Fortum Corporation Interim Report January - June 2005

Fortum Corporation Interim Report January - June 2005 Solid business performance continued in Fortum - Good results in the first half-year January-June in brief - Profit before taxes from continuing operations EUR 571 (538) million - Comparable operating profit*) EUR 654 (608) million - Earnings per share from continuing operations EUR 0.45 (0.45) - Strong net cash from operating activities of EUR 454 (399) million in the second quarter, net debt decreased to EUR 3,595 million - A EUR 390 million tax free gain on the sale of Neste Oil shares booked in the second quarter results Items related to oil businesses 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 II/05 II/04 I-II/05 I-II/04 2004 Last 12 Income statement and cash months flow for continuing operations (LTM) Net sales, EUR million 858 857 1,991 1,986 3,835 3,840 Operating profit, EUR 227 248 633 655 1,195 1,173 million Comparable operating 261 211 654 608 1,148 1,194 profit, EUR million*) Profit before taxes, EUR 185 205 571 538 962 995 million Earnings per share, 0.17 0.21 0.45 0.45 0.79 0.79 continuing operations, EUR **) Total earnings per share, 0.61 0.44 0.99 0.80 1.48 1.68 EUR Total net cash from 435 594 649 1,047 1,758 operating activities, EUR million Net cash from operating 454 399 516 756 1,232 activities, continuing operations, EUR million Average number of shares, 872,316 849,698 852,625 858,710 000s *) Comparable operating profit represents the underlying business performance by excluding items effecting comparability. These are mainly caused by the accounting effects from fair valuation of financial derivatives for future cash flows where hedge accounting is not applied (IAS 39) or non-recurring items. Comparable II/05 II/04 I-II/05 I-II/04 2004 Last 12 operating profit months EUR million (LTM) Comparable 261 211 654 608 1,148 1,194 operating profit Non-recurring 12 -1 18 -7 18 43 items Other items -46 38 -39 54 29 -64 effecting comparability Operating profit 227 248 633 655 1,195 1,173 See accounting principles for definitions and segment information for further details. **) Earnings per share in II/04 include a EUR 0.05 positive one-time effect from change in Finnish tax rate from 29% to 26%. Key figures I-II/05 I-II/04 2004 Last 12 Balance sheet months (LTM) Shareholders’ equity per 7.64 7.77 8.62 share, EUR Interest-bearing net debt 3,595 5,512 5,095 (at end of period), EUR million Return on capital employed, % 16.7 17.0 15.8 17.8 Return on shareholders’ equity, % 19.2 20.9 18.2 21.7 Gearing, % 53 82 67 During the first half of the year, Fortum's comparable operating profit shows that business performance was better although reported operating profit was slightly lower than in the first half of 2004. The comparable operating profit was clearly higher than a year ago, EUR 654 compared to EUR 608 million. The reported operating profit was lower at EUR 633 (655) million. Items that effect comparability in operating profit are mainly caused by the accounting effects from fair valuation of financial derivatives for hedging future cash-flows where hedge accounting is not applied (IAS 39) and non- recurring items. Fortum applies hedge accounting for the major part of future cash-flow hedges, but some volatility will always effect the income statement. The rise in electricity forward prices and stronger EUR/SEK exchange rates have caused negative effects from the fair value changes on reported operating profit in the second quarter. In June 2005, the IASB decided to withdraw IFRIC Interpretation 3 in accounting for CO2 emission allowances with immediate effect. Following the decision, Fortum has changed the accounting treatment for emission allowances. The change results in a positive effect on first quarter operating profit with EUR 2 million. See accounting principles. Net sales and results April - June Group net sales stood at EUR 858 (857) million. Group operating profit totalled EUR 227 (248) million. Comparable operating profit stood at EUR 261 (211) million. During the second quarter, the average spot price for power in Nord Pool was at EUR 29.3 (29.5), or 1% lower than during the corresponding period in 2004. The comparable operating profit of the Power generation segment was higher than last year, mainly due to Fortum's higher Nordic Generation power price, which increased to EUR 30.1 (28.3) per megawatt-hour. The impact of lower thermal and nuclear production volumes were more than offset by higher hydro volumes. The reported operating profit of the Power Generation segment was lower than last year, mainly due to the accounting effects from IAS 39. The operating profit of the Heat segment was better than last year, due to cost efficiency improvements in Värme and the gain on the sale of the 50% stake in North Transgas. The Distribution segment was able to improve its operating profit slightly from the previous year. Markets' operating profit was better compared to last year. The customer guarantee- related costs were lower than in the first quarter. Net sales from continuing operations, by segment EUR million II/05 II/04 I-II/05 I-II/04 Power Generation 476 488 1,010 1,048 Heat 206 198 591 559 Distribution 160 157 362 363 Markets 298 303 690 722 Other 22 25 45 45 Eliminations -304 -314 -707 -751 Total 858 857 1,991 1,986 Comparable operating profit from continuing operations, by segment EUR million II/05 II/04 I-II/05 I-II/04 Power Generation 172 145 396 363 Heat 37 24 144 125 Distribution 55 51 121 132 Markets 8 5 15 14 Other -11 -14 -22 -26 Total 261 211 654 608 Operating profit from continuing operations, by segment EUR million II/05 II/04 I-II/05 I-II/04 Power Generation 125 172 348 394 Heat 50 27 162 131 Distribution 56 55 127 138 Markets 8 5 14 21 Other -12 -11 -18 -29 Total 227 248 633 655 January - June Group net sales from continuing operations stood at EUR 1,991 (1,986) million. Group operating profit from continuing operations totalled EUR 633 (655) million. Comparable operating profit stood at EUR 654 (608) million. In January-June, the average spot price was EUR 27.6 (29.1) per megawatt-hour, or 5% lower than during the corresponding period in 2004. Lower thermal power generation volumes led to lower sales in the first half of 2005. The comparable operating profit of the Power Generation segment was higher, mainly due to Fortum's 6% higher Nordic Generation power price of EUR 30.8 (29.0) per megawatt-hour. The reported operating profit of the Power Generation segment was lower than last year, mainly due to the accounting effects from IAS 39. The Heat segment's net sales were higher than last year, mainly due to the acquisitions in Poland and Lithuania. The Heat segment's power sales volume was lower than last year. The segment's operating profit was clearly higher mainly due to the strong second quarter of the year. The Distribution segment's net sales were at the same level as last year. The segment's operating profit was lower than last year, mainly due to the EUR 11 million in costs from the January storms in Sweden and Norway, which were booked in the first-quarter earnings. Markets' net sales were lower, mainly due to the expiration of some large contracts. The segment continued to experience a positive inflow of customers. Profit before taxes from continuing operations was EUR 571 (538) million. The Group's net financial expenses from continuing operations amounted to EUR 78 (125) million. Net financial expenses include a positive, approximately EUR 9 (2) million change in the fair value of certain derivatives that do not qualify for hedge accounting under IFRS (IAS 39). The share of profit of associates and joint ventures from continuing operations was EUR 16 (8) million. Minority interests accounted for EUR 32 (22) 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 149 (131) million. The tax rate according to the income statement was 26.1% (24.3%). In 2004, taxes for the period included a decrease in deferred tax liabilities of EUR 43 million due to the change in the Finnish income tax rate from 29% to 26%. Total net profit for the period was EUR 896 (702) million. The net profit from continuing operations was EUR 422 (407) million. Total Fortum earnings per share were EUR 0.99 (0.80), and earnings per share from continuing operations were EUR 0.45 (0.45). Earnings per share last year included a positive effect of EUR 0.05 from the corporate tax rate change in Finland. Return on capital employed was 16.7% (17.0%) and return on shareholders' equity was 19.2% (20.9%). Market conditions According to preliminary statistics, the Nordic countries consumed 86 (87) TWh of electricity during the second quarter of the year, which was 1.5% less than during the corresponding period of the previous year. The decrease was due to the strike and lock-out in the Finnish paper industry. During the second quarter, the average spot price for power in Nord Pool, the Nordic power exchange, was EUR 29.3 (29.5) per megawatt-hour, or 1% lower than during the corresponding period in 2004 and 13% higher than during the previous quarter. The increase in the spot price compared to the previous quarter was mainly due to the increase in the market price for CO2 emissions allowances. Power prices in the forward market increased during the first half of the year for the same reason. In January - June, the average spot price was EUR 27.6 (29.1) per megawatt-hour, or 5% lower than during the corresponding period in 2004. During the first half of the year, the market price for CO2 emissions allowances increased from around EUR 7 per tonne to around EUR 25 per tonne of CO2, the average for the second quarter being EUR 18.9 per tonne of CO2. The increase in the CO2 price was supported by the EU's decision to cut the National Allocation Plans for Poland, Czech Republic and Italy, and by rising gas prices as well as dry weather in southern Europe. The high market price for CO2 emissions allowances and the relatively low spot price for power has decreased thermal power generation and increased hydro power generation in the Nordic countries. In Continental Europe the spot price for power has been higher than in Nord Pool, resulting in exports from the Nordic countries to Germany. Despite the high Nordic hydro production, the Nordic water reservoirs have recovered during the second quarter. In the beginning of July, the Nordic water reservoirs were 2 TWh below the average and 14 TWh above the corresponding level in 2004. Fortum's power generation in the Nordic countries during January-June was 26.2 (27.4) TWh, 13% (14%) 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 II/05 II/04 I-II/05 I-II/04 2004 LTM and heat generation, TWh Power generation 12.1 12.6 26.8 28.0 55.5 54.3 Heat generation 4.5 4.7 14.2 14.0 25.4 25.6 Fortum's own power II/05 II/04 I-II/05 I-II/04 2004 LTM generation by source, TWh, total in the Nordic countries Hydropower 5.2 3.9 10.8 8.6 19.1 21.3 Nuclear power 5.9 6.5 12.9 13.5 25.8 25.2 Thermal power 0.8 1.8 2.5 5.3 9.5 6.7 Total 11.9 12.2 26.2 27.4 54.4 53.2 Fortum's own power II/05 II/04 I-II/05 I-II/04 2004 LTM generation by source, %, total in the Nordic countries Hydropower 44 32 41 32 35 40 Nuclear power 49 53 49 49 47 47 Thermal power 7 15 10 19 18 13 Total 100 100 100 100 100 100 Total electricity and heat sales figures Fortum's total electricity sales amounted to 30.2 (31.5) TWh. Sales volumes in the Nordic countries were at 29.5 (30.7) TWh, representing approximately 15% (15%) of Nordic electricity consumption during January-June. Heat sales in the Nordic countries amounted to 11.0 (11.4) TWh and in other countries to 2.4 (1.8) TWh. The segments sell their electricity to Nord Pool or external customers and purchase electricity 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 II/05 II/04 I-II/05 I-II/04 2004 LTM electricity and heat sales, EUR million Electricity sales 454 453 1,000 1,017 2,017 2,000 Heat sales 167 156 481 440 809 850 Fortum's total II/05 II/04 I-II/05 I-II/04 2004 LTM electricity sales by area, TWh Sweden 6.9 5.9 15.1 14.0 27.6 28.7 Finland 6.0 7.1 13.4 15.6 31.1 28.9 Other countries 0.7 0.8 1.7 1.9 3.6 3.4 Total 13.6 13.8 30.2 31.5 62.3 61.0 Fortum's total heat II/05 II/04 I-II/05 I-II/04 2004 LTM sales by area, TWh Sweden 1.7 1.6 5.6 5.6 9.6 9.6 Finland 1.7 2.2 5.3 5.7 10.5 10.1 Other countries 0.9 0.7 2.5 1.9 3.7 4.3 Total 4.3 4.5 13.4 13.2 23.8 24.0 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 the Generation, the Portfolio Management and Trading (PMT), and the Service business units. EUR million II/05 II/04 I-II/05 I-II/04 2004 LTM Net sales 476 488 1,010 1,048 2,084 2,046 - power sales 381 381 834 847 1,695 1,682 - other sales 95 107 176 201 389 364 Operating profit 125 172 348 394 763 717 Comparable operating 172 145 396 363 730 763 profit Net assets (at end of period) 5,970 6,142 6,218 Return on net assets, % 11.3 12.5 12.1 11.5 Comparable return on net 13.2 11.5 11.5 12.4 assets,% The segment's power generation during the second quarter amounted to 11.1 (11.5) TWh in the Nordic countries. The decrease was mainly due to lower thermal power generation and nuclear power generation. In January-June, the segment's power generation in the Nordic countries was 23.9 (24.8) TWh, of which about 10.8 (8.6) TWh or 45% (35%) was hydropower-based, 12.9 (13.5) TWh or 54% (54%) nuclear power-based, and 0.2 (2.7) TWh or 1% (11%) thermal power-based. The increase in hydro power generation was due to a strengthened hydrological situation compared to the corresponding period last year. The decrease in thermal power generation was due to lower power prices during the first quarter and higher fuel and CO2 allowance prices. The decrease in nuclear power generation was mainly due to different timing of maintenance periods compared to the previous year. Power generation by II/05 II/04 I-II/05 I-II/04 2004 LTM area, TWh Sweden 6.5 5.8 14.0 12.8 25.8 27.0 Finland 4.6 5.7 9.9 12.0 24.0 21.9 Other countries 0.3 0.3 0.6 0.6 1.1 1.1 Total 11.4 11.8 24.5 25.4 50.9 50.0 Nordic sales volume, 12.3 12.8 26.7 28.0 55.7 54.4 TWh of which pass-through 1.0 1.1 2.4 2.6 4.7 4.5 sales Sales price, EUR/MWh II/05 II/04 I-II/05 I-II/04 2004 LTM Nordic Generation power 30.1 28.3 30.8 29.0 29.2 30.0 price*) *) For the Power Generation segment in the Nordic area, excluding pass-through sales. Fortum's average Nordic Generation power price (excluding pass-through items) in the second quarter was 6% higher than a year ago, due to higher Finnish and Swedish area spot prices and improved hedging prices. In the second quarter, the average spot price for power in Nord Pool was 1% lower than a year ago. During the first half of the year, Fortum's average Nordic Generation power price was 6% higher, although the average spot price in Nord Pool was 5% lower than during the corresponding period in 2004. The related sales volume was 11.3 (11.7) TWh in the second quarter and 24.3 (25.4) TWh for the first half of the year. The regional power generation company of North-West Russia, Territorial Generation Company 1 (TGC-1), has been established and will start its operation on the first of October. Fortum is a part owner of this company through its shareholding in Lenenergo. Heat The business area comprises heat generation and sales in the Nordic countries and other parts of the Baltic Rim. Fortum is a 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 the Heat and Värme business units. EUR million II/0 II/04 I-II/05 I-II/04 2004 LTM 5 Net sales 206 198 591 559 1,025 1,057 - heat sales 159 149 465 425 779 819 - power sales 28 27 83 90 159 152 - other sales 19 22 43 44 87 86 Operating profit 50 27 162 131 218 249 Comparable operating profit 37 24 144 125 207 226 Net assets (at end of period) 2,302 2,323 2,440 Return on net assets, % 14.2 11.8 9.8 11.1 Comparable return on net assets, % 12.7 11.3 9.3 10.1 The segment's heat sales during the second quarter amounted to 3.8 (4.1) TWh, most of which was generated in the Nordic countries. In January-June, power sales at combined heat and power plants (CHP) totalled 2.4 (2.7) TWh. The decrease was mainly due to the strike and lock-out in the Finnish paper industry. During the two first two quarters, Fortum continued the integration and development of Fortum Czestochowa S.A. in Poland. The company was acquired in December 2004. In April, Fortum acquired the majority (90%) shareholding in UAB Suomijos Energija in Lithuania. The acquisition supports the growth targets of Fortum's heat business in Lithuania. In May, Fortum continued the restructuring of its gas assets and sold its 50% stake in North Transgas Oy to OAO Gazprom. Fortum Värme applied to the City Planning Office to locate a new biomass CHP (Combined Heat and Power) plant of 300 MW heat and 130 MW electricity in Värtan in Stockholm. Heat sales by area, TWh II/05 II/04 I-II/05 I-II/04 2004 LTM Sweden 1.7 1.6 5.6 5.6 9.6 9.6 Finland 1.7 2.2 5.3 5.7 10.5 10.1 Other countries 0.4 0.3 1.5 1.0 1.7 2.2 Total 3.8 4.1 12.4 12.3 21.8 21.9 Power sales, TWh II/05 II/04 I-II/05 I-II/04 2004 LTM Total 0.8 0.9 2.4 2.7 4.8 4.5 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/05 II/04 I-II/ I-II/04 2004 LTM 2005 Net sales 160 157 362 363 707 706 - distribution network 133 132 306 308 593 591 transmission - regional network 19 19 42 42 83 83 transmission - other sales 8 6 14 13 31 32 Operating profit 56 55 127 138 234 223 Comparable operating 55 51 121 132 240 229 profit Net assets (at end of period) 3,036 3,107 3,091 Return on net assets, % 9.1 9.4 8.1 7.9 Comparable return on net assets,% 8.7 9.0 8.3 8.1 During the first half of the year, the volume of distribution and regional transmissions totalled 12.2 (12.0) TWh and 9.1 (9.2) TWh, respectively. Electricity transmissions via the regional distribution network to customers outside the Group totalled 7.5 (7.6) TWh in Sweden and 1.6 (1.6) TWh in Finland. Fortum has launched a project to provide Automatic Meter Management (AMM) to all its electricity distribution customers. AMM means centralised and automatic collection and management of meter and consumption data. The rollout is planned to start in Sweden during 2006 for 850,000 customers and will likely be finished by the end of 2008. The aim is to continue implementing AMM for Fortum's 500,000 customers in Finland, Norway and Estonia. As of 1 July, the grid prices in Finland are identical in Fortum's all network areas. The Energy Market Authority EMI (Energimarknadsinspektionen) in Sweden has proposed a functional demand that no customer shall be without electricity for more than 24 hours. A penalty for outages lasting longer than 12 hours is also proposed. A decision will follow later this year. In Sweden, the process continues with the EMI about supervision of the year 2003 distribution tariffs in selected distribution areas. EMI has commented on the supervised companies' arguments against the charge rate in the regulatory model. Fortum has received a decision on one of its subsidiaries and will appeal. Volume of distributed II/05 II/04 I-II/05 I-II/04 2004 LTM electricity in distribution network, Twh Sweden 3.2 3.1 7.6 7.5 14.2 14.3 Finland 1.3 1.2 3.3 3.2 6.2 6.3 Norway 0.5 0.5 1.2 1.2 2.1 2.1 Estonia 0.0 0.0 0.1 0.1 0.2 0.2 Total 5.0 4.8 12.2 12.0 22.7 22.9 Number of electricity 30.6.2005 30.6.2004 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 1.2 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 II/05 II/04 I-II/05 I-II/04 2004 LTM Net sales 298 303 690 722 1,387 1,355 Operating profit 8 5 14 21 34 27 Comparable operating profit 8 5 15 14 23 24 Net assets (at end of period) 159 177 194 Return on net assets, % 14.6 36.8 25.3 15.2 Comparable return on net assets, % 15.7 24.5 17.1 13.5 During the second quarter, Markets' electricity sales totalled 9.0 (9.6) TWh with sales for the first half of the year amounting to 20.8 (22.4) TWh. The decrease was due to the ending of some large contracts at the end of 2004. Retail electricity prices remained fairly stable on the Nordic market during the second quarter despite the strongly rising market price level. Current prices have reacted slowly to rising Nord Pool prices, but prices for new fixed-price contracts have followed the futures price development in Nord Pool. Overall, the retail price level during the second quarter was slightly lower than the corresponding period the previous year. The positive inflow of customers has continued during the second quarter as a result of successful product launches, campaigns and new partnership contracts. Positive development in customer service has continued as a consequence of investments in customer service quality assurance. Capital expenditures and investments in shares Capital expenditures and investments in shares for continuing operations in January-June totalled EUR 123 (158) million. As a result of the redemption of Lenergo's own shares relating to its reorganisation, Fortum's shareholding in Lenenergo increased to 32.8% of voting shares. Fortum got four of the total of 11 seats in the Board of Directors of Lenenergo on 30 June. Financing Net debt at the end of the second quarter stood at EUR 3,595 million (EUR 4,878 million on 31 March 2005). The reduction in net debt is mainly linked to the separation of Neste Oil and good cash flow generation during the second quarter. The weakening of the Swedish krona also had a reducing effect on net debt. Proceeds from the repayment of internal loans and from the sale of shares in Neste Oil amounted to EUR 1,381 million. During the second quarter, Fortum paid out cash dividends of EUR 506 million. Net cash from operating activities increased to EUR 516 (756) million for the continuing activities. The Group's net financial expenses were EUR 78 (125) million. The decrease is mainly attributable to the lower interest rate, the lower level of net debt, and a positive, approximately EUR 9 (2) million change in the fair value of certain derivatives that do not qualify for hedge accounting under IFRS. During June and July, Fortum's long-term credit rating from Moody's was upgraded from Baa1 (stable) to A2 (stable). Fortum's long-term credit rating from Standard & Poor's is BBB+ (stable). Shares and share capital In January-June, a total of 505.3 million Fortum Corporation shares totalling EUR 6,568 million were traded. Fortum's market capitalisation, calculated using the closing quotation of the last trading day of the quarter, was EUR 11,565 million. The highest quotation of Fortum Corporation shares on the Helsinki Stock Exchange in the first half of the year was EUR 16.05, the lowest EUR 10.45, and the average quotation EUR 13.00. The closing quotation on the last trading day of the quarter was EUR 13.25. A total of 939,277 shares subscribed for based on share option schemes were entered into the trade register in the second quarter of 2005. After these subscriptions, Fortum's share capital is EUR 2,967,497,815 and the total number of registered shares is 872,793,475. On 3 June, the Finnish state sold 62.9 million Fortum shares to Finnish and international investors. At the end of the quarter, the Finnish state's holding in Fortum was 51.7%. The proportion of international shareholders stood at 32.9%. 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. Group personnel The average number of employees in the Group during the period from January to June was 11,066 (13,097). The number of employees at the end of the period was 8,989 (13,140). The decrease is due to the separation of Neste Oil. Events after the period under review 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 September 2005 in order to facilitate further negotiations on the details of the offer. Fortum Markets has announced a price increase for current-price contracts in Finland due to rising prices on the future market. Outlook The key market driver influencing Fortum's business performance is the market price of power. Starting in 2005, emissions trading has become an important new factor effecting the market price of power. The exchange rate of the Swedish krona can also influence Fortum's results. 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 second quarter, the average spot price for power was EUR 29.3 (29.5) per megawatt-hour on the Nordic power exchange, or 1% lower than the corresponding figure in 2004. In the mid-July, the Nordic water reservoirs were about 1 TWh below the average and 15 TWh above the corresponding level for 2004. In the middle of July, the market price for emissions allowances for 2005 ranged between EUR 24-25 per tonne of CO2, and the market price for coal for the rest of 2005 was around EUR 51 per tonne. At the same time, the power price in the forward market for the rest of 2005 was around EUR 37-40 per megawatt-hour. At the beginning of July, Fortum had hedged approximately two-thirds of its Nordic Power Generation sales volume for the next 12 months at approximately the same price level as the achieved Nordic Generation power price during the last 12 months. Thanks to the solid business performance and the separation of the oil businesses, Fortum's financial position is strong. Also market fundamentals support further good performance. Espoo, 19 July 2005 Fortum Corporation Board of Directors The figures have not been audited. Fortum's financial reporting: - Interim Report January-September on 20 October 2005 - Financial statements January-December on 3 February 2006 Further information: Mikael Lilius, President and CEO, tel. +358 10 452 9100 Juha Laaksonen, CFO, tel. +358 10 452 4519 Distribution: Helsinki Stock Exchange Key media FORTUM GROUP JANUARY-JUNE 2005 Interim financial statements are unaudited CONDENSED CONSOLIDATED INCOME STATEMENT MEUR Q2/2005 Q2/2004 Q1-Q2 Q1-Q2 2004 Last 2005 2004 twelve months Continuing operations: Sales 858 857 1991 1986 3835 3840 Other income -11 50 10 82 91 19 Materials and services -294 -340 -712 -786 -1507 -1433 Employee benefit costs -124 -125 -253 -240 -462 -475 Depreciation, amortisation and -101 -99 -204 -192 -388 -400 impairment charges Other expenses -101 -95 -199 -195 -374 -378 Operating profit 227 248 633 655 1195 1173 Share of profit of associates 1 4 16 8 12 20 and joint ventures Finance costs-net -43 -47 -78 -125 -245 -198 Profit before income tax 185 205 571 538 962 995 Income tax expense -33 -20 -149 -131 -259 -277 Profit for the period from 152 185 422 407 703 718 continuing operations Discontinued operations: Profit for the period from 390 193 474 295 589 768 discontinued operations Profit for the period 542 378 896 702 1292 1486 Attributable to: Equity holders of the Company 535 376 864 680 1259 1443 Minority interest 7 2 32 22 33 43 542 378 896 702 1292 1486 Earnings per share for profit from total Fortum Group attributable to the equity holders of the company during the year (in € per share) Basic 0.61 0.44 0.99 0.80 1.48 1.68 Diluted 0.60 0.43 0.98 0.78 1.46 Earnings per share for profit from continuing operations attributable to the equity holders of the company during the year (in € per share) Basic 0.17 0.21 0.45 0.45 0.79 0.79 Diluted 0.16 0.21 0.44 0.44 0.78 Earnings per share for profit from discontinued operations attributable to the equity holders of the company during the year (in € per share) Basic 0.44 0.23 0.54 0.35 0.69 0.89 Diluted 0.44 0.22 0.54 0.34 0.68 CONDENSED CONSOLIDATED BALANCE STATEMENT MEUR June 30 June Dec 2005 30 31 2004 2004 ASSETS Non-current assets Intangible assets 82 143 116 Property, plant and equipment 9965 11661 11925 Other long-term investments 2124 2219 2355 Other long-term receivables 89 90 90 Long-term interest bearing receivables 625 731 727 Total non-current assets 12885 14844 15213 Current assets Inventories 234 596 654 Trade and other receivables 961 1281 1555 Cash and cash equivalents 552 194 145 Total current assets 1747 2071 2354 Total assets 14632 16915 17567 EQUITY Capital and reserves attributable the Company's equity holders Share capital 2968 2889 2948 Other equity 3696 3712 4552 Total 6664 6601 7500 Minority interest 176 140 150 Total equity 6840 6741 7650 LIABILITIES Non-current liabilities Interest-bearing liabilities 3826 4552 4450 Deferred tax liabilities 1580 1774 1841 Provisions 574 560 608 Other liabilities 545 534 507 Total non-current liabilities 6525 7420 7406 Current liabilities Interest-bearing liabilities 321 1154 790 Trade and other payables 946 1600 1721 Total current liabilities 1267 2754 2511 Total liabilities 7792 10174 9917 Total equity and liabilities 14632 16915 17567 CHANGE IN TOTAL EQUITY MEUR Share Share Other Fair Retained Minori- Total capital premium re- value ty stricted and earnings funds other reserves Total equity at 2948 62 13 134 4343 150 7650 31.12.2004 Stock options excercised 20 8 -13 15 Translation and other -78 -10 -88 differences Cash dividend -506 -506 Share dividend *) -920 -920 Cash flow hedges -249 34 4 -211 Other fair value adjustments 4 4 Net profit for the period 864 32 896 Total equity at 2968 70 0 -111 3737 176 6840 30.6.2005 Total equity at 2886 36 5 63 3399 120 6509 31.12.2003 Stock options excercised 3 2 -3 2 Translation and other differences 15 -1 14 Cash dividend -359 -359 Cash flow hedges -139 11 -1 -129 Other fair value adjustments 2 2 Net profit for the period 680 22 702 Total equity at 2889 38 2 -74 3746 140 6741 30.6.2004 *) The effect from the share dividend on Fortum Group equity is EUR 920 million. In the parent company the effect on retained earnings is EUR 969 million. CONSOLIDATED CASH FLOW STATEMENT MEUR Q1-Q2 Q1-Q2 2005 2004 2004 Cash flow from operating activities Operating profit before depreciations 852 855 1595 continuing operations Non-cash flow items and divesting activities -9 -54 -49 Financial items and realised foreign -88 -15 -181 exchange gains and losses Taxes -155 -70 -160 Funds form operations continuing operations 600 716 1205 Change in working capital -84 40 27 Net cash from operating activities 516 756 1232 continuing operations Net cash from operating activities 133 291 526 discontinued operations Total net cash from 649 1047 1758 operating activities Cash flow from investing activities Capital expenditures -123 -128 -335 Acquisition of shares -30 -179 Proceeds from sales of fixed assets 9 11 60 Proceeds from sales of shares 19 9 15 Change in other investments 10 -139 -20 Net cash used in investing activities -85 -277 -459 continuing operations Net cash used in investing activities 1155 -89 -277 discontinued operations Total net cash used in investing activities 1070 -366 -736 Cash flow before financing activities 1719 681 1022 Cash flow from financing activities Net change in loans -846 -383 -811 Dividends paid to the Company´s equity holders -506 -357 -357 Other financing items 11 0 94 Net cash used in financing activities -1341 -740 -1074 continuing operations Net cash used in financing activities 92 -182 -236 discontinued operations *) Total net cash used in financing activities -1312 -922 -1310 Total net increase (+)/decrease (-) in 407 -241 -288 cash and marketable securities Total net increase (+)/decrease (-) in cash and marketable 407 securities, continuing operations *) The cash flow from financing activities discontinued operations in 2004 is shown as used to repay loans since the Treasury operations have been centralised for the total Fortum Group. KEY RATIOS 1) MEUR June March Dec 31 Sept June 30 March Last 30 31 2004 30 2004 31 twelve 2005 2005 2004 2004 months Earnings per share 0.99 0.38 1.48 1.09 0.80 0.36 1.68 total Fortum (basic), EUR Earnings per share 0.45 0.28 0.79 0.58 0.45 0.24 0.79 continuing operations (basic), EUR Capital employed, 10987 11907 12890 12762 12447 12156 - MEUR 2) Interest-bearing net 3595 4878 5095 5445 5512 5526 - debt, MEUR Capital expenditure and investments in shares continuing operations, MEUR 123 49 514 306 158 57 479 Capital expenditure 123 49 335 201 128 57 330 continuing operations, MEUR Return on capital 16.7 18.2 15.8 15.0 17.0 18.6 17.8 employed, % Return on shareholders' 19.2 19.5 18.2 18.4 20.9 19.9 21.7 equity, % Interest coverage 11.3 11.6 8.0 7.8 8.3 7.1 9.5 Funds from operations/interest- 39.3 36.4 33.1 38.2 44.4 35.3 bearing net debt, % Gearing, % 53 71 67 77 82 86 - Equity per share, EUR 7.64 7.67 8.62 8.19 7.77 7.41 - Equity-to-assets ratio, % 43 43 44 41 40 38 - Average number of 11066 13135 12859 13112 13097 13023 - employees Average number of 872316 871710 852625 849823 849698 849698 858710 shares, 1 000 shares Diluted adjusted 883629 883774 861772 870806 867907 867344 - average number of shares, 1 000 shares Number of shares, 872793 871854 869749 850262 849813 849813 - 1 000 shares 1) Key ratios are based on Fortum total numbers including continuing and discontinued operations if otherwise not stated. 2) 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 SALES BY SEGMENTS MEUR Q2 Q2 Q1-Q2 Q1-Q2 2004 Last 2005 2004 2005 2004 twelve months Power 476 488 1010 1048 2084 2046 Generation - of which internal 13 26 68 62 128 134 Heat 206 198 591 559 1025 1057 - of which internal -1 3 11 39 49 21 Distribution 160 157 362 363 707 706 - of which internal 2 1 4 4 10 10 Markets 298 303 690 722 1387 1355 - of which internal 22 22 47 47 92 92 Other 22 25 45 45 90 90 - of which internal 15 24 37 43 93 87 Eliminations *) -304 -314 -707 -751 -1458 -1414 Sales from continuing operations 858 857 1991 1986 3835 3840 Sales from discontinued operations - 2000 2061 3710 7909 Eliminations - -27 -20 -48 -85 Total 858 2830 4032 5648 11659 *) 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 Q2 Q2 Q1-Q2 Q1-Q2 2004 Last 2005 2004 2005 2004 twelve months Power 125 172 348 394 763 717 Generation Heat 50 27 162 131 218 249 Distribution 56 55 127 138 234 223 Markets 8 5 14 21 34 27 Other -12 -11 -18 -29 -54 -43 Operating profit from 227 248 633 655 1195 1173 continuing operations Operating profit from 390 223 517 373 721 discontinued operations Total 617 471 1150 1028 1916 *) The accounting treatment of CO2 emission allowances has been changed according to the decision of IASB to withdraw the IFRIC 3 Emission rights with immediate effect. COMPARABLE OPERATING PROFIT BY SEGMENTS, CONTINUING OPERATIONS MEUR Q2 Q2 Q1-Q2 Q1-Q2 2004 Last 2005 2004 2005 2004 twelve months Power 172 145 396 363 730 763 Generation Heat 37 24 144 125 207 226 Distribution 55 51 121 132 240 229 Markets 8 5 15 14 23 24 Other -11 -14 -22 -26 -52 -48 Comparable operating profit 261 211 654 608 1148 1194 from continuing operations Non-recurring items 12 -1 18 -7 18 43 Other items effecting -46 38 -39 54 29 -64 comparability Operating profit from 227 248 633 655 1195 1173 continuing operations NON-RECURRING ITEMS BY SEGMENTS MEUR Q2 Q2 Q1-Q2 Q1-Q2 2004 Last 2005 2004 2005 2004 twelve months Power 0 -1 0 -7 9 16 Generation Heat 11 0 11 0 4 15 Distribution 1 0 1 0 2 3 Markets 0 0 0 0 0 0 Other 0 0 6 0 3 9 Total 12 -1 18 -7 18 43 OTHER ITEMS EFFECTING COMPARABILITY BY SEGMENTS MEUR Q2 Q2 Q1-Q2 Q1-Q2 2004 Last 2005 2004 2005 2004 twelve months Power -47 28 -48 38 24 -62 Generation Heat 2 3 7 6 7 8 Distribution 0 4 5 6 -8 -9 Markets 0 0 -1 7 11 3 Other -1 3 -2 -3 -5 -4 Total -46 38 -39 54 29 -64 DEPRECIATION, AMORTISATION AND IMPAIRMENT CHARGES BY SEGMENTS MEUR Q2 Q2 Q1-Q2 Q1-Q2 2004 Last 2005 2004 2005 2004 twelve months Power 28 27 56 55 104 105 Generation Heat 31 31 62 59 124 127 Distribution 36 33 73 66 133 140 Markets 4 4 8 8 16 16 Other 2 4 5 4 11 12 Total depreciation, amortisation and impairment charges from continuing operations 101 99 204 192 388 400 Total depreciation, - 36 36 68 139 amortisation and impairment charges from discontinued operations Total 101 135 240 260 527 SHARE OF PROFITS IN ASSOCIATES AND JOINT VENTURES BY SEGMENTS MEUR Q2 Q2 Q1-Q2 Q1-Q2 2004 Last 2005 2004 2005 2004 twelve months Power -6 -3 -4 -8 -18 -14 Generation *) Heat 2 3 8 8 15 15 Distribution 6 3 13 8 16 21 Markets 0 0 0 0 0 0 Other -1 1 -1 0 -1 -2 Share of profits in associates 1 4 16 8 12 20 and joint ventures from continuing operations Share of profits in associates - 8 -2 11 36 and joint ventures from discontinued operations Total 1 12 14 19 48 *) 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. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES BY SEGMENTS MEUR June 30 June Dec 2005 30 31 2004 2004 Power 1190 1156 1208 Generation Heat 139 91 127 Distribution 205 189 196 Markets 9 9 8 Other 0 0 0 Investments in associates and joint ventures 1543 1445 1539 from continuing operations Investments in associates and joint ventures - 123 140 from discontinued operations Total 1543 1568 1679 CAPITAL EXPENDITURE AND INVESTMENTS IN SHARES BY SEGMENTS MEUR Q2 Q2 Q1-Q2 Q1-Q2 2004 2005 2004 2005 2004 Power 21 46 39 60 210 Generation Heat 21 27 33 50 175 Distribution 25 26 40 40 106 Markets 3 0 4 2 6 Other 4 2 7 6 17 Capital expenditure and investments in 74 101 123 158 514 shares from continuing operations Capital expenditure and investments in - 68 99 118 316 shares from discontinuing operations Total 74 169 222 276 830 NET ASSETS BY SEGMENTS MEUR June 30 June Dec 2005 30 31 2004 2004 Power 5970 6142 6218 Generation Heat 2302 2323 2440 Distribution 3036 3107 3091 Markets 159 177 194 Other and 231 126 -43 Eliminations Net assets from continuing operations 11698 11875 11900 Net assets from discontinued operations - 1799 2011 Eliminations - 0 2 Total 11698 13674 13913 RETURN ON NET ASSETS BY SEGMENTS % June March Dec 31 Sept June 30 March Last 30 31 2004 30 2004 31 twelve 2005 2005 2004 2004 months Power 11.3 14.6 12.1 11.0 12.5 14.0 11.5 Generation Heat 14.2 19.3 9.8 8.6 11.8 18.3 11.1 Distribution 9.1 10.1 8.1 8.3 9.4 11.3 7.9 Markets 14.6 11.5 25.3 37.9 36.8 77.6 15.2 COMPARABLE RETURN ON NET ASSETS BY SEGMENTS % June March Dec 31 Sept June 30 March Last 30 31 2004 30 2004 31 twelve 2005 2005 2004 2004 months Power 13.2 14.9 11.5 10.5 11.5 13.8 12.4 Generation Heat 12.7 18.5 9.3 8.0 11.3 17.8 10.1 Distribution 8.7 9.4 8.3 8.3 9.0 11.1 8.1 Markets 15.7 13.5 17.1 26.7 24.5 43.4 13.5 Return on net assets is calculated by dividing the sum of operating profit and share of profit of associated companies and joint ventures with average net assets. ASSETS BY SEGMENTS MEUR June 30 June Dec 2005 30 31 2004 2004 Power 6473 7114 7108 Generation Heat 2556 2560 2742 Distribution 3433 3474 3514 Markets 424 452 375 Other and 343 -259 -156 Eliminations Assets from continuing operations 13229 13341 13583 Assets from discontinuing operations - 2538 2756 Eliminations - -31 -32 Assets included in Net assets 13229 15848 16307 Interest-bearing receivables 628 731 728 Deferred taxes 73 32 106 Other assets 150 110 281 Cash and cash equivalents 552 194 145 Total assets 14632 16915 17567 LIABILITIES BY SEGMENTS MEUR June 30 June Dec 2005 30 31 2004 2004 Power 503 972 890 Generation Heat 254 237 302 Distribution 397 367 423 Markets 265 275 181 Other and Eliminations 112 -385 -113 Liabilities from continuing operations 1531 1466 1683 Liabilities from discontinuing operations - 739 745 Eliminations - -31 -34 Liabilities included in Net assets 1531 2174 2394 Deferred tax liabilities 1580 1774 1841 Other 534 520 442 Total liabilities included in capital employed 3645 4468 4677 Interest-bearing liabilities 4147 5706 5240 Total equity 6840 6741 7650 Total equity and liabilities 14632 16915 17567 CHANGES IN INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT MEUR June 30 June Dec 2005 30 31 2004 2004 Opening balance 12041 11923 11923 Acquisition of subsidiary companies 7 - 31 Capital expenditures 222 244 648 Disposals -12 -29 -152 Depreciation, amortisation and impairment -240 -260 -527 Translation differences -362 -74 118 Closing balance before de-consolidation of Neste Oil 11656 11804 12041 De-consolidation of Neste Oil -1609 Closing balance 10047 11804 12041 QUARTERLY SALES BY SEGMENTS MEUR Q2 Q1 Q4 Q3 Q2 Q1 2005 2005 2004 2004 2004 2004 Power 476 534 583 453 488 560 Generation - of which internal 13 55 55 11 26 36 Heat 206 385 316 149 198 361 - of which internal -1 12 9 1 3 36 Distribution 160 202 194 150 157 206 - of which internal 2 2 3 3 1 3 Markets 298 392 378 287 303 419 - of which internal 22 25 28 17 22 25 Other 22 23 23 22 25 20 - of which internal 15 22 11 7 9 10 Eliminations -304 -403 -410 -296 -314 -437 Sales from continuing operations 858 1133 1084 765 857 1129 Sales from discontinued operations - 2061 2108 2091 2000 1710 Eliminations - -20 -17 -20 -27 -21 Total 858 3174 3175 2836 2830 2818 QUARTERLY OPERATING PROFIT BY SEGMENTS MEUR Q2 Q1 Q4 Q3 Q2 Q1 2005 2005 *) 2004 2004 2004 2004 Power 125 223 241 128 172 222 Generation Heat 50 112 75 12 27 104 Distribution 56 71 51 45 55 83 Markets 8 6 0 13 5 16 Other -12 -6 -4 -21 -11 -18 Operating profit from 227 406 363 177 248 407 continuing operations Operating profit from 390 127 183 165 223 150 discontinued operations Total 617 533 546 342 471 557 *) The accounting treatment of CO2 emission allowances has been changed according to the decision of IASB to withdraw the IFRIC 3 Emission rights with immediate effect. QUARTERLY COMPARABLE OPERATING PROFIT BY SEGMENTS, CONTINUING OPERATIONS MEUR Q2 Q1 Q4 Q3 Q2 Q1 2005 2005 2004 2004 2004 2004 Power 172 224 232 135 145 218 Generation Heat 37 107 75 7 24 101 Distribution 55 66 57 51 51 81 Markets 8 7 -1 10 5 9 Other -11 -11 -14 -12 -14 -12 Comparable operating profit 261 393 349 191 211 397 from continuing operations Non-recurring items 12 6 29 -4 -1 -6 Other items effecting comparability -46 7 -15 -10 38 16 Operating profit from 227 406 363 177 248 407 continuing operations QUARTERLY NON-RECURRING ITEMS IN OPERATING BY SEGMENTS MEUR Q2 Q1 Q4 Q3 Q2 Q1 2005 2005 2004 2004 2004 2004 Power 0 0 18 -2 -1 -6 Generation Heat 11 0 4 0 0 0 Distribution 1 0 2 0 0 0 Markets 0 0 0 0 0 0 Other 0 6 5 -2 0 0 Total 12 6 29 -4 -1 -6 Includes positive one-time effects of change in treatment of Finnish TEL disability pension liability in Q4 2004. QUARTERLY OTHER ITEMS EFFECTING COMPARABILITY MEUR Q2 Q1 Q4 Q3 Q2 Q1 2005 2005 2004 2004 2004 2004 Power -47 -1 -9 -5 28 10 Generation Heat 2 5 -4 5 3 3 Distribution 0 5 -8 -6 4 2 Markets 0 -1 1 3 0 7 Other -1 -1 5 -7 3 -6 Total -46 7 -15 -10 38 16 DISCONTINUED OPERATIONS (including eliminations between Fortum and discontinued operations) MEUR Q2 Q2 Q1-Q2 Q1-Q2 2004 2005 2004 2005*) 2004 Sales - 2000 2061 3710 7909 Other income 390 19 395 31 66 Materials and services - -1565 -1726 -3009 -6439 Employee benefit costs - -54 -57 -106 -211 Depreciation, amortisation and - -36 -36 -68 -139 impairment charges Other expenses - -141 -120 -185 -465 Operating profit 390 223 517 373 721 Share of profit of associates - 8 -2 11 36 and joint ventures Finance costs-net - 0 -6 -20 -19 Profit before income tax 390 231 509 364 738 Income tax expense - -38 -35 -69 -149 Profit for the year from 390 193 474 295 589 discontinued operations *) The accounting treatment of CO2 emission allowances has been changed according to the decision of IASB to withdraw the IFRIC 3 Emission rights with immediate effect. CONTINGENT LIABILITIES MEUR June 30 June Dec 2005 30 31 2004 2004 Contingent liabilities On own behalf For debt Pledges 155 162 160 Real estate mortgages 53 91 113 For other commitments Real estate mortgages 66 57 59 Sale and leaseback - 8 - Other contingent liabilities 101 82 76 Total 375 400 408 On behalf of associated companies and joint ventures Pledges and real estate mortgages 3 11 12 Guarantees 171 442 335 Other contingent liabilities 182 182 182 Total 356 635 529 On behalf of others Guarantees 65 13 3 Other contingent liabilities 2 5 5 Total 67 18 8 Total 798 1053 945 Operating lease liabilities Due within a year 14 72 87 Due after one year and within five years 37 85 81 Due after five years 8 64 64 Total 59 221 232 NUCLEAR MEUR June June Dec 30 30 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 Fund 2) -596 -570 -581 Liabilities in the balance sheet 3) 0 0 15 1) Discounted liability in the balance sheet is EUR 409 (378) million as of 30 June 2005 (and 2004 respectively). 2) Value of the fund asset in the balance sheet is EUR 409 (378) million as of 30 June 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. The company has a collective contingent liability with Neste Oil Oyj of the demerged Fortum Oil and Gas Oy's liabilities based on the Finnish Companies Act's Chapter 14a Paragraph 6. DERIVATIVES MEUR June 30 June 30 Dec 2005 2004 31 2004 Interest and currency Notion Net Notion Net Notion Net derivatives al fair al fair al fair value value value value value value Forward interest rate - - 218 -1 - - agreements Interest rate swaps 3009 15 4012 -90 1218 -28 Forward foreign 7533 154 7280 13 8176 -32 exchange contracts Interest rate and currency swaps 314 3 327 1 310 -7 Purchased currency options - - 1697 -16 438 17 Written currency options - - 1718 -3 438 6 Electricity derivatives Volume Net Volume Net Volume Net fair fair fair value value value TWh MEUR TWh MEUR TWh MEUR Sales contracts 80 -465 70 -382 70 204 Purchase contracts 45 333 40 297 42 -53 Purchased options 1 2 1 -1 Written options 7 -21 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 45 -1 16536 -10 44588 26 Purchase contracts 755 12 57027 17 70258 7 Purchased options - - 7350 -1 4797 2 Written options - - 5500 1 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 allowances As of January 1, 2005 Fortum implemented IFRIC interpretation 3 in accounting for CO2 emission allowances. In June 2005 the IASB decided to withdraw IFRIC 3 with immediate effect Following this decision, Fortum has changed accounting treatment for emission allowances. Fortum will instead account for the CO2 allowances are based on currently valid IFRS standards where purchased CO2 emission allowances are accounted for as intangible assets at cost, whereas CO2 emission allowances received free of charge are accounted for at nominal value. A provision is recognised to cover the obligation to return emission allowances and it is measured at its probable settlement amount. This means that the effect in operating profit will reflect the difference between what has been emitted and received emission allowances. This difference is valued at fair value or the value of the purchased allowances. The effects from the change of accounting principle on previously reported income statement as of March 31, 2005 are: MEUR Current Reported reporting earlier Operating profit -3 -1 Profit for the period from continuing operations -2 -1 Profit for the period from discontinued operations -3 0 Total profit for the period -5 -1 Definitions of key figures Comparable operating = Operating profit - non-recurring items - other profit items effecting comparability Non-recurring = Mainly capital gains and losses items Other items effecting = Includes effects from financial derivatives comparability hedging future cash-flows where hedge accounting is not applied according to IAS 39 and effects from the accounting of Fortum´s part of the Finnish Nuclear Waste Fund where the asset in the balance sheet cannot exceed the related liabilities according to IFRIC interpretation 5. Return on = 100 x Profit for the shareholders' equity, year % Total equity average Return on capital = 100 x Profit before taxes + interest and other employed, % financial expenses Capital employed average Return on net assets, = 100 x Operating profit + share of profit (loss) in % associated companies and joint ventures ventur es Net assets average Capital = Total assets - non-interest bearing liabilities employed - 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 applie d) Interest-bearing net = Interest-bearing liabilities - cash and debt cash equivalents Gearing, % = 100 x Interest-bearing net debt Total equity Equity per share, EUR = Shareholder's equity Number of shares at the close of the period Equity-to-assets = 100 x Total equity including minority ratio, % interest Total assets Interest = Operating coverage profit Net interest expenses Earnings per share = Profit for the period - minority (EPS) interest Adjusted average number of shares during the period