The share of profit
from associates was EUR 58 (69) million, of which Fortum Värme represents EUR
38 (44) million. The share of profit from Hafslund and TGC-1 are based on the
companies' published fourth-quarter 2014 interim reports (Note 13).
The net financial
expenses were EUR -57 (-62) million. Net financial expenses include changes in
the fair value of financial instruments of EUR -8 (-3) million.
Profit before taxes
was EUR 350 (374) million.
Taxes for the period
totalled EUR -55 (-62) million. The tax rate according to the income statement
was 15.8% (16.6%). The tax rate, excluding the impact of the share of profit
from associated companies and joint ventures as well as non-taxable capital
gains, was 19.0% (20.5%).
The profit for the
period was EUR 295 (312) million. Earnings per share for continuing operations
were EUR 0.33 (0.35), of which EUR 0.01 (0.01) per share relates to items
affecting comparability. Earnings per share for total Fortum, including the
effect from discontinued operations were EUR 0.40 (2.53). Earnings per share
for total Fortum in 2014 were impacted by EUR 2.08 per share from the sale of
the Finnish electricity distribution business.
position and cash flow
In the first quarter
of 2015, total net cash from operating activities increased by EUR 111 million
to EUR 516 (405) million, mainly due to the EUR 94 million positive impact of
realised foreign exchange differences and of EUR 74 million changes in working
capital, which were partly offset by lower EBITDA. Realised foreign exchange
gains and losses of EUR 168 (76) million were related to the rollover of
foreign exchange contract hedging loans to Fortum's Swedish and Russian
subsidiaries. Capital expenditures decreased by EUR 22 million to EUR 101 (123)
million. Total net cash used in investing activities was EUR -46 (-74) million.
Cash flow before financing activities, i.e. financing, decreased by EUR 2,439
million to EUR 514 (2,953) million including the net impact of discontinued
operations of EUR -2,578 million, mainly arising from the divestment of the
Finnish distribution business during the first quarter of 2014.
Assets and capital employed
increased by EUR 807 million to EUR 22,182 (21,375 at year-end 2014) million.
Translation differences increased intangible assets, property, plant and
equipment as well as participation in associates and joint ventures by EUR 535
increased by EUR 502 million to EUR 3,268 (2,766 at year-end 2014) million.
Swedish distribution business as Assets held for sale impacted the structure of
the balance sheet as all assets and liabilities belonging to the operations
were presented separately on one line both in assets and liabilities (Note7).
Capital employed for
total Fortum was EUR 17,482 (17,918 at year-end 2014) million, a decrease of
EUR 436 million.
Total equity was EUR
10,501 (10,935 at year-end 2014) million, of which equity attributable to
owners of the parent company totalled EUR 10,421 (10,864 at year-end 2014)
million. The decrease in equity attributable to owners of the parent company
totalled EUR 443 million and was mainly from the dividend for 2014, EUR -1,155
million, offset by the net profit of EUR 354 million for the period and
translation differences of EUR 386 million.
Net debt decreased
during the first quarter of 2015 by EUR 503 million to EUR 3,714 (4,217 at
year-end 2014) million. Net debt without Värme financing was EUR 3,176 million
(3,664 at year-end 2014).
At the end of March
2015, the Group’s liquid funds totalled EUR 3,268 (2,766 at year-end 2014)
million. Liquid funds include cash and bank deposits held by OAO Fortum
amounting to EUR 200 (134 at year-end 2014) million. In addition to liquid
funds, Fortum had access to approximately EUR 2.2 billion of undrawn committed
The net financial
expenses in the first quarter of 2015 were EUR -57 (-62) million. Net financial
expenses include changes in the fair value of financial instruments of EUR -8
long-term credit rating with both S&P and Fitch is A- (negative outlook).
In March, S&P put Fortum on Credit Watch negative.
For the last twelve
months, net debt to EBITDA was 1.8 (1.1 at year-end 2014) and comparable net
debt to EBITDA 2.1 (2.3). Fortum is currently financing Fortum Värme, and these
loans, EUR 538 (553) million, are presented as interest-bearing loan
receivables in Fortum’s balance sheet. However, the aim is to refinance the
loans during 2015. If these loans are deducted from the net debt, the
last-twelve-months comparable net debt to EBITDA is 1.8 (2.0).
Gearing was 35% (39%)
and the equity-to-assets ratio 47% (51%). Equity per share was EUR 11.73
(12.23). Return on capital employed totalled 9.0% (19.5%).
Key drivers and risks
results are exposed to a number of economic, strategic, political, financial
and operational risks. One of the key factors 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, prices of fuel and CO2 emissions allowances
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 and CSA payments.
The continued global
economic uncertainty and Europe's sovereign-debt crisis has kept the outlook
for economic growth unpredictable. The overall economic
uncertainty impacts commodity and CO2 emissions allowance prices,
and this could maintain downward
pressure on the Nordic wholesale price for electricity. In Fortum's Russian
business, the key factors are economic growth, the rouble exchange rate, 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 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 Russian rouble (RUB) and
Swedish krona (SEK). In the Nordic countries, also the regulatory and fiscal
environment for the energy sector has added risks for utility companies.
uncertainty, electricity is expected to continue to gain a higher share of the
total energy consumption. Fortum continues to expect the annual growth rate in
electricity consumption to be on average approximately 0.5%, while the growth
rate for the next few years will largely be determined by macroeconomic
development in Europe and especially in the Nordic countries.
During the first
quarter of 2015, the price of European Union emissions allowances (EUA)
appreciated, whereas oil and coal prices declined. The price of electricity for
the upcoming twelve months declined in the Nordic area as well as in Germany.
In late April 2015,
the future quotation for coal (ICE Rotterdam) for the rest of 2015 was around
USD 58 per tonne, and the price for CO2 emission allowances for 2015
was about EUR 7 per tonne. The electricity forward price in Nasdaq Commodities
for the rest of 2015 was around EUR 25 per MWh and for 2016 around EUR 28 per
MWh. In Germany, the electricity forward price for the rest of 2015 was around
EUR 32 per MWh and for 2016 around EUR 32 per MWh. Nordic water reservoirs were
about 1 TWh above the long-term average and 3 TWh below the corresponding level
Power and Technology
The Power and
Technology segment’s Nordic power price typically depends on factors such as
hedge ratios, hedge prices, spot prices, availability and utilisation of
Fortum's flexible production portfolio, and currency fluctuations. Excluding
the potential effects from changes in the power generation mix, a 1 EUR/MWh
change in the Power and Technology segment’s Nordic power sales (achieved)
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 and Technology segment will be affected by the possible thermal power
generation volumes and its profits.
multi-year Swedish nuclear investment programmes are expected to enhance
safety, improve long-term 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 of associated companies.
As a result of the nuclear
stress tests in the EU, the Swedish nuclear safety authority (SSM) has decided
to propose new regulations for Swedish nuclear reactors. The process is
ongoing. Fortum emphasises that maintaining a high level of nuclear safety is
the highest priority, but considers EU-level harmonisation of nuclear safety
requirements to be of utmost importance.
In 2014, the Swedish Government
decided to increase the nuclear waste fund fee from approximately 0.022 to
approximately 0.04 SEK/kWh for the period 2015 to 2017. The estimated impact on
Fortum will be approximately EUR 25 million annually. The process to review the
Swedish nuclear waste fees is done in a three-year cycle.
In March 2015, the Swedish Government decided to re-propose an increase of
17% on the tax on installed nuclear capacity to the spring budget.
that Fortum obtained a more than 75% ownership in TGC-1 hydro assets, Fortum
would be ready to participate with a minority stake (max. 15%) in the Finnish
Fennovoima nuclear power project on the same terms and conditions as the other
Finnish companies currently participating in the project.
capacity built after 2007 under the Russian Government's capacity supply
agreements (CSA – “new capacity”) receives guaranteed capacity payments for a
period of 10 years. Prices for capacity under CSA are defined in order to
ensure a sufficient return on investments. A regulation draft concerning the
prolonging of CSA payments from 10 to 15 years has been submitted to the
Russian Government, and the decision is anticipated during 2015. A prolonged
period is expected to have a neutral net present value impact.
selection for generation built prior to 2008 (CCS – “old capacity”) for 2015
was held in September 2014. All of Fortum’s capacity was allowed to participate
in the selection for 2015, and the majority of Fortum’s plants were also
selected. The volume of Fortum’s installed capacity not selected in the auction
totalled 195 MW (approximately 7% of Fortum’s total old capacity in Russia) for which
Fortum has obtained forced mode status, i.e. will get payments for the capacity.
The Russia segment's
new capacity will be a key driver for earnings growth in Russia, as it is
expected to bring income from new volumes sold and to also receive considerably
higher capacity payments than the old capacity. The received capacity payment
will differ depending on the age, location, size and type of the plants as well
as on seasonality and availability. The return on the new
capacity is guaranteed, as regulated in the CSA. CSA payments can vary somewhat
annually because they are linked to Russian Government long-term bonds with 8
to 10 years maturity. In addition, the regulator will review the earnings from the
electricity-only market three years and six years after the commissioning of a
unit and could revise the CSA payments accordingly.
In February 2015, the
System Administrator of the wholesale market published data on the weighted
average cost of capital (WACC) and the consumer price index (CPI) for the year
of 2014, which is used to calculate the sales price on CSA in 2015. The CSA
payments were revised upwards accordingly to reflect the higher bond rates.
The new units in
Chelyabinsk are estimated to be delayed by some months. The value of the
remaining part of the investment programme calculated at the exchange rates
prevailing at the end of March 2015, is estimated to be approximately EUR 0.2
billion, as of April 2015.
The Russian result is
impacted by seasonal volatility caused by the nature of the heat business, with
the first and last quarter being clearly the strongest.
operating profit (EBIT) level of RUB 18.2 billion in the Russia segment is
targeted to be reached during 2015 after finalising the ongoing investment
programme. The segment’s profits are mainly impacted by changes in power
demand, gas prices and other regulatory development. Fortum is keeping its
rouble-denominated target intact, but, mainly due to the translation
effect, the euro-denominated result level will be volatile. The income
statements of non-euro subsidiaries are translated into the Group reporting
currency using the average exchange rates.
In 2014, the new heat
market model roadmap proposed by the Ministry of Energy was approved by the
Russian Government; the reform should give heat market liberalisation by 2020
or, in some specific areas, by 2023.
As forecasted by the
Russian Ministry of Economic Development, Russian gas price growth is estimated
to be 3.5% in 2015.
Restructuring of TGC-1 according
to strategy in Russia
In December 2014,
Fortum and Gazprom Energoholding signed a protocol to start a restructuring
process of their ownership of TGC-1 in Russia. Discussions and preparations
have continued during the first quarter of 2015.
owns and operates hydro and thermal power plants in north-western Russia as
well as heat distribution networks in St. Petersburg. Currently, Gazprom
Energoholding owns 51.8% of the TGC-1 shares and Fortum owns 29.5%. As part of
the restructuring, Fortum would establish a company together with Rosatom to
own the hydro assets of TGC-1, while Gazprom Energoholding would continue with
the heat and thermal power businesses of TGC-1. By utilising its present stake
in TGC-1, Fortum would obtain a more than 75% ownership in the hydro power
company. Rosatom would have a less than 25% minority holding in the hydro power
company. The company would be consolidated to Fortum Group as a subsidiary.
Capital expenditure and
expects its capital expenditure in 2015 to be approximately EUR 0.8
billion, excluding potential acquisitions and excluding the Distribution
segment. The annual maintenance capital expenditure (excluding the Distribution
segment) is estimated to be about EUR 300-350 million in 2015, below the level
During 2015, Fortum
will gradually decrease its financing to Fortum Värme, the CHP joint venture
with the City of Stockholm, operating in the capital area in Sweden. At the end
of March 2015, Fortum Värme's remaining
interest-bearing liability to Fortum was approximately EUR 0.5 billion.
corporate income tax rate for Fortum in 2015 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 August 2014, the Finnish Board of Adjustment of the
Large Taxpayers’ Office approved Fortum Corporation's appeal of the income tax
assessment imposed on Fortum for the year 2007 in December 2013. The Tax
Recipients’ Legal Services Unit appealed the matter (Note 22). In December
2014, Fortum received a non-taxation decision regarding its financing companies
for the remaining years 2008−2011, based on the same audit. This is in line
with the Supreme Administrative Court’s (SAC) precedent decision. The Tax Recipients'
Legal Services Unit has appealed the decisions in February 2015 and the
cases for years 2008−2011 are now pending the Board of Adjustment of the Large
Taxpayers' Office decision. In line with the 2007 case, Fortum considers the
In March 2015, the
Swedish Government decided to re-propose an increase of 17% on the tax on
installed nuclear capacity to the spring budget. The budget proposal was
presented to the Parliament on 15 April, and the voting on the budget will take
place at the end of May or in the beginning of June. The implementation is
proposed as of 1 August 2015. Fortum's
position is that the tax issue should be referred to the upcoming parliamentary
energy commission in order to get a broadly established view on how the needs
of energy and effect can be resolved. If implemented, the estimated impact on
Fortum would be approximately EUR 15 million annually, albeit tax-deductable.
At the end of March 2015, approximately 50% of Power and Technology's
estimated Nordic power sales volume was hedged at approximately EUR 41 per MWh
for the rest of the year 2015. The corresponding figures for the calendar year
2016 were approximately 20% at approximately EUR 37 per MWh.
The hedge price for Power and Technology segment'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 segment’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 Nasdaq Commodities forwards.
The Annual General
Meeting decided to pay a dividend of EUR 1.10 per share and an extra dividend
of EUR 0.20 per share, i.e. a total amount of EUR 1.30 per share for the
financial year that ended 31 December 2014.
The record date for
the dividend was 2 April 2015, and the dividend payment date was 14 April 2015.
Espoo, 28 April 2015
Board of Directors
Timo Karttinen, CFO,
Interim President and CEO, tel. +358 10 453 6555
Relations, Sophie Jolly, tel. +358 10 453 2552, Rauno Tiihonen, tel. +358 10 453 6150, Marja
Mäkinen +358 10 452 3338 and firstname.lastname@example.org
The condensed interim
report has been prepared in accordance with International Accounting Standard
(IAS) 34, Interim Financial Reporting, as adopted by the EU. The interim
financials have not been audited.
financial results in 2015
- January-June on 17
July 2015 at approximately 9:00 EEST
on 22 October 2015 at approximately 9:00 EEST
including detailed quarterly information, is available on Fortum’s website at www.fortum.com/investors.