“The third quarter continued to be dominated by the brutal war Russia is waging in Ukraine and the effects from the consequent European energy crisis. Russian gas flows to Europe through Nord Stream 1 were cut off completely resulting in all-time high gas and power prices across Europe and massive losses for German gas importers that had to procure gas at significantly higher prices and were not able to pass on the increased procurement costs to customers.
The major event of the quarter for Fortum was our decision to fully divest Uniper to the German State as part of a German State-led rescue of Germany’s biggest gas importer. This was a defining moment in our company’s history. The stabilisation package agreed in July with the German Government and Uniper simply did not work. Faced with a complete cut-off of Russian gas, the package was difficult to implement and insufficient to save Uniper, as by September Uniper had already accumulated significant losses of billions of euros. In the new solution, the German State takes full control of Uniper and will inject several billion of euros as equity capital. The German State also buys all of Fortum‘s shares in Uniper for a total of approximately EUR 0.5 billion. After this, Fortum’s EUR 4 billion shareholder loan to Uniper will be repaid and the EUR 4 billion parent company guarantee will be released. The transaction is subject to customary regulatory clearances and an approval by Uniper’s Extraordinary General Meeting. At the moment, we expect closing of the deal by year-end.
This was not an easy decision for Fortum. Five years ago, we embarked on a journey to invest in Uniper and then worked together as a pan-European electricity and gas powerhouse. The outcome clearly is not what we wanted or worked for over the past years, but it does give us a chance for a fresh start. The total loss from the Uniper investment will be slightly below EUR 6 billion, consisting of the investments in Uniper shares, the dividends received from Uniper and the sales proceeds from the divestment. The divestment will negatively impact the parent company Fortum Oyj’s equity. However, we have assessed that the equity remains at a sufficient level and does not require additional capital injections. Following the agreement, Uniper has been deconsolidated and is now reported as discontinued operations. Fortum’s financials for the continuing operations will no longer include any impact from Uniper operations. The deconsolidation of Uniper strengthens Fortum Group’s equity by approximately EUR 5 billion.
The ongoing energy crisis affects our Nordic home market as well. The dramatically increased spot and futures power prices resulted in record-high collateral requirements on the Nordic commodities exchange Nasdaq. To ensure that Fortum can manage the great uncertainty and volatility in the markets and the possible need to rapidly commit significant amounts of working capital for collateral requirements, we agreed with our majority owner, the Finnish State, on a EUR 2.35 billion bridge financing arrangement. A first tranche of EUR 350 million was drawn down at the end of September to keep the facility in place. This triggered the convening of a Fortum Extraordinary General meeting to approve the directed share issue without payment to Solidium (1%), a condition of the loan agreement. Currently, our liquidity situation is stable, and we have sufficient financial buffers.
Considering the extremely challenging business environment, I would like to highlight that all segments of Fortum’s continuing operations improved their results in the third quarter. Results of the Generation segment, in particular, were driven by a record-high achieved power price and physical optimisation, higher spot prices and a higher hedge price.
Going forward, our immediate priorities are completing the Uniper transaction, finalising a controlled exit from Russia as well as maintaining adequate liquidity buffers ahead of a possibly turbulent winter. In addition, and most importantly, we are reviewing our strategy to outline our future direction. Our core business is in clean Nordic power generation. In pursuit of a carbon-neutral Europe, Fortum’s CO2-free generation assets are highly relevant.
To tackle the impacts of the energy crisis on societies, EU countries have agreed on a set of emergency actions. While crisis measures that help customers deal with soaring energy prices are undoubtedly necessary, it is crucial to implement them in a manner that does not lead to exclusion of capacity from the market and thereby even rationing of electricity. It is also very important that these interventions are temporary and separate from the long-term structural reform of the power market design, which is about to start in the EU. Price and revenue caps and windfall taxes must not become permanent, as they would erode the energy industry’s possibilities to invest in the energy transition in the longer term. For these investments to happen, companies need clarity and predictability, and in this regard, carefully prepared and well formulated regulation. The overall visibility and reliability of the regulatory environment is key.
These past few months have been the most intense and challenging ever in Fortum’s history. I want to express my warm thanks to everyone at Fortum for their important contribution and hard work. However, as there is no resolution in sight for the war in Ukraine, and the economic outlook looks bleaker, our customers and societies may face even more harsh times as we enter the winter season. Thus, we will continue our determined work to ensure that our fleet is running steadily and reliably, providing energy and security of supply that is now needed more than ever.”