CEO's review

Fortum's President and CEO Pekka Lundmark:

“Fortum's strategy implementation and capital redeployment continued during the second quarter. Over the last two years we have made three significant acquisitions: DUON, Ekokem and, in the second quarter 2017, Hafslund. At the same time, we have stepped up our investments for the future. Recent initiatives include solar power in India, wind power in the Nordics and Russia, nuclear services in Germany, expanding our Charge & Drive network as well as digitalising our customer interface with the MyFortum app. Once these investments are completed we will have redeployed around 20% of the capital, and recovered close to 100% of the cash flow generated by the divested electricity distribution business. We will continue on the path set out by our strategy to increase our profitability and secure our long-term competitiveness.

The second quarter of 2017 did not show substantial improvements in the market conditions. Nordic spot prices remain on a fairly low level, although higher than the very low prices in 2016. Forward prices have improved somewhat, but are still on lower levels than the current spot prices. The quarter was characterised by colder weather and stable water reservoirs. The reservoir level at the end of June was close to the long-term average levels and changed only marginally during the quarter.

The comparable operating profit for the second quarter declined by 11% to EUR 109 million. Still the half-year result was above last year due to the strong performance in the first quarter.

Heat sales increased thanks to the colder weather, which positively affected the results of City Solutions. Consequently the comparable operating profit increased by EUR 6 million compared to the second quarter of 2016. In spite of good availability in our nuclear production, the result of Generation declined. The result was burdened by slightly lower hydro volumes and a lower achieved power price. The Russia segment continued the strong performance, improving its results by EUR 19 million. We have strengthened our development efforts in new ventures and R&D and expect them to start paying back from 2018.

The highlight of the quarter was the successful restructuring of our ownership in Hafslund, announced at the beginning of the quarter. Fortum will gain 1.1 million new customers through the restructuring, increasing our Nordic customer base to 2.4 million. This offers a great platform for the development of new innovative solutions and services for our customers. Fortum will also join forces with the City of Oslo by merging Hafslund's Heat business area with the City of Oslo's waste-to-energy plant, Klemetsrudanlegget. The transactions are completely in line with our strategic ambitions and will have a positive effect on our EBITDA. In June, the Oslo City Council approved the transactions. Also all required regulatory approvals have been received.

After finalising our investment programme in conventional power and heat generation in Russia last year, we embarked on diversifying our portfolio by investing in the Ulyanovsk wind park. It is the first industrial-scale wind park in Russia, with commissioning expected in the beginning of 2018. During the second quarter of 2017 we announced the establishment of the Fortum-RUSNANO wind investment fund. The investment supports our previously announced ambition to secure around 500 MW of wind power capacity in Russia. The Russian CSA auction in June 2017 was a success for the fund, as it was able to secure substantial capacities for a price range of EUR 115-135 per megawatt-hour.

Fortum advocates for market-based solutions and improved coherence between policies and countries. This was stressed in the joint statement by Fortum and other large Nordic utilities in June. Fortum also fully supports the stronger coordination between the Nordic countries, as proposed in the Nordic Energy Ministers' Ollila-report in June. Coherent energy policy is and will be an essential factor in securing a sustainable transition to a clean energy system largely based on renewables in the decades to come.“

(Text from Fortum's January-June 2017 Half-Year Financial Report)