Fortum Corporation’s Financial statements bulleting 2012: A very demanding market environment in 2012 – efficiency programme proceeding as planned

FORTUM CORPORATION’S FINANCIAL STATEMENTS BULLETIN 31 January 2013 at 9.00 EET

October - December 2012

• Comparable operating profit EUR 587 (508) million, +16%
• Operating profit EUR 619 (579) million, of which EUR 32 (71) million
relates to items affecting comparability
• Earnings per share EUR 0.68 (0.47), +45%, of which EUR 0.03 (0.06) per
share relates to items affecting comparability and EUR 0.22 per share to the
change in the Swedish corporate tax rate
• Efficiency programme proceeding as planned
• In Russia, the construction work of the new units progressed

January - December 2012

• Comparable operating profit EUR 1,739 (1,802) million, -3%
• Operating profit EUR 1,861 (2,402) million, of which EUR 122 (600) million
relates to items affecting comparability; i.e. derivatives and the sale of
Fingrid in 2011
• Earnings per share EUR 1.59 (1.99), -20%, of which EUR 0.14 (0.55) per
share relates to items affecting comparability; i.e. derivatives and the sale
of Fingrid in 2011, and EUR 0.22 per share to the Swedish corporate tax rate
change that impacted positively in 2012
• Nordic power prices clearly lower compared to 2011
• Fortum launched an efficiency programme to improve cash flow by more than
EUR 1 billion during 2013-2014
• The Board has decided to review the strategic position of Fortum's
electricity distribution business
• The Board proposes a dividend of EUR 1.00 per share

 


 

Key figures
IV/12
IV/11
2012
2011
Sales, EUR million
1,834
1,667
6,159
6,161
Operating profit, EUR million
619
579
1,861
2,402
Comparable operating profit, EUR million
587
508
1,739
1,802
Profit before taxes, EUR million
538
532
1,575
2,228
Earnings per share, EUR
0.68
0.47
1.59
1.99
Net cash from operating activities, EUR million
399
472
1,382
1,613
Shareholders’ equity per share, EUR
 
 
11.49
10.84
Interest-bearing net debt
(at end of period), EUR million
 
 
7,814
7,023
Average number of shares, 1,000s
 
 
888,367
888,367



 

Key financial ratios
2012
2011
Return on capital employed, %
10.0
14.8
Return on shareholders’ equity, %
14.3
19.7
Net debt/EBITDA
3.1
2.3
Comparable net debt/EBITDA
3.3
3.0

 


Outlook

• Fortum currently expects the annual electricity demand growth in the
Nordic countries to be on average 0.5% in the coming years.
• Capital expenditure guidance: EUR 1.1-1.4 billion in 2013, and EUR 0.9-1.1
billion in 2014
• Power Division's Nordic generation hedges: For 2013, 70% hedged at EUR 45
per megawatt-hour (MWh), for 2014, 35% hedged at EUR 43 per MWh.

Fortum’s President and CEO Tapio Kuula

”Fortum's year in 2012 was good, considering the very demanding business
environment. Group comparable operating profit totalled EUR 1,739 million in
2012 and net cash flow from operating activities EUR 1,382 million. The
economic situation in Europe and globally – and the uncertainty regarding its
duration – burdened Fortum. In addition, the hydrological situation – with
historically high water reservoir levels – put additional pressure on Nordic
prices, which were clearly lower in 2012 than in 2011.

In order to ensure the company’s strategic flexibility and competitiveness and
to enable the company to continue to reach its financial targets in the future,
Fortum launched an efficiency programme in the autumn of 2012. The aim is to
increase the company’s cash flow by more than EUR 1 billion during 2013 – 2014
by reducing capital expenditures, divesting non-core assets, reducing fixed
costs and by focusing on working capital efficiency. These targeted actions
will increase the efficiency of our core processes and lead to cost reductions.

During 2012, Fortum continued to develop its operations to enable future growth
in a continuously difficult market situation. While the company continued with
investments to support its long-term goals, there was also an emphasis on
driving efficiency into existing operations. Some of the year's key topics in
the divisions are highlighted below:

In the Power Division, outages causing production losses and somewhat higher
costs in Oskarshamn, Sweden, burdened the result significantly. Meanwhile water
reservoirs were at high levels throughout the year resulting in an all-time
high in Fortum’s hydro production that compensated for the lower nuclear
volumes and lower price levels compared to 2011.

The highlight of the Heat Division was the investment decision of approximately
EUR 500 million into a new biofuel-fired combined heat and power plant (CHP) in
Stockholm, Sweden. The new plant will replace some of the existing heat
production with a less expensive biofuel alternative as well as increase Fortum
Värme's total electricity production by approximately one third.

In 2012, the Russia Division faced delays in its greenfield project in Nyagan.
However, in mid-January 2013 the testing of the gas turbine at Nyagan unit 1
was successfully on-going. Development in the heat business was also positive
as a commission to address issues such as heat regulation was set up by the
Russian Government.

In Distribution, the focus was on accelerated improvement of network
reliability in Finland spurred by the year-end 2011 storms - most severe in 30
years - that caused considerable damage to the electricity distribution network
as well as unfortunate outages for Fortum's customers.

In the Electricity Sales business area attention is now on retail sales of
electricity to a total of 1.2 million private customers. An emphasis is on
eco-labelled and CO2-free electricity as well as on smart electricity solutions
and services, which were successfully launched in 2012.

In January 2013, Fortum decided that the company will assess the strategic
position of its electricity distribution business. Fortum expects to conclude
the assessment during 2013. This decision does not change the basics of the
efficiency programme, which will continue as originally planned.

Fortum's purpose is to create energy that improves life for present and future
generations, the aim is to build on our strong Nordic core business, create
solid earnings growth in Russia and build a platform for future growth.

I feel confident that Fortum is well prepared going into 2013, and I would like
to thank all our employees for their efforts and commitment during 2012.”

Efficiency programme 2013-2014

In the fourth quarter, due to the increasingly demanding business environment,
Fortum started an efficiency programme in order to maintain and strengthen
strategic flexibility and competitiveness, and to enable the company to reach
its financial targets in the future.

The aim is to improve the company’s cash flow by more than approximately EUR 1
billion during 2013–2014 by reducing capital expenditures (capex) by EUR
250–350 million, divesting approximately EUR 500 million of non-core assets,
reducing fixed costs and focusing on working capital efficiency.

Capex in 2013 will be EUR 1.1–1.4 billion and in 2014 EUR 0.9–1.1 billion. At
the end of 2014, the cost run rate will be approximately EUR 150 million lower
compared to 2012, including growth projects.

If headcount reductions are needed, Fortum seeks to limit redundancies, by
using natural rotation and retirement whenever possible. The assessments will
therefore be done at a unit level.

The programme has proceeded according to plan and is integrated into division
plans for 2013–2014. Already in 2012, minor cost reductions were achieved. In
addition, the divestment of the Naantali power plant resulted in a net cash
flow effect of approximately EUR 50 million.

Financial results

October - December

In the fourth quarter of 2012, Group sales were EUR 1,834 (1,667) million. The
comparable operating profit totalled EUR 587 (508) million and the reported
operating profit totalled EUR 619 (579) million. Fortum's operating profit for
the period was affected by non-recurring items, an IFRS accounting treatment
(IAS 39) of derivatives mainly used for hedging Fortum's power production, and
nuclear fund adjustments amounting to EUR 32 (71) million.

The share of profits from associates in the fourth quarter was EUR -5 (19)
million. The share of profits from Hafslund and TGC-1 are based on the
companies' published third-quarter interim reports.

Sales by division

 


 

EUR million
IV/12
IV/11
2012
2011
Power
719
654
2,415
2,481
Heat
477
478
1,628
1,737
Russia
319
274
1,030
920
Distribution*
314
244
1,070
973
Electricity Sales*
221
205
722
900
Other
41
32
137
108
Netting of Nord Pool transactions
-161
-134
-503
 -749
Eliminations
-96
-86
-340
-209
Total
1,834
1,667
6,159
6,161



* Part of the Electricity Solutions and Distribution Division


Comparable operating profit by division

 


 

EUR million
IV/12
IV/11
2012
2011
Power
380
351
1,144
1,201
Heat
93
96
266
278
Russia
28
35
68
74
Distribution*
101
49
317
295
Electricity Sales*
9
2
38
27
Other
-24
-25
-94
 -73
Total
587
508
1,739
1,802



* Part of the Electricity Solutions and Distribution Division


Operating profit by division

 


 

EUR million
IV/12
IV/11
2012
2011
Power
387
443
1,173
1,476
Heat
118
100
339
380
Russia
28
35
79
74
Distribution*
103
41
328
478
Electricity Sales*
5
-6
38
3
Other
-22
-34
-96
-9
Total
619
579
1,861
2,402



* Part of the Electricity Solutions and Distribution Division


January–December

In 2012, Group sales were EUR 6,159 (6,161) million. The comparable operating
profit totalled EUR 1,739 (1,802) million and reported operating profit
totalled EUR 1,861 (2,402) million. Fortum's operating profit for the period
was affected by non-recurring items, an IFRS accounting treatment (IAS 39) of
derivatives mainly used for hedging Fortum's power production, and nuclear fund
adjustments amounting to EUR 122 (600) million.

Non-recurring items, mark-to-market effects and nuclear fund adjustments in
2012 amounted to EUR 122 (600) million. Changes in fair values of derivatives
hedging future cash flow accounted for EUR -2 (344) million. Non-recurring
items totalled EUR 155 (284) million and were mainly related to the divestments
of shares in power and heat operations.

The share of profits of associates and joint ventures was EUR 21 (91) million.
The decrease from last year was mainly due to the lower share of profits from
Hafslund ASA and TGC-1 as well as the share of profits from Fingrid Oyj, which
was divested during the second quarter in 2011.

Hafslund, an associated company of which Fortum owns 34.1%, announced in
October that their third quarter 2012 profit after tax was negatively affected
by NOK 551 million due to extraordinary write-downs and provisions. The company
stated that this was a result of challenging market conditions and negative
profit development within BioWood Norway AS and Bio-El Fredrikstad, and a tax
provision following the development of an on-going tax dispute. Fortum booked
its share of the impact, approximately EUR -25 million, in its fourth quarter
result.

The Group’s net financial expenses increased to EUR 307 (265) million. The
increase is attributable to higher interest expenses, mainly due to higher SEK
interest rates, and to higher average net debt in 2012 than in 2011. Net
financial expenses were also negatively affected by changes in the fair value
of financial instruments of EUR -23 (5) million.

Profit before taxes was EUR 1,575 (2,228) million.

Taxes for the period totalled EUR 72 (366) million. The tax rate according to
the income statement was 4.6% (16.4%), largely due to the Swedish corporate tax
rate that was lowered from 26.3% to 22% starting 1 January 2013. The decrease
caused a one-time positive effect in 2012 of approximately EUR 0.22 per share.
The tax rate, excluding change in tax rate in Sweden, the impact of the share
of profits of associated companies and joint ventures as well as non-taxable
capital gains, was 21.2% (21.4%).

The profit for the period was EUR 1,503 (1,862) million. Fortum's earnings per
share were EUR 1.59 (1.99), of which EUR 0.14 (0.55) per share relates to items
affecting comparability; in 2011, the impact of the sale of the Fingrid shares
was EUR 192 million, or EUR 0.22 per share.

Non-controlling (minority) interests amounted to EUR 94 (93) million. These are
mainly attributable to Fortum Värme Holding AB, in which the city of Stockholm
has a 50% economic interest.

Financial position and cash flow

Cash flow

In 2012, total net cash from operating activities decreased by EUR 231 million
to EUR 1,382 (1,613) million. Capital expenditures in cash flow increased by
EUR 137 million to EUR 1,422 (1,285) million. Proceeds from divestments
totalled EUR 433 (596) million in cash flow. Cash flow before financing
activities, i.e. dividend distributions and financing, decreased by EUR 534
million to EUR 254 (788) million. The strong SEK had a negative impact on the
cash flow, especially during the second and third quarters, through realised
net foreign exchange losses amounting to EUR -268 (-239) million related to the
rollover of foreign exchange contract hedging loans to Fortum Swedish
subsidiaries.

During the reporting period, dividends totalling EUR 888 million were paid on
23 April 2012 using cash and cash equivalents.

Assets and capital employed

Total assets increased by EUR 1,630 million to EUR 24,628 (22,998 at year-end
2011) million. Non-current assets increased by EUR 1,534 million from EUR
20,210 million to EUR 21,744 million. The majority, EUR 1,263 million, came
from the increased value of property, plants and equipment due to the
investments, and the stronger Swedish krona and other currencies. The increase
in current assets was EUR 96 million, totalling EUR 2,884 million. The increase
relates to the higher trade and other receivables of EUR 250 million and the
EUR 232 million increase in liquid funds. The increase in current assets was
partly offset by a EUR 183 million decrease in assets held for sale relating to
divestments closed during 2012, a EUR 100 million decrease in inventories and a
EUR 103 million decrease in derivative financial instruments.

Capital employed was EUR 19,598 (17,931) million, an increase of EUR 1,667
million. The increase was mainly due to the higher amount of total assets,
totalling EUR 24,628 million.

Equity

Total equity was EUR 10,821 (10,161 at year-end 2011) million, of which equity
attributable to owners of the parent company totalled EUR 10,205 (9,632 at
year-end 2011) million and non-controlling interests EUR 616 (529 at year-end
2011) million.

Financing

Net debt increased during the fourth quarter by EUR 50 million to EUR 7,814
(7,023 at year-end 2011) million.

In August, Fortum Corporation issued a EUR 1,000 million ten-year Eurobond
under its EMTN (Euro Medium Term Note) programme. The bond carries a coupon of
2.25%.

At the end of 2012, the Group’s cash and cash equivalents totalled EUR 963
(747) million. Cash and cash equivalents include cash and bank deposits held by
OAO Fortum amounting to EUR 128 (211) million. In addition to cash and cash
equivalents, Fortum had access to approximately EUR 2.7 billion of undrawn
committed credit facilities.

The Group's net financial expenses during the year 2012 were EUR 307 (265)
million. The increase in financial expenses is mainly attributable to higher
average net debt in 2012 compared to 2011. Net financial expenses were also
negatively affected by changes in the fair value of financial instruments of
EUR -23 (5) million.

During the fourth quarter, Fortum Corporation's long-term credit rating with
S&P was downgraded from A to A- (negative), while Moody’s affirmed the A2
rating. Both rating agencies have a negative outlook on the current rating.

Key figures

Net debt to EBITDA for 2012 was 3.1 (2.3 at year-end 2011) and comparable net
debt to EBITDA 3.3 (3.0), impacted by EUR 888 million in dividend payments.
Gearing was 72% (69%) and the equity-to-assets ratio 44% (44%). Equity per
share was EUR 11.49 (10.84). In 2012, return on capital employed was 10.0%
(14.8%) and return on equity 14.3% (19.7%).

Market conditions

Nordic countries

The year 2012 started with the Nordic water reservoir levels clearly above the
long-term average - exceptional rainfalls in 2011 contributed to the extreme
levels. The reservoir levels remained historically high until late November
2012, but then started to normalise. During 2012, Nordic electricity prices
were below Continental prices, resulting in a nearly constant export of
electricity from the Nordic area to the Continent.

According to preliminary statistics, electricity consumption in the Nordic
countries during the fourth quarter of 2012 increased some 7% compared to the
same period in 2011 and was 109 (102) terawatt-hours (TWh). This was
attributable to lower temperatures and thus higher non-industrial consumption,
while industrial consumption remained fairly unchanged. In 2012, electricity
consumption in the Nordic countries was 391 (384) TWh, i.e. some 2% higher than
the year before.

At the beginning of the year, the Nordic water reservoirs were at 95 TWh, i.e.
12 TWh above the long-term average. At the beginning of the fourth quarter, the
reservoirs were at 109 TWh, i.e. 8 TWh above the long-term average and 5 TWh
above the corresponding level in 2011. By the end of the quarter, the
reservoirs had declined to 85 TWh, which is 2 TWh more than the long-term
average, but 10 TWh less than in the year before.

During the fourth quarter, the average system spot price of electricity in Nord
Pool was EUR 37.3 (34.2) per MWh). The average area price in Finland was EUR
40.8 (37.4) per MWh, and in Sweden (SE3) EUR 37.5 (35.7) per MWh. In 2012, the
average system spot price was EUR 31.2 (47.1) per MWh, the area price in
Finland EUR 36.6 (49.3) per MWh and in Sweden (SE3) EUR 32.3 (47.9) per MWh.

The annual system price remained below the 2011 level due to the clearly
stronger hydro situation, which depressed prices in the hydropower intensive
price areas, particularly during the third quarter. However, long outages in
the transmission capacity limited imports from Sweden to Finland, and the
difference between the Finnish area price and the system price was higher than
in the year before. In the spring, there was a two-month outage in the
Fenno-Skan 2 connection; Fenno-Skan 1 has been out of operation since August.
Additionally, during 2012, the Finnish area price was impacted by lower imports
from Russia compared to the year before.

In Germany, the average spot price during the fourth quarter of 2012 was EUR
41.4 (49.9) per MWh and during 2012 EUR 42.6 (51.1) per MWh.

At the beginning of 2012, the market price for CO2 emission allowances (EUA)
was approximately EUR 6.6 per tonne. During the year, EUA traded between
approximately EUR 5.7 and EUR 9.5 per tonne and closed at around EUR 6.7 per
tonne.

Russia

OAO Fortum operates in the Tyumen and Chelyabinsk areas. Both in the Tyumen
area, where industrial production is dominated by the oil and gas industries,
and in the Chelyabinsk area, which is dominated by the metals industry,
electricity demand increased marginally in the fourth quarter compared to the
same period of the previous year.

According to preliminary statistics, Russia consumed 284 (279) TWh of
electricity during the fourth quarter of 2012. The corresponding figure in
Fortum’s operating area in the First price zone (European and Urals part of
Russia) was 209 (207) TWh.

In 2012, Russia consumed 1,037 (1,020) TWh of electricity. The corresponding
figure in Fortum’s operating area in the First price zone (European and Urals
part of Russia) was 769 (760) TWh.

In the fourth quarter of 2012, the average electricity spot price, excluding
capacity price, increased by 13% to RUB 1,037 (918) per MWh in the First price
zone.

In 2012, the average electricity spot price, excluding capacity price,
increased by 1% to RUB 1,001 (990) per MWh in the First price zone.

More detailed information about the market fundamentals is included in the
tables at the end of the report.

Events after the balance sheet date

Fortum announced 31January 2013 that the company has decided to assess the
strategic position of its electricity distribution business. In accordance with
its strategy, Fortum seeks growth in low-carbon power generation,
energy-efficient combined heat and power (CHP) production and customer
offerings. The assessment has no impact on Fortum's electricity distribution
customers and excludes the company's electricity retail business. Fortum
expects to conclude the assessment during 2013.

Outlook

Key drivers and risks

Fortum's financial results are exposed to a number of strategic, political,
financial and operational risks. The key factor influencing Fortum's business
performance is the wholesale price of electricity in the Nordic region. The key
drivers behind the wholesale price development in the Nordic region are the
supply-demand balance, fuel and CO2 emissions allowance prices as well as the
hydrological situation. The completion of Fortum’s investment programme in
Russia is also one key driver to the company’s result growth, due to the
increase in production volumes.

The continued global economic uncertainty and Europe's sovereign-debt crisis
has kept the outlook for economic growth unpredictable. The overall economic
uncertainty impacts the commodity and CO2 emission allowance prices, and this,
in combination with the stronger hydrological situation in the Nordic region,
could maintain downward pressure on the Nordic wholesale price for electricity
in the short-term. In the Russian business, the key factors are the regulation
around the heat business and further development of electricity and capacity
markets. Operational risks related to the investment projects in the current
investment programme are still valid. In all regions, fuel prices and power
plant availability also impact the profitability. In addition, increased
volatility in exchange rates due to financial turbulence could have both
translation and transaction effects on Fortum's financials especially through
the SEK and RUB. In the Nordic countries, also the regulatory and fiscal
environment for the energy sector has added risks for utility companies.

Nordic market

Despite macroeconomic uncertainty, electricity will continue to gain a higher
share of the total energy consumption. Fortum currently expects the average
annual growth rate in electricity consumption to be 0.5%, while the growth rate
for the nearest years will largely be determined by macroeconomic development
in Europe and especially in the Nordic countries.

During the fourth quarter of 2012, the overall price of crude oil and coal was
quite steady, whereas the EUA price weakened clearly. The forward price of
electricity for the next twelve months improved somewhat in the Nordic area,
but declined in Germany.

In late January 2013, the future quotations for coal (ICE Rotterdam) for the
rest of 2013 were around USD 92 per tonne and the market price for CO2 emission
allowances (EUA) for 2013 was about EUR 4 per tonne.

In late January 2013, the electricity forward price in Nord Pool for the rest
of 2013 was around EUR 37 per MWh. For 2014, the electricity forward price was
around EUR 36 per MWh and for 2015 around EUR 35 per MWh. In Germany, the
electricity forward price for the rest of 2013 was around EUR 41 per MWh and
for 2014 EUR 41 per MWh.

In late January 2013, Nordic water reservoirs were approximately at the same
level as the long-term average and 12 TWh below the corresponding level of
2012.

Power

The Power Division's Nordic power price typically depends on such factors as
the hedge ratios, hedge prices, spot prices, availability and utilisation of
Fortum's flexible production portfolio, and currency fluctuations. Excluding
the potential effects from the changes in the power generation mix, a 1 EUR/MWh
change in the Power Division’s Nordic power sales price will result in an
approximately EUR 45 million change in Fortum's annual comparable operating
profit. In addition, the comparable operating profit of the Power Division will
be affected by the possible thermal power generation amount and its profit.

The several years of ongoing Swedish nuclear investment programmes will enhance
safety, improve availability and increase the capacity of the current nuclear
fleet. The implementation of the investment programmes could, however, affect
availability. Fortum’s power procurement costs from co-owned nuclear companies
are affected by these investment programmes through increased depreciation and
finance costs.

European-wide safety evaluations have been carried out post-Fukushima. As part
of the evaluations, so-called peer reviews were carried out in March 2012 in
several European nuclear power plants, including the Loviisa nuclear power
plant. The European Commission submitted a consolidated report of the national
reports to the European Council in October 2012. Some additional safety
criteria were already introduced after the spring evaluations for nuclear power
plants. The required improvements will be done within the framework of the
annual investment programmes and planned maintenance.

Russia

The Russian wholesale power market is liberalised. However, all generating
companies continue to sell a part of their electricity and capacity equalling
the consumption of households and a special group of consumers (Northern
Caucasus Republic, Tyva Republic, Buryat Republic) under regulated prices.

Capacity not under CSA competes in competitive capacity selection (CCS – “old
capacity”). The capacity selection for 2013 was held at the end of 2012. The
majority of Fortum’s power plants were selected in the auction, with a price
level close to the level received in 2012. Approximately 10% (265 MW) of the
old capacity was not allowed to participate in the selection for 2013, due to
tightened minimal technical requirements. It will, however, receive capacity
payments at the capacity market price for 2013.

The generation capacity built after 2007 under government Capacity Supply
Agreements (CSA – “new capacity”) receives guaranteed payments for a period of
10 years. Prices for capacity under CSA are defined in order to ensure a
sufficient return on investments.

OAO Fortum's new capacity will be a key driver for earnings growth in Russia as
it will bring income from new volumes sold and also receive considerably higher
capacity payments than the old capacity. However, the received capacity payment
will differ depending on the age, location, size and type of the plants as well
as seasonality and availability. The return on the new capacity is guaranteed
as regulated in the Capacity Supply Agreement. The regulator will review the
earnings from the electricity-only market after three years and six years and
could revise the CSA payments accordingly. CSA payments can somewhat vary
annually because they are linked to Russian Government long-term bonds with 8
to 10 years maturity.

The commissioning of Fortum’s largest new investment greenfield projects in
Nyagan was somewhat further postponed during the second quarter of 2012. Fortum
has worked hard to resolve the delay and estimates the commissioning of Nyagan
1 to take place during the first quarter 2013 and Nyagan 2 during the first
half of 2013 as a result of construction delays. This does not change the
overall schedule or financial targets of the investment programme. In 2008,
Fortum made a provision for penalties caused by possible commissioning delays.
According to the agreement with the contractor, Fortum is entitled to adequate
remedies in case of damages caused by contractor delays.

In June 2012, Fortum announced its decision to build the last two units of its
Russian investment programme at Chelyabinsk in the Urals. Initially, the units
were planned for construction in the Tyumen region in Western Siberia. The
units are included within the sphere of the Capacity Supply Agreement
originally agreed in 2008. The new units are to be constructed at Chelyabinsk
GRES power plant. Fortum also plans to modernise and upgrade the existing power
plant equipment. Fortum is planning to commission the last new units of its EUR
2.5 billion investment programme in Russia by the end of 2014. The value of the
remaining part of the investment programme, calculated at the exchange rates
prevailing at the end of December 2012, is estimated to be approximately EUR
540 million as of January 2013.

After completing the ongoing investment programme, Fortum’s goal is to achieve
an operating profit level of about EUR 500 million in its Russia Division and
to create positive economic added value in Russia.

A commission for heat business development has been set up by the Russian
Government. Top priorities will be issues regarding heat regulation,
centralised district heating and co-generation efficiency.

The Russian Government is likely to increase gas prices beginning 1 July 2013;
the increase is expected to be 15%.

Efficiency programme 2013-2014

Due to the increasingly demanding business environment, Fortum started an
efficiency programme in order to maintain and strengthen strategic flexibility
and competitiveness and to enable the company to reach its financial targets in
the future.

The aim is to improve the company’s cash flow by more than approximately EUR 1
billion during 2013—2014 by reducing capital expenditures (capex) by EUR
250—350 million, divesting approximately EUR 500 million of non-core assets,
reducing fixed costs and focusing on working capital efficiency. At the end of
2014, the cost run rate will be approximately EUR 150 million lower compared to
2012, including growth projects.

The Board's decision to review the strategic position of the electricity
distribution business does not change the basics of the efficiency programme,
which will continue as originally planned.

Capital expenditure

Fortum currently expects its capital expenditure in 2013 to be EUR 1.1—1.4
billion and in 2014 EUR 0.9—1.1 billion, excluding potential acquisitions. The
annual maintenance capital expenditure is estimated to be about EUR 500—550
million in 2013, somewhat below the level of depreciation.

Taxation

The effective corporate tax rate for Fortum in 2013 is estimated to be 19—21%,
excluding the impact of the share of profits of associated companies and joint
ventures, non-taxable capital gains and non-recurring items. In Finland, the
corporate tax rate was decreased from 26% to 24.5% starting 1 January 2012. In
Sweden, the corporate tax rate was decreased from 26.3% to 22% starting 1
January 2013.

The process to update the real-estate taxation values for the year 2013 is
ongoing in Sweden and is expected to be finalised by mid-2013. The update is
done in a cycle of six years.

In 2012, the Finnish Government announced that a so-called windfall tax will be
introduced in 2014.
Hedging

At the end of December 2012, approximately 70% of the Power Division's
estimated Nordic power sales volume was hedged at approximately EUR 45 per MWh
for the calendar year 2013. The corresponding figures for the calendar year
2014 were about 35% at approximately EUR 43 per MWh.

The hedge price for the Power Division's Nordic generation excludes hedging of
the condensing power margin. In addition, the hedge ratio excludes the
financial hedges and physical volume of Fortum's coal-condensing generation as
well as the division’s imports from Russia.

The reported hedge ratios may vary significantly, depending on Fortum's actions
on the electricity derivatives markets. Hedges are mainly financial contracts,
most of them Nord Pool forwards.

Dividend distribution proposal

The parent company's distributable equity as of 31 December 2012 amounted to
EUR 4,561,649,150.11. Since the end of the financial period, there have been no
material changes in the financial position of the Company.

The Board of Directors proposes to the Annual General Meeting that Fortum
Corporation pays a cash dividend of EUR 1.00 per share for 2012, totalling EUR
888 million based on the number of registered shares as of 30 January 2013. The
dividend is proposed to be paid on 19 April 2013.

Annual General Meeting 2013

Fortum Corporation’s Annual General Meeting will be held at 14:00 on Tuesday, 9
April 2013, at the Finlandia Hall, Mannerheimintie 13, in Helsinki, Finland.

Espoo, 30 January 2013
Fortum Corporation
Board of Directors


Further information:
Tapio Kuula, President and CEO, tel. +358 10 452 4112
Markus Rauramo, CFO, tel. +358 10 452 1909

Fortum’s Investor Relations, Sophie Jolly, +358 10 453 2552, Rauno Tiihonen,
+358 10 453 6150 and Janna Haahtela, +358 10 453 2538 / investors@fortum.com

The Board of Directors has approved Fortum's 2012 financial statements and
Fortum's auditors have issued their unqualified audit report for 2012 on 30
January 2013. The condensed interim financial statements have been prepared in
accordance with International Accounting Standard (IAS) 34, Interim Financial
Reporting, as adopted by the EU.


Publication of financial results in 2013:
- Interim Report January – March on 25 April 2013 at approximately 9:00 EEST
- Interim Report January – June on 19 July 2013 at approximately 9:00 EEST
- Interim Report January – December on 23 October 2013 at approximately 9:00
EEST

Fortum’s Financial statements and Operating and financial review for 2012 will
be published during week 12 at the latest.

Fortum's Annual General Meeting is planned to take place on 9 April 2013 and
the possible dividend-related dates planned for 2013 are:
- Ex-dividend date 10 April 2013
- Record date for dividend payment 12 April 2013
- Dividend payment date 19 April 2013


Distribution:
NASDAQ OMX Helsinki
Key media
www.fortum.com

More information, including detailed quarterly information, is available on
Fortum’s website at www.fortum.com/investors.