Interim Report January - March 2004

Fortum Corporation Interim Report January - March 2004 A good start to the year - earnings up by nearly 20% The first quarter in brief - Operating profit EUR 562 million (+18%) despite weaker market drivers - Improvement in all segments - Earnings per share EUR 0.38 (+19%) - Net debt EUR 5,276 million (EUR -350 million since end 2003), due to strong cash flow - Ongoing work to separate and list oil businesses Key figures I/04 I/03 2003 Last 12 months (LTM) Net sales, EUR million 2,823 3,593 11,392 10,622 Operating profit, EUR million 562 475 1,420 1,507 - excluding non-recurring 529 471 1,360 1,418 items, EUR million Profit before taxes, EUR 487 410 1,184 1,261 million Earnings per share, EUR 0.38 0.32 0.91 0.97 Shareholders’ equity per share, 7.50 6.96 7.55 EUR Capital employed 12,101 12,309 12,704 (at end of period), EUR million Interest-bearing net debt 5,276 4,624 5,626 (at end of period), EUR million*) Investments, EUR million 108 112 1,136 1,132 Net cash from operating 458 344 1,577 activities, EUR million Return on capital employed, % 18.6 15.6 11.4 12.9 Return on shareholders’ equity, 20.4 16.5 12.3 12.5 %*) Gearing, %*) 80 63 85 Average number of employees 13,023 12,733 13,343 Average number of shares, 849,698 845,776 846,831 845,953 1,000s *) the figures for 2003 and the first quarter in 2004 include the impact of the redemption of the preference shares worth EUR 1.2 billion issued by Fortum Capital Ltd During the first three months of the year, Fortum´s financial performance improved compared to the first quarter in 2003. The operating results of all segments were higher than during the corresponding period last year despite significantly lower Nord Pool electricity prices and lower oil refining reference margins compared to the previous year's figures. The good result was due to operational efficiency: utilisation of the flexible power production portfolio, successful hedging, good availability of production units, a high-value oil product slate as well as an improved cost structure. Cash flow from operating activities continued to be healthy. The balance sheet was further strengthened by a EUR 350 million reduction in net debt compared to year-end 2003. Preparations to separate and list the oil businesses continued. Fortum continued to divest non-core businesses. The first quarter was characterised by the relative stability of the Nord Pool power prices, although the average was 46% lower than during the corresponding period in 2003. The international oil refining reference margin was strong, even if the average level was 18% lower than a year ago. Net sales and results Group net sales stood at EUR 2,823 million (EUR 3,593 million in January-March 2003). The main reasons for the decrease were the lower market prices for electricity, the Group's exit from gas trading and a weakened US dollar and lower oil trading levels. Group operating profit totalled EUR 562 (475) million. Operating profit excluding non-recurring items stood at EUR 529 (471) million. The net amount of non-recurring items was EUR 33 (4) million, including a one-time compensation of EUR 29 million from parties in the new nuclear power unit relating to the existing nuclear infrastructure. The results for Power, Heat and Gas improved compared to the corresponding period last year, despite lower market prices for electricity. This was mainly due to Fortum's flexible production portfolio, successful hedging, internal efficiency improvements and a considerable improvement in Fortum Värme's results. As a regulated business, Distribution´s results remained stable. Internal efficiency measures enabled a slight improvement in the results. The results for Markets improved significantly compared to last year. The main enablers were better risk management, improved business processes and cost reductions. The results for Oil Refining and Marketing reached a record high in spite of a lower international oil refining reference margin and a weaker US dollar than a year ago. This was due to a favourable product slate, competitive feedstocks and excellent availability at the refineries. In addition, Shipping enjoyed high freight rates, especially for crude oil. Due to the slight increase in the price of crude oil, some inventory gains were included in the results. Profit before taxes was EUR 487 (410) million. The Group´s net financial expenses were EUR 75 (65) million. The amount includes the interest cost attributable to the debt assumed when redeeming the preference shares issued by Fortum Capital Ltd as well as approximately EUR 10 million representing the net present value of the interest rate differential relating to the prepayment of the private placement bonds issued in the United States in 1992. Minority interests accounted for EUR 19 (33) million. The decrease is mainly due to the above-mentioned redemption of Fortum Capital's preference shares, accounted for as minority interests before the redemption. The figure for 2004 is mainly attributable to Fortum Värme Holding, in which the City of Stockholm has a 50% economic interest. Taxes for the period totalled EUR 147 (107) million. The tax rate according to the income statement was 30.2% (26.1%). Net profit for the period was EUR 321 (270) million. Earnings per share were EUR 0.38 (0.32). Return on capital employed was 18.6% (15.6%) and return on shareholders´ equity was 20.4% (16.5%). SEGMENT REVIEWS Power, Heat and Gas The main business area comprises power and heat generation and sales in the Nordic countries and other parts of the Baltic Rim as well as the provision of operation and maintenance services in the Nordic area and selected international markets. Fortum is the second largest power company in the Nordic countries as well as the leading heat producer in the region. EUR million I/04 I/03 2003 LTM Net sales 890 1,204 3,394 3,080 - electricity sales 511 665 1,853 1,699 - heat sales 286 268 775 793 - other sales 93 271 766 588 Operating profit 335 291 776 820 - excluding non-recurring 312 292 775 795 items Net assets (at end of 8,569 8,699 8,850 period) Return on net assets, % 15.4 13.3 8.9 9.5 The decrease in net sales was due to the lower prices of electricity and the exit from gas trading. During the period from January to March, the spot price for electricity on the Nordic power exchange, Nord Pool, remained stable, averaging EUR 28.6 (53.3) per megawatt-hour. The price was about 46% lower than the corresponding figure last year and 16% lower compared to the last quarter of 2003. At the start of 2004, the Nordic water reservoirs were about 16 TWh below the average but 8 TWh above the corresponding level for 2003. During the first quarter, the water reservoir deficit decreased slightly but snow accumulation was poor leading to a deficit in snow reservoirs. According to preliminary statistics, the Nordic countries consumed 113 (112) TWh electricity during the first quarter, which was 1% more than the previous year. Fortum´s own power generation in the Nordic countries during the first quarter was 15.2 (14.8) TWh, 13 % (13%) of Nordic electricity consumption. The average price of electricity sold by Fortum in the Nordic countries was 14% lower than the corresponding figure last year and 7% lower compared to the last quarter of 2003. Fortum´s total electricity sales volumes amounted to 17.7 (18.0) TWh. Sales volumes in the Nordic countries were 17.3 (17.3) TWh representing approximately 15% (15%) of Nordic electricity consumption during the period. Sales volumes in Power, Heat and Gas amounted to 16.5 (17.9) TWh, of which 16.1 (17.2) TWh was attributable to the Nordic countries. The business of Fortum Värme in Sweden developed positively owing to a favourable fuel mix and good power plant availability. In March, Fortum signed a 12-year operation and maintenance contract for a waste facility under construction by Kent Enviropower Limited in the UK. Own power generation by I/04 I/03 2003 LTM source, TWh, in the Nordic countries Hydropower 4.7 4.1 16.9 17.5 Nuclear power 7.0 6.7 23.8 24.1 Thermal power 3.5 4.0 10.5 10.0 Total 15.2 14.8 51.2 51.6 Share of own production I/04 I/03 2003 LTM in the Nordic countries, % Hydropower 31 28 33 34 Nuclear power 46 45 46 47 Thermal power 23 27 21 19 Total 100 100 100 100 Electricity sales by area, I/04 I/03 2003 LTM TWh Sweden 7.9 8.9 28.2 27.2 Finland*) 8.2 8.3 28.5 28.4 Other countries 0.4 0.7 2.4 2.1 Total 16.5 17.9 59.1 57.7 *) 2003 volumes have been restated due to internal transfer between segments Heat sales by area, I/04 I/03 2003 LTM TWh Sweden 4.0 4.0 9.5 9.5 Finland 3.5 3.5 10.3 10.3 Other countries 1.2 0.8 3.9 4.3 Total 8.7 8.3 23.7 24.1 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 I/04 I/03 2003 LTM Net sales 206 199 688 695 - distribution network 174 165 569 578 transmission - regional network 25 27 88 86 transmission - other sales 7 7 31 31 Operating profit 87 81 247 253 - excluding non-recurring 87 80 227 234 items Net assets (at end of 3,095 3,179 3,129 period) Return on net assets, % 11.2 10.2 7.9 8.1 During the first quarter, the volume of distribution and regional network transmissions totalled 7.0 (6.6) TWh and 5.4 (6.2) TWh respectively. Electricity transmissions via the regional distribution network to customers outside the Group totalled 4.5 (4.6) TWh in Sweden and 0.9 (1.6) TWh in Finland. Distribution tariffs remained unchanged during the period under review in all of Fortum's markets. A new Customer Service Unit providing a uniform interface for all retail sales and distribution customers was formed in cooperation with Fortum Markets as of 1 January 2004. Volume of distributed I/04 I/03 2003 LTM electricity by area, TWh Sweden*) 4.2 4.6 14.2 13.8 Finland 2.0 2.0 6.2 6.2 Norway 0.7 - 1.3 2.0 Other countries 0.1 0.0 0.2 0.3 Total 7.0 6.6 21.9 22.3 *) The distribution and regional networks in Sweden have been re- classified in the fourth quarter of 2003 resulting in a slight change in distribution volumes. Number of electricity 31.3.2004 31.3.2003 2003 distribution customers by area, 1,000s Sweden 860 890 855 Finland 400 390 400 Other countries*) 115 20 115 Total 1,375 1,300 1,370 *) Fortum Distribution AS (formerly Østfold Energi Nett AS) is included in the figures as of 1 May 2003. Markets The Markets segment focuses on the retail sale of electricity and oil products, mainly heating oil, as well as related services to a total of 1.3 million private and business customers in Sweden, Finland and Norway. EUR million I/04 I/03 2003 LTM Net sales 515 687 2,024 1,852 Operating profit 12 -5 47 64 - excluding non–recurring 12 -5 47 64 items Net assets (at end of 166 76 35 period) Return on net assets, % 47.8 -30.4 61.6 65.0 Sales to other electricity companies have been transferred from Power, Heat and Gas to Markets, which explains the changes in 2003 figures. At the beginning of the year, average retail electricity prices decreased slightly in Finland, Sweden and Norway. Fortum also reduced its retail prices in these countries. The prices of oil products rose at the beginning of the year. In January, the volume of heating oil sold was significantly lower than the year before, mainly due to warmer weather and higher prices. In February and March, the volumes sold increased slightly. During the first quarter, the segment's electricity sales totalled 12.8 (13.5) TWh. The decline was due to warmer weather, a lower industrial utilisation rate and turnover in the customer base. Sales of heating oil stood at 0.3 (0.3) million tonnes. The Markets business unit buys its electricity through Nord Pool. Its oil products are also purchased on market terms. Fortum substantially increased the sale and marketing of electricity and oil to household customers. In order to improve customer relations, a new Customer Service Unit providing a uniform interface for all retail sales and distribution customers was formed in cooperation with Fortum Distribution as of 1 January 2004. Oil Refining and Marketing The activities of Oil Refining and Marketing cover the production, refining and marketing of oil as well as logistics. The main products are traffic fuels and heating oils. Fortum is the leading producer of clean traffic fuels in the Nordic area. EUR million I/04 I/03 2003 LTM Net sales 1,682 2,075 7,192 6,799 Operating profit 140 125 396 411 - excluding non–recurring 130 123 381 388 items Net assets (at end of 1,478 1,527 1,402 period) Return on net assets, % 38.9 32.9 27.0 28.2 The decrease in net sales was for the most part due to a weakened US dollar and lower trading volumes. The price of crude oil remained high throughout the period under review. The price of Brent crude averaged USD 32.0 (31.5) per barrel. In January-March, inventory gains were EUR 9 (3) million. During the first quarter, the international refining margin in north-western Europe (Brent Complex) was lower than during the corresponding period last year. The reference margin used by Fortum averaged USD 3.1 (3.8) per barrel. However, Fortum’s premium margin on a quarterly basis exceeded even the long- established level of USD 2/bbl. The high margin was a result of a concerted effort on a number of fronts: the production of high-value products, excellent availability at the refineries, use of competitive raw materials and efficient logistics. Fortum refined a total of 3.3 (3.2) million tonnes of crude oil and other feedstocks. In Finland, oil product sales amounted to approximately 1.9 (1.9) million tonnes. There were no significant changes in the market shares. Exports accounted for a total of 1.3 (1.2) million tonnes. Freight rates for crude oil were very high at the beginning of the year because of the ice conditions and the poor availability of ice-class crude vessels. Product freight rates were also robust. A new product tanker was completed and handed over to Fortum in China. During the first quarter, the average oil production of SeverTEK was 25,127 barrels per day (of which Fortum's share is 50%). The total production will be gradually increased with the aim of reaching full production capacity of 50,000 barrels a day during 2005, somewhat later than planned. Fortum's share of this maximum production corresponds to 10% of Fortum's own needs. SeverTEK is a joint venture owned equally by the Russian company, Lukoil and Fortum. Work on the EUR 500 million investment to increase the sulphur- free diesel production capacity of the Porvoo refinery continued as planned during the first quarter. As of 1 April, a new Components business unit was formed in the oil sector to meet the growing demand in the components markets. Fortum supplies lubricant and traffic fuel components and develops biocomponents. Deliveries of oil products refined by Fortum by product group 1,000 t I/04 I/03 2003 LTM Gasoline 976 1,088 4,434 4,322 Diesel 892 796 3,886 3,983 Aviation fuel 151 120 611 642 Light fuel oil 397 423 1,474 1,448 Heavy fuel oil 429 386 1,314 1,357 Other 374 342 1,672 1,704 Total 3,219 3,155 13,391 13,455 Deliveries of oil products refined by Fortum by area 1,000 t I/04 I/03 2003 LTM Finland 1,940 1,929 7,889 7,900 Other Nordic countries 448 434 1,921 1,935 Baltic countries and 23 8 62 77 Russia USA and Canada 356 384 1,252 1,224 Other countries 452 400 2,267 2,319 Total 3,219 3,155 13,391 13,455 Business development and restructuring Preparations continued to separate the oil businesses into a new company and to have the new company listed on the Helsinki Exchanges. The new company will comprise all of Fortum´s existing oil business with its refining, marketing, shipping and oil production activities. The new business structure of the Oil sector, as of 1 April 2004, consists of four business units: Oil Refining, Oil Retail, Shipping and Components. Investments and divestments Investments in fixed assets during the first quarter totalled EUR 108 (112) million. Work on the EUR 500 million investment to increase the sulphur- free diesel production capacity of the Porvoo refinery continued as planned during the first quarter. The estimated cost for 2004 is somewhat above EUR 100 million. The investment is expected to be completed by the end of 2006. Fortum will participate in the new fifth nuclear power plant unit in Finland with a share of approximately 25%. Thus Fortum´s investment as an equity share will be EUR 180 million during 2004 - 2009, entitling it to approximately 400 MW of the plant´s capacity. During the first quarter, Fortum also provided a shareholders' loan of EUR 45 million. In February, Fortum secured an agreement on the purchase of additional shares in the Russian company, OAO Lenenergo, by which Fortum´s ownership of the share capital and the voting rights would increase to 21.0%, and to 20.7% respectively. The transaction is subject to the approval of the Russian competition authorities, as Fortum´s ownership in Lenenergo would exceed 20%. Fortum has taken further steps to divest non-core businesses: the Flow Improver Agent (FIA), a specialty chemicals business, was sold to M-I Finland Oy, an affiliate of M-I LLC, headquartered in Texas, USA and a contract was signed to divest the engineering business in Hungary, ETV-Eröterv Rt, to the management group of the company. Financing Fortum´s net debt decreased by EUR 350 million and stood at EUR 5,276 million (EUR 5,626 million at year end) and the gearing ratio was 80% (85% at year end). The Group's net financing expenses were EUR 75 (65) million. One reason for the increase was the redemption of the preference shares issued by Fortum Capital Ltd in 2000, which was financed with debt in December 2003. The other reason was that Fortum´s subsidiary, Fortum Finance BV, used its option to prepay USD 73 million private placement bonds (originally due in 2007) issued in the United States markets in 1992. The prepayment on 31 March 2004 further clarified Fortum´s financing structure and rationalised the management of the Group´s currency risk exposure. The prepayment premium paid to the investors in accordance with the terms of the bonds was USD 12.9 million (EUR 10.5 million) which amount has been booked as an interest expense in the first quarter results. This premium was compensation for the difference between the fixed interest rate of the prepaid bonds and the current substantially lower interest rate level. Moody's credit rating was upgraded to Baa1 (stable) on 13 February 2004. Standard & Poor's long-term credit rating for Fortum Corporation was restated at BBB+ (stable). Shares and share capital A total of 16,004 Fortum Corporation shares were subscribed for with the share warrants relating to Fortum Corporation´s 1999 warrant bond to employees, while a total of 965,000 shares were subscribed for with the share warrants relating to Fortum Corporation´s 1999 management share option scheme. These shares were entered into the trade register on 12 February 2004. The increase in the share capital resulting from the share subscriptions was EUR 3,335,413.60. After the increase, Fortum Corporation´s share capital is EUR 2,889,365,828.60 and the total number of shares is 849,813,479. Currently, the Board of Directors has no unused authorisations from the General Meeting of shareholders to issue convertible loans or bonds with warrants, issue new shares or acquire the company´s own shares. Annual General Meeting At the Annual General Meeting held on 25 March 2004, a dividend of EUR 0.42 (0.31) per share was approved. The following persons were re-appointed as members of the Supervisory Board: Satu Hassi, Klaus Hellberg, Rakel Hiltunen, Jorma Huuhtanen, Mikko Immonen, Kimmo Kalela, Juha Mikkilä and Ben Zyskowicz, and Lasse Hautala, Timo Kalli, Kimmo Kiljunen and Jari Koskinen were elected as new members. Timo Kalli was elected as Chairman and Klaus Hellberg as Deputy Chairman of the Supervisory Board. The following persons were re-elected to the Board of Directors according to the new Articles of Association: Peter Fagernäs (Chairman), Heikki Pentti (Deputy Chairman), Birgitta Kantola, Lasse Kurkilahti, Antti Lagerroos and Erkki Virtanen. Birgitta Johansson-Hedberg was elected as a new member. Authorised Public Accountants, PricewaterhouseCoopers Oy, were re- elected as auditors with Juha Tuomala, Authorised Public Accountant, having the principal responsibility. Group personnel The average number of employees in the Group during the period from January to March was 13,023 (12,733). The number of employees at the end of the period was 13,029 (12,645). Group management Mr Risto Rinne was appointed President, Oil Sector and member of the Corporate Executive Committee as of 15 January 2004. Events after the period under review Fortum Teknik & Miljö AB, a company specialising in energy consulting, was sold to the Swedish company, Ångpanneföreningen. Fortum and Jacobs Engineering Group Inc., based in California, USA, announced a letter of intent which enables Jacobs to purchase an ownership position in Fortum's Neste Engineering operations. 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. During 2005, emissions trading may become a new key market driver. During the past five years, the volume of Fortum´s CO2-free power generation has increased from 30 TWh to 41 TWh. Its share was 78% of Fortum´s power generation in 2003. With this production portfolio, Fortum is in a good position with regard to the possible impacts of emissions trading. According to general market information, electricity consumption in the Nordic countries is predicted to increase by about 1% a year over the next few years. During the first quarter, the average spot price for electricity was EUR 28.6 (53.3) per megawatt-hour on the Nordic electricity market. At the beginning of April, the Nordic water reservoirs were about 14 TWh below the average and 6 TWh above the corresponding level for 2003. During the first part of April, the spot price has been at the level of EUR 29 per megawatt-hour while the electricity price in the forward market for the remainder of 2004 has been in the range of EUR 29-31 per megawatt-hour. For the next 12 months, Fortum's hedging level for electricity sales is approximately 60%. The oil market fundamentals are developing according to Fortum's assumptions: the consumption of clean traffic fuels is increasing and the demand for heavy fuel oil is decreasing making the complex refineries even more competitive. In addition, Fortum’s position along the new export routes for Russian crude oil gives it a clear advantage. These developments are in line with Fortum's profitability assumptions for the ongoing Porvoo refinery upgrade investment and establish a good starting point for the future listing of the oil businesses. The oil refining reference margin in north-western Europe (Brent Complex) averaged USD 3.1 (3.8) /bbl during the first quarter. During the first half of April, the average reference margin strengthened and exceeded USD 5/bbl. Fortum’s premium margin is expected to remain at the strong levels of previous years. No major maintenance shutdowns are planned at the refineries during 2004. The average price for Brent crude oil was USD 32.0 (31.5) /bbl during the first quarter. During the first half of April 2004, the price has been averaging USD 32.9/bbl while the International Petroleum Exchange’s Brent futures for the remainder of 2004 have been averaging USD 31.8/bbl. The price of crude oil has an impact on the results of Oil Refining and Marketing through inventory gains and losses. The refining margins and shipping freights are exposed to USD exchange rate volatility and therefore a weakened US dollar will have a negative impact on the profitability of the oil business. However, this impact is mitigated because of the forward hedging policy of the estimated US dollar sales margins. During the first quarter, the fixing euro exchange rates against the US dollar and the Swedish crona were on average 1.241 (1.075) and 9.191 (9.197) respectively. At the end of March, the exchange rates were 1.222 (1.090) and 9.258 (9.261) respectively. Preparations for listing the oil businesses continued during the first quarter, aiming at readiness towards the end of the year. The timing of the planned initial public offering will depend on market conditions, however. Due to seasonal reasons, the continuous operations of the power and heat businesses usually result in a significantly better financial performance in the first and last quarters of the year than in the second and third quarters. The strong first quarter, the current market fundamentals and the company's hedging positions strengthen management's confidence in 2004 as another good year for Fortum. Espoo, 22 April 2004 Fortum Corporation Board of Directors The figures have not been audited. Fortum will adopt the International Financial Reporting Standards (IFRS/IAS) as of 2005. Publication of results in 2004: Interim Report 1 January - 30 June 2004 will be published on 28 July 2004 Interim Report 1 January - 30 September 2004 will be published on 21 October 2004 Fortum Corporation Carola Teir-Lehtinen Senior Vice President, Corporate Communications Further information: Mikael Lilius, President and CEO, tel. +358 10 452 9100 Juha Laaksonen, CFO, tel. +358 10 452 4519 Distribution: Helsinki Exchanges Key media FORTUM GROUP JANUARY-MARCH 2004 Interim financial statements are unaudited CONSOLIDATED INCOME STATEMENT MEUR Q1/04 Q1/03 2003 Last 12 months Net sales 2 823 3 593 11 392 10 622 Share of profits of associated 10 11 41 40 companies Other operating income 49 13 151 187 Materials and services -1 873 -2 678 -8 054 -7 249 Personnel expenses -172 -183 -654 -643 Depreciation, amortisation and -121 -133 -538 -526 write-downs Other operating expenses -154 -148 -918 -924 Operating profit 562 475 1 420 1 507 Financial income and expenses -75 -65 -236 -246 Profit before taxes 487 410 1 184 1 261 Income taxes -147 -107 -325 -365 Minority interests -19 -33 -90 -76 Net profit for the period 321 270 769 820 Earnings per share, EUR 0.38 0.32 0.91 0.97 Fully diluted earnings per share, EUR 0.37 0.32 0.90 Average number of shares, 1,000 shares 849 698 845 776 846 831 845 953 Diluted adjusted average number of sharesm 1,000 shares 867 344 853 684 858 732 CONSOLIDATED BALANCE SHEET MEUR Mar 31 Mar 31 Dec 31 2004 2003 2003 ASSETS Fixed assets and other long-term investments Intangible assets 156 165 146 Property, plant and equipment 11 446 11 541 11 632 Other long-term investments 1 776 1 434 1 762 Other interest-bearing long-term investments 673 534 632 Total 14 051 13 674 14 172 Current assets Inventories 580 536 551 Trade receivables 1 049 1 096 951 Short-term receivables 427 842 449 Cash and cash equivalents 203 339 439 Total 2 259 2 813 2 390 Total 16 310 16 487 16 562 SHAREHOLDERS' EQUITY AND LIABILITIES Shareholders' equity Share capital 2 889 2 876 2 886 Other equity 3 487 3 008 3 520 Total 6 376 5 884 6 406 Minority interests 245 1 461 232 Provisions for liabilities and charges 210 99 207 Deferred tax liabilities 1 862 1 798 1 843 Liabilities Long term liabilities Interest-bearing 4 235 3 536 4 840 Interest free 345 452 346 Short term liabilities Interest-bearing 1 245 1 428 1 225 Interest free 1 792 1 829 1 463 Total 16 310 16 487 16 562 Equity per share, EUR 7.50 6.96 7.55 Number of shares, 1,000 shares 849 813 845 776 848 832 CHANGE IN SHAREHOLDERS' EQUITY MEUR Jan-Mar31 Jan-Mar31 Dec 31 2004 2003 2003 Shareholders' equity, 1 January 6 406 5 897 5 897 Stock options exercised - - 22 Dividend -357 -262 -262 Translation differencies 6 -21 -20 Net earnings for the period 321 270 769 Total 6 376 5 884 6 406 CASH FLOW STATEMENT MEUR Mar 31 Mar 31 Dec 31 2004 2003 2003 Net cash from operating activities 458 344 1 577 Capital expenditures -108 -83 -550 Acquisition of shares - -29 -570 Proceeds from sales of fixed asset 14 63 142 Proceeds from sales of shares 1 933 1 227 Change in other investments -51 1 -67 Cash flow before financing activities 314 1 229 1 759 Net change in loans -549 -1 480 -399 Dividends paid - - -264 Other financing items * -2 -1 -1 245 Net cash from financing activities -551 -1 481 -1 908 Net increase (+)/decrease (-) in cash and marketable securities -237 -252 -149 * Includes the redemption of Fortum Capital Ltd preference shares -1 200 million euros in December 2003 KEY RATIOS Mar 31 Mar 31 Dec 31 Last 12 2004 2003 2003 months Capital employed, MEUR 12 101 12 309 12 704 Interest-bearing net debt, MEUR 5 276 4 624 5 626 Investments, MEUR 108 112 1 136 1 132 Return on capital employed, % 18.6 15.6 11.4 12.9 Return on shareholders' equity, % 20.4 16.5 12.3 12.5 Interest coverage 7.6 7.1 5.8 6.0 FFO / interest-bearing net debt, % 1) 46.5 43.5 26.1 Gearing, % 80 63 85 Equity-to-assets ratio, % 41 45 40 Average number of employees 13 023 12 733 13 343 1) FFO = Funds from operations Comparison figures include the effect of the redemption of Fortum Capital Ltd preference shares in December 2003. NET SALES BY SEGMENTS MEUR Q1/04 Q1/03 2003 Last 12 months Power, Heat and Gas 890 1 204 3 394 3 080 Distribution 206 199 688 695 Markets 515 687 2 024 1 852 Oil Refining and Marketing 1 682 2 075 7 192 6 799 Other Operations 18 20 84 82 Eliminations -487 -592 -1 990 -1 885 Total 2 823 3 593 11 392 10 622 OPERATING PROFIT BY SEGMENTS MEUR Q1/04 Q1/03 2003 Last 12 months Power, Heat and Gas 335 291 776 820 Distribution 87 81 247 253 Markets 12 -5 47 64 Oil Refining and Marketing 140 125 396 411 Other Operations -12 -17 -46 -41 Total 562 475 1 420 1 507 NON-RECURRING ITEMS IN OPERATING PROFIT BY SEGMENTS MEUR Q1/04 Q1/03 2003 Last 12 months Power, Heat and Gas 23 -1 1 25 Distribution - 1 20 19 Markets - - - - Oil Refining and Marketing 10 2 15 23 Other Operations 0 2 24 22 Total 33 4 60 89 DEPRECIATION, AMORTISATION AND WRITE-DOWNS BY SEGMENTS MEUR Q1/04 Q1/03 2003 Last 12 months Power, Heat and Gas 56 58 231 229 Distribution 33 37 143 139 Markets 4 4 16 16 Oil Refining and Marketing 27 30 131 128 Other Operations 1 4 17 14 Total 121 133 538 526 INVESTMENTS BY SEGMENTS MEUR Q1/04 Q1/03 2003 Last 12 months Power, Heat and Gas 38 53 545 530 Distribution 14 23 339 330 Markets 2 - 28 30 Oil Refining and Marketing 50 32 202 220 Other Operations 4 4 22 22 Total 108 112 1 136 1 132 NET ASSETS BY SEGMENTS MEUR Mar 31 Mar 31 Dec 31 2004 2003 2003 Power, Heat and Gas 8 569 8 699 8 850 Distribution 3 095 3 179 3 129 Markets 166 76 35 Oil Refining and Marketing 1 478 1 527 1 402 Other Operations 121 126 95 Total 13 429 13 607 13 511 RETURN ON NET ASSETS BY SEGMENTS 2) % Mar 31 Mar 31 Mar 31 Mar 31 2004 2004*) 2003 2003*) Power, Heat and Gas 15.4 14.3 13,3 13,4 Distribution 11.2 11.2 10,2 10,0 Markets 47.8 47.8 -30,4 -30,4 Oil Refining and Marketing 38.9 36.1 32,9 32,4 % Dec 31 Dec 31 Last 12 Last 12 2003 2003*) months months*) Power, Heat and Gas 8.9 8.9 9.5 9.2 Distribution 7.9 7.2 8.1 7.5 Markets 61.6 61.1 65.0 64.6 Oil Refining and Marketing 27.0 26.0 28.2 26.6 2) Return on net assets, % = Operating profit/average net assets *) Non-recurring items deducted from operating profit CONTINGENT LIABILITIES MEUR Mar 31 Mar 31 Dec 31 2004 2003 2003 Contingent liabilities On own behalf For debt Pledges 161 492 149 Real estate mortgages 91 235 91 Company mortgages - 7 - Other mortgages - 26 - For other commitments Real estate mortgages 55 55 55 Pledges, company and other mortgages - 2 - Sale and leaseback 8 9 8 Other contingent liabilities 101 94 101 Total 416 920 404 On behalf of associated companies Pledges and real estate mortgages 12 9 12 Guarantees 478 721 562 Other contingent liabilities 182 184 182 Total 672 914 756 On behalf of others Guarantees 16 5 15 Other contingent liabilities 6 9 7 Total 22 14 22 Total 1 110 1 848 1 182 Operating lease liabilities Due within a year 75 62 75 Due after a year 103 133 103 Total 178 195 178 Liability for nuclear waste disposal 570 516 570 Share of reserves in the Nuclear Waste Disposal Fund -560 -506 -560 Liabilities in the balance sheet 3) 10 10 10 3) Mortgaged bearer papers as security 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 Mar 31 2004 Mar 31 2003 Interest and currency derivaties Contract Fair Not recogn. Contract Fair Not rec. or value as an or value as an notional income notional income value value MEUR Forward rate agreements 324 - - 1 863 -2 -2 Interest rate swaps 4 178 -104 -66 6 836 -18 40 Forward foreign exchange 7 946 86 7 5 440 50 39 Currency swaps 339 8 3 2 325 243 62 Purchased currency optio 425 -5 -5 100 8 8 Written currency options 425 -4 -4 46 1 1 Dec 31 2003 Forward rate agreements 330 - - Interest rate swaps 4 253 -97 -69 Forward foreign exchange 8 396 129 49 Currency swaps 333 -3 1 Purchased currency optio - - - Written currency options - - - 4) Incl. also contracts used for equity hedging Oil futures and forward Mar 31 2004 Mar 31 2003 instruments Volume Fair Not recogn. Volume Fair Not rec. value as an value as an income income 1 000 bbl MEUR MEUR 1000 bbl MEUR MEUR Sales contracts 30 596 1 1 17 800 1 1 Purchase contracts 33 712 9 9 14 868 -1 -1 Purchased options 3 650 - - 1 100 - - Written options 2 598 - - 850 1 1 Dec 31 2003 1 000 bbl MEUR MEUR Sales contracts 22 304 -11 -11 Purchase contracts 37 239 14 14 Purchased options 150 - - Written options 600 - - Electricity derivatives Mar 31 2004 Mar 31 2003 Volume Fair Not recogn. Volume Fair Not rec. value as an value as an income income TWh MEUR MEUR TWh MEUR MEUR Sales contracts 66 -198 -92 82 -277 -205 Purchase contracts 42 194 86 68 239 168 Purchased options - - - 2 - 1 Written options - - - 4 - -1 Dec 31 2003 TWh MEUR MEUR Sales contracts 58 -100 -65 Purchase contracts 50 136 101 Purchased options - - - Written options - - - Natural gas derivates Mar 31 2004 Mar 31 2003 Volume Fair Not recogn. Volume Fair Not rec. value as an value as an income income Mill.th MEUR MEUR Mill.th. MEUR MEUR Sales contracts - - - 3 590 7 7 Purchase contracts - - - 3 271 -3 -3 Purchased options - - - 1 378 -7 -7 Written options - - - 1 202 5 5 Dec 31 2003 Mill.th MEUR MEUR Sales contracts 8 - - Purchase contracts 8 - - Purchased options - - - Written options - - - 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 Q1/04 Q4/03 Q3/03 Q2/03 Q1/03 Power, Heat and Gas 890 852 622 716 1 204 Distribution 206 186 143 160 199 Markets 515 525 406 406 687 Oil Refining and Marketing 1 682 1 757 1 717 1 643 2 075 Other Operations 18 23 22 19 20 Eliminations -487 -506 -383 -509 -592 Total 2 823 2 837 2 527 2 435 3 593 QUARTERLY OPERATING PROFIT BY SEGMENTS MEUR Q1/04 Q4/03 Q3/03 Q2/03 Q1/03 Power, Heat and Gas 335 273 76 136 291 Distribution 87 58 47 61 81 Markets 12 22 15 15 -5 Oil Refining and Marketing 140 78 118 75 125 Other Operations -12 -11 -16 -2 -17 Eliminations - - -1 1 - Total 562 420 239 286 475