"The market environment during the first quarter was volatile and challenging. Already in December 2019, the Nordic hydrology turned clearly wetter and the same trend continued to depress prices substantially in the beginning of 2020. In March, the ‘price war’ on oil and the Covid-19 pandemic shocked the market. This put further downward pressure on the already depressed commodities and Nordic power prices. Even though several countries are slowly easing the restrictions put in place to limit the spreading of the virus, it is still impossible to determine the long-term economic effects of the pandemic.
Operationally, Fortum has managed well under the challenging circumstances and our society-critical power and heat production is running smoothly. Also our other operations are running normally with employees mainly working remotely. So far Covid-19 has not had any major immediate effects on Fortum’s business. Our fairly high Nordic power price hedge ratio for 2020 has paid off and also the hedges for 2021 are on a higher than normal level, which alleviates the impact of the sharp decline in power prices.
Fortum’s results for the first quarter improved in most segments. In the Generation segment, the positive effect of the higher hydro volumes more than compensated for the decline in the achieved power price. Thanks to our loyal customers and the continuous development of our offering and operational efficiency, Consumer Solutions’ results improved for the tenth consecutive quarter. The results of the Russia segment were on last year’s level, while City Solutions was clearly behind. The decline in City Solutions’ results was partially due to structural changes, mainly the divestment of the Joensuu district heating business, but the segment also suffered heavily from the record warm winter and the low power prices. As Fortum’s share of Uniper’s profits was close to half a billion euros, the earnings per share for the first quarter increased by 176% to EUR 1.05, of which EUR 0.53 related to Uniper. This includes our share of Uniper’s fourth-quarter 2019 and first-quarter 2020 results, and is an excellent start of the year.
In 2019, we initiated a strategic review of our district heating business in Estonia and in Joensuu, Finland. This resulted in the divestment of the Joensuu district heating business in January, recording a capital gain of EUR 431 million. In February 2020, we extended the strategic review to include the district heating businesses in all Baltic countries, in Poland, and in Järvenpää, Finland. This review is ongoing and proceeding as planned.
During the beginning of the year, our investment in Uniper took several positive steps forward. Firstly, we received all necessary regulatory approvals, which enabled us to close the share transactions with Elliott and Knight Vinke and increase our ownership to 73.4%, making Uniper a subsidiary and a valuable part of the Fortum Group. Following the completion of the transactions, Fortum’s financial position remains solid, which was recognised by the rating agencies as Standard & Poor’s, Fitch, and Moody’s affirmed Fortum’s BBB long-term credit rating with Negative Outlook. Secondly, in March, Uniper published its updated strategy, including a coal-exit plan and a target for carbon-neutrality by 2035 for its European power generation. We welcome the updated strategy as a clear step in the right direction, underlining the strategic rationale for our investment in Uniper. Finally, following the confirmation of our increased ownership, five shareholder representatives resigned from the Uniper Supervisory Board, and new board members were appointed in April, in line with Fortum’s ambition.
Starting from the end of the first quarter, Fortum is now consolidating Uniper’s balance sheet. This means that in our first-quarter results, Uniper’s contribution is still accounted for in the share of profits from associates and joint ventures. The contribution was substantial, totalling EUR 469 million. As of the second-quarter results, also Uniper’s income statement will be consolidated and will consequently contribute to Fortum’s comparable operating profit.
We will continue to ensure that we strengthen our balance sheet, optimise cash flow, and secure a solid investment grade rating of at least BBB. Our focus is on maximising our profitability, prioritising our capital expenditure, and continue the portfolio optimisation. The targets for return on capital employed and comparable net debt-to-EBITDA were successfully achieved in 2019. As a next step forward, our goal is to develop a joint vision and seek strategic alignment for the combined entity. As one outcome of the joint strategy work, Fortum plans to set new applicable long-term financial targets for the group and ambitious decarbonisation targets covering the combined operations by the end of the year at the latest.
I would like to note that while the CO2 emissions from European power generation are steadily decreasing, by 15% last year, the overall reduction pace should increase in order to better support the EU’s ambition to be carbon neutral in 2050. The most efficient policy instrument to speed up the development is the EU emission trading system (ETS) that covers all energy production and industrial facilities, and sets the European-wide emission reduction schedule for the ETS sectors. The total amount of emissions is determined by the ETS system, not by how individual facilities are operated. This also applies to the much debated Datteln 4 power plant. As the supply of emission rights is reduced every year, the system gradually pushes the least efficient facilities out from the market. Fortum is strongly of the opinion that the ETS should be further tightened as it is a proven way to really reduce emissions in a market-based manner."
Together, Fortum and Uniper are Europe’s third largest producer of CO2-free electricity, and we have a significant role in the energy transition. Both companies’ decarbonisation efforts are proceeding well. For the year 2020, we tightened Fortum’s stand-alone ambition level further and set a target for specific CO2 emissions: maximum 180 g/kWh from total energy production. Uniper’s CO2 emissions declined by 21% in 2019 and are set to continue to decline as Uniper decommissions all of its old hard coal-fired generation capacity in Germany and the UK by 2025 and in the Netherlands by 2030 at the latest."