INTERIM REPORT 1 JANUARY - 31 MARCH 2000 - FORTUM’S NET SALES INCREASED SIGNIFICANTLY

Fortum Group’s operating profit for the first quarter of 2000 amounted to EUR 202 million (EUR 244 million in January - March 1999), and profit before extraordinary items was EUR 148 million (EUR 193 million). Earnings per share were EUR 0.15 compared to EUR 0.17 one year earlier, return on capital employed was 9.1% (10.2%), return on shareholders equity 9.5% (10.7%), and gearing 90% (79% at the end of 1999). 

 

At EUR 2,525 million, the Group’s net sales for January - March were 33% higher than in the previous year (EUR 1,899 million during the same period in 1999). Net sales of the continuing business operations increased by EUR 951 million over the comparative period. The increase was mainly attributed to higher prices of crude oil and petroleum products than in the comparative period. The comparative period included EUR 325 million of net sales of the business operations divested in 1999.

 

The Group’s operating profit for the first quarter of 2000 amounted to EUR 202 million (EUR 244 million). The operating profit of the continuing operations has improved over the comparative period, taking into account gains on the sales of fixed assets, which decreased by EUR 38 million. The comparative period also included EUR 34 million of operating profit from the discontinued operations. The higher average market price of crude oil and improved efficiency of our operations strengthened the results. The results were adversely affected by a strike of the chemical industry, the impact of which was EUR 13 million, and by inventory losses, about EUR 11 million, primarily relating to our operative stocks.

 

Net profit for the period amounted to EUR 114 million (EUR 131 million).

 

Prospects for the remainder of the year

 

It is expected that the agreement signed by Fortum and Stora Enso and the related structural arrangements will not, as a whole, influence the Group’s earnings per share in 2000.

 

The international market prices that essentially influence Group operations seem, as a whole, to show a positive trend compared with the previous year.

 

We believe that profitability of the continuing operations for 2000 will be better than in 1999.

 

Interim financial statements are unaudited.

 

APPENDIX: Fortum Corporation’s interim report 1 January - 31 March 2000.

 

Fortum Corporation

 

Antti Ruuskanen

Corporate Executive Vice President, Communications

 

DISTRIBUTION

Helsinki Exchanges

Key media

 

Further information:

Eero Aittola, President and CEO, tel. +358 10 45 24234

Juha Laaksonen, Corporate Executive Vice President, CFO,

tel. +358 10 45 24519

Antti Ruuskanen, Corporate Executive Vice President, Communications, tel. +358 10 45 24850

 

 

APPENDIX

 

FORTUM CORPORATION INTERIM REPORT 1 JANUARY - 31 MARCH 2000

 

Three months in brief

 

- Fortum’s net sales showed a significant increase and profitability of the continuing business operations was better than expected.

- The acquisition of the energy company Wesertal was finalised in January.

- Fortum signed a letter of intent concerning the acquisition of Stora Enso’s power assets. The agreement was signed on 27 April 2000.

 

Results for January - March

 

At EUR 2,525 million, Fortum Group’s net sales for January - March were 33% higher than in the previous year (EUR 1,899 million during the same period in 1999). Net sales of the continuing business operations increased by EUR 951 million over the comparative period. The increase was mainly attributed to higher prices of crude oil and petroleum products than in the comparative period. The comparative period included EUR 325 million of net sales of the business operations divested in 1999.

 

The Group’s operating profit for the first quarter of 2000 amounted to EUR 202 million (EUR 244 million). The operating profit of the continuing operations improved over the comparative period, taking into account gains on the sales of fixed assets, which decreased by EUR 38 million. The comparative period also included EUR 34 million of operating profit from the discontinued operations. The higher average market price of crude oil and improved efficiency of our operations strengthened the results. The results were adversely affected by a strike of the chemical industry, the impact of which was EUR 13 million, and by inventory losses, about EUR 11 million, primarily relating to our operative stocks.

 

Net financing expenses during the period were EUR 54 million (EUR 51 million) and profit before extraordinary items EUR 148 million (EUR 193 million). Net profit for the period amounted to EUR 114 million (EUR 131 million).

 

Earnings per share were EUR 0.15 compared to EUR 0.17 one year earlier. Return on capital employed was 9.1% and return on shareholders’ equity 9.5% (10.2% and 10.7%).

 

Investments and financing

 

The Group’s investments in January - March totalled EUR 514 million (EUR 405 million). The most significant project was the acquisition of the German energy company, Elektrizitätswerk Wesertal GmbH, in January. The purchase price was EUR 388 million.

 

Interest-bearing net debt at the end of the review period totalled EUR 4,350 million (EUR 3,818 million at the end of 1999). Gearing was 90% (79% at the end of 1999).

 

Activities after the review period

 

In April, Fortum was awarded with an exploration licence, 25%, in two new blocks in the Norwegian Sea. The blocks are located close to the Åsgard field in the Haltenbanken area.

 

In April, Fortum and Stora Enso signed an agreement based on the letter of intent signed in January. According to this agreement, Fortum acquires Stora Enso’s power plant capacity, corresponding to a total of 1,511 megawatts and 6.7 terawatt-hours of annual generation. Major part of this capacity is in Sweden. The asset value of the transaction is SEK 14.20 billion (about EUR 1.7 billion). The parties have also agreed on electricity supplies to Stora Enso’s mills in Sweden. The agreed annual volume is more than 2 TWh over the next three years.

 

In February, the Boards of Directors of Fortum and Länsivoima made decisions about the merger of Länsivoima into Fortum. In April, the Annual General Meetings of Fortum and Länsivoima approved the merger plan, and the merger is scheduled to become effective on 30 September 2000.

 

Annual General Meeting

 

Fortum Corporation’s Annual General Meeting, held on 17 April 2000, adopted the income statement and balance sheet of the parent company and the Group for 1999. Fortum’s Supervisory Board, Board of Directors and the President and CEO were discharged from liability for 1999; and it was decided that a dividend of EUR 0.18 per share, or a total of EUR 141 million for 1999 will be paid.

 

The following persons were re-elected to the Supervisory Board: Ilkka-Christian Björklund, Tuija Brax, Kaarina Dromberg, Klaus Hellberg,  Ville Itälä, Kari Laitinen, Jouko K. Leskinen, Leena Luhtanen, Pekka Tuomisto, Matti Vanhanen and Ben Zyskowicz. The new members elected were Henrik Aminoff, Harri Holkeri, Mikko Immonen, Kyösti Karjula, Tanja Karpela and Sirkka Vilkamo.

 

The former Chairman of the Supervisory Board, Ilkka-Christian Björklund, was re-elected to this position, and Ben Zyskowicz will continue as Deputy Chairman.

 

The authorised public accountants, SVH PricewaterhouseCoopers Oy were elected as auditor.

 

The Annual General Meeting made decisions on the following issues according to the proposal of the Board of Directors:

- Amendments to the Articles of Association; the domicile of the company, minimum and maximum share capital and the par value of the share, the term of office of Board members, and the stipulation concerning Finnish markka in the redemption clause.

- Changes in the management stock option scheme and the bond loan with warrants to employees, following the change of share capital into Euro.

 

Meeting of the Supervisory Board

 

On 18 April 2000, Fortum’s Supervisory Board re-elected Matti Vuoria as Chairman of the Board of Directors, Krister Ahlström as Deputy Chairman, and Jaakko Ihamuotila, L.J. Jouhki, Heikki Pentti and Erkki Virtanen as members of the Board of Directors. According to the Articles of Association approved by the Annual General Meeting, the term of office of the Board members is one calendar year.

 

Group organisation and personnel

 

The Group’s new and leaner organisation and more decentralised corporate governance model came into force at the beginning of the year. The business operations of the Group are divided into four business sectors: Power and Heat, Oil and Gas, Engineering and Service. The sectors are divided into 31 performance units.

 

On 10 March 2000, the Supervisory Board discharged Heikki Marttinen, President and CEO, from his duties and appointed Eero Aittola, Corporate Executive Vice President, Chief Financial Officer, as President and CEO. The search process of a new President and CEO is going on.

 

In January - March, Fortum Group employed an average of 16,081 people (18,479 people).

 

Prospects for the remainder of the year

 

It is expected that the agreement signed by Fortum and Stora Enso and the related structural arrangements will not, as a whole, influence the Group’s earnings per share in 2000.

 

The international market prices that essentially influence Group operations seem, as a whole, to show a positive trend compared with the previous year.

 

We believe that profitability of the continuing operations for 2000 will be better than in 1999.

 

Business review

 

Oil and Gas Upstream

 

The upward trend of the crude oil price, which had continued for a year, ceased at the beginning of March. The highest price of the North Sea light Brent blend was more than USD 32 a barrel, but it dropped after the Opec meeting held at the end of March, and reached, at the lowest, the level of almost USD 20 a barrel at the beginning of April.

 

In the review period, the average oil and gas production amounted to 35,400 oil-equivalent barrels a day, corresponding to an annual production of about 1.7 million tonnes, about 23% more than in the comparative period. The development of the Åsgard field in Norway for gas production was continued as planned; oil production in the field started in 1999, and gas production is expected to begin in the last quarter of 2000. Fortum’s oil traded at an average of USD 27 a barrel.

 

Oil Refining and Marketing

 

During the first part of the year, the gasoline stocks decreased in the international market to a record low level, which contributed to the strengthening of the refining margins. As the prices of crude oil showed a downward trend in March, the decrease in the prices of petroleum products remained significantly smaller and the international refining margins increased to a considerably high level at the end of March. At the same time, we shut down the Porvoo and Naantali refineries due to the two-week strike of the chemical industry. Consequently, the improved margins did not influence the profitability of our oil refining.

 

The sales of motor gasoline to Finnish consumers decreased in January - March by 1.6%. Consumption of diesel fuel rose by 4.6% as a result of an overall increase in industrial activity, among other things. The sales of fuel oil to consumers decreased by 15 - 20%, due to a warmer winter than in the previous year and the lower level of consumer stockpiling resulting from high prices.

 

Fortum’s petroleum product sales to the Finnish market during January - March totalled 1.8 million tonnes, 5.7% less than in the comparative period. Most of this decrease resulted from the lower sales of fuel oil.

 

Exports of petroleum products totalled 1.0 million tonnes (1.2 million tonnes). Exports to Russia stopped completely, and exports to the Baltic countries were decreased by almost 50%, as a result of low prices for the local products. Motor gasoline exports accounted for 57% of the total exports. 36% of the total amount of petroleum products was exported to Sweden. Gasoline exports outside Europe totalled 0.27 million tonnes. Sales of low-emission diesel fuel totalled more than 0.25 million tonnes, 20% more than in the comparative period.

 

In anticipation of a decrease in the demand for MTBE in the United States following an authorities’ decision, we have begun technical basic design for the conversion of our 50%-owned MTBE facility at Edmonton, Canada, to produce the iso-octane component using the NExOCTANE technology developed by Fortum. The final decision on the conversion of the facility will be made after the basic design has been completed.

 

Power and Heat Generation and Sales

 

In January - March, the system price of electricity in the Nordic countries was EUR 13.65/megawatt-hour (EUR 14.33/MWh). At the end of March, the market price increased to a higher level than in the previous year, but in April it decreased to the previous year’s level. The first part of the year was warmer than average, and in Norway and Sweden, the water reservoirs were larger than the ten-year average. In Finland, the water reservoirs were a little smaller than average.

 

In Finland, electricity consumption increased in January - March by 3.1%, while the increase in March was 5%. The increase primarily resulted from good economic growth in Finland, as the mild winter contributed to a decreased need for heating. A total of 22.5 TWh of electricity was used in Finland.

 

Fortum’s electricity sales of 13.2 TWh (12.6 TWh) show an increase of 0.6 TWh. While electricity sales decreased in the Nordic countries, other areas saw an increase. In Finland, we sold 8.2 TWh (8.5 TWh), in Sweden and Norway 3.5 TWh, including half of Birka Energi AB’s electricity sales, sales to the Nord Pool electricity exchange and other temporary sales (3.6 TWh). In Germany, we sold 0.9 TWh (0 TWh), in the UK 0.5 TWh (0.5 TWh), and in the Baltic countries 0.1 TWh (0 TWh).

 

Fortum’s heat sales, a total of 6.0 TWh (5.3 TWh), increased by 0.7 TWh, of which sales in Finland accounted for 4.2 TWh (4.2 TWh), and sales in Sweden for 1.6 TWh (1.1 TWh).

 

Net sales of electricity totalled EUR 318 million (EUR 312 million), and net sales of heat EUR 140 million (EUR 121 million).

 

Fortum and Stora Enso made an agreement on services relating to the management of electricity portfolio, including electricity deliveries and risk management relating to electricity procurement.

 

Fortum and the Russian electricity generator RAO EES Rossii agreed on additional deliveries of electricity from Russia during the period from 1 March to 31 December 2000. The maximum volume of this contract is 0.5 TWh.

 

In March, we extended our operations to e-commerce, after a service aimed at consumers who are planning to move house, was opened on the Internet. Customers can use this theme portal to sign an electricity contract and order heating oil, for instance.

 

Electricity Distribution

 

Fortum’s subsidiaries distributed a total of 4.3 TWh of electricity (3.5 TWh) in their networks. The Finnish subsidiaries distributed 1.1 TWh of electricity in their networks, 0.2 TWh less than in the comparative period. In Sweden, the corresponding electricity distribution was 2.5 TWh (2.2 TWh), half of Birka Energi’s distribution, in Germany 0.7 TWh (0 TWh), and in Estonia 0.1 TWh (0 TWh).

 

The number of Fortum’s electricity distribution customers, including Birka Energi’s 50%, was 912,000, 278,000 of which were in Finland, 440,000 in Sweden, 171,000 in Germany, and 19,000 in Estonia.

 

Distribution prices of electricity were stable.

 

Service

 

Availability of the power plants operated by Fortum Service was excellent throughout the review period. The Jyväskylä unit was awarded the BS 8800 work, health and safety certificate.

 

In Sweden, we obtained the maintenance of the Bofors companies operating in Karlskoga as of the beginning of the year. We reached an agreement on the maintenance of substations with the Swedish company Svenska Kraftnät, and, in Finland, we signed new maintenance contracts with industrial companies.

 

Engineering

 

During the review period, we completed the refurbishment projects of the Iasi and Suceava power plants in Romania, and the Tychy CHP project in Poland. The most significant on-going projects comprise the CHP projects Ujpest in Hungary, Wacker Chemie in Germany, Laem Chabang in Thailand, and Grangemouth in the UK, the Edenderry power plant in Ireland, a polypropylene plant in Austria, and the TAME unit in Sardinia.

 

The significant new orders included an optical cable installation project in Sweden, several antenna mast deliveries for mobile phone networks, and railway electrification assignments.

 

The volume of outstanding orders was clearly larger than in the reference period.

 

Environment, health and safety (EHS)

 

We pay special attention to the development of environmental issues, and, in this connection, we made a decision on a climate initiative, which aims at decreasing carbon dioxide emissions resulting from the generation and use of energy in Finland and in other countries. The environmental progress report of Fortum’s Oil and Gas sector for 1998 was voted the best environmental report in Europe.

 

Interim financial statements are unaudited.

 

APPENDICES

 

Consolidated income statement, net sales and operating profit by business operations, consolidated balance sheet, key ratios, contingent liabilities, and quarterly net sales and operating profit by business operations.

 

Espoo, 4 May 2000

Fortum Corporation

Board of Directors

 

APPENDICES