Fortum Corporation Interim Report 1 Janu

Fortum Corporation Interim Report 1 January - 30 June 2003 Continued strong performance by Fortum - significant improvement in ongoing business The first half-year in brief - Operating profit excluding non-recurring items improved by 71% and was EUR 743 (435) million - Net cash from operating activities continued to be strong and was EUR 1,060 million - The balance sheet was further strengthened, gearing at 60% - Market position was strengthened in Norway and north-western Russia Key figures II/03 II/02 I- I- 2002 Last 12 II/03 II/02 months (LTM) Net sales, EUR million 2435 2682 6028 5253 11148 11923 Operating profit, EUR 286 422 761 749 1289 1301 million - excluding non- 272 198 743 435 974 1282 recurring items Profit before taxes, EUR 216 346 626 615 1008 1019 million Earnings per share, EUR 0.17 0.29 0.49 0.50 0.79 0.77 Shareholders’ equity per 7.13 6.72 6.97 share, EUR Capital employed 13077 13734 13765 (at end of period), EUR million Interest-bearing net debt 4502 6182 5848 (at end of period), EUR million Investments, EUR million 761 3956 4381 1186 Net cash from operating 1060 775 1351 activities, EUR million Return on capital employed, % 12.1 10.3 11.1 10.6 Return on shareholders’ equity, % 11.9 9.1 10.5 10.0 Gearing, % 60 87 80 Average number of employees 13272 14659 14053 Average number of shares, million 845823 845638 845642 845785 During the first half of the year, the key market drivers, the market price of electricity and the international oil refining margin were significantly higher than during the corresponding period in 2002. After the record high levels around the year-end, Nord Pool electricity prices decreased, however, to a level clearly above that of last year. The international oil refining reference margin was very high at the beginning of the year, decreasing somewhat towards the summer. Fortum took important strategic steps in Norway and north-western Russia by agreeing with E.ON AG on a swap of power assets. In addition, Fortum acquired more shares in Hafslund on the market, leading to a 34.1% share ownership. The integration of Birka Energi progressed as planned. The synergy benefits achieved during the first half of the year exceeded EUR 60 million. The Group’s financial performance in the period from January to June remained strong and cash flow continued to be at a good level supported by a decreased working capital and realised foreign exchange gains. Net debt was further decreased from the first quarter, despite approximately EUR 500 million worth of strategic acquisitions. As a result, gearing decreased to 60%. Net sales and results April-June During the second quarter, the Nord Pool electricity price and the international oil refining margin were lower than in the first quarter, but exceeded the corresponding level in 2002. Group operating profit totalled EUR 286 (422) million. The operating profit excluding non-recurring items, EUR 272 (198) million, improved by EUR 74 million compared to the corresponding period in 2002. The improvement was EUR 141 million including the effect of discontinuing operations. The net amount of non- recurring items was EUR 14 (224) million. Typically for the seasons, the results for power and heat businesses were lower than in the first quarter. However, the operating profit excluding non-recurring items for the Power, Heat and Gas segment nearly tripled compared to the corresponding period last year. The performance of the Markets segment developed positively. The results of Oil Refining and Marketing segment stayed almost at last year’s level despite an inventory loss owing to the decrease in the price of crude oil. Thus, the operational result of this segment was clearly improved compared to last year. January-June Group net sales stood at EUR 6,028 (5,253) million. The main reason for the increase was higher market prices for electricity and petroleum products. Group operating profit totalled EUR 761 (749) million. The operating profit excluding non-recurring items, EUR 743 (435) million, improved by EUR 308 million compared to the corresponding period in 2002. The net amount of non-recurring items was EUR 18 (314) million. Most of the non-recurring items last year were gains on sales of fixed assets. Electricity and heat sales volumes increased. This, together with higher electricity prices, resulted in a significant improvement in the result for the Power, Heat and Gas segment. The result for Electricity Distribution segment was lower because of considerable gains on sales in 2002. The operating profit excluding non-recurring items was improved compared to last year, however. The result for the Markets segment improved compared to last year. The international oil refining margins were markedly higher than a year ago, considerably improving the results of the Oil Refining and Marketing segment. The Shipping business enjoyed high freight rates, mainly during the first quarter. Profit before taxes was EUR 626 (615) million. The Group´s net financial expenses were EUR 135 (134) million. Minority interests accounted for EUR 47 (40) million. These were mainly attributable to the preference shares issued by Fortum Capital Ltd in 2000 and to Fortum Värme Holding, in which the City of Stockholm has a 50% economic interest. Taxes for the period totalled EUR 167 (149) million. Net profit for the period was EUR 412 (426) million. Earnings per share were EUR 0.49 (0.50). Return on capital employed was 12.1% (10.3%) and return on shareholders´ equity was 11.9% (9.1%). SEGMENT REVIEWS Power, Heat and Gas The main business area comprises power and heat generation and sales as well as gas operations in the Nordic countries and other parts of the Baltic Rim. The Service business (former Fortum Energy Solutions) is included in this segment as from 1 January 2003. EUR million II/03 II/02 I- I- 2002 LTM II/03 II/02 Net sales 718 783 1932 1716 3644 3860 - electricity sales 381 326 1056 703 1661 2014 - heat sales 165 146 433 339 686 780 - other sales 172 311 443 674 1297 1066 Operating profit 136 156 429 305 617 741 - excluding non- 136 48 430 196 501 735 recurring items Return on net assets, % 9.9 7.7 7.5 8.5 Net assets (at end of 8566 8735 8748 period) Electricity consumption in the Nordic countries decreased by 2% during the second quarter and was 85.7 (87.5) terawatt-hours (TWh). Consumption in Finland decreased by 4%. In Sweden, consumption was at the same level as last year and in Norway it was down by 3% on the corresponding period last year. During the period from January to June, electricity consumption in the Nordic countries remained at the previous year’s level and was 197 (198) TWh. Consumption in Finland increased by 6%. In Sweden, consumption was at the same level as last year and in Norway it was down by 5% on the corresponding period last year. During the second quarter, the average spot price for electricity on the Nordic power exchange (Nord Pool) was EUR 28.6 per megawatt- hour compared to EUR 53.3 during the first quarter. The average price of electricity during the period from January to June was EUR 40.9 (18.7) per megawatt-hour. The price level was supported by the deficit in water reservoirs at the beginning of the year and lower-than-normal hydro inflows during the first two quarters. Despite the lower-than-normal hydro inflows, the hydrological situation strengthened due to low hydro production. The average price of electricity on the Nordic power exchange increased by 119% in the period from January to June compared to last year. The corresponding price increase of electricity sold by Fortum in the Nordic countries was 43%. The Nord Pool price during the second quarter was down by 46% compared to the first quarter. The corresponding decrease for Fortum was 19%. The Power, Heat and Gas segment’s sales in the Nordic countries amounted to 30.2 (26.6) TWh in total and represented approximately 15% (14%) of total Nordic electricity consumption during the period from January to June. Fortum’s own power generation in the Nordic countries during January to June was 26.7 (22.6) TWh, of which about 8.4 (9.7) TWh or 31% (43%) was hydropower-based and 12.7 (10.6) TWh or 48% (47%) nuclear power-based. Due to low hydro power availability thermal power production increased to 5.6 (2.3) TWh and its share of own production increased to 21% (10%). Of the total Nordic electricity consumption during the first half of the year, 14% was provided from Fortum’s production facilities, compared to 11% last year. In April, Fortum completed majority share acquisitions of two heat companies, one in Poland (73% of the company D.Z.T. S.p.z.o.o.), and one in Estonia (60% of the company Tartu Energia AS). Electricity sales by II/03 II/02 I- I- 2002 LTM area II/03 II/02 TWh Sweden *) 6.3 8.2 15.2 14.5 28.0 28.7 Finland 6.6 5.3 15.0 12.1 26.1 29.0 Other countries 1.0 1.9 1.7 4.1 5.9 3.5 Total 13.9 15.4 31.9 30.7 60.0 61.2 Heat sales by area II/03 II/02 I- I- 2002 LTM TWh II/03 II/02 Sweden *) 1.7 1.6 5.7 3.9 8.2 10.0 Finland 2.3 2.0 5.8 5.3 9.8 10.3 Other countries 1.4 1.0 2.2 2.2 4.5 4.5 Total 5.4 4.6 13.7 11.4 22.5 24.8 *) The effects of Birka Energi’s change of ownership on electricity and heat sales volumes were 2.4 TWh and 1.4 TWh respectively in 2002. Electricity Distribution Fortum owns and operates distribution and regional networks and distributes electricity to a total of 1.4 million customers in Sweden, Finland, Norway and Estonia. EUR million II/03 II/02 I- I- 2002 LTM II/03 II/02 Net sales 160 156 359 317 640 682 - distribution network 130 136 297 267 526 556 transmission - regional network 20 19 45 37 80 88 transmission - other sales 10 1 17 13 34 38 Operating profit 61 72 142 185 279 236 - excluding 41 40 121 94 187 214 non-recurring items Return on net assets, % 9.0 12.7 9.3 7.5 Net assets (at end of 3,064 3,145 3,199 period) Volume of distributed II/03 II/02 I- I- 2002 LTM electricity by area II/03 II/02 TWh Sweden *) 3.4 3.3 8.3 6.6 14.4 16.1 Finland 1.3 1.1 3.3 2.5 5.4 6.2 Other countries 0.3 0.6 0.3 1.3 1.4 0.4 Total 5.0 5.0 11.9 10.4 21.2 22.7 *)The Birka Energi acquisition accounts for a 1.7 TWh increase in the volume transmitted via the distribution networks in 2002. Number of electricity 30.6. 30.6. 2002 distribution customers by 2003 2002 area, thousands Sweden 850 890 890 Finland 395 390 390 Other countries *) 115 20 20 Total 1360 1300 1300 *) Østfold Energi Nett AS with 94,000 customers is included in the figures as of 1 May, 2003. The volumes of distribution and regional network transmissions totalled 11.9 (10.4) TWh and 10.6 (9.6) TWh respectively. Electricity transmissions via the regional distribution network to customers outside the Group totalled 7.8 (6.5) TWh in Sweden and 2.8 (3.1) TWh in Finland. Markets Markets focuses on the retail sale of electricity and oil products, mainly heating oil, as well as related services to a total of 1.4 million private and business customers. EUR million II/03 II/02 I- I- 2002 LTM II/03 II/02 Net sales 327 270 803 576 1,280 1,507 Operating profit 15 4 8 6 -11 -9 - excluding 15 4 8 5 -12 -9 non-recurring items Return on net assets, % 23.1 9.5 -11.4 -11.5 Net assets (at end of period) 119 109 55 The Markets business unit buys its electricity and oil products at market terms. The market environment during the period was characterised by falling wholesale prices of electricity. However, overall prices were higher than during the corresponding period last year. Electricity sales totalled 17.2 (15.6) TWh during the period. The effect on electricity sales volumes of the change in Birka Energi’s ownership was 1.9 TWh during the period from January to February 2002. Sales of heating oil amounted to 0.4 (0.4) million tonnes during the period from January to June. As of May 2003, Markets has been serving 83,000 customers in Norway through the acquisition of Østfold Energi Kraftsalg AS. A programme to improve business processes was launched during the spring. Oil Refining and Marketing The activities cover the refining and marketing of oil as well as logistics. The main products are traffic fuels and heating oils. EUR million II/03 II/02 I- I- 2002 LTM II/03 II/02 Net sales 1643 1790 3718 3321 7083 7480 Operating profit 75 79 200 135 253 318 - excluding 93 70 216 97 205 324 non-recurring items Return on net assets, % 26.8 16.8 16.0 21.0 Net assets (at end of 1435 1543 1510 period) During the period, the international refining margin in north- western Europe (Brent Complex) averaged USD 2.9/bbl (0.4/bbl). Fortum’s premium margin continued to be on average about USD 2/bbl above the international reference margin. The price of Brent crude averaged USD 28.8/bbl (23.1/bbl). It was at its highest at the beginning of June, about USD 29/bbl. The inventory losses during the period from January to June were EUR 14 (gains 29) million. Fortum refined a total of 6.4 (6.3) million tonnes of crude oil and other feedstocks. A total of 3.8 (3.9) million tonnes of petroleum products were sold in Finland. Exports amounted to 2.6 (2.4) million tonnes. In Shipping, two product tankers, in which Fortum’s holding is 50%, were agreed to be sold in June. In July, a letter of intent was signed concerning selling the oil terminal in Tallinn, Estonia. The final contract is scheduled to be signed during this year. In June, Fortum sold its bitumen wholesale business to the Swedish Nynäs Petroleum, in which Fortum has a 50% holding. Fortum did not have any oil or gas production of its own during the first half of 2003. Oil production at the South Shapkino field in north-western Russia started in mid-July. Fortum’s share of the exploitable oil reserves in this oil field, which is owned fifty- fifty by Fortum and the Russian Lukoil, has been estimated at approximately 82 million barrels. Deliveries of petroleum II/03 II/02 I- I- 2002 LTM products refined by II/03 II/02 Fortum-by product group (1,000 t) Gasoline 971 1095 2060 2143 4595 4512 Diesel 1110 887 1905 1843 3619 3681 Aviation fuel 131 164 251 300 586 537 Light fuel oil 296 337 719 723 1503 1499 Heavy fuel oil 296 265 682 679 1233 1236 Other 446 396 788 615 1504 1677 Total 3250 3144 6405 6303 13040 13142 Deliveries of petroleum II/03 II/02 I- I- 2002 LTM products refined by II/03 II/02 Fortum-by area (1,000 t) Finland 1860 1938 3789 3870 7845 7764 Other Nordic countries 533 484 967 928 1982 2021 Baltic countries and 21 8 29 19 41 51 Russia USA and Canada 133 339 517 587 1276 1206 Other countries 703 375 1103 899 1896 2100 Total 3250 3144 6405 6303 13040 13142 Business development and restructuring In January, Fortum and E.ON AG agreed on a swap of power assets. Fortum acquired assets in Norway and north-western Russia and sold some non-core assets in Ireland, Germany and southern Sweden. As a result of these transactions, the shares involved in the Russian Lenenergo were transferred to Fortum in March and the shares in the Norwegian Hafslund ASA as well as Østfold Energi Kraftsalg AS, Østfold Energi Nett AS and Østfold Entreprenor AS in April. After some further acquisitions from the market, Fortum owned 34.1% of the share capital in Hafslund at the end of June. The total acquisition cost of the Hafslund shares was EUR 279 million. At the end of June, Fortum completed the divestments of power plants in Burghausen, Germany and Edenderry, Ireland as well as Fortum Distribution Småland AB in Sweden. Transactions relating to the swap of assets with E.ON were completed by the end of June. The transaction relating to the shares in the Norwegian Fredrikstad Energi AS is still waiting for technical conclusion. The disposal of the Norwegian E&P assets was completed in March. The financial impact of the transaction was included in Fortum´s 2002 annual closing. In June, Fortum divested its retail gas sales operations in the U.K. Investments and financing Investments in fixed assets during the period from January to June totalled EUR 761 (3,956) million. Of this, EUR 517 (3,706) million were acquisitions. At the end of the period, interest-bearing net debt stood at EUR 4,502 (6,182) million. The gearing ratio at the end of June was 60% (80% at the end of 2002). Group net financial expenses were EUR 135 (134) million. In February, Fortum Corporation established a bond programme (Medium Term Note Programme) of SEK 7.0 billion for the purpose of enabling the issue of bonds on the Swedish capital markets in Swedish krona and euro. The programme replaces the SEK 7.0 billion programme in the name of Fortum Power and Heat AB. In April, Fortum Corporation signed a EUR 1.2 billion revolving credit facility. This five-year facility is for general corporate purposes and replaces existing syndicated facilities established by various subsidiaries. In July, Fortum Corporation established a bond programme (Euro Medium Term Note Programme) of EUR 4.0 billion in order to enable the issue of bonds on the international capital markets. Shares and shareholdings A total of 72,060 Fortum Corporation shares were subscribed to with the share warrants relating to Fortum Corporation’s 1999 warrant bond to employees and management stock option scheme. The increase in the share capital resulting from the share subscriptions, a total of EUR 245,004, was entered in the trade register on 5 May 2003. After the increase, Fortum Corporation’s share capital is EUR 2,875,881,891 and the total number of shares is 845,847,615. Group personnel The average number of employees in the Group during the period from January to June was 13,272 (14,659). The reduction is mainly attributable to the combination of the businesses of Birka Energi and Fortum, as well as to the formation of the new associated company Enprima at the beginning of this year. The number of employees at the end of the period was 13,969 (13,670 at the end of 2002). Fortum has decided to launch a new share-based long-term incentive programme (Performance Share Arrangement) for key personnel in the Group. The potential reward under the arrangement will be based on the performance of the Group, its business units and the individual manager, as well as appreciation of the Fortum share. At this stage the new arrangement concerns some 190 managers. Fortum estimates that 0.1 to 0.3 per cent of the outstanding Fortum shares i.e. 1,000,000 to 2,500,000 shares, will be allocated under each individual plan. The shares will be bought on the market and thus there will be no dilution effect. This arrangement is intended to replace other possible long term incentive schemes for top management. Appointments and resignations In April, Tanja Karpela, Leena Luhtanen and Matti Vanhanen announced their resignations from Fortum's Supervisory Board after their appointment as members of the Council of State. In June, Kari Huopalahti, Senior V.P. Corporate Development and member of the Corporate Executive Committee, left the company. The Chairman of the Board of Directors, Matti Vuoria, has been appointed President and CEO of Varma-Sampo, a major Finnish mutual pension insurance company, as of 1 June 2004. Matti Vuoria continues as Fortum´s Executive Chairman until the end of this year. Outlook The key market drivers influencing Fortum´s performance are the market price of electricity and the international oil refining margin. Other important market drivers are the price of crude oil, and the exchange rates of the US dollar and the Swedish krona. According to general market information, electricity consumption in the Nordic countries is predicted to increase by about 1-2% each year over the next years. During the first half of 2003, the average spot price for electricity was EUR 40.9 per megawatt-hour on the Nordic electricity market, or 119% higher than the corresponding figure for 2002. The electricity forwards for the rest of 2003 at the beginning of July were in the range of EUR 29- 30 per megawatt-hour. The synergy benefits generated by the creation of a pan-Nordic power and heat business following the acquisition of the remaining 50% of the former Birka Energi will exceed the target of EUR 100 million a year as of 2004. The continuous operations of the power and heat businesses usually result in a significantly better performance in the first and last quarter of the year than in the second and third quarter. The international refining margin in north-western Europe (Brent Complex) was considerably higher than at the beginning of 2002 and averaged USD 2.9/bbl (USD 0.4/bbl) during the period from January to June. In July 2003, the international refining margin has been averaging USD 2.7/bbl. For several years, the international Brent Complex refining margin has averaged USD 1.5 - 2.0/bbl. The management expects Fortum’s premium margin to remain at the strong levels of previous years. During 2003, no major maintenance shutdowns are planned at the refineries. The average price for Brent crude oil was USD 27.5/bbl in January- June 2003. On 30 June, it was USD 28.3/bbl. In July 2003, the price has been averaging USD 28.4/bbl while the International Petroleum Exchange’s Brent futures for the remainder of 2003 have been averaging USD 26.3/bbl. The price of crude oil has an impact on the results of Oil Refining and Marketing through inventory gains and losses. Due to the disposals of the oil and gas production assets in Oman and Norway, there was no own production in the first half of 2003. Oil production at the South Shapkino oil field in north- western Russia started in mid-July. A production level of 12,500 bbl/d (Fortum’s 50% share) is expected to be reached in September. Production will gradually be increased and full capacity (25,000 bbl/d) will be reached during 2004. The operations will be earnings neutral during 2003. The repositioning of Fortum has now been virtually completed. Most of the targets set out in the strategic agenda have been reached: a strong balance sheet and well performing businesses, which generate a healthy cash flow. This gives Fortum a solid platform to further strengthen its position as a leading Nordic energy company. The information contained in the Interim Financial Statements has not been audited. Espoo, 24 July 2003 Fortum Corporation The Board of Directors Fortum Corporation Carola Teir-Lehtinen Senior Vice President, Corporate Communications Distribution: Helsinki Exchanges Key media For further information, please contact: Juha Laaksonen, CFO, tel. +358 10 452 4519 FORTUM GROUP JANUARY-JUNE 2003 Interim financial statements are unaudited CONSOLIDATED INCOME STATEMENT MEUR Q2/03 Q2/02 Q1-Q2/03 Q1-Q2/02 2002 Last 12 months Net sales 2435 2682 6028 5253 11148 11923 Share of profits of associated companies 9 4 20 13 31 38 Other operating income 63 238 76 327 370 119 Depreciation, amortisation and write-downs -134 -172 -267 -323 -694 -638 Other operating expenses -2087 -2330 -5096 -4521 -9566 -10141 Operating profit 286 422 761 749 1289 1301 Financial income and expenses -70 -76 -135 -134 -281 -282 Profit before taxes 216 346 626 615 1008 1019 Income taxes -60 -84 -167 -149 -269 -287 Minority interests -14 -18 -47 -40 -73 -80 Net profit for the period 142 244 412 426 666 652 Earnings per share, EUR 0.17 0.29 0.49 0.50 0.79 0.77 Fully diluted earnings per share 0.16 0.29 0.48 0.50 0.78 Average number of shares, 1,000 shares 845823 845638 845642 845785 Diluted adjusted average number of shares, 1 000 shares 855935 851580 851482 CONSOLIDATED BALANCE SHEET MEUR Jun 30 Jun 30 Dec 31 2003 2002 2002 ASSETS Fixed assets and other long-term investments 13908 14868 14837 Current assets Inventories 539 622 504 Receivables 1382 1638 2027 Cash and cash equivalents 665 428 592 Total . 2586 2688 3123 Total 16494 17556 17960 SHAREHOLDERS' EQUITY AND LIABILITIES Shareholders' equity Share capital 2876 2875 2876 Other equity 3151 2807 3020 Total 6027 5682 5896 Minority interests 1434 1443 1432 Provisions for liabilities and charge 76 95 133 Deferred tax liabilities 1775 1804 1866 Long-term liabilities 4095 5402 4699 Short-term liabilities 3087 3130 3934 Total 16494 17556 17960 Equity per share, EUR 7.13 6.72 6.97 Number of shares, 1,000 shares 845848 845666 845776 CASH FLOW STATEMENT MEUR Jun 30 Jun 30 Dec 31 2003 2002 2002 Net cash from operating activities 1060 775 1351 Capital expenditures -244 -250 -649 Acquisition of shares -503 -1756 -1771 Proceeds from sales of fixed assets 80 102 120 Proceeds from sales of shares 1219 754 889 Change in other investments -32 154 33 Cash flow before financing activities 1580 -221 -27 Net change in loans -1204 295 209 Dividends paid -264 -220 -220 Other financing items -40 -48 30 Net cash from financing activities -1 508 27 19 Net increase (+)/decrease (-) in cash and marketable securities 72 -194 -8 KEY RATIOS Jun 30 Jun 30 Dec 31 Last 12 2003 2002 2002 months Capital employed, MEUR 13077 13734 13765 Interest-bearing net debt,MEUR 4502 6182 5848 Investments, MEUR 761 3956 4381 1186 Return on capital employed,% 12.1 10.3 11.1 10.6 Return on shareholders' equity,% 11.9 9.1 10.5 10.0 Interest coverage 5.4 5.2 4.7 4.7 FFO / interest-bearing net debt, % 1) 42.6 24.5 28.1 Gearing, % 60 87 80 Adjusted gearing, % 2) 91 125 115 Equity-to-assets ratio, % 45 41 41 Average number of employees 13272 14659 14053 1) FFO = Funds from Operations 2) The minority interest related to the preference shares amounting to EUR 1.2 billion and carrying fixed income dividend of 6.7 percent, issued by Fortum Capital Ltd,is treated as liability. NET SALES BY SEGMENTS MEUR Q2/03 Q2/02 Q1-Q2/03 Q1-Q2/02 2002 Last 12 months Power, Heat and Gas 718 783 1932 1716 3644 3860 Electricity Distribution 160 156 359 317 640 682 Oil Refining and Marketing 1643 1790 3718 3321 7083 7480 Markets 327 270 803 576 1280 1507 Other Operations 19 16 39 30 64 73 Eliminations -432 -356 -823 -756 -1668 -1735 Total 2435 2659 6028 5204 11043 11867 Discontinuing operations*) - 23 - 49 105 - Total 2435 2682 6028 5253 11148 11867 *) Internal sales excluded OPERATING PROFIT BY SEGMENTS MEUR Q2/03 Q2/02 Q1-Q2/03 Q1-Q2/02 2002 Last 12 months Power, Heat and Gas 136 156 429 305 617 741 Electricity Distribution 61 72 142 185 279 236 Oil Refining and Marketing 75 79 200 135 253 318 Markets 15 4 8 6 -11 -9 Other Operations -2 -10 -19 -21 -64 -62 Eliminations 1 1 1 - - 1 Total 286 302 761 610 1074 1225 Discontinuing operations - 120 - 139 215 76 Total 286 422 761 749 1289 1301 NON-RECURRING ITEMS IN OPERATING PROFIT BY SEGMENTS MEUR Q2/03 Q2/02 Q1-Q2/03 Q1-Q2/02 2002 Last 12 months Power, Heat and Gas - 108 -1 109 116 6 Electricity Distribution 20 32 21 91 92 22 Oil Refining and Marketing -18 9 -16 38 48 -6 Markets - - - 1 1 - Other Operations 12 8 14 8 4 10 Total 14 157 18 247 261 32 Discontinuing operations - 67 - 67 54 -13 Total 14 224 18 314 315 19 DEPRECIATION, AMORTISATION AND WRITE-DOWNS BY SEGMENTS MEUR Q2/03 Q2/02 Q1-Q2/03 Q1-Q2/02 2002 Last 12 months Power, Heat and Gas 58 65 116 115 236 237 Electricity Distribution 39 42 76 76 147 147 Oil Refining and Marketing 31 33 61 67 152 146 Markets 3 7 7 12 25 20 Other Operations 3 4 7 7 23 23 Eliminations - -2 - -2 -1 1 Total 134 149 267 275 582 574 Discontinuing operations - 23 - 48 112 64 Total 134 172 267 323 694 638 INVESTMENTS BY SEGMENTS MEUR Q2/03 Q2/02 Q1-Q2/03 Q1-Q2/02 2002 Last 12 months Power, Heat and Gas 351 76 404 2468 2619 555 Electricity Distribution 201 113 224 1287 1394 331 Oil Refining and Marketing 64 41 96 64 177 209 Markets 26 4 26 108 109 27 Other Operations 7 1 11 3 7 15 Total 649 235 761 3930 4306 1137 Discontinuing operations - 17 - 26 75 49 Total 649 252 761 3956 4381 1186 NET ASSETS BY SEGMENTS MEUR Jun 30 Jun 30 Dec 31 2003 2002 2002 Power, Heat and Gas 3) 8566 8735 8748 Electricity Distribution 3) 3064 3145 3199 Oil Refining and Marketing 1435 1543 1510 Markets 119 109 55 Other Operations 112 143 30 Total 13296 13675 13542 Discontinuing operations - 1013 927 Total 13296 14688 14469 3) Net assets include deferred tax liabilities due to the allocated goodwill: EUR 501 mill. June 30, 2003, and EUR 502 mill. December 31, 2002 in Power, Heat and Gas segment; and EUR 260 mill. June 30, 2003 EUR 344 mill. December 31, 2002 in Electricity Distribution. RETURN ON NET ASSETS BY SEGMENTS 4) % Jun30 Jun30 Jun30 Jun30 Dec31 Dec31 Last 12 Last 12 2003 2003*) 2002 2002*) 2002 2002*)months months*) Power, Heat and Gas 9.9 9.9 7.7 4.9 7.5 6.1 8.5 8.4 Electricity Distribution 9.0 7.7 12.7 6.5 9.3 6.2 7.5 6.8 Oil Refining and Marketing 26.8 28.9 16.8 12.0 16.0 13.0 21.0 21.4 Markets 23.1 23.1 9.5 7.9 -11.4 -12.4 -11.5 -11.5 4) Return on net assets, % = Operating profit/average net assets *) Non-recurring items deducted from operating profit CONTINGENT LIABILITIES MEUR Jun 30 Jun 30 Dec 31 2003 2002 2002 Contingent liabilities On own behalf For debt Pledges 512 453 553 Real estate mortgages 233 236 237 Company mortgages - 82 32 Other mortgages - 52 26 For other commitments Real estate mortgages 54 54 55 Pledges, company and other mortgages 1 6 8 Sale and leaseback 9 16 15 Other contingent liabilities 99 534 474 Total 908 1433 1400 On behalf of associated companies Pledges and real estate mortgages 12 8 9 Guarantees 637 218 345 Other contingent liabilities 182 184 184 Total 831 410 538 On behalf of others Guarantees 23 5 4 Other contingent liabilities 6 14 4 Total 29 19 8 Total 1768 1862 1946 Operating lease liabilities Due within a year 61 60 58 Due after a year 121 66 91 Total 182 126 149 Finance leases have been recognised as assets and liabilities. Liability for nuclear waste disposal 545 515 545 Share of reserves in the Nuclear Waste Disposal Fund -535 -505 -535 Liabilities in the balance sheet 5) 10 10 10 5) Mortgaged bearer papers as security x In addition to other contingent liabilities, a guarantee has been given on behalf of Gasum Oy, which covers 75% of the natural gas commitments arising from the natural gas supply agreement between Gasum and OOO Gazexport. Derivatives Jun 30 2003 Dec 31 2002 Interest and currency Contract Fair Not Contract Fair Not derivatives or value recog. or value recog. notinal as an notional as an MEUR value income value income Forward rate agreements 784 -1 -1 2950 -2 -2 Interest rate swaps 6015 8 46 6898 21 34 Forward foreign exchange contracts 6) 7599 57 46 6351 63 30 Currency swaps 530 36 10 2334 227 60 Purchased currency optio 64 7 7 248 9 11 Written currency options 29 1 1 66 1 1 6) Incl. also contracts used for equity hedging Derivatives Jun 30 2002 Interest and currency Contract Fair Not derivatives or value recognised notional as an MEUR value income Forward rate agreements 6015 1 1 Interest rate swaps 6833 -2 33 Forward foreign exchange contracts 6) 6351 38 1 Currency swaps 2 951 237 46 Purchased currency optio 277 11 11 Written currency options 94 2 2 Oil futures and forward Jun 30 2003 Dec 31 2002 instruments Volume Fair Not Volume Fair Not value recog. value recog. as an as an income income 1000 bbl MEUR MEUR 1000 bbl MEUR MEUR Sales contracts 16589 - - 10697 -11 -11 Purchase contracts 19241 3 3 12170 13 13 Purchased options 400 - - - - - Written options 600 - - - - - Oil futures and forward Jun 30 2002 instruments 1000 bbl MEUR MEUR Sales contracts 10364 1 1 Purchase contracts 8351 1 1 Purchased options - - - Written options 25 - - Electricity derivatives Jun 30 2003 Dec 31 2002 Volume Fair Not Volume Fair Not value recog. value recog. as an as an íncome income TWh MEUR MEUR TWh MEUR MEUR Sales contracts 77 -368 -226 94 -2065 -1406 Purchase contracts 74 337 195 78 1709 1051 Purchased options 3 -2 -2 2 1 -1 Written options 7 - - 6 3 6 Electricity derivatives Jun 30 2002 TWh MEUR MEUR Sales contracts 87 74 73 Purchase contracts 86 -72 -73 Purchased options 5 -2 -1 Written options 9 4 4 Natural gas derivates Jun 30 2003 Dec 31 2002 Volume Fair Not Volume Fair Not value recog. value recog. as an as an income income Mill.t MEUR MEUR Mill.th.MEUR MEUR Sales contracts 3135 -38 -38 4072 127 127 Purchase contracts 2965 38 38 3773 -115 -115 Purchased options 980 -5 -5 1287 -7 -7 Written options 1039 7 7 1335 - - Natural gas derivates June 30 2002 Mill.th. MEUR MEUR Sales contracts 2568 43 43 Purchase contracts 2650 -39 -39 Purchased options 574 - - Written options -504 2 2 The fair values of derivative contracts subject to public trading are based on market prices as of the balance sheet date. The fair values of other derivatives are based on the present value of cash flows resulting from the contracts, and, in respect of options, on evaluation models. The amounts also include unsettled closed positions. Derivative contracts are mainly used to manage the group's currency, interest rate and price risk. QUARTERLY NET SALES BY SEGMENTS MEUR Q2/03 Q1/03 Q4/02 Q3/02 Q2/02 Q1/02 Power, Heat and Gas 718 1214 1 234 694 783 933 Electricity Distribution 160 199 184 138 156 162 Oil Refining and Marketing 1643 2075 1968 1794 1790 1531 Markets 327 476 418 286 270 306 Other Operations 19 20 19 15 16 14 Eliminations -432 -391 -567 -344 -356 -401 Total 2435 3593 3256 2583 2659 2545 Discontinuing operations - - 34 22 23 26 Total 2435 3593 3290 2605 2682 2571 QUARTERLY OPERATING PROFIT BY SEGMENTS MEUR Q2/03 Q1/03 Q4/02 Q3/02 Q2/02 Q1/02 Power, Heat and Gas 136 293 284 28 156 149 Electricity Distribution 61 81 61 34 72 113 Oil Refining and Marketing 75 125 42 76 79 57 Markets 15 -7 -19 2 4 2 Other Operations -2 -17 -27 -17 -10 -12 Eliminations 1 - -1 1 1 -1 Total 286 475 340 124 302 308 Discontinuing operations - - 51 25 120 19 Total 286 475 391 149 422 327