Stock exchange release

Fortum Corporation Interim Report January - March 2005

03 May 2005, 9:04 EEST

Fortum Corporation Stock Exchange Release 3 May 2005

Fortum Corporation Interim Report January - March 2005 Good first-quarter results - Neste Oil separation successfully completed January-March in brief - Profit before taxes from continuing operations EUR 384 (333) million - Fortum total EPS EUR 0.37 (0.36), net profit EUR 349 (324) million - Successful hedging and portfolio optimisation - achieved Nordic Generation power price up by 6% - The separation and listing of Neste Oil successfully executed Oil operations in Fortum are reported on a separate line as discontinued operations in the income statement, and are not included in net sales or in operating profit. All figures are reported according to IFRS. Key figures I/05 I/04 2004 Last 12 Income statement and cash flow months for continuing operations (LTM) Net sales, EUR million 1,133 1,129 3,835 3,839 Operating profit, EUR million 404 407 1,195 1,192 - excluding non-recurring 398 413 1,177 1,162 items, EUR million Profit before taxes, EUR 384 333 962 1,013 million Earnings per share, Fortum 0.28 0.24 0.79 0.83 continuing operations, EUR Total earnings per share, EUR 0.37 0.36 1.48 1.49 *) Total net cash from operating 214 453 1,758 1,519 activities, EUR million *) Net cash from operating 62 357 1,232 937 activities, Fortum continuing operations, EUR million Average number of shares, 000s 871,710 849,698 852,625 856,404 *) Including Oil operations related items, reported as discontinued operations in income statement. EUR 21 million transfer tax on Neste Oil shares dividend distribution is booked in discontinued operations. The gain on the sale of Neste Oil shares, currently estimated at EUR 389 million, will be recorded in the second quarter discontinued operations. Key figures I/05 I/04 2004 Last 12 Balance sheet months (LTM) Shareholders’ equity per share, 7.69 7.41 8.62 EUR Interest-bearing net debt 4,878 5,526 5,095 (at end of period), EUR million *) Return on capital employed, % 18.0 18.6 15.8 16.8 Return on shareholders’ equity, 19.2 19.9 18.2 19.8 % Gearing, %*) 71 86 67 *) The balance sheet includes an interest-bearing receivable from Neste Oil of EUR 804 million which Neste Oil repaid in April. In the second quarter net debt will also be effected by received net proceeds (estimated to EUR 553 million) from the sale of 15% shareholding in Neste Oil and the paid out cash dividend (EUR 506 million). Adjusting for these effects, Fortum's pro forma net debt would have been EUR 4,027 million at the end of the quarter and the gearing would have been 59%. The first quarter of 2005 was a good quarter for Fortum. The company's operating results were at the same level as last year, despite the average market price for power being 9% lower. Neste Oil was successfully separated and subsequently listed in the Helsinki Stock Exchange on 18 April. The average Nordic Generation power price (the achieved sales price in the Power Generation segment in the Nordic area, excluding pass-through sales) was EUR 31.6 per MWh, 6% higher than a year ago due to successful hedging and power generation portfolio optimisation. The operating profit of the Power Generation segment was at the same level as last year, while Heat segment improved slightly. The Distribution segment's operating profit was weaker, mainly due to the costs arising from the January storms in Sweden and Norway. The Markets segment reported weaker profit than last year. First quarter net debt decreased by EUR 217 million compared to year-end, of which EUR 150 million is due to the deconsolidation of Neste Oil. Due to the separation of Neste Oil, and to the adoption of International Financial Reporting Standards (IFRS), Fortum's financial reporting has changed significantly. All Oil business-related figures are reported as discontinued operations in the income statement and in the cash flow statement. At the end of the quarter, Fortum still held approximately 15% of the shares in Neste Oil. The shareholding was valued at fair value (sales price reduced by transaction costs). The fair value adjustment is included in equity in the first quarter and will be shown in the income statement as a capital gain in the second quarter, disclosed in discontinued operations. Net sales and results Group sales from continuing operations stood at EUR 1,133 (1,129) million. Net sales from continuing operations, by segment EUR million I/05 I/04 Power Generation 534 560 Heat 385 361 Distribution 202 206 Markets 392 419 Other 23 20 Eliminations -403 -437 Total 1,133 1,129 Group operating profit from continuing operations totalled EUR 404 (407) million. Operating profit from continuing operations, by segment EUR million I/05 I/04 Power Generation 222 222 Heat 111 104 Distribution 71 83 Markets 6 16 Other - 6 -18 Total 404 407 Despite the 9% decrease in the average market price for power and the lower generation volume in the first quarter, the Power Generation segment reached last year's operating profit level of EUR 222 million. This was due to higher hydropower generation and successful hedging. The Heat segment's sales were slightly higher than last year, mainly due to the acquisition of a district heating company in the city of Czestochowa in Poland last December. The operating profit for the segment improved to EUR 111 million. Heat segment's power sales volume was lower than last year. The Distribution segment's sales were EUR 202 (206) million. The segment's operating profit of EUR 71 (83) million was negatively impacted by the EUR 11 million in costs from the January storms in Sweden and Norway. Markets' sales decline was mainly due to the termination of some large contracts. In the first quarter of 2005, the segment experienced a positive inflow of customers. The lower operating profit of EUR 6 (16) million mainly stems from increased costs related to customer service quality improvement actions and tighter competition. Profit before taxes from continuing operations was EUR 384 (333) million. The Group's net financial expenses from continuing operations were lower than last year and amounted to EUR 35 (78) million. The main reasons for the decrease were lower interest rate, lower level of net debt and a positive approximately EUR 10 million change in the fair value of certain SEK derivatives which do not qualify for hedge accounting under IFRS. The share of profit of associates and joint ventures from continuing operations was EUR 15 (4) million. Minority interests accounted for EUR 25 (20) million. The minority interests are mainly attributable to Fortum Värme Holding, in which the City of Stockholm has a 50% economic interest. Taxes for the period totalled EUR 116 (111) million. The tax rate according to the income statement was 30.3% (33.3%). Total net profit for the period was EUR 349 (324) million. The net profit from continuing operations was EUR 268 (222) million. Total Fortum earnings per share were EUR 0.37 (0.36), and earnings per share from continuing operations were EUR 0.28 (0.24). Return on capital employed was 18.0% (18.6%) and return on shareholders' equity was 19.2% (19.9%). Market conditions According to preliminary statistics, the Nordic countries consumed 115 (114) TWh of electricity during the first quarter of the year, which was 1% more than during the corresponding period of the previous year. During the first quarter, the average spot price for power in Nord Pool, the Nordic power exchange, was EUR 25.9 (28.6) per megawatt-hour, or 9% lower than during the corresponding period in 2004. In the first quarter of 2005, the average market price for emissions allowances for 2005 was around EUR 9 per ton of CO2, ranging between EUR 7 and EUR 15 per ton. The average market price for coal was around EUR 51 per ton, ranging between EUR 49 and EUR 57 per ton. During first quarter of 2004, the market price for coal varied between EUR 50 and EUR 57 per ton. The year started out with mild and rainy weather and a surplus in the Nordic water reservoirs. Continuously high hydro production combined with a cold and dry period starting in mid-February brought the water reservoirs to a deficit level. At the same time, the spot price rose and the power forward prices started to increase. The increasing trend in the forward market was further supported by higher prices for emissions allowances in March. In mid-April, the Nordic water reservoirs were about 3 TWh below the average and 9 TWh above the corresponding level in 2004. Fortum's power generation in the Nordic countries during January-March was 14.3 (15.2) TWh, 12% (13%) of Nordic electricity consumption. Fortum's total power and heat generation figures are presented below. In addition, the segment reviews include the respective figures by segment. Fortum's total power I/05 I/04 2004 LTM and heat generation, TWh Power generation 14.7 15.4 55.5 54.8 Heat generation 9.7 9.3 25.4 25.8 Fortum's own power I/05 I/04 2004 LTM generation by source, TWh, total in the Nordic countries Hydropower 5.6 4.7 19.1 20.0 Nuclear power 7.0 7.0 25.8 25.8 Thermal power 1.7 3.5 9.5 7.7 Total 14.3 15.2 54.4 53.5 Share of own I/05 I/04 2004 LTM production, %, total in the Nordic countries Hydropower 39 31 35 37 Nuclear power 49 46 47 48 Thermal power 12 23 18 15 Total 100 100 100 100 Total electricity and heat sales figures Fortum's total electricity sales amounted to 16.6 (17.7) TWh. Sales volumes in the Nordic countries were at 16.2 (17.3) TWh, representing approximately 14% (15%) of Nordic electricity consumption during January-March. Heat sales in the Nordic countries amounted to 7.5 (7.6) TWh and in other countries to 1.6 (1.2) TWh. The segments sell their electricity to Nord Pool or external customers and purchase from Nord Pool or other external sources. In the table below, Fortum's Nord Pool transactions are calculated as a net amount of hourly sales and purchases at the Group level. Fortum's total I/05 I/04 2004 LTM electricity and heat sales, EUR million Electricity sales 546 564 2,017 1,999 Heat sales 314 284 809 839 Fortum's total I/05 I/04 2004 LTM electricity sales by area, TWh Sweden 8.2 8.1 27.6 27.7 Finland 7.4 8.5 31.1 30.0 Other countries 1.0 1.1 3.6 3.5 Total 16.6 17.7 62.3 61.2 Fortum's total heat I/05 I/04 2004 LTM sales by area, TWh Sweden 3.9 4.0 9.6 9.5 Finland 3.6 3.5 10.5 10.6 Other countries 1.6 1.2 3.7 4.1 Total 9.1 8.7 23.8 24.2 SEGMENT REVIEWS Power Generation The business area comprises power generation and sales in the Nordic countries and the provision of operation and maintenance services in the Nordic area and selected international markets. The Power Generation segment sells its production to Nord Pool. The segment includes business units Generation, Portfolio Management and Trading (PMT), and Service. EUR million I/05 I/04 2004 LTM Net sales 534 560 2,084 2,058 - power sales 453 466 1,695 1,682 - other sales 81 94 389 376 Operating profit 222 222 763 763 - excluding non- 222 228 754 748 recurring items Net assets (at end of 6,106 6,087 6,218 period) Return on net assets, % 14.5 14.0 12.1 12.2 In January-March, the segment's power generation in the Nordic countries was 12.8 (13.3) TWh, of which about 5.6 (4.7) TWh or 44% (35%) was hydropower-based, 7.0 (7.0) TWh or 55% (53%) nuclear power-based and 0.2 (1.6) TWh or 1% (12%) thermal power-based. The increase in hydro power generation was due to a strengthened hydrological situation. The decrease in thermal power generation was due to lower power prices and higher fuel and CO2 allowance prices. Power generation by I/05 I/04 2004 LTM area, TWh Sweden 7.5 7.0 25.8 26.3 Finland 5.3 6.3 24.0 23.0 Other countries 0.3 0.3 1.1 1.1 Total 13.1 13.6 50.9 50.4 Nordic sales volume, 14.4 15.2 55.7 54.9 TWh of which pass-through 1.4 1.5 4.7 4.6 sales Sales price, EUR/MWh I/05 I/04 2004 LTM Nordic Generation power 31.6 29.9 29.2 29.7 price* *) For the Power Generation segment in the Nordic area, excluding pass-through sales. The average Nordic Generation power price (excluding pass-through items) was 6% higher than a year ago due to successful hedging and power production portfolio optimisation. The corresponding sales volume was 13.0 (13.7) TWh. In February the shareholders of Lenenergo, Kolenergo and RAO UES agreed on the formation of TGC-1, the regional power generation company of North-Western Russia. This company will initially lease the generation assets of Lenenergo, Karelenergo and Kolenergo and is preparing to start operating them as of 1 July 2005. Fortum will become a shareholder in the company. In January, Fortum started the modernisation of automation systems at the Loviisa nuclear power plant. The work will be carried out during normal outages. All new automation systems related to the programme will be implemented by 2014. Fortum service has been heavily involved in storm related maintenance work in Sweden during the first quarter. Heat The business area comprises heat generation and sales in the Nordic countries and other parts of the Baltic Rim. Fortum is the leading heat producer in the region. The segment also generates power in the combined heat and power plants (CHP) and sells it to end-customers mainly by long-term contracts, as well as to Nord Pool. The segment includes business units Heat and Värme. EUR million I/05 I/04 2004 LTM Net sales 385 361 1,025 1,049 - heat sales 306 276 779 809 - power sales 55 63 159 151 - other sales 24 22 87 89 Operating profit 111 104 218 225 - excluding non- 111 104 214 221 recurring items Net assets (at end of 2,457 2,373 2,440 period) Return on net assets, % 19.1 18.3 9.8 10.1 The segment's heat sales during the first quarter amounted to 8.6 (8.2) TWh, most of which was generated in the Nordic countries. In January-March, power sales at combined heat and power plants (CHP) totalled 1.6 (1.8) TWh. Last December, Fortum acquired an 85% share of a Polish district heating company PESC Czestochowa, with annual sales of some 780 GWh. This had a minor, but positive impact in the first-quarter operating profit. Heat sales by area, TWh I/05 I/04 2004 LTM Sweden 3.9 4.0 9.6 9.5 Finland 3.6 3.5 10.5 10.6 Other countries 1.1 0.7 1.7 2.1 Total 8.6 8.2 21.8 22.2 Power sales, TWh I/05 I/04 2004 LTM Total 1.6 1.8 4.8 4.6 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/05 I/04 2004 LTM Net sales 202 206 707 703 - distribution network 173 176 593 590 transmission - regional network 23 23 83 83 transmission - other sales 6 7 31 30 Operating profit 71 83 234 222 - excluding non- 71 83 232 220 recurring items Net assets (at end of 3,113 3,095 3,091 period) Return on net assets, % 10.1 11.3 8.1 7.7 During the first quarter, the volume of distribution and regional transmissions totalled 7.2 (7.2) TWh and 5.1 (5.2) TWh, respectively. Electricity transmissions via the regional distribution network to customers outside the Group totalled 4.2 (4.3) TWh in Sweden and 0.9 (0.9) TWh in Finland. In January, storms caused major power outages on the west coast of Sweden and Norway, leaving approximately 80,000 Fortum customers in Sweden and 12,800 in Norway without electricity. Customers who suffered from long distribution interruptions will be compensated and the total cost, including fault restoration and temporary solutions, was approximately EUR 11 million and booked in the first-quarter results. The government of Sweden addressed the question of reliability to the Energy Market Inspection, which has proposed actions on how to improve the future reliability of electricity distribution. In Sweden, the dialogue continues with the Energy Market Authority about supervision of the year 2003 distribution tariffs in selected distribution areas. Further details are expected to be published later this year. Volume of distributed I/05 I/04 2004 LTM electricity in distribution network, TWh Sweden 4.4 4.4 14.2 14.2 Finland 2.0 2.0 6.2 6.2 Norway 0.7 0.7 2.1 2.1 Estonia 0.1 0.1 0.2 0.2 Total 7.2 7.2 22.7 22.7 Number of electricity 31.3.2005 31.3.2004 2004 distribution customers by area, 000s Sweden 860 860 860 Finland 405 400 405 Other countries 115 115 115 Total 1,380 1,375 1,380 Markets Markets is responsible for retail sales of electricity to a total of 1.1 million private and business customers as well as to other electricity retailers in Sweden, Finland and Norway. Markets buys its electricity through Nord Pool. EUR million I/05 I/04 2004 LTM Net sales 392 419 1,387 1,360 Operating profit 6 16 34 24 - excluding non–recurring 6 16 34 24 items Net assets (at end of 222 153 194 period) Return on net assets, % 11.5 77.6 25.3 13.6 During the first quarter, Markets' electricity sales totalled 11.8 (12.8) TWh. The decrease was due to the termination of some large contracts. Retail electricity prices on the Nordic market during the first quarter were lower than during the corresponding period the previous year. Fortum lowered the retail prices of current priced contracts in February. Prices for new fixed term contracts followed the price development of Nord Pool's financial market. Development of the customer interface and the improvement of customer satisfaction are starting to generate positive results and lead to a positive inflow of customers during the last quarter. Some examples of these activities are the new products for both private and business customers and enhanced Internet services. The customer ombudsman function is now operational in Finland, Sweden and Norway. Improvements in customer service and the new customer guarantees have resulted in increased costs compared to the corresponding period of the previous year. Capital expenditure and investments in shares Investments in capital expenditure and investments in shares for continuing operations in January-March totalled EUR 49 (57) million. There were no investments in shares in the first quarter of 2005. Financing First quarter 2005 net debt decreased with EUR 150 million by the de- consolidation of Neste Oil and stood at EUR 4,878 million (EUR 5,095 million at year-end). The balance sheet includes an interest-bearing receivable against Neste Oil of EUR 804 million which has been repaid on 12 April. In the second quarter net debt will also be effected by received net proceeds (estimated to EUR 553 million) from the sale of 15% shareholding in Neste Oil and the paid out cash dividend (EUR 506 million). Adjusting for these effects, Fortum's pro forma net debt would have been EUR 4,027 million at the end of the quarter. The net cash from operating activities decreased to EUR 62 (357) million for the continuing activities. The reasons for the low cash flow were relatively high paid taxes, a EUR 20 million realised foreign exchange loss and a significant increase in working capital. This was mainly attributable to the change in invoicing practices. Fortum changed from pre-debiting to post-debiting of its retail customers during the winter. The Group's net financial expenses were EUR 35 (78) million. The main reasons for the decrease were lower interest rate and lower level of net debt and a positive approximately EUR 10 million change in the fair value of certain SEK derivatives which do not qualify for hedge accounting under IFRS. Fortum's long-term credit rating from Moody's is Baa1 (stable). Fortum's long- term credit rating from Standard & Poor's is BBB+ (stable). Both ratings were unchanged in the first quarter of 2005. Separation of oil businesses The separation of Fortum Oil, renamed Neste Oil Corporation in February, was executed successfully. The final decision to separate the oil company by distributing 85% of Neste Oil shares as dividends to shareholders was taken by the Annual General Meeting on 31 March. The remaining 15% of shares, a total of 38,440,137 shares, were sold to institutional and individual investors in April. Both the institutional offering and the retail offering were priced at EUR 15 per share. The impact of the sale of Neste Oil shares on the income statement and net debt will be recorded in the second quarter. The gross proceeds from the sale of the shares were EUR 577 million and the tax-free capital gain is estimated to amount to EUR 389 million after fees and expenses. In the first quarter, the capital gain is included in equity as a fair value adjustment and will in the second quarter be booked in discontinuing operations in the income statement. Fortum's equity has in the first quarter been effected also by the share dividend distribution through de-consolidation of Neste Oil. Transfer taxes related to the share dividend distribution, EUR 21 million, were recorded in discontinuing operations in the first quarter. The listing of Neste Oil Corporation shares commenced on the Helsinki Stock Exchange Prelist on 18 April and on the Main List on 21 April. Group management After the separation of oil businesses, responsibilities within the Group management were adjusted. The members in the Fortum Management Team, formerly Corporate Executive Committee, as of 1 April are: Mikael Lilius - President and CEO Mikael Frisk - SVP, Human Resources Timo Karttinen - SVP, Corporate Development, Heat Tapio Kuula - SVP, Generation, PMT, Värme, Service Juha Laaksonen - CFO Christian Lundberg - SVP, Markets, Distribution Carola Teir-Lehtinen - SVP, Corporate Communications Shares and share capital During the first quarter, a total of 186.3 million Fortum Corporation shares totalling EUR 2,714 million were traded. Fortum's market capitalisation, calculated using the closing quotation of the last trading day of the quarter, was EUR 13,095 million. The highest quotation of Fortum Corporation shares on the Helsinki Stock Exchange in the first quarter was EUR 16.05, the lowest EUR 12.70, and the average quotation EUR 14.57. The closing quotation on the last trading day of the quarter was EUR 15.02. A total of 4,770,293 shares subscribed for based on the share option schemes were entered into the trade register in the first quarter of 2005. After these subscriptions, Fortum's share capital is EUR 2,964,304,273 and the total number of registered shares is 871,854,198. At the end of the quarter, the Finnish state's holding in Fortum was 58.9%. The proportion of international shareholders stood at 25.7%. 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 31 March 2005, a cash dividend of EUR 0.58 (0.42) per share was approved. In addition the Annual General Meeting resolved to distribute as a dividend a total of 217,963,549 Neste Oil Corporation shares so that each shareholder of Fortum Corporation receives as a dividend one (1) Neste Oil Corporation share for each four (4) Fortum Corporation shares, which have a par value of EUR 3.40. The number of members of Fortum's Supervisory Board was confirmed to be 12. The following persons were re-elected to the Supervisory Board: Members of Parliament Lasse Hautala, Rakel Hiltunen, Mikko Immonen, Timo Kalli, Kimmo Kiljunen, Jari Koskinen, Ben Zyskowicz, Industrial Counsellor Kimmo Kalela, and Director General Jorma Huuhtanen. Members of Parliament Jouni Backman and Oras Tynkkynen as well as the second vice chairman of the City Council Martti Alakoski were elected as new members. Timo Kalli was elected as Chairman and Jouni Backman as Deputy Chairman of the Supervisory Board. The Supervisory Board was elected until the end of the following Annual General Meeting. The number of members in the Board of Directors was confirmed to be seven. The following persons were re-elected to the Board of Directors: Peter Fagernäs (Chairman), Birgitta Kantola (Deputy Chairman), Birgitta Johansson-Hedberg, Lasse Kurkilahti and Erkki Virtanen. Matti Lehti and Marianne Lie were elected as new members. The Board of Directors was elected until the end of the following Annual General Meeting. Authorised Public Accountant PricewaterhouseCoopers Oy was re-elected as auditor. Group personnel The average number of employees in the Group during the period from January to March was 13,135 (13,023). The number of employees at the end of the period was 8,731 (13,029). The decrease is due to the separation of Neste Oil. Events after the period under review Kotkan Energia and Nordic Environment Finance Corporation sold their 60 percent and 20 percent ownerships of the company UAB Suomijos Energija to Fortum. After these transactions Fortum will own 90 % of the shares in the company. The acquisition supports the growth targets of Fortum's heat business in Lithuania. The new name of the company will be UAB Fortum Heat Lietuva. Fortum decided to extend the period of validity regarding its offer to buy the shares of E.ON Finland Oyj owned by the City of Espoo to 30 June 2005. Outlook The key market driver influencing Fortum's business performance is the market price of power. Starting in 2005, emission trading has become an important new factor affecting the market price of power. 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 power was EUR 25.9 (28.6) per megawatt-hour on the Nordic power exchange, or 9% lower than the corresponding figure in 2004. In mid-April, the Nordic water reservoirs were about 3 TWh below the average and 9 TWh above the corresponding level for 2004. At the end of April, the market price for emissions allowances for 2005 was around EUR 16 -18 per tonne of CO2 and the market price for coal for the rest of 2005 was around EUR 54 per tonne. At the same time, the power price in the forward market for the rest of 2005 was in the range of EUR 32 - 33 per MWh. At the beginning of April, Fortum had hedged approximately 60% of its Nordic Power Generation sales volume for the next 12 months at approximately the same level as the achieved Nordic Generation power price during the last 12 months. The Oil separation has been completed successfully. Fortum's Nordic strategy remains unchanged and the company's financial position is strong. The prerequisites for future good performance are in place. Espoo, 3 May 2005 Fortum Corporation Board of Directors The figures have not been audited. Fortum's financial reporting in 2005: Interim Reports - January-June on 19 July 2005 - January-September on 20 October 2005 Further information: Mikael Lilius, President and CEO, tel. +358 10 452 9100 Juha Laaksonen, CFO, tel. +358 10 452 4519 FORTUM GROUP JANUARY-MARCH 2005 Interim financial statements are unaudited CONDENSED CONSOLIDATED INCOME STATEMENT MEUR Q1 Q1 2004 Last 2005 2004 twelve months Continuing operations: Sales 1133 1129 3835 3839 Other income 38 32 91 97 Materials and services -438 -446 -1507 -1499 Employee benefit costs -129 -115 -462 -476 Depreciation, amortisation and -103 -93 -388 -398 impairment charges Other expenses -97 -100 -374 -371 Operating 404 407 1195 1192 profit Share of profit of associates 15 4 12 23 and joint ventures Finance costs-net -35 -78 -245 -202 Profit before income tax 384 333 962 1013 Income tax expense -116 -111 -259 -264 Profit for the period from 268 222 703 749 continuing operations Discontinued operations: Profit for the period from 81 102 589 568 discontinued operations Profit for the period 349 324 1292 1317 Attributable to: Equity holders of the company 324 304 1259 1279 Minority interest 25 20 33 38 349 324 1292 1317 Earnings per share for profit from total Fortum Group attributable to the equity holders of the company during the year (in € per share) Basic 0,37 0,36 1,48 1,49 Diluted 0,36 0,35 1,46 1,47 Earnings per share for profit from continuing operations attributable to the equity holders of the company during the year (in € per share) Basic 0,28 0,24 0,79 0,83 Diluted 0,27 0,23 0,78 0,82 Earnings per share for profit from discontinued operations attributable to the equity holders of the company during the year (in € per share) Basic 0,09 0,12 0,69 0,66 Diluted 0,09 0,12 0,68 0,65 CONDENSED CONSOLIDATED BALANCE SHEET MEUR March 31 March 31 Dec 31 2005 2004 2004 ASSETS Non-current assets Intangible assets 185 160 116 Property, plant and equipment 10241 11583 11925 Other long-term investments 2122 2119 2355 Other long-term receivables 73 100 90 Long-term interest bearing 649 711 727 receivables Total non-current assets 13270 14673 15213 Current assets Inventories 231 578 654 Trade and other receivables 1129 1527 1555 Interest-bearing receivable 804 - - Available for sale financial assets 553 - - Cash and cash equivalents 158 193 145 Total current assets 2875 2298 2354 Total assets 16145 16971 17567 EQUITY Capital and reserves attributable the Company's equity holders Share capital 2964 2889 2948 Other equity 3736 3412 4552 Total 6700 6301 7500 Minority interest 171 136 150 Total equity 6871 6437 7650 LIABILITIES Non-current liabilities Interest-bearing liabilities 4063 4468 4450 Deferred tax liabilities 1645 1796 1841 Provisions 577 566 608 Other liabilities 503 535 507 Total non-current liabilities 6788 7365 7406 Current liabilities Interest-bearing liabilities 973 1251 790 Trade and other payables 1) 1513 1918 1721 Total current liabilities 2486 3169 2511 Total liabilities 9274 10534 9917 Total equity and liabilities 16145 16971 17567 1) Dividends to Fortum shareholders EUR 506 million (EUR 357 million in 2004) are booked as a liability at the end of the first quarter. The cash-flow impact is shown in the second quarter. CHANGE IN TOTAL EQUITY MEUR Share Share Share Other Fair Retained Minority Total capital issue premium restrict value earnings ed funds and other reserves Total equity 2948 13 62 134 4343 150 7650 at 31.12.2004 Stock options 16 -13 7 10 excercised Translation and other -2 -11 1 -12 differences Cash dividend -506 -506 Share dividend 2) -927 -6 -933 Cash flow and fair value -119 28 1 -90 hedges Other fair value 410 -7 403 adjustments Net profit for the period 324 25 349 Total equity 2964 0 69 -2 425 3244 171 6871 at 31.3.2005 Total equity 2886 5 36 0 63 3399 120 6509 at 31.12.2003 Stock options 3 -5 2 0 excercised Translation and other 14 -4 10 differences Cash dividend -357 -357 Cash flow and fair value -54 2 -52 hedges Other fair value 3 3 adjustments Net profit for the period 304 20 324 Total equity 2889 0 38 0 12 3362 136 6437 at 31.3.2004 2) The effect from the share dividend on Fortum Group equity is EUR 927 million. In the parent company the effect on retained earnings is EUR 969 million. CONSOLIDATED CASH FLOW STATEMENT MEUR March 31 March 31 Dec 31 2005 2004 2004 Cash flow from operating activities Operating profit before depreciations 521 504 1595 continuing operations Non-cash flow items and divesting activities -30 -1 -49 Financial items and realised foreign -84 5 -181 exchange gains and losses Taxes -121 -33 -160 Funds form operations continuing operations 286 475 1205 Change in working capital -224 -118 27 Net cash from operating activities 62 357 1232 continuing operations Net cash from operating activities 152 96 526 discontinued operations Total net cash from operating activities 214 453 1758 Cash flow from investing activities Capital expenditures -49 -57 -335 Acquisition of shares -179 Proceeds from sales of fixed assets 6 6 60 Proceeds from sales of shares 2 1 15 Change in other investments -4 -45 -20 Net cash used in investing activities -45 -95 -459 continuing operations Net cash used in investing activities -137 -47 -277 discontinued operations Total net cash used in investing activities -182 -142 -736 Cash flow from financing activities Net change in loans -15 -508 -811 Dividends paid to the Company´s equity holders -357 Other financing items 10 -2 94 Net cash used in financing activities -5 -510 -1074 continuing operations Net cash used in financing activities 49 -41 -236 discontinued operations 3) Total net cash used in financing activities 44 -551 -1310 Total net increase (+)/decrease (-) in cash and marketable securities 76 -240 -288 De-consolidation of Neste Oil -63 Total net increase (+)/decrease (-) in cash and marketable securities, continuing 13 operations 3) The cash flow from financing activities discontinued operations is shown as used to repay loans since the Treasury operations have been centralised for the total Fortum Group. In first quarter 2005 the effect on cash from de- consolidation of Neste Oil is netted in financing activities. KEY RATIOS 4) MEUR March March June 30 Sept 30 Dec 31 Last 31 31 2004 2004 2004 twelve 2005 2004 months Earnings per share total 0,37 0,36 0,8 1,09 1,48 1,49 Fortum (basic), EUR Earnings per share 0,28 0,24 0,45 0,58 0,79 continuing operations (basic), EUR Capital employed, MEUR 5) 11907 12156 12447 12762 12890 Interest-bearing net 4878 5526 5512 5445 5095 debt, MEUR Capital expenditure and 49 57 158 306 514 506 investments in shares continuing operations, MEUR Capital expenditure 49 57 128 201 335 327 continuing operations, MEUR Return on capital 18,0 18,6 17,0 15,0 15,8 16,8 employed, % Return on shareholders' 19,2 19,9 20,9 18,4 18,2 19,8 equity, % Interest coverage 11,5 7,1 8,3 7,8 8,0 9,2 Funds from 39,3 44,4 38,2 33,1 36,4 35,3 operations/interest- bearing net debt, % Gearing, % 71 86 82 77 67 Equity per share, EUR 7,69 7,41 7,77 8,19 8,62 Equity-to-assets ratio, % 43 38 40 41 44 Average number of 13135 13023 13097 13112 12859 employees Average number of 871710 849698 849698 849823 852625 shares, 1 000 shares Diluted adjusted average 883774 867344 867907 870806 861772 number of shares, 1 000 shares Number of shares, 1 000 871854 849813 849813 850262 869749 856404 shares 4) Key ratios are based on Fortum total numbers including continuing and discontinued operations if otherwise not stated 5) Capital employed at March 31 2005 does not represent continuing operations since 15% of the shares in Neste Oil and the interest-bearing receivable from Neste Oil are included CHANGES IN INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT MEUR March 31 March 31 Dec 31 2005 2004 2004 Opening balance 12041 11923 11923 Acquistion of subsidiary companies -2 31 Capital expenditures 148 107 648 Emission rights 144 Disposals -2 -14 -152 Depreciation, amortisation and impairment -139 -125 -527 Translation differences -111 -148 118 Closing balance before de-consolidation 12079 11743 12041 of Nest Oil De-consolidation of Neste Oil -1653 Closing balance 10426 11743 12041 SALES BY SEGMENTS MEUR Q1 Q1 2004 Last twelve 2005 2004 months Power Generation 534 560 2084 2058 - of which internal 55 36 128 147 Heat 385 361 1025 1049 - of which internal 12 36 49 25 Distribution 202 206 707 703 - of which internal 2 3 10 9 Markets 392 419 1387 1360 - of which internal 25 25 92 92 Other 23 20 90 93 - of which internal 22 19 93 96 Eliminations 6) -403 -437 -1458 -1424 Sales from continuing operations 1133 1129 3835 3839 Sales from discontinued 2061 1710 7909 8260 operations Eliminations -20 -21 -85 -84 Total 3174 2818 11659 12015 6) Eliminations include sales and purchases with Nordpool that is netted on Group level on an hourly basis and posted either as revenue or cost depending on if Fortum is a net seller or net buyer during any particular hour OPERATING PROFIT BY SEGMENTS MEUR Q1 Q1 2004 Last twelve 2005 2004 months Power Generation 222 222 763 763 Heat 111 104 218 225 Distribution 71 83 234 222 Markets 6 16 34 24 Other -6 -18 -54 -42 Operating profit from 404 407 1195 1192 continuing operations Operating profit from 124 150 721 695 discontinued operations Total 528 557 1916 1887 NON-RECURRING ITEMS IN OPERATING PROFIT BY SEGMENTS MEUR Q1 Q1 2004 Last twelve 2005 2004 months Power Generation 0 -6 9 15 Heat 0 0 4 4 Distribution 0 0 2 2 Markets 0 0 0 0 Other 6 0 3 9 Non-recurring items from 6 -6 18 30 continuing operations Non-recurring items from 59 9 97 147 discontinued operations Total 65 3 115 177 Includes positive one-time effects of change in treatment of Finnish TEL disability pension liability in Q4 2004. DEPRECIATION, AMORTISATION AND IMPAIRMENT CHARGES BY SEGMENTS MEUR Q1 Q1 2004 Last twelve 2005 2004 months Power Generation 28 28 104 105 Heat 31 28 124 127 Distribution 37 33 133 137 Markets 4 4 16 16 Other 3 0 11 14 Depr., amort. and imp. 103 93 388 398 charges from continuing operations Depr., amort. and imp. 36 32 139 143 charges from discontinued operations Total 139 125 527 541 SHARE OF PROFITS IN ASSOCIATES AND JOINT VENTURES BY SEGMENTS MEUR Q1 Q1 2004 Last twelve 2005 2004 months Power Generation 7) 2 -5 -18 -11 Heat 6 5 15 16 Distribution 7 5 16 18 Markets 0 0 0 0 Other 0 -1 -1 0 Share of profits in ass. 15 4 12 23 from continuing operations Share of profits in ass. -2 3 36 31 from discontinued operations Total 13 7 48 54 7) The main part of the associated companies in Power Generation are power production companies from which Fortum purchase produced electricity at cost. The share of profit according to IFRS also includes depreciations on fair value adjustments made when acquiring the shareholdings (in FAS included in Other expenses) INVESTMENTS IN ASSOCIATES AND JOINT VENTURES BY SEGMENTS MEUR March 31 March 31 Dec 31 2005 2004 2004 Power Generation 1204 1084 1208 Heat 140 92 127 Distribution 200 189 196 Markets 8 10 8 Other 0 0 0 Investments in associated from continuing 1552 1375 1539 operations Investments in associates from discontinued - 114 140 operations Total 1552 1489 1679 CAPITAL EXPENDITURE AND INVESTMENTS IN SHARES BY SEGMENTS MEUR Q1 Q1 2004 2005 2004 Power Generation 18 14 210 Heat 12 23 175 Distribution 15 14 106 Markets 1 2 6 Other 3 4 17 Capital expenditure and investments in 49 57 514 shares from continuing operations Capital expenditure and investments in 99 50 316 shares from discontinuing operations Total 148 107 830 NET ASSETS BY SEGMENTS MEUR March 31 March 31 Dec 31 2005 2004 2004 Power Generation 6106 6087 6218 Heat 2457 2373 2440 Distribution 3113 3095 3091 Markets 222 153 194 Other and Eliminations 163 128 -43 Net assets from continuing operations 12061 11836 11900 Net assets from discontinued operations - 1808 2011 Eliminations - 14 2 Total 12061 13658 13913 RETURN ON NET ASSETS BY SEGMENTS % March March March March Dec Dec Last Last 31 31 31 31 31 31 twelve twelve 2005 2005*) 2004 2004*) 2004 2004*) months months*) Power 14,5 14,5 14,0 14,4 12,1 11,9 12,2 12,0 Generation Heat 19,1 19,1 18,3 18,3 9,8 9,6 10,1 9,9 Distribution 10,1 10,1 11,3 11,3 8,1 8,0 7,7 7,7 Markets 11,5 11,5 77,6 77,6 25,3 25,3 13,6 13,6 Return on net assets is calculated by dividing the sum of operating profit and share of profit of associated companies and joint venturers with average net assets. *) Non-recurring items deducted from operating profit ASSETS BY SEGMENTS MEUR March March Dec 31 31 31 2005 2004 2004 Power Generation 7015 6960 7108 Heat 2798 2644 2742 Distribution 3537 3494 3514 Markets 476 500 375 Other and Eliminations -42 -221 -156 Assets from continuing operations 13784 13377 13583 Assets from discontinuing operations - 2495 2756 Eliminations - -24 -32 Assets included in Net assets 13784 15848 16307 Interest-bearing receivables 1453 711 728 Deferred taxes 61 21 106 Other assets 136 198 281 Available for sale financial assets 553 Cash and cash equivalents 158 193 145 Total assets 16145 16971 17567 LIABILITIES BY SEGMENTS MEUR March March Dec 31 31 31 2005 2004 2004 Power Generation 909 873 890 Heat 341 271 302 Distribution 424 399 423 Markets 254 347 181 Other and Eliminations -205 -349 -113 Liabilities from continuing operations 1723 1541 1683 Liabilities from discontinuing operations - 687 745 Eliminations - -38 -34 Liabilities included in Net assets 1723 2190 2394 Deferred tax liabilities 1645 1796 1841 Other 8) 870 829 442 Total liabilities included in capital employed 4238 4815 4677 Interest-bearing liabilities 5036 5719 5240 Total equity 6871 6437 7650 Total equity and liabilities 16145 16971 17567 8) Cash dividends to Fortum shareholders, EUR 506 million in 2005 (EUR 357 million in 2004), are booked as a liability at the end of the first quarter. The cash-flow impact is shown in the second quarter. QUARTERLY SALES BY SEGMENTS MEUR Q1 Q4 Q3 Q2 Q1 2005 2004 2004 2004 2004 Power Generation 534 583 453 488 560 - of which internal 55 55 11 26 36 Heat 385 316 149 198 361 - of which internal 12 9 1 3 36 Distribution 202 194 150 157 206 - of which internal 2 3 3 1 3 Markets 392 378 287 303 419 - of which internal 25 28 17 22 25 Other 23 23 22 25 20 - of which internal 22 11 7 9 10 Eliminations -403 -410 -296 -314 -437 Sales from continuing operations 1133 1084 765 857 1129 Sales from discontinued 2061 2108 2091 2000 1710 operations Eliminations -20 -17 -20 -27 -21 Total 3174 3175 2836 2830 2818 QUARTERLY OPERATING PROFIT BY SEGMENTS MEUR Q1 Q4 Q3 Q2 Q1 2005 2004 2004 2004 2004 Power Generation 222 241 128 172 222 Heat 111 75 12 27 104 Distribution 71 51 45 55 83 Markets 6 0 13 5 16 Other -6 -4 -21 -11 -18 Operating profit from continuing 404 363 177 248 407 operations Operating profit from 124 183 165 223 150 discontinued operations Total 528 546 342 471 557 FAS operating profit is not comparable with previously reported. Share of profit in associated companies and joint ventures is according to IFRS recorded after operating profit. DISCONTINUED OPERATIONS (including eliminations between Fortum and discontinued operations) MEUR Q1 Q1 2004 2005 2004 Sales 2061 1710 7909 Other income 12 12 66 Materials and services -1736 -1444 -6439 Employee benefit costs -57 -52 -211 Depreciation, amortisation and impairment -36 -32 -139 charges Other expenses -120 -44 -465 Operating profit 124 150 721 Share of profit of associates and joint -2 3 36 ventures Finance costs-net -6 -20 -19 Profit before income tax 116 133 738 Income tax expense -35 -31 -149 Profit for the year from discontinued 81 102 589 operations CONTINGENT LIABILITIES MEUR March 31 March 31 Dec 31 2005 2004 2004 Contingent liabilities On own behalf For debt Pledges 156 161 160 Real estate 71 91 113 mortgages For other commitments Real estate 70 55 59 mortgages Sale and leaseback - 8 - Other contingent liabilities 72 101 76 Total 369 416 408 On behalf of associated companies and joint ventures Pledges and real estate mortgages 3 12 12 Guarantees 247 478 335 Other contingent liabilities 182 182 182 Total 432 672 529 On behalf of others Guarantees 3 16 3 Other contingent liabilities 2 6 5 Total 5 22 8 Total 806 1110 945 Operating lease liabilities Due within a year 15 73 87 Due after one year and within five years 39 76 81 Due after five years 10 65 64 Total 64 214 232 NUCLEAR MEUR March 31 March 31 Dec 31 2005 2004 2004 Liability for nuclear waste disposal according to the Nuclear Energy Act in Finland Liability 1) 596 570 596 Share of reserves in the Nuclear Waste -596 -570 -581 Disposal Fund 2) Liabilities in the balance sheet 3) 0 0 15 1) Discounted liability in the balance sheet is EUR 404 (366) million as of 31 March 2005 (and 2004 respectively). 2) Value of the Fund Asset in the balance sheet is EUR 404 (366) million as of 31 March 2005 (and 2004 respectively) due to IFRIC Interpretation 5, which states that it can not exceed the value of the related liabilities 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 form the natural gas supply agreement between Gasum and OOO Gazexport. DERIVATIVES MEUR March 31 March 31 Dec 31 2005 2004 2004 Interest and currency Notional Net Notional Net Notional Net derivatives value fair value fair value fair value value value Forward interest rate - - 330 - - - agreements Interest rate swaps 3359 -41 4178 -104 1218 -28 Forward foreign exchange 8338 44 8076 86 8176 -32 contracts4) Interest rate and currency 317 -15 339 8 310 -7 swaps Purchased currency options 727 -7 425 -5 438 17 Written currency options 357 5 425 -4 438 6 4) Include also contracts for equity hedging Electricity derivatives Volume Net Volume Net Volume Net fair fair fair value value value TWh MEUR TWh MEUR TWh MEUR Sales contracts 74 -125 66 -198 70 204 Purchase contracts 46 162 42 194 42 -53 Purchased options 1 -1 - - 1 -1 Written options 7 -3 - - 1 - Oil derivatives Volume Net Volume Net Volume Net fair fair fair value value value 1000 MEUR 1000 MEUR 1000 MEUR bbl bbl bbl Sales contracts 50 -1 30596 1 44588 26 Purchase contracts 770 11 33712 9 70258 7 Purchased options - - 3650 - 4797 2 Written options - - 2598 - 6784 -2 Accounting principles This interim report has been prepared in accordance with IAS 34, Interim Financial Reporting. As of 2005 Fortum is applying International Financial reporting Standards (IFRS). The most important changes for Fortum continuing operations are: - Derivatives are being carried at fair value in the balance sheet. Fair value changes effects the income statement if hedge accounting is not applied. (IAS 39) - Fortum´s part of the Finnish nuclear waste fund and the future liabilities for spent fuel and decomissioning regarding nuclear production are disclosed gross in the balance sheet according to IFRIC Interpretation 5. - The minority preference shares with option agreement in Nybroviken Kraft AB Group accounted for as minority interest under Finnish GAAP is reclassified as interest-bearing liabilities under IFRS. - The accounting of pension liabilities according to IAS 19 creates a change to Finnish GAAP, but impacts mainly 2004 since the accounting treatment of the Finnish TEL´s disability pension component changed during the year. - The oil operations in Fortum are regarded as discontinued operations as of March 31, 2005. Discontinued operations are disclosed on one line in the income statement and shown separately in the cash-flow. 2004 comparison financials are restated. Fortum has in a press release on April 26, 2005, described the impact of the trabnsition to IFRS on 2004 financial information. The document also included restated quarterly information and reconciliations of equity and net profit between Finnish GAAP and IFRS. The detailed accounting principles used can be found on the Fortum website: www.fortum.com/Investors/Financial Information Emission rights As of January 1, 2005 Fortum is applying IFRIC Interpreatation 3 in accounting for emission rights. The emission rights scheme gives rise to an asset for emission rights held, a government grant and a liability for the obligation to deliver emission rights equal to actual emissions as well as recordings of applicable deferred taxes. Emission rights received are accounted as government grants in accordance with IAS 20 (Accounting for Government Grants and Disclosure of Government Assistance) i.e. is recognized as deferred income at current market value of the allowance at receipt and amortized in proportion to actual and estimated emissions during the year. Emission rights are recognized in the balance sheet as intangible assets according to IAS 38 (Intangible assets) and valued at fair value. Reductions in fair value are charged to income statement and increases to equity. Liability for the obligation to deliver emission rights is accounted for in accordance with IAS 37 (Provisions, Contingent Liabilities and Contingent Assets). The liability is recognized based on actual emissions and at current market value of the emission rights. Changes in the liability are charged to income. Definitions of key figures in IFRS reporting Return on = 100 x Profit for the period shareholders' equity, % Total equity average Return on capital = 100 x Profit before taxes + interest and other employed, % financial expenses Capital employed average Return on net = 100 x Operating profit + share of profit (loss) in assets, % associated companies and joint ventures Net assets average Capital employed = Total assets - non-interest bearing liabilities - deferred tax liabilities - provisions Net assets = Non-interest bearing assets + interest-bearing assets related to the Nuclear Waste Fund - non-interest bearing liabilities - provisions (excluding finance related items, tax and deferred tax and assets and liabilities from fair valuations of derivatives where hedge accounting is applied) Interest-bearing = Interest-bearing liabilities - cash and cash net debt equivalents Gearing, % = 100 x Interest-bearing net debt Total equity Equity per share, = Shareholder´s EUR equity Number of shares at the close of the period Equity-to-assets = 100 x Total equity including minority interest ratio, % Total assets Interest coverage = Operating profit Net interest expenses Earnings per share = Profit for the period (EPS) Adjusted average number of shares during the period