauguration of Fortum’s Nynäshamn combined heat and power plant in
Sweden took place in September. The plant uses biomass fuels to produce
process steam, district heat and electricity.

In Sweden, test runs at the new waste incineration boiler in the Högdalen
combined heat and power plant was started.

In December Fortum acquired an 85% share of a Polish district heating
company PESC Czestochowa, with annual heat sales of some 780 GWh.

Fortum finalised the acquisition of an additional 6% share in the
Finnish natural gas company Gasum Oy, thereby increasing its stake in
the company to 31%.

The segment's Heat
sales by area, TWh IV/04 IV/03 2004 2003
Sweden 3.2 3.0 9.6 9.5
Finland 3.1 2.9 10.5 10.3
Other countries 0.6 0.6 1.7 1.3
Total 6.9 6.5 21.8 21.1

The segment's
Electricity sales, TWh IV/04 IV/03 2004 2003
Total 1.5 1.4 4.8 4.5

Distribution

Distribution owns and operates distribution and regional networks and
distributes electricity to a total of 1.4 million customers in Sweden,
Finland, Norway and Estonia.

EUR million IV/04 IV/03 2004 2003
Net sales 194 186 707 688
- distribution network 162 159 593 574
transmission
- regional network 23 19 83 83
transmission
- other sales 9 8 31 31
Operating profit 62 58 258 247
- excluding non-recurring 62 58 257 227
items
Net assets (at end of 3,101 3,129
period)
Return on net assets, % 8.3 7.9

During the fourth quarter, the volume of distribution and regional
network transmissions totalled 6.3 (6.6) TWh and 4.5 (5.6) TWh
respectively.

For the whole year, the volume of distribution and regional network
transmissions totalled 22.7 (22.7) TWh and 17.8 (20.3) TWh
respectively. Electricity transmissions via the regional distribution
network to customers outside the Group totalled 14.6 (15.0) TWh in
Sweden and 3.2 (5.3) TWh in Finland. The distribution and regional
networks in Sweden have been reclassified resulting in a small shift in
net sales and volumes between the different types of network. The
decrease of deliveries in regional network to external Finnish
customers was due to expiration of certain contracts.

Further efforts aiming at better invoicing transparency and enhanced
customer service were initiated. One example is the automated meter-
reading system that enables electricity meters to be read remotely and
allows customers to be invoiced according to their actual electricity
consumption. A number of pilot projects were started in Sweden and
Finland to test the system.

The investment programme to reduce the risks of outages continued in
western Sweden. The five-year programme includes covering of conductor
lines and installation of underground cables.

A new common customer service unit was jointly established with Fortum
Markets at the beginning of 2004 in Finland, Sweden and Norway.

A local customer service function already operating in Finland and
Sweden, the Customer Service Technician (CST) service, was introduced
in Norway at the beginning of 2004. Customer Service Technicians handle
a number of activities related to grid operation, such as minor
repairs, and meter installations.

In June 2004, the Energy Market Authority in Finland published its
guidelines for methods applicable in network operator pricing. The new
regulation came into force in January 2005. The Authority will make
company-specific decisions on the parameters being used to access the
allowable return based on technical asset values.

In Sweden, the Energy Authority has developed a new model for
monitoring distribution prices. The Authority has published the first
results based on year 2003 distribution tariffs and will have further
discussions and analysis together with selected distribution area
owners, including three of Fortum’s distribution areas. Further details
are expected to be published later this year.

A storm caused major power outages in south-western Finland during
Christmas leaving approximately 40,000 customers without electricity.
Customers, who suffered from long distribution interruptions, will be
compensated with some EUR 1.5 million. The total cost of the
interruptions, approximately EUR 3 million, was booked in the fourth
quarter results.

Distribution network IV/04 IV/03 2004 2003
transmission by area, TWh
Sweden 3.9 4.0 14.2 15.0
Finland 1.8 1.8 6.2 6.2
Norway 0.5 0.7 2.1 1.3
Other countries 0.1 0.1 0.2 0.2
Total 6.3 6.6 22.7 22.7

Number of electricity 31 Dec 2004 31 Dec 2003
distribution customers by
area, 1,000s
Sweden 860 855
Finland 405 400
Other countries 115 115
Total 1,380 1,370


Markets

The Markets segment focuses on the retail sale of electricity to a
total of 1.1 million private and business customers as well as to other
electricity retailers in Sweden, Finland and Norway. The Markets
segment buys its electricity through Nord Pool.


EUR million IV/04 IV/03 2004 2003
Net sales 378 422 1,387 1,634
Operating profit 0 17 26 35
- excluding non–recurring 0 17 26 35
items
Net assets (at end of 196 23
period)
Return on net assets, % 18.8 55.2

During the fourth quarter, average retail electricity prices on the
Nordic market were slightly lower than during the corresponding period
the previous year, as they were also during the whole of 2004.

During the fourth quarter, the segment’s electricity sales totalled
11.9 (12.5) TWh with sales for 2004 standing at 43.5 (47.1) TWh. The
decline was due mainly to the ending of some spot and long term
contracts.

Fortum reduced its current-priced contracts’ retail prices during
spring 2004 and announced a price decrease for spring 2005 due to the
falling trend in market price. Prices for new fixed-term contracts
followed the price development of Nord Pool’s financial market.

Fortum continued to launch new products to different customer segments
on the Nordic market. 60% of Fortum’s Nordic customers now receive eco-
labelled electricity certified by local nature conservation
associations. Fortum adopted post-debiting for all its Nordic customers
and the possibility to use self-meter-reading was expanded during the
autumn. Fortum also introduced a customer guarantee to secure customer
service levels and a customer ombudsman. A new customer service unit
was jointly established with Fortum Distribution at the beginning of
2004 in Finland, Sweden and Norway.


OIL SEGMENTS

Fortum’s oil operations are divided into three reporting segments. The
Oil Refining segment produces and sells gasolines, diesel fuels, light
and heavy fuel oils, aviation fuels, base oils, gasoline components and
LPG, and it also develops biocomponents for traffic fuels. The Oil
Retail segment operates an extensive retail sales network and provides
direct sales to private and business customers. The Shipping and other
Oil segment has a tanker fleet for crude oil and product transport, and
includes SeverTEK, a crude oil producing company jointly owned with the
Russian company Lukoil.


Market conditions

The Brent Complex reference refining margin in north-western Europe
during the fourth quarter was USD 3.8 (2.3)/bbl.

During the year, refining margins in north-western Europe increased
compared to the previous year. The Brent Complex reference margin used
by Fortum averaged USD 4.5 (2.7)/bbl in 2004. Fortum’s premium margin
was clearly higher than the average USD 2/bbl in the last few years.

An exceptional climb in crude oil prices continued until October. The
barrel price of Brent crude oil rose to more than USD 52. Towards the
end of the year, the barrel price for Brent crude oil varied between
USD 36 and 43. In 2004, the average Brent crude oil price was USD 38.2
(28.8)/bbl. In the fourth quarter, the average for Brent crude oil was
USD 43.9 (29.4)/bbl.

During 2004, the average price difference between sweet (low in
sulphur) North Sea crude oils and the sour Russian type crude oils
increased to almost USD 4/bbl, clearly up from the less than USD 2/bbl
in the previous years.

SEGMENT REVIEWS - OIL

Oil Refining

The activities of Oil Refining cover the refining of oil and selling of
oil products. The main products are traffic fuels and heating oils.
Fortum is the leading producer of clean traffic fuels in the Nordic
area.


EUR million IV/04 IV/03 2004 2003
Net sales 1,727 1,382 6,306 5,693
Operating profit 162 57 573 281
- excluding non–recurring 177 43 492 267
items*)
Net assets (at end of 1,266 1,003
period)
Return on net assets, % 50.4 26.2
*) non-recurring items are mainly inventory gains and losses


Fortum refined a total of 14.1 (14.2) million tonnes of crude oil and
other feedstocks. In Finland, the oil product sales amounted to about
8.3 (7.9) million tonnes. Exports of oil products refined by Fortum in
Finland amounted to 5.3 (5.5) million tonnes, of which gasolines
accounted for 2.7 (2.8) million tonnes and diesel fuels for 1.8 (2.0)
million tonnes. The Nordic countries and North America were Fortum
Oil’s largest export markets.

Fortum’s oil refineries produced 13.6 (13.6) million tonnes of oil
products. Of this, 62% (59%) was low-sulphur or sulphur-free.

Work on the investment to increase the sulphur-free diesel production
capacity of the Porvoo refinery continued as planned. The capital
expenditure in 2004 amounted to slightly more than EUR 100 million. The
production line is expected to be taken into use at the end of 2006.

Fortum also converted the MTBE production into ETBE (ethyl tertiary
butyl ether), containing bioethanol, at Porvoo.

Fortum made a decision to increase the production of a synthetic type
of EHVI base oil by 30,000 tonnes at the Porvoo refinery. EHVI is used
as a blending component for lubricants. The extended production will
commence in the autumn of 2005, after which the annual production will
amount to some 250,000 tonnes.

The flow improver agent (FIA) business was sold in January 2004.
Production and sale of ethanol gasoline in Finland, which began in
autumn 2002, ended in the autumn of 2004.


Oil products refined by 2004 2003
Fortum, deliveries by
product group, 1,000 t
Gasoline 4,368 4,434
Diesel 4,265 3,886
Aviation fuel 705 611
Light fuel oil 1,197 1,474
Heavy fuel oil 1,280 1,314
Other 1,794 1,672
Total 13,609 13,391

Oil products refined by 2004 2003
Fortum,
deliveries by region
1,000 t
Finland 8,301 7,889
Other Nordic countries 2,149 1,921
Baltic countries and Russia 100 62
USA and Canada 1,260 1,252
Other countries 1,799 2,267
Total 13,609 13,391


Oil Retail

Oil Retail has a network of service stations and other retail sales
outlets both in Finland and in other countries in the Baltic Rim. The
total number of outlets exceeds 1,000.

EUR million IV/04 IV/03 2004 2003
Net sales 611 553 2,374 2,203
Operating profit 7 -2 48 44
- excluding non-recurring 6 8 42 53
items
Net assets (at end of period) 296 329
Return on net assets, % 15.9 13.8


During the fourth quarter, retail sales of the main oil products
totalled 1,086 (1,027) thousand cubic metres, of which traffic fuels
accounted for 684 (645) thousand cubic metres.

In 2004, retail sales of the main oil products totalled 4,008 (3,908)
thousand cubic metres, of which traffic fuels accounted for 2,641
(2,483) thousand cubic metres.

The number of oil retail outlets at the end of the year was 873 (874)
in Finland and 179 (156) in the Baltic Rim countries.

In May, Fortum was the first company to start marketing sulphur-free
gasoline and diesel (less than 10 mg/kg) in Finland.


Shipping and other Oil

Shipping operates a tanker fleet for crude oil and product transports.
About 50% of the volumes carried are for third-party customers. The
focus is on the Baltic Sea, the North Sea and the North Atlantic. In
Russia, Fortum owns an oil field jointly with the Russian company,
Lukoil.

EUR million IV/04 IV/03 2004 2003
Net sales 91 65 339 308
Operating profit 24 24 107 79
- excluding non-recurring 18 12 97 69
items
Net assets (at end of period) 206 133
Return on net assets, % 63.5 56.7

During the fourth quarter, deliveries by Shipping were 10.3 (10.0)
million tonnes. The fourth quarter freights were substantially higher
than during the corresponding period last year.

During the whole year, Fortum’s shipments totalled 41 (40) million
tonnes. About 50% (51%) of the volume was carried for third party
customers. There was an increase in the rates for refined products and
also rates for crude oil were slightly higher than 2003 levels. The
availability and utilisation rate of the fleet remained high throughout
the year. The growth of Russian crude oil exports increased the demand
for ice-strengthened tonnage and also raised the level of freight
during the winter season.

In 2004, Fortum acquired three new product tankers and sold one vessel.
In addition, fleet portfolio was managed through chartering contracts.
One new product tanker was completed in early 2005, and one is under
construction.

At year-end, Fortum owned 11 tankers and 21 were time-chartered. 10
tankers carried crude oil and 22 carried a range of oil products.

SeverTEK, a joint venture equally owned by Fortum and Lukoil, commenced
oil production in the South Shapkino oil field in north-west Russia in
July 2003. In 2004, the average oil production of SeverTEK in Russia
totalled approximately 27 500 barrels per day of which Fortum’s share
was 50%.


Investments and divestments

Investments in fixed assets during the year totalled EUR 833 (1,136)
million. Investments excluding acquisitions were EUR 651 (550) million.

Work on the approximately EUR 500 million investment to increase the
sulphur-free diesel production capacity at the Porvoo refinery
continued as planned. The capital expenditure in 2004 amounted to
slightly more than EUR 100 million.

Fortum will participate in the new, fifth nuclear power plant unit in
Finland with a share of approximately 25%. Fortum’s investment as an
equity share will be EUR 180 million during 2004-2009, entitling it to
approximately 400 MW of the plant’s capacity. During the first quarter,
Fortum also provided a shareholders’ loan of EUR 45 million.

During 2004, Fortum’s holding in the Russian power company OAO
Lenenergo increased to 30.7% and its share of voting rights to 29.6%.
Fortum’s total investment in Lenenergo shares is approximately EUR 150
million.

In December Fortum acquired an 85% share of a Polish district heating
company PESC Czestochowa, with annual heat sales of some 780 GWh.

In December, Fortum acquired an additional 6% share in Finnish Gasum
Oy, thereby increasing its stake in the company to 31%.

The real estate divestment programme continued. Since the programme
started in mid-2002, Fortum has sold over 500 real estate properties
and the total sales income amounted to almost EUR 190 million by the
end of 2004. In 2004, sales income was some EUR 50 million.


Financing

During 2004 Fortum’s financial position continued to improve and net
debt decreased by EUR 730 million. At year end the interest bearing net
debt stood at EUR 4,896 million (EUR 5,626 million in 2003) and the
gearing ratio was 64% (85% at end of 2003). The Group’s net financing
expenses for 2004 were EUR 259 (236) million. In 2003 Fortum paid EUR
80 million as a dividend under the EUR 1,200 million Fortum Capital
financing arrangement. The dividend was accounted as minority interest.
This financing arrangement was terminated in December 2003. In order to
make a correct comparison of the development of the net financial cost
between the two years, the dividend payment under Fortum Capital
financing arrangement should be added to the net financial cost in
2003.

At year end the average interest rate of Fortum’s interest bearing
loans was 4.1%.

In December Fortum signed a 5-year EUR 1,200 million Syndicated
Revolving Credit Facility. The proceeds of the facility will be used
for general corporate purposes and to refinance the existing loan
facility of EUR 1,200 million signed in April 2003.

Group liquidity remained good. Year-end cash and marketable securities
totalled EUR 146 million. In addition the Group had a total of
EUR 1,362 million available for drawings under committed
credit facilities, such as the EUR 1,200 million Syndicated Revolving
Credit Facility and bilateral overdraft facilities. The total amount of
committed facilities amounted to EUR 1,414 million at year end.

In February Fortum Corporation’s long term credit rating from Moody’s
was upgraded from Baa2 (positive outlook) to Baa1 (stable). Fortum
Corporation’s long-term credit rating from Standard & Poor’s has
remained BBB+ (stable) in 2004.


Shares and share capital

During 2004, a total of 478.8 (270.3) million shares for a total of EUR
4,927 million were traded. Fortum’s market capitalisation, calculated
using the closing quotation on the last trading day of the year, was
EUR 11,810 million. The highest quotation of Fortum Corporation’s
shares on the Helsinki Stock Exchange in 2004 was EUR 13.99, the lowest
EUR 7.45, and the average quotation EUR 10.29 (6.94). The closing
quotation on the last trading day of the year was EUR 13.62 (8.18).

Relating to the bond loan with warrants to employees 1999, a total of
5.1 million warrants for a total of EUR 31.2 million was traded during
2004. Relating to the management share option scheme 1999, a total of
6,767 options for a total of EUR 33.9 million were traded during 2004.
Relating to the share option scheme for key employees 2002A, a total of
8.6 million options for a total of EUR 61.9 million was traded during
2004.

A total of 18,251,430 (3,072,520) shares were subscribed for based on
the above share option schemes and entered into the trade register in
2004. After these subscriptions, Fortum Corporation’s share capital is
EUR 2,948,085,277 and the total number of registered shares is
867,083,905 (848,832,475). Fortum Corporation’s share capital increased
by a total of EUR 62,054,862 (10,446,568). The amount of shares which
can still be subscribed for under these three share option schemes from
1999 and 2002 is a maximum of 0.8% of Fortum’s year end share capital
and voting rights.

In addition to the above arrangements, Fortum continues to have share
option programmes for key employees, 2001A+B and 2002B, which can be
exercisable later. At the end of 2004, these option schemes covered
some 320 persons. The amount of shares subscribed for under these share
option schemes is a maximum of 3.0% of Fortum’s year-end share capital
and voting rights.

At year end, the Finnish State’s holding in Fortum was 59.3% (60.5%).
The proportion of international shareholders stood at 25.2% (22.2%).

Currently the Board of Directors has no unused authorisations from the
General Meeting of Shareholders to issue convertible loans or bonds
with warrants, issue new shares or acquire the company’s own shares.


Group personnel

In 2004, the Fortum Group employed an average of 12,859 (13,343)
people. At year end, the number of employees totalled 13,175 (13,046),
of which 12,735 (12,649) were permanent employees. The number of
employees in the parent company, Fortum Corporation, at year end
totalled 619 (589).


Group management

Mr Risto Rinne was appointed President, Oil Sector and member of the
Corporate Executive Committee as of 15 January 2004. Mr Timo Karttinen
was appointed Senior Vice President, Corporate Development, and member
of the Corporate Executive Committee as of 1 July 2004.


IFRS transition

Fortum will apply the International Financial Reporting Standards
(IFRS) as of 1 January 2005. A high level summary of the IFRS impact on
Fortum’s Income statement and certain key ratios for 2004 are included
in the appendix of this report. This information is included in the
audited Financial Statements 2004. Fortum will publish a transition
IFRS stock exchange release by mid-March.


Business development and restructuring

Separation of oil businesses

Fortum announced in September 2004 its plan to implement the separation
of Fortum Oil Oy in April 2005 through a distribution of Fortum Oil
shares as a dividend to the shareholders of Fortum Corporation and a
marketed offering of the remaining shares to investors. This will
enable Fortum Oil to simultaneously seek a listing of its shares. The
dividend distribution is subject to an approval by the Annual General
Meeting of Fortum in spring 2005.

The plan to distribute Fortum Oil shares as a dividend has been
facilitated by Fortum’s very strong operating performance in both the
oil and power and heat businesses over the last 12 months. It is
designed to allow both Fortum Corporation and Fortum Oil to maintain
their financial strength without raising significant new capital from
the markets.

Following the dividend distribution and the planned sale of shares,
Fortum Corporation does not intend to continue as a shareholder in
Fortum Oil. Fortum Oil will be capitalised with approximately EUR 1
billion of debt including approximately EUR 130 million of shipping
leases.

The Board of Directors will propose to the Annual General Meeting that
85% of Fortum Oil shares should be distributed as a dividend to the
shareholders of Fortum Corporation. The remaining 15% of the shares
will be sold to institutional and individual investors by Fortum
Corporation.

The detailed terms of Fortum Oil Oy shares distribution will be decided
and announced in connection with the invitation to the Annual General
Meeting by mid-March.

Fortum Oil Oy will be renamed to Neste Oil Corporation.


Events after the period under review

Fortum’s Board of Directors decided on 17 January 2005 to use the call
option to buy all shares of E.ON Finland owned by the German E.ON
Group. The call option is part of the compensation Fortum received from
the Wesertal deal made with E.ON in 2002. The shares to be acquired
from E.ON constitute about 65.6 percent of the share capital and votes
of E.ON Finland. The total value of the purchase is about EUR 390
million. The exact purchase price depends on the net result and
dividend distribution of E.ON Finland for the year 2004. As E.ON has
refused to sell its shares, Fortum has initiated legal proceedings to
secure its rights.

The board of Fortum also decided to make a purchase offer to the City
of Espoo, which is the largest minority shareholder of E.ON Finland
with a share of approximately 34.2 percent. If the offer of Fortum is
approved, Fortum will pay to the City of Espoo about EUR 257 million in
cash. If Fortum’s share of the share capital and votes of E.ON Finland
exceeds 90 percent, Fortum will offer to redeem the shares of other
shareholders at the same price as in the purchase offer to the City of
Espoo.


OUTLOOK


Power and Heat

The key market driver influencing Fortum power and heat businesses’
performance is the market price of electricity. Starting in 2005,
emissions trading is likely to become a new key market driver.

According to general market information, electricity consumption in the
Nordic countries is predicted to increase by about 1% a year over the
next few years. During 2004, the average spot price for electricity was
EUR 28.9 (36.7) per megawatt-hour on the Nordic electricity market, or
21% lower than the corresponding figure in 2003.

At the beginning of February, the Nordic water reservoirs were about
4.1 TWh or 6.0% above the average and 37.9% above the corresponding
level in 2004. In January, the spot price was at the level of EUR 23.0
per megawatt-hour. The electricity forwards for February-May 2005 were
in the range of EUR 21.6 - 22.2 per MWh, and for the rest of 2005 in
the range of EUR 22.4 - 23.1 per MWh.

The first and last quarters of the year are usually the strongest
quarters for the continuous operations of the power and heat
businesses. The electricity prices in the forward market for the 2005
are clearly lower than the corresponding forward prices for 2004 a year
ago. In the beginning of January 2005, Fortum had hedged approximately
65% of its electricity sales for the next 12 months, the average price
being at roughly the same level as achieved in 2004.

During the past five years, the volume of Fortum’s CO2-free power
generation has increased from 29 TWh to 46 TWh. Its share was 83% (78%)
of Fortum´s power generation in 2004. With this production portfolio,
Fortum is in a good position considering the possible impacts of
emissions trading.

In Distribution, the total costs for the storms in Sweden in January
2005 is estimated to be about EUR 8 million in the first quarter 2005
results.

In 2004, the euro exchange rate against the Swedish krona was on
average 9.1203 (9.1430). At the end of December, the exchange rate was
9.0206 (9.080).

The 2004 financial results of power and heat businesses were very good.
The foundation for future good performance has been laid.


Oil

The key market drivers influencing oil businesses’ performance are the
Brent Complex refining reference margin, the exchange rate of the US
dollar, and the changes in the price of crude oil causing inventory
profits or losses. In addition to these market drivers, Fortum Oil’s
total margin is influenced by the price difference between sweet (low
in sulphur) North Sea crude oils and the sour Russian type crude oils.

The oil refining reference margin in North-western Europe (Brent
Complex) was considerably higher than in 2003 averaging USD 4.5
(2.7)/bbl. During the fourth quarter, it averaged USD 3.8 (2.3)/bbl.
In January 2005, the refining reference margin averaged USD 1.5/bbl.
For several years, the international refining reference margin has
averaged USD 1.5 – 2.0/bbl.

The refining margins and shipping freights are exposed to the US dollar
exchange rate volatility and therefore a weakened US dollar will have a
negative impact on the profitability of the oil business. However, this
impact is mitigated by the forward hedging policy of the estimated US
dollar sales margins. The US dollar/euro exchange rate has been hedged
at less attractive levels than in 2004.

In 2004, the euro exchange rate against the US dollar was on average
1.2474 (1.1346). At the end of December, the exchange rate was 1.3621
(1.263).

In 2004, the average price for Brent crude oil was USD 38.2 (28.8)/bbl.
In January 2005, the average price was USD 45/bbl while the
International Petroleum Exchange’s Brent futures for the balance of the
year 2005 were at the level of USD 44/bbl at the end of January. The
price of crude oil has an impact on the results of Oil Refining through
inventory gains and losses. The increasing crude price during 2004 led
to considerable inventory gains of EUR 74 (13) million.

In 2004, Fortum’s premium margin over the international Brent complex
refining reference margin was clearly higher than the average of some
USD 2/bbl in the last few years. Fortum’s premium margin is expected to
remain at the levels of previous years. During 2004, the average price
difference between sweet (low in sulphur) North Sea crude oils and the
sour Russian type crude oils increased to almost USD 4/bbl, clearly up
from the less than USD 2/bbl in the previous years.

The next major maintenance shutdown at the Porvoo refinery is planned
to take place in the autumn of 2005 and to last five weeks.

In 2005, capital expenditure is expected to be over EUR 500 million,
which includes approximately EUR 300 million to increase the sulphur-
free diesel production capacity at the Porvoo refinery.

Tanker freight futures indicate that rate levels for the first quarter
2005 will decrease from the fourth quarter 2004 levels but are still
expected to be better than long-term average levels. Due to demand for
ice-classed tonnage, the winter season is usually most profitable for
Shipping.

During 2004, the financial performance of the oil businesses was
exceptional, driven by excellent refining margins and good availability
of Fortum Oil refineries. The results were also lifted by inventory
gains due to the increasing trend in the crude oil price during 2004.


Dividend policy

Following the separation of the oil businesses - subject to a decision
of the Annual General Meeting - Fortum will become a pure Power and
Heat company. The Board of Directors has reviewed the company’s stated
dividend policy against this background.

Fortum Corporation’s dividend policy following the separation of the oil
businesses states that the company aims at paying a dividend which
corresponds to a payout ratio of 50% to 60% on the average.


Dividend distribution proposal

The Group’s non-restricted equity and distributable equity as of 31
December 2004 amounted to EUR 4,371 million. The parent company’s
distributable equity as of 31 December 2004 stood at EUR 2,472 million.

The Board of Directors proposes to the Annual General Meeting that
Fortum Corporation should pay a cash dividend of EUR 0.58 per share for
2004, totalling EUR 505.7million.

The Annual General Meeting will be held on 31 March at 11.00 am at
Finlandia Hall in Helsinki.


Espoo, 2 February 2005
Fortum Corporation
Board of Directors

Further information:
Mikael Lilius, President and CEO, tel. +358 10 452 9100
Juha Laaksonen, CFO, tel. +358 10 452 4519


The figures have been audited.


Publication of results in 2005:
Interim Report January - March will be published on 3 May 2005
Interim Report January - June will be published on 19 July 2005
Interim Report January - September will be published on 20 October 2005


Distribution:
Helsinki Stock Exchange
Key media
www.fortum.com

Information on the financial statement release is available on Fortum’s
website at: www.fortum.com/investors


FORTUM GROUP
JANUARY-DECEMBER 2004

Audited

CONSOLIDATED INCOME STATEMENT
MEUR Q4/04 Q4/03 2004
2003

Net sales 3 175 2 837 11 665 11
392
Share of profits of associated companies 19 12 70
41
Other operating income 23 56 121
151
Materials and services -2 001 -1 771 -7 861 -8
054
Personnel expenses -173 -177 -684
-654
Depreciation, amortisation and write-owners -139 -143 -511
-538
Other operating expenses -340 -394 -886
-918
Operating profit 564 420 1 914 1
420
Financial income and expenses -60 -47 -259
-236
Profit before taxes 504 373 1 655 1
184
Income taxes -138 -113 -397
-325
Minority interests -16 -33 -31
-90
Net profit for the period 350 227 1 227
769

Earnings per share, EUR 0.41 0.27 1.44
0.91
Fully diluted earnings per share, EUR 0.41 0.26 1.42
0.90
Average number of shares, 1,000 shares 852 625 846
831
Diluted adjusted average number of shares, 1 000 shares 861 772 858
732

CONSOLIDATED BALANCE SHEET
MEUR Dec 31 Dec 31
2004 2003
ASSETS
Fixed assets and other long-term investments
Intangible assets 112 146
Property, plant and equipment 11 824 11 632
Other long-term investments 1 974 1 762
Other interest-bearing long-term investments 688 632
Total 14 598 14 172
Current assets
Inventories 659 551
Trade receivables 1 048 951
Short-term receivables 253 449
Cash and cash equivalents 146 439
Total 2 106 2 390
Total 16 704 16 562

SHAREHOLDERS' EQUITY AND LIABILITIES

Shareholders' equity
Share capital 2 948 2 886
Other equity 4 446 3 520
Total 7 394 6 406
Minority interests 261 232
Provisions for liabilities and charges 237 207
Deferred tax liabilities 1 842 1 843
Liabilities
Long term liabilities
Interest-bearing 4 257 4 840
Interest-free 359 346
Short term liabilities
Interest-bearing 785 1 225
Interest-free 1 569 1 463
Total 16 704 16 562

Equity per share, EUR 8.50 7.55
Number of shares, 1,000 shares 869 749 848 832

CHANGE IN SHAREHOLDERS' EQUITY

MEUR Dec 31 Dec 31
2004 2003

Shareholders' equity, 1 January 6 406 5 897
Stock options exercised 96 22
Dividend -359 -264
Translation differencies 24 -18
Net earnings for the period 1 227 769
Total 7 394 6 406

CASH FLOW STATEMENT

MEUR Dec 31 Dec 31
2004 2003

Net cash from operating activities 1 748 1 577
Capital expenditures -651 -550
Acquisition of shares -182 -570
Proceeds from sales of fixed assets 89 142
Proceeds from sales of shares 23 1 227
Change in other investments -17 -67
Cash flow before financing activities 1 010 1 759
Net change in loans -1 040 -399
Dividends paid -359 -264
Other financing items * 96 -1 245
Net cash from financing activities -1 303 -1 908
Net increase (+)/decrease (-) in cash and marketable securities -293 -149

* Includes the redemption of Fortum Capital Ltd preference shares -1 200 million
euros in December 2003

KEY RATIOS
Dec 31 Dec 31
2004 2003

Capital employed, MEUR 12 697 12 704
Interest-bearing net debt, MEUR* 4 896 5 626
Investments, MEUR 833 1 136
Return on capital employed, % 15.6 11.4
Return on shareholders' equity, %* 17.6 12.3
Interest coverage 8.0 5.8
FFO / interest-bearing net debt, % 1) 37.8 26.1
Gearing, % * 64 85
Equity-to-assets ratio, % 46 40
Average number of employees 12 859 13 343

1) FFO = Funds from operations
* Figures include the effect of the redemption of Fortum Capital Ltd preference
shares in December 2003.

NET SALES BY SEGMENTS

MEUR Q4/04 Q4/03 2004 2003

Power Generation 583 624 2 088 2 681
Heat 320 292 1 021 964
Distribution 194 186 707 688
Markets 378 422 1 387 1 634
Oil Refining 1 727 1 382 6 306 5 693
Oil Retail 611 553 2 374 2 203
Shipping and other Oil 91 65 339 308
Other 29 25 96 93
Eliminations -758 -712 -2 653 -2 872
Total 3 175 2 837 11 665 11 392

OPERATING PROFIT BY SEGMENTS

MEUR Q4/04 Q4/03 2004 2003

Power Generation 235 193 725 603
Heat 84 80 226 173
Distribution 62 58 258 247
Markets 0 17 26 35
Oil Refining 162 57 573 281
Oil Retail 7 -2 48 44
Shipping and other Oil 24 24 107 79
Other -10 -7 -49 -42
Total 564 420 1 914 1 420

NON-RECURRING ITEMS IN OPERATING PROFIT BY SEGMENTS

MEUR Q4/04 Q4/03 2004 2003

Power Generation 1 2 21 4
Heat 2 1 2 -3
Distribution - - 1 20
Markets - - - -
Oil Refining -15 14 81 14
Oil Retail 1 -10 6 -9
Shipping and other Oil 6 12 10 10
Other 5 15 3 24
Total 0 34 124 60

DEPRECIATION, AMORTISATION AND WRITE-DOWNS BY SEGMENTS

MEUR Q4/04 Q4/03 2004 2003

Power Generation 29 29 105 116
Heat 36 31 127 116
Distribution 34 33 133 143
Markets 4 4 16 14
Oil Refining 20 21 76 80
Oil Retail 8 18 30 41
Shipping and other Oil 4 2 12 14
Other 4 5 12 14
Total 139 143 511 538

INVESTMENTS BY SEGMENTS

MEUR Q4/04 Q4/03 2004 2003

Power Generation 55 35 210 386
Heat 101 45 181 158
Distribution 41 98 106 339
Markets 2 2 6 28
Oil Refining 89 37 200 97
Oil Retail 15 15 36 36
Shipping and other Oil 16 7 77 71
Other 7 8 17 21
Total 326 247 833 1 136

NET ASSETS BY SEGMENTS

MEUR Dec 31 Dec
31
2004 2003

Power Generation 6 258 6
391
Heat 2 502 2
466
Distribution 3 101 3
129
Markets 196
23
Oil Refining 1 266 1
003
Oil Retail 296
329
Shipping and other Oil 206
133
Other 5
45
Eliminations -9
-8
Total 13 821 13
511

RETURN ON NET ASSETS BY SEGMENTS 2)
% Dec 31 Dec 31 Dec 31 Dec
31
2004 2004*) 2003 2003*)

Power Generation 11.6 11.3 9.5 9.4
Heat 9.2 9.2 7.3 7.5
Distribution 8.3 8.3 7.9 7.2
Markets 18.8 18.8 55.2 55.2
Oil Refining 50.4 43.3 26.2 24.9
Oil Retail 15.9 13.9 13.8 16.6
Shipping and other Oil 63.5 57.5 56.7 49.5

*) Non-recurring items deducted from operating profit
2) Return on net assets, % = Operating profit/average net assets

CONTINGENT LIABILITIES

MEUR Dec 31 Dec 31
2004 2003
Contingent liabilities
On own behalf
For debt
Pledges 160 149
Real estate mortgages 113 91
For other commitments
Real estate mortgages 59 55
Sale and leaseback - 8
Other contingent liabilities 76 101
Total 408 404
On behalf of associated companies
Pledges and real estate mortgages 12 12
Guarantees 335 562
Other contingent liabilities 182 182
Total 529 756
On behalf of others
Guarantees 3 15
Other contingent liabilities 5 7
Total 8 22
Total 945 1 182
Operating lease liabilities
Due within a year 78 75
Due after a year 99 103
Total 177 178

Liability for nuclear waste disposal 596 570
Share of reserves in the Nuclear Waste Disposal Fund -581 -560
Liabilities in the balan3) 15 10

3) Mortgaged bearer papers as security
In addition to other contingent liabilities a guarantee has been given on
behalf
of Gasum Oy, which covers 75% of the natural gas commitments arising from the
natural gas supply agreement between Gasum and OOO Gazexport.


Derivatives Dec 31 Dec 31
2004 2003

Interest and currency Contract Fair Not Contract Fair Not
or value rec. or value rec.
notional as an notional as an
value income value income
MEUR
Forward rate agreements - - - 330 - -
Interest rate swaps 3 435 -45 -18 4 253 -97 -69
Forward foreign exchange
contracts 4) 8 176 -32 -5 8 396 129 49
Currency swaps 310 -23 -6 333 -3 1
Purchased currency options 438 17 17 - - -
Written currency options 438 6 6 - - -

4) Incl. also contracts used for equity hedging


Oil futures and forward
instruments Volume Fair Not Volume Fair Not
value rec. value rec.
as an as an
income
income

1000 bbl MEUR MEUR 1000 bbl MEUR MEUR

Sales contracts 44 588 26 26 22 304 -11 -11
Purchase contracts 70 258 7 7 37 239 14 14
Purchased options 4 797 2 2 150 - -
Written options 6 784 -2 -2 600 - -


Electricity derivatives Volume Fair Not Volume Fair Not
value rec. value rec.
as an as
an
income
income

TWh MEUR MEUR TWh MEUR
MEUR
Sales contracts 70 204 186 58 -100
-65
Purchase contracts 42 -53 -39 50 136
101
Purchased options 1 -1 - - -
-
Written options 1 - - - -
-


Natural gas derivates Volume Fair Not Volume Fair Not
value rec. value rec.
as an as an
income
income

Mill.th. MEUR MEUR Mill.th. MEUR MEUR
Sales contracts - - - 8 -
-
Purchase contracts - - - 8 -
-
Purchased options - - - - -
-
Written options - - - - -
-

The fair values of derivative contracts subject to public trading are based on
market prices as of the balance sheet date. The fair values of other derivatives
are based on the present value of cash flows resulting from the contracts, and,
in respect of options, on evaluation models. The amounts also include unsettled
closed positions. Derivative contracts are mainly used to manage the group's
currency, interest rate and price risk.

QUARTERLY NET SALES BY SEGMENTS

MEUR Q4/04 Q3/04 Q2/04 Q1/04 Q4/03 Q3/03 Q2/03
Q1/03

Power Generation 583 453 488 564 624 524 573
960
Heat 320 145 195 361 292 132 182
358
Distribution 194 150 157 206 186 143 160
199
Markets 378 287 303 419 422 322 332
558
Oil Refining 1 727 1 641 1 635 1 303 1 382 1 349 1 265 1
697
Oil Retail 611 666 566 531 553 543 521
586
Shipping and other Oil 91 69 78 101 65 62 87
94
Other 29 23 24 20 25 24 22
22
Eliminations -758 -597 -616 -682 -712 -572 -707
-881
Total 3 175 2 837 2 830 2 823 2 837 2 527 2 435 3
593

QUARTERLY OPERATING PROFIT BY SEGMENTS

MEUR Q4/04 Q3/04 Q2/04 Q1/04 Q4/03 Q3/03 Q2/03
Q1/03
Power Generation 235 124 138 228 193 82 116
212
Heat 84 8 27 107 80 -6 22
77
Distribution 62 55 54 87 58 47 61
81
Markets - 11 5 10 17 13 12
-7
Oil Refining 162 131 187 93 57 89 51
84
Oil Retail 7 15 20 6 -2 21 10
15
Shipping and other Oil 24 16 23 44 24 9 19
27
Other -10 -15 -11 -13 -7 -16 -5
-14
Total 564 345 443 562 420 239 286
475


APPENDIX


Transition to International Financial Reporting Standards (IFRS) in 2005


Introduction

Fortum will adopt the International Financial Reporting Standards (IFRS)
starting
January 1, 2005. The date of transition from Finnish GAAP (FAS) to IFRS is
January
1, 2004. The first interim report under IFRS will be published May 3, 2005.

The purpose of this IFRS summary is to give an overview of the impact of the
transition and to describe the effects of those IFRS accounting principles and
rules
that will have a material impact on the consolidated income statement and
certain
key ratios. The IFRS financial information presented in this summary may require
adjustments before its inclusion as comparative information in the Fortum's
first
set of IFRS financial statements for the year ended December 31, 2005 due to the
ongoing changes in IFRS which might have an effect on the accounts of the
companies
applying IFRS from 2005.

In March 2005 Fortum will provide a separate detailed disclosure on the
transition
to IFRS including the adjusted 2004 quarterly income statement, balance sheet,
cash
flow, key ratios and segment information as well as reconciliations of equity
and
net profit.

Fortum's IFRS project

In order to evaluate the impact of the transition to IFRS, Fortum established a
project in the autumn 2002. The IFRS project organisation included participants
from
corporate center as well as from all business units. The IFRS project worked
under
the leadership of a steering committee, the Chief Financial Officer acting as a
chairman. The auditors of Fortum have assisted the different sub-project groups
as
well as taken part in the work of steering committee. The results of the project
have been communicated to the Corporate Executive Committee and the Audit
Committee
on a continuous basis.

The main impacts will result from the changes in the recognition and measurement
principles of financial instruments, the recognition of assets and provisions in
relation to asset retirement obligations regarding the nuclear power plants,
differences in the classification of leasing arrangements compared to FAS and
from
the changes in the accounting for pension obligations.

In the IFRS transition Fortum has elected to apply exemptions allowed in the
First-Time Adoption standard (IFRS 1). The most important exemption elected is
concerning business combinations that have taken place before the date of
transition
to IFRS. Fortum will keep the same classification and recognition of assets and
liabilities as in its FAS financial statements. This means that acquisitions
made
before January 1, 2004 are not restated. Impairment tests have been performed
continuously and no impairment charges have been recognised in the IFRS opening
balance sheet.

Fortum has chosen to apply IAS 32 and 39 standards regarding financial
instruments
also for the comparison year 2004.

Nuclear related assets and provisions

Fortum owns Loviisa nuclear power plant in Finland. The nuclear waste liability
and
Fortum's share in the Nuclear Waste Fund related to the Loviisa power plant are
under
FAS presented in the note Contingent liabilities in the financial statements.
The nuclear waste liability is calculated according to the Nuclear Energy Act in
Finland. That calculation does not take into account the effect of discounting
the
future liability. The paid annual fee to the Nuclear Waste Fund (due to the
change
in the nuclear liability, the share of profit of the Nuclear Waste Fund and
incurred
costs of taken actions) is recorded in the income statement. The nuclear waste
liability is fully covered in the Nuclear Waste Fund.

Under IFRS, Fortum's part of the Nuclear Waste Fund and the related nuclear
waste
liability will be presented gross as non current interest-bearing assets and
provisions. Fortum's share in the Nuclear Waste Fund has been accounted for
according
to IFRIC Draft Interpretation D4 which states that the fund assets are measured
at the
lower of fair value or the value of the related liabilities since Fortum does
not
have control or joint control over the Nuclear Waste Fund. The fair value of the
liabilities calculated at net present value represents the limitation of the
value of
the asset accounted for. Both the asset and the total provisions amount to EUR
354
million in the opening balance January 1, 2004 and to EUR 401 million in the
closing
balance December 31, 2004. The asset and provisions, equally measured, are both
included in the capital employed and the resulting net amount is then equal to
zero
(see below for 'Impact on key ratios').

The fair value of the provisions in IFRS is calculated by discounting the future
cash flows, which are based on estimated future costs and actions already taken.
The initial net present value of the provision for decommissioning (at the time
of
commissioning the nuclear power plant) is included in the investment cost and
depreciated over the useful lifetime of the nuclear station. The provision for
spent
fuel covers the future disposal costs of fuel used until to date. Costs for
spent
fuel disposal are expensed during the operating time based on fuel usage.

The timing factor will be taken into consideration by accounting for interest
expense related to discounting the nuclear provisions. The interest on the
Nuclear
Waste Fund assets is presented as financial income.

Fortum also has minority shareholdings in the associated nuclear power
production
companies Teollisuuden Voima Oy (TVO) in Finland and directly and indirectly
OKG AB
and Forsmarks Kraftgrupp AB in Sweden. Similar kinds of adjustments have been
made
through accounting of associates.


Financial Instruments

General principles

Derivatives are initially recognised at fair value on the date a derivative
contract
is entered into and are subsequently remeasured at their fair value. The method
of
recognising the resulting gain or loss depends on whether the derivative is
designated as a hedging instrument, and if so, the nature of the item being
hedged.
The Group designates certain derivatives as either: (1) hedges of highly
probable
forecast transactions (cash flow hedges); (2) hedges of the fair value of
recognised
assets or liabilities or a firm commitment (fair value hedge); or (3) hedges of
net
investments in foreign operations.

The effective portion of changes in the fair value of derivatives that are
designated and qualify as cash flow hedges are recognised in equity. The gain
or loss relating to the ineffective portion is recognised immediately in the
income statement. Amounts accumulated in equity are recycled in the income
statement
in the periods when the hedged item affects profit or loss, for instance when
the
forecast sale that is hedged takes place.

Changes in the fair value of derivatives that are designated and qualify as fair
value hedges are recorded in the income statement, together with any changes in
the
fair value of the hedged asset or liability that are attributable to the hedged
risk.
If derivatives do not qualify for hedge accounting the change of fair value is
recognised immediately in the income statement.

Electricity commodity derivatives

Electricity derivatives are mainly used to hedge future cash flows of
electricity
sales (Power Generation and Heat) to Nord Pool and purchases (Markets and
Distribution) from Nord Pool or other sources. Regarding electricity commodity
derivatives, hedge accounting is applied for most of the cash flow hedges to
decrease the volatility in the income statement however creating volatility in
equity. Forecasted underlying physical electricity deliveries, i.e. sales or
purchases are not recorded until the delivery period.

Total volatility in operating profit caused by electricity derivatives on the
Group level amounted to EUR 12 million in 2004. Some of the contracts for the
years 2004 - 2007 entered into during 2003 and for which hedge accounting was
not applied to caused some volatility, EUR 11 million in 2004, as the changes
in the fair values are recognised in income statement. To a very large extent
contracts entered into during 2004 and onwards will have a hedge accounting
status.

Oil commodity derivatives

Oil derivatives entered into to hedge price risk are economical hedges and they
do not qualify for hedge accounting under IAS 39. All fair value changes, EUR 29
million in 2004, are recognised in the operating profit.

Treasury derivatives (foreign exchange and interest rate derivatives)

Foreign exchange derivatives are used for hedging forecast cash flows of the
sales and purchases, assets and liabilities in the balance sheet and net
investments in foreign operations.

During 2004 hedge accounting was applied to all Oil cash flow hedges and partly
to Power and Heat cash flow hedges (Power Generation and Heat) to decrease
the volatility in operating profit in the income statement. The volatility
from foreign exchange derivatives hedging future cash flows was EUR - 6 million
in operating profit for those hedges for which hedge accounting was not applied
during 2004.

The Group has chosen not to apply hedge accounting for foreign exchange
derivatives hedging balance sheet items. A minor volatility in financial items
is caused by the forward points of these hedges. The cross currency and
interest rate derivatives maturing in 2004-2011 entered into earlier do not
qualify for hedge accounting. A major part of these swaps are maturing during
2005-2006, and are thus expected to create less volatility in the coming years
However, fair value hedges of issued bonds in 2003 qualify for hedge
accounting. Volatility in financial items was EUR -10 million during 2004.

Net investments in foreign subsidiaries are hedged according to the approved
Treasury policy. In IFRS, as in FAS, gains and losses on net investment are
recognised in the equity.

Minority preference shares with option agreement

Fortum owns10.1% of the shares in Nybroviken Kraft AB Group (NYKAB) (which
represents 52.9% of the votes). NYKAB is consolidated as a subsidiary in
Fortum's consolidated accounts. NYKAB owns hydroelectric power generating
assets.
Fortum manages these power assets by agreement and utilises all the power
produced. Fortum is entitled to buy the minority preference shares of NYKAB
through option agreements. According to the option agreements the repurchase
may take place in 2007, 2011 or 2015 at a price in accordance with an agreed
formula. The minority interest accounted for in Fortum represents the nominal
amount of the minority preference shares.

According to IAS 32 and 39 the minority interest referring to the preference
shares is classified as an interest-bearing liability and the difference between
the estimated value based on the option formula and the capital amount of the
interest-bearing liability is presented as accrued interest liability. Changes
in the estimated value based on the option formula are accounted for as interest
costs.


Leasing

The classification criteria when considering whether a lease arrangement is an
operating lease or financial lease are different under IFRS than under FAS.

In Fortum this means that some lease arrangements, where Fortum is the lessee
are reclassified to be financial leases. The liabilities of these agreements
that have previously been reported as contingent liabilities are under IFRS
included in the balance sheet. The resulting increase in the interest-bearing
liabilities at year-end 2004 is EUR 102 million. The main part of this amount
relates to Shipping leases.

In some customer contracts in Heat Fortum also acts as a lessor. Fortum has
evaluated customer contracts against the criteria in IFRIC D4 (leasing). A part
of these contracts is classified as financial leases. In the balance sheet the
effect will be seen mainly as a reclassification between interest-bearing
receivables and tangible assets.

Employee benefits

Fortum has various pension plans in accordance with local practices in the
countries where it operates. Under FAS, the Group's pension obligations have
been reported according to local regulations. In IFRS financial statements,
pension obligations are treated in accordance with IAS 19 Employee Benefit
and all accumulated actuarial gains and losses related to defined benefit
plans are recognised in the balance sheet of the transition date as allowed
by IFRS 1. The interest component is included in the pension costs in the
ncome statement.

Major impact from the transition to IFRS is due to the accounting for Finnish
statutory employment pension scheme (TEL), which is in Fortum covered partly
in insurance companies and partly in pension funds.

In the IFRS transition balance sheet January 1, 2004 the impact of the Finnish
pensions covered by pension funds was some EUR 40 million which resulted from
the fact that the fair value of the assets of the Fortum pension funds exceeded
the obligations caused by different pension plans. This has been reported
as other non-current assets. In addition an obligation of some EUR 30 million
has been recognised in the provisions for the future disability pension
component for the plans that are provided by insurance companies.

Due to changes approved by Finnish authorities in December 2004 TEL's
disability pension component is accounted for as a defined contribution plan
in the IFRS balance 31.12.2004 instead of defined benefit plan as in the IFRS
transition balance sheet. This change will have a positive impact of some
EUR 20 million before tax on the period's net profit. The rest of the total
change in the income statement (some EUR 30 million) is due to positive
development of the fair values of pension fund assets.


Other IFRS transition impacts

Other IFRS adjustments include for example:
- According to FAS accounting principles costs for major overhauls (mainly
in Oil Refining) are accrued in advance of the shutdown and accounted for
as a provision in the balance sheet. Under IFRS these costs are treated
according to the asset component approach. The costs are capitalised when
they occur and depreciated during the shutdown cycle.
- Fortum has elected to keep FAS revaluations net of cumulative depreciations
of certain items of property, plant and equipment as deemed cost of property,
plant and equipment. Adjustments are made retrospectively for depreciations
following the underlying asset.
- According to FAS accounting principles connection fees have been recognised
as revenue immediately. In IFRS connection fees regarding cooling will be
deferred and recognised as revenue over the expected customer relationship
period.
- The difference between the acquisition cost of shares in associated
companies and Fortum 's part of the shareholders’ equity at the time of
acquisition, have been allocated to fixed assets at the time of acquisition
to the extent that their fair value at the time exceeded the book value.
In FAS the depreciation of these fair value adjustments has been presented in
Other expenses. According to IFRS these depreciations, EUR 20 million, have
been reclassified to Share of profit (loss) of associates and joint ventures.
- The tax expense reported in the income statement has been affected by a
positive one-time adjustment of EUR 6 million concerning the change in the
corporate tax rate in Finland from 29% to 26% from 2005 onwards.


Impact on certain key ratios

Capital employed

The IFRS adjustments increase the capital employed in Fortum. The changes
in accounting for certain lease agreements are the main reason to the change
in the capital employed being an increase of EUR 111 million in the opening
balance and an increase of EUR 193 million in the closing balance 2004.
The provisions for decommissioning and the provision for spent fuel regarding
nuclear power assets have been included in the capital employed. The financial
costs associated with these provisions have also been included when
calculating return on the capital employed.

Interest-bearing net debt

Net debt increases under IFRS with EUR 246 million in the opening balance
and with EUR 199 million in the closing balance 2004. The increase is mainly
due to the financial leases (oil tankers) which are now included in the
balance sheet and to the reclassification of the minority shareholding
n NYKAB to interest-bearing liability.
According to IFRS the nuclear asset obligations and Fortum 's part of the
nuclear waste fund should be presented gross in the balance sheet. The fund
is fully covered and the net amount in the balance sheet is zero so the
indebtedness of Fortum is not effected. Neither the interest-bearing
provisions related to the nuclear obligations nor Fortum 's part of the
nuclear waste fund (presented as an interest-bearing non current asset)
is taken into account when calculating net debt.

Total equity including minority interest

The net effect of the IFRS adjustments to total equity is is EUR -5million
at year-end 2004. In the opening balance this effect amounts to EUR
-129 million. The change is mainly due to the changes in fair value of
financial instruments which qualify for hedge accounting.

Key ratios

Return on capital employed and return on equity are slightly improving
when including the 2004 IFRS adjustments to the underlying profit and
balance sheet items. Gearing is increasing from 64% to 67%.


FORTUM GROUP
JANUARY-DECEMBER 2004

Audited

The preliminary impact of the transition to IFRS on the Fortum Group´s Income
Statement and key ratios

CONSOLIDATED INCOME STATEMENT
Dec 31 2004 1) 2) 3) 4) 5) 6) 7)

Net sales 11 665 -6 -6 11
659
Other operating income 121 29 6 1 36
157
Materials and services -7 861 0 -7
861
Employee benefit costs -684 23 -12 11
-673
Depreciation, amortisation
and impairmen -511 2 -3 -15 -16
-527
Other operating expenses -886 5 9 33 47
-839
Operating profit 1 844 7 29 6 24 6 72 1
916
Share of profits of
associated companies 70 -2 -20 -22
48
Finance costs - net -259 -8 -10 7 4 2 -5
-264
Profit before taxes 1 655 -3 19 13 28 -12 45 1
700
Income taxes -397 -11
-408
Profit for the year 1 258 34 1
292
Attributable to:
Equity holders of the Company 1 227 32 1
259
Minority interest 31 2
33
1 258 34 1
292

*) Share of profits of associated companies and joint ventures is included in
operating profit in FAS

Earnings per share for profit attributable to the equity holders of the company
during the year (in € per share)

Basic 1,44
1,48
Diluted 1,42
1,46

Average number of shares,
1,000 shares 852 625
Diluted adjusted average number
of shares 861 772

KEY RATIOS
Dec 31 2003 1) 2) 3) 4) 5) 6) 7)

Capital employed, MEUR 12 704 39 -55 155 7 -35 111 12
815
Interest-bearing net debt, MEUR 5 626 98 149 -1 246 5
872
Total equity including
minority interest 6 638 39 -153 6 7 -28 -129 6
509
of which Minority interest, MEUR 232 1 -101 -12 -112
120


KEY RATIOS
Dec 31 2004 1) 2) 3) 4) 5) 6) 7)

Capital employed, MEUR 12 697 38 35 118 28 -26 193 12
890
Interest-bearing net debt, MEUR 4 896 96 102 1 199 5
095
Total equity including minority
interest 7 655 38 -61 16 28 -26 -5 7
650
of which Minority interest, MEUR 261 1 -100 -12 -111
150

Return on capital employed, % 15,6
15,8
Return on shareholders' equity, % 17,6
18,2
Gearing, % 64
67


1) Nuclear related assets and provisions
2) Financial Instruments
3) Leasing
4) Employee Benefits
5) Other IFRS impacts
6) Total IFRS impact
7) IFRS 2003