Fortum Corporation
Interim Report January - September 2005
Strong performance continues
- Good results and cash flow in the third quarter
January-September in brief
- Profit before taxes from continuing operations 801 (674) million, up by 19%
- Comparable operating profit* 874 (799) million, up by 9%
- Earnings per share from continuing operations EUR 0.65 (0.58), up by 12%
- Strong net cash from operating activities in continuing operations of EUR 331
(233) million in the third quarter, net debt decreased to EUR 3,333 million.
- Solid third quarter performance with clearly higher operating profit and
earnings per share.
Items related to the oil businesses (separated from Fortum in April 2005) are
reported on a separate line as discontinued operations in the income statement
and are not included in net sales or in operating profit. The discontinued
operations impact only the first two quarters of 2005 and historical figures.
All figures are reported according to IFRS.
Key figures III/05 III/04 I-III/05 I-III/04 2004 Last 12
Income statement and cash flow months
for continuing operations (LTM)
Net sales, EUR million 774 765 2,765 2,751 3,835 3,849
Operating profit, EUR million 240 177 873 832 1,195 1,236
Comparable operating profit, 220 191 874 799 1,148 1,223
EUR million*)
Profit before taxes, EUR 230 136 801 674 962 1,089
million
Earnings per share, continuing 0.20 0.13 0.65 0.58 0.79 0.86
operations, EUR
Total earnings per share, EUR 0.20 0.29 1.19 1.09 1.48 1.58
**)
Total net cash from operating 331 256 980 1,303 1,758
activities, EUR million
Net cash from operating 331 233 847 989 1,232
activities, continuing
operations, EUR million
Average number of shares, 000s 872,438 849,823 852,625 868,515
*) Comparable operating profit represents the underlying business performance by
excluding items affecting 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 III/05 III/04 I-III/05 I-III/04 2004 Last 12
operating profit months
EUR million (LTM)
Comparable 220 191 874 799 1,148 1,223
operating profit
Non-recurring items 2 -4 20 -11 18 49
Other items 18 -10 -21 44 29 -36
effecting
comparability
Operating profit 240 177 873 832 1,195 1,236
See accounting principles for definitions and segment information for further
details.
**) Total earnings per share in II/04 included a EUR 0.05 positive one-time
effect from a change in the Finnish tax rate from 29% to 26%.
Key figures I-III/05 I-III/04 2004 Last 12
Balance sheet months
(LTM)
Shareholders equity per share, EUR 7.86 8.19 8.62
Interest-bearing net debt 3,333 5,445 5,095
(at end of period), EUR million
Return on capital employed, % 15.3 15.0 15.8 17.2
Return on shareholders equity, % 17.6 18.4 18.2 20.1
Gearing, % 47 77 67
During the first nine months of the year, Fortum's comparable operating and
reported operating profit improved from the previous year. The comparable
operating profit was EUR 75 million higher than a year ago, EUR 874 (799)
million. Also the reported operating profit was higher at EUR 873 (832) million.
Items that affect comparability in the 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 by non-
recurring items. Fortum applies hedge accounting for the major part of future
cash-flow hedges, but some volatility will always affect the income statement.
The slight weakening in electricity forward prices and the weakening in EUR/SEK
and EUR/NOK exchange rates have caused positive effects stemming from the fair
value changes on reported operating profit in the third quarter.
Net sales and results
July - September
Group net sales stood at EUR 774 (765) million.
Group operating profit totalled EUR 240 (177) million. Comparable operating
profit stood at EUR 220 (191) million.
During the third quarter, the average spot price for power in Nord Pool was EUR
29.7 (29.9), 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 achieved Nordic Generation power price,
which increased 6% to EUR 29.9 (28.2) per megawatt-hour, mainly thanks to
favourable hedging. The impact of lower thermal production volume was more than
offset by higher hydro and nuclear generation volumes. The reported operating
profit of the Power Generation segment was clearly higher than a year ago, as
items affecting comparability (mainly due to IAS 39) were positive.
The comparable operating profit of the Heat segment was slightly better than
last year. This was mainly due to good results in Fortum Värme. Värme's fuel mix
has improved from last year as the share of bio fuels and waste has increased.
However, higher prices for fuels like oil and coal had a negative effect on the
Heat segment's results.
The Distribution segment's comparable operating profit decreased slightly from
last year. This was mainly due to higher depreciation charges.
Markets' operating profit was slightly lower compared to last year. This was
mainly due to slightly lower sales and somewhat higher costs stemming from
actions to improve customer service quality.
Net sales from continuing operations, by segment
EUR million III/05 III/04 I-III/05 I-III/04
Power Generation 450 453 1,460 1,501
Heat 147 149 738 709
Distribution 149 150 511 513
Markets 284 287 974 1009
Other 26 22 71 67
Eliminations -282 -296 -989 -1,048
Total 774 765 2,765 2,751
Comparable operating profit from continuing operations, by segment
EUR million III/05 III/04 I-III/05 I-III/04
Power Generation 161 135 557 498
Heat 12 7 156 132
Distribution 47 51 168 183
Markets 7 10 22 24
Other -7 -12 -29 -38
Total 220 191 874 799
Operating profit from continuing operations, by segment
EUR million III/05 III/04 I-III/05 I-III/04
Power Generation 181 128 529 522
Heat 13 12 175 143
Distribution 48 45 175 183
Markets 7 13 21 34
Other -9 -21 -27 -50
Total 240 177 873 832
January - September
Group net sales from continuing operations stood at EUR 2,765 (2,751) million.
Group operating profit from continuing operations totalled EUR 873 (832)
million. Comparable operating profit stood at EUR 874 (799) million.
In January-September, the average Nord Pool spot price was EUR 28.3 (29.4) per
megawatt-hour, or 4% lower than during the corresponding period in 2004.
The comparable operating profit of the Power Generation segment was higher,
mainly due to Fortum's 6% higher achieved Nordic Generation power price of EUR
30.5 (28.8) per megawatt-hour and higher amount of nuclear and hydropower
generation. Also the reported operating profit of the Power Generation segment
was higher than last year, the difference in reported and comparable operating
profit being 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 comparable operating profit was higher,
mainly due to the relatively 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.
Market's net sales were lower mainly due to the termination of some large
contracts at the end of 2004. At the same time Markets has been able to retain
its sales margin level mainly due to successful procurement of electricity from
Nord Pool. The first nine months operating profit is affected by the somewhat
higher fixed cost base stemming from customer service quality improvement
actions.
Profit before taxes from continuing operations was EUR 801 (674) million.
The Group's net financial expenses from continuing operations amounted to EUR
100 (167) million. Net financial expenses include a positive EUR 27 (12) 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 28 (9) million. This is mainly explained by Hafslund's results in the
first half of the year.
Minority interests accounted for EUR 31 (19) 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 206 (163) million. The tax rate according to
the income statement was 25.7 % (24.2%). In 2004, taxes for the period included
a decrease in deferred tax liabilities of EUR 43 million of which EUR 27 million
relates to continuing operations due to the change in the Finnish income tax
rate from 29% to 26%.
Total net profit for the period was EUR 1,069 (943) million. The net profit from
continuing operations was EUR 595 (511) million. Total Fortum earnings per share
were EUR 1.19 (1.09), and earnings per share from continuing operations were EUR
0.65 (0.58). Total 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 15.3% (15.0%) and return on shareholders' equity was 17.6% (18.4%).
Market conditions
According to preliminary statistics, the Nordic countries consumed 82 (80) TWh
of electricity during the third quarter of the year, which was 3% more than
during the corresponding period of the previous year.
During the third quarter, the average spot price for power in Nord Pool, the
Nordic power exchange, was EUR 29.7 (29.9) per megawatt-hour, or 1% lower than
in the corresponding period in 2004 and 1% higher than in the previous quarter.
During the third quarter, the average market price for CO2 emissions was higher
than during the previous quarter and the hydrological situation changed from a
deficit to a surplus. Power prices in the forward market had an increasing trend
during the first six months of the year and in the beginning of July because of
the increasing trend in the CO2 prices. During the rest of the third quarter,
the forward prices have stayed below the highest levels in July due to
decreasing CO2 prices and a strengthening hydrological situation. In January -
September, the average spot price was EUR 28.3 (29.4) per megawatt-hour, or 4%
lower than during the corresponding period in 2004.
The market price for CO2 emissions allowances increased from around EUR 7 per
tonne at the beginning of the year to nearly EUR 30 per tonne by mid-July. Since
mid-July, the price has been at a rather stable level of EUR 21-24 per tonne.
The emergence of the CO2 emissions allowances market and a strengthening
hydrological situation have decreased thermal power generation and increased
hydro power generation in the Nordic countries compared to the last year.
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 first nine months of the year. At the beginning of October, the Nordic water
reservoirs were 6 TWh above the average and 13 TWh above the corresponding level
in 2004.
Fortum's power generation in the Nordic countries during January-September was
37.1 (38.8) 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 and III/05 III/04 I-III/05 I-III/04 2004 LTM
heat generation, TWh
Power generation 11.2 11.5 38.0 39.5 55.5 54.0
Heat generation 3.3 3.4 17.5 17.4 25.4 25.5
Fortum's own power III/05 III/04 I-III/05 I-III/04 2004 LTM
generation by source, TWh,
total in the Nordic
countries
Hydropower 4.6 4.4 15.4 13.0 19.1 21.6
Nuclear power 5.9 5.2 18.8 18.7 25.8 25.9
Thermal power 0.4 1.8 2.9 7.1 9.5 5.3
Total 10.9 11.4 37.1 38.8 54.4 52.8
Fortum's own power III/05 III/04 I-III/05 I-III/04 2004 LTM
generation by source, %,
total in the Nordic
countries
Hydropower 42 38 41 34 35 43
Nuclear power 54 46 51 48 47 50
Thermal power 4 16 8 18 18 7
Total 100 100 100 100 100 100
Total electricity and heat sales figures
Fortum's total electricity sales amounted to 43.5 (44.7) TWh. Sales volumes in
the Nordic countries were at 41.7 (43.5) TWh, representing approximately 15%
(15%) of Nordic electricity consumption during January-September. Heat sales in
the Nordic countries amounted to 13.5 (13.9) TWh and in other countries to 3.1
(2.4) 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 electricity III/05 III/04 I-III/05 I-III/04 2004 LTM
and heat sales, EUR million
Electricity sales 427 427 1,427 1,439 2,017 2,004
Heat sales 122 113 603 553 809 859
Fortum's total electricity III/05 III/04 I-III/05 I-III/04 2004 LTM
sales by area, TWh
Sweden 6.9 5.5 22.0 19.5 27.6 30.1
Finland 5.7 7.0 19.1 22.6 31.1 27.6
Other countries 0.7 0.7 2.4 2.6 3.6 3.4
Total 13.3 13.2 43.5 44.7 62.3 61.1
Fortum's total heat sales III/05 III/04 I-III/05 I-III/04 2004 LTM
by area, TWh
Sweden 0.9 0.8 6.5 6.4 9.6 9.7
Finland 1.6 1.7 6.9 7.4 10.5 10.0
Other countries 0.7 0.6 3.2 2.5 3.7 4.4
Total 3.2 3.1 16.6 16.3 23.8 24.1
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 III/05 III/04 I-III/05 I-III/04 2004 LTM
Net sales 450 453 1,460 1,501 2,084 2,043
- power sales 361 357 1,195 1,208 1,695 1,682
- other sales 89 96 265 293 389 361
Operating profit 181 128 529 522 763 770
Comparable operating profit 161 135 557 498 730 789
Net assets (at end of period) 6,037 6,183 6,218
Return on net assets, % 11.7 11.0 12.1 11.5
Comparable return on net 12.5 10.5 11.5 11.9
assets,%
The segment's power generation during the third quarter amounted to 10.5 (10.9)
TWh in the Nordic countries.
In January-September, the segment's power generation in the Nordic countries was
34.4 (35.7) TWh, of which about 15.4 (13.0) TWh or 44% (37%) was hydropower-
based, 18.8 (18.7) TWh or 55% (52%) nuclear power-based, and 0.2 (4.0) 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.
Power generation by area, III/05 III/04 I-III/05 I-III/04 2004 LTM
TWh
Sweden 6.5 5.3 20.5 18.1 25.8 28.2
Finland 4.0 5.6 13.9 17.6 24.0 20.3
Other countries 0.2 0.1 0.8 0.7 1.1 1.2
Total 10.7 11.0 35.2 36.4 50.9 49.6
Nordic sales volume, TWh 11.7 12.1 38.4 40.1 55.7 54.0
of which pass-through 0.9 0.9 3.3 3.5 4.7 4.5
sales
Sales price, EUR/MWh III/05 III/04 I-III/05 I-III/04 2004 LTM
Nordic Generation power 29.9 28.2 30.5 28.8 29.2 30.4
price*
*) For the Power Generation segment in the Nordic area, excluding pass-through
sales.
Fortum's average achieved Nordic Generation power price (excluding pass-through
items) in the third quarter was 6% higher than a year ago, mainly due to
improved hedging prices. In the third quarter, the average spot price for power
in Nord Pool was 1% lower than a year ago. During the first nine months of the
year, Fortum's achieved Nordic Generation power price was 6% higher, although
the average spot price in Nord Pool was 4% lower than during the corresponding
period in 2004. The related sales volume was 10.8 (11.2) TWh in the third
quarter and 35.1 (36.6) TWh for the first nine months of the year.
The regional power generation company of north-west Russia, Territorial
Generation Company 1 (TGC-1), started its operations on the first of October.
Fortum is an indirect owner of this company through its ownership in Lenenergo.
In August, Fortum Service signed a 15-year operation and maintenance agreement
with Trianel Energie of Germany. The agreement covers the 800-MW combined cycle
gas turbine power plant in Hamm-Uentrop, Germany, which will be ready for
commercial use in September 2007.
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 III/05 III/04 I-III/05 I-III/04 2004 LTM
Net sales 147 149 738 709 1,025 1,054
- heat sales 115 107 580 532 779 827
- power sales 14 20 97 110 159 146
- other sales 18 22 61 67 87 81
Operating profit 13 12 175 143 218 250
Comparable operating profit 12 7 156 132 207 231
Net assets (at end of period) 2,336 2,362 2,440
Return on net assets, % 10.3 8.6 9.8 11.1
Comparable return on net 9.3 8.0 9.3 10.3
assets, %
The segment's heat sales during the third quarter amounted to 2.7 (2.6) TWh,
most of which was generated in the Nordic countries. In January-September, heat
sales totalled 15.1 (14.9) TWh. In the same period, power sales at combined
heat and power plants (CHP) totalled 2.8 (3.3) TWh. The decrease was due to the
strike and lock-out in the Finnish paper industry and also due to the lower
thermal generation volumes stemming from higher fuel and CO2 allowance prices.
In May, Fortum continued the restructuring of its gas assets and sold its 50%
stake in North Transgas Oy to OAO Gazprom.
Heat sales by area, TWh III/05 III/04 I-III/05 I-III/04 2004 LTM
Sweden 0.9 0.8 6.5 6.4 9.6 9.7
Finland 1.6 1.7 6.9 7.4 10.5 10.0
Other countries 0.2 0.1 1.7 1.1 1.7 2.3
Total 2.7 2.6 15.1 14.9 21.8 22.0
Power sales, TWh III/05 III/04 I-III/05 I-III/04 2004 LTM
Total 0.4 0.6 2.8 3.3 4.8 4.3
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 III/05 III/04 I-III/05 I-III/04 2004 LTM
Net sales 149 150 511 513 707 705
- distribution network 122 123 428 431 593 590
transmission
- regional network 18 18 60 60 83 83
transmission
- other sales 9 9 23 22 31 32
Operating profit 48 45 175 183 234 226
Comparable operating profit 47 51 168 183 240 225
Net assets (at end of period) 3,033 3,086 3,091
Return on net assets, % 8.2 8.3 8.1 7.9
Comparable return on net 7.9 8.3 8.3 7.9
assets,%
During the first nine months of the year, the volume of distribution and
regional transmissions totalled 16.5 (16.4) TWh and 13.0 (13.3) TWh,
respectively.
Electricity transmissions via the regional distribution network to customers
outside the Group totalled 10.7 (11.0) TWh in Sweden and 2.3 (2.3) TWh in
Finland.
The Energy Authority in Sweden (EMI) has for the first time utilised the new
regulation model ('Nätnyttomodell') during its supervision of net prices for
2003. The model compares real revenues and the performance of distribution
companies to the performance of a theoretical distribution network. In June, the
authority notified 16 companies of overcharging customers. All of these
companies have filed a complaint.
Three of Fortum's grid areas have been affected by the supervision of 2003
tariffs. In one case the EMI has made a decision on too high invoicing during
2003 and Fortum's subsidiary in question has filed a complaint. The two
remaining Fortum areas in Stockholm and on the West Coast are still pending.
Final court decisions on prices in 2003 are expected during 2007 at the
earliest.
The EMI has also announced the distribution areas that will be supervised based
on 2004 tariffs. In the list of totally 55 areas, four belong to Fortum and one
is owned by a subsidiary of Fortum.
The Fortum Reliability Program to accelerate the work to upgrade the reliability
of electricity distribution was kicked off in September. The Nordic-wide plan
spans a 5-year period with a total investment of EUR 700 million. The first
scheduled phase is 3 years long. After gaining experience from the first phase,
the program will be planned in more detail.
Fortum has launched a project to provide an Automatic Meter Management system to
all its customers. The system will be implemented in phases starting in 2006.
Volume of distributed III/05 III/04 I-III/05 I-III/04 2004 LTM
electricity in distribution
network, TWh
Sweden 2.7 2.8 10.3 10.3 14.2 14.2
Finland 1.2 1.2 4.5 4.4 6.2 6.3
Norway 0.4 0.4 1.6 1.6 2.1 2.1
Estonia 0.0 0.0 0.1 0.1 0.2 0.2
Total 4.3 4.4 16.5 16.4 22.7 22.8
Number of electricity distribution 30.9.2005 30.9.2004 2004
customers by area, 000s
Sweden 860 860 860
Finland 410 405 405
Other countries 115 115 115
Total 1,385 1,380 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 III/05 III/04 I-III/05 I-III/04 2004 LTM
Net sales 284 287 974 1,009 1,387 1,352
Operating profit 7 13 21 34 34 21
Comparable operating profit 7 10 22 24 23 21
Net assets (at end of period) 143 137 194
Return on net assets, % 15.6 37.9 25.3 15.8
Comparable return on net assets, 16.4 26.7 17.1 15.8
%
During the third quarter, Markets' electricity sales totalled 8.7 (9.2) TWh with
sales for the first nine months of the year amounting to 29.5 (31.6) TWh. The
decrease was due to the termination of some large contracts at the end of 2004.
Retail electricity prices on the Nordic market during the third quarter
increased slightly. The retail price development has not fully followed the
market price increase. Overall, the retail prices are at the same level as the
corresponding period of the previous year.
The positive inflow of customers continued during the third quarter. There have
been successful campaigns for both consumers and business customers. The overall
customer satisfaction shows positive development on the Nordic level.
Capital expenditures and investments in shares
Capital expenditures and investments in shares for continuing operations in
January-September totalled EUR 213 (306) million. Investments excluding
acquisitions were EUR 207 (201) million.
As a result of the redemption of Lenenergo's own shares relating to its
reorganisation, Fortum's shareholding in Lenenergo has increased to 33.2% of the
outstanding voting shares. Fortum secured four of the total of 11 seats in the
Board of Directors of Lenenergo on 30 June.
Group restructuring
In April 2005, Neste Oil was successfully separated by distributing 85% of its
shares as dividends to Fortum's shareholders and by selling the remaining 15% of
Neste Oil shares to institutional and individual investors. Neste Oil was
subsequently listed on the Helsinki Stock Exchange on April 18.
Financing
Net debt at the end of the third quarter stood at EUR 3,333 million (EUR 3,595
million on 30 June 2005). The reduction in net debt is due to strong cash flow
generation during the third quarter.
Net cash from operating activities was EUR 331 (233) million for the continuing
activities in the third quarter.
The Group's net financial expenses were EUR 100 (167) million. The decrease is
mainly attributable to the lower net debt following the spin-off of the Oil
businesses. Net financial expenses include a positive EUR 27 (12) million change
in the fair value of certain derivatives that do not qualify for hedge
accounting under IFRS (IAS 39).
During August, Fortum's long-term credit rating from Standard & Poor's was
upgraded from BBB+ (stable) to A- (stable). Fortum's long-term credit rating
from Moody's is A2 (stable).
Shares and share capital
In January-September, a total of 692.6 million Fortum Corporation shares
totalling EUR 9,372 million were traded. Fortum's market capitalisation,
calculated using the closing quotation of the last trading day of the quarter,
was EUR 14,579 million. The highest quotation of Fortum Corporation shares on
the Helsinki Stock Exchange in the three first quarters of the year was EUR
16.90, the lowest EUR 10.45, and the average quotation EUR 13.53. The closing
quotation on the last trading day of the third quarter was EUR 16.70.
A total of 187,500 shares subscribed for based on share option schemes were
entered into the trade register in the third quarter of 2005. After these
subscriptions, Fortum's share capital is EUR 2,968,135,315 and the total number
of registered shares is 872,980,975.
At the end of the third quarter, the Finnish state's holding in Fortum was
51.7%. The proportion of international shareholders stood at 33.3%.
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
September was 10,279 (13,112). The number of employees at the end of the period
was 8,657 (12,726). The decrease is due to the separation of Neste Oil.
Events after the period under review
The regional power generation company of North-West Russia, Territorial
Generation Company No. 1 (TGC-1), started its operations on the first of
October. Fortum is an indirect owner of this company through its ownership in
Lenenergo. As the result of the reorganization procedure, Fortum's current
ownership in Lenenergo is 33.2% of its outstanding voting shares. Fortum has got
three of the total of 11 seats in Board of Directors of TGC-1. The final
ownership structure of TGC-1 will be set up in connection to the merger of the
generation assets of Lenenergo, Karelenergo and Kolenergo into TGC-1 scheduled
for the end of 2006.
TGC-1 has been founded by Lenenergo, Karelenergo and Kolenergo. It leases and
operates the generation and heat assets of its three owners. TGC-1's installed
power generation capacity is around 5,750 MW, of which hydro power generation is
2,874 MW and the rest is mainly natural gas based power generation. TGC-1 has
14,688 MW of heat generation capacity.
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 affecting 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 third quarter, the average spot price for power was EUR 29.7 (29.9)
per megawatt-hour on the Nordic power exchange, or 1% lower than the
corresponding figure in 2004.
In mid-October, the Nordic water reservoirs were about 6 TWh above the average
and 12 TWh above the corresponding level for 2004. In mid-October, the market
price for emissions allowances for 2005 ranged between EUR 23-24 per tonne of
CO2. At the same time, the power price in the forward market for the rest of
2005 was around EUR 38-40 per megawatt-hour and for 2006 around EUR 37-38 per
megawatt-hour.
At the beginning of October, Fortum had hedged approximately two thirds of its
Nordic Power Generation sales volume for the calendar year 2006 at a slightly
higher price than achieved during the last 12 months. For the last quarter of
2005, the hedge ratio was approximately 70%, and the hedge price was
approximately the same as the achieved Nordic Generation power price during the
last 12 months.
New nuclear and hydro power tax proposals have been made in Sweden and Finland
in conjunction with the governments' 2006 budget proposals. These taxes, if
accepted, will be an additional cost element in nuclear and hydro power
production. If the proposals are accepted, Fortum estimates that its additional
generation costs due to these taxes will be approximately EUR 60 million in
2006.
Fortum's financial position continued to strengthen during the third quarter.
Market fundamentals remain favourable and power forward prices trend upwards.
The foundations for good future performance are in place.
Espoo, 20 October 2005
Fortum Corporation
Board of Directors
The figures have not been audited.
Fortum's financial reporting:
- 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-SEPTEMBER 2005
Interim financial statements are unaudited
CONDENSED CONSOLIDATED INCOME STATEMENT
MEUR Q3/2005 Q3/2004 Q1-Q3 Q1-Q3 2004 Last
2005 2004 twelve
months
Continuing operations:
Sales 774 765 2 765 2 751 3 835 3 849
Other income 24 -2 34 80 91 45
Materials and services -258 -301 -970 -1 087 -1 507 -1 390
Employee benefit costs -106 -106 -359 -346 -462 -475
Depreciation, amortisation and -101 -90 -305 -282 -388 -411
impairment charges
Other expenses -93 -89 -292 -284 -374 -382
Operating profit 240 177 873 832 1 195 1 236
Share of profit of associates and 12 1 28 9 12 31
joint ventures
Finance costs-net -22 -42 -100 -167 -245 -178
Profit before income tax 230 136 801 674 962 1 089
Income tax expense -57 -32 -206 -163 -259 -277
Profit for the period from 173 104 595 511 703 812
continuing operations
Discontinued operations:
Profit for the period from - 137 474 432 589 768
discontinued operations
Profit for the period 173 241 1 069 943 1 292 1 580
Attributable to:
Equity holders of the Company 174 244 1 038 924 1 259 1 443
Minority interest -1 -3 31 19 33 43
173 241 1 069 943 1 292 1 486
Earnings per share for profit from
total Fortum Group attributable
to the equity holders of the company
during the year (in per share)
Basic 0.20 0.29 1.19 1.09 1.48 1.58
Diluted 0.19 0.29 1.17 1.07 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 0.20 0.13 0.65 0.58 0.79 0.86
Diluted 0.19 0.13 0.63 0.57 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 - 0.16 0.54 0.51 0.69 0.72
Diluted - 0.16 0.54 0.50 0.68
CONDENSED CONSOLIDATED BALANCE SHEET
MEUR Sept 30 Sept 30 Dec 31
2005 2004 2004
ASSETS
Non-current assets
Intangible assets 82 122 116
Property, plant and equipment 10 039 11 783 11 925
Other long-term investments 2 117 2 197 2 355
Other long-term receivables 79 103 90
Long-term interest bearing receivables 625 758 727
Total non-current assets 12 942 14 963 15 213
Current assets
Inventories 258 701 654
Trade and other receivables 859 1 348 1 555
Cash and cash equivalents 782 219 145
Total current assets 1 899 2 268 2 354
Total assets 14 841 17 231 17 567
EQUITY
Capital and reserves attributable the
Company's equity holders
Share capital 2 968 2 891 2 948
Other equity 3 894 4 071 4 552
Total 6 862 6 962 7 500
Minority interest 177 136 150
Total equity 7 039 7 098 7 650
LIABILITIES
Non-current liabilities
Interest-bearing liabilities 3 828 4 501 4 450
Deferred tax liabilities 1 611 1 751 1 841
Provisions 582 586 608
Other liabilities 511 509 507
Total non-current liabilities 6 532 7 347 7 406
Current liabilities
Interest-bearing liabilities 287 1 163 790
Trade and other payables 983 1 623 1 721
Total current liabilities 1 270 2 786 2 511
Total liabilities 7 802 10 133 9 917
Total equity and liabilities 14 841 17 231 17 567
CHANGE IN TOTAL EQUITY
MEUR Share Share Other Fair Retained Minor Total
capital premium restric value earnings ity
ted and
funds other
reserves
Total equity at 31.12.2004 2 948 62 13 134 4 343 150 7 650
Stock options excercised 20 7 -12 15
Translation and other -57 -6 -63
differences
Cash dividend -506 -506
Share dividend *) -920 -920
Cash flow hedges -245 34 2 -209
Other fair value adjustments 3 3
Net profit for the period 1 038 31 1 069
Total equity at 30.9.2005 2 968 69 1 -108 3 932 177 7 039
Total equity at 31.12.2003 2 886 36 5 63 3 399 120 6 509
Stock options excercised 5 2 1 6 14
Translation and other 24 -2 22
differences
Cash dividend -359 -359
Cash flow hedges -46 13 -1 -34
Other fair value adjustments 3 3
Net profit for the period 924 19 943
Total equity at 30.9.2004 2 891 38 6 20 4 007 136 7 098
*) 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-Q3 Q1-Q3
2005 2004 2004
Cash flow from operating activities
Operating profit before depreciations continuing 1 206 1 123 1 595
operations
Non-cash flow items and divesting activities -41 -51 -49
Financial items and realised foreign exchange gains -62 -57 -181
and losses
Taxes -226 -130 -160
Funds form operations continuing operations 877 885 1 205
Change in working capital -30 104 27
Net cash from operating activities continuing 847 989 1 232
operations
Net cash from operating activities discontinued 133 314 526
operations
Total net cash from operating activities 980 1 303 1 758
Cash flow from investing activities
Capital expenditures -207 -201 -335
Acquisition of shares -7 -105 -179
Proceeds from sales of fixed assets 11 11 60
Proceeds from sales of shares 26 9 15
Change in other investments 20 -88 -20
Net cash used in investing activities continuing -157 -374 -459
operations
Net cash used in investing activities discontinued 1 155 -176 -277
operations
Total net cash used in investing activities 998 -550 -736
Cash flow before financing activities 1 978 753 1 022
Cash flow from financing activities
Net change in loans -877 -494 -811
Dividends paid to the Company´s equity -506 -357 -357
holders
Other financing items 13 6 94
Net cash used in financing activities continuing -1 370 -845 -1 074
operations
Net cash used in financing activities discontinued 29 -123 -236
operations *)
Total net cash used in financing activities -1 341 -968 -1 310
Total net increase (+)/decrease (-) in cash
and marketable securities, continuing 637 -215 -288
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 Sept 30 June 30 March Dec 31 Sept 30 June 30 March Last
2005 2005 31 2004 2004 2004 31 twelve
2005 2004 months
Earnings per share
total 1.19 0.99 0.38 1.48 1.09 0.80 0.36 1.58
Fortum (basic), EUR
Earnings per share 0.65 0.45 0.28 0.79 0.58 0.45 0.24 0.86
continuing operations
(basic), EUR
Capital employed,
MEUR 2) 11 154 10 987 11 891 12 890 12 762 12 447 12 156 -
Interest-bearing net
debt, MEUR 3 333 3 595 4 878 5 095 5 445 5 512 5 526 -
Capital expenditure
and investments
in shares continuing
operations, MEUR 213 123 49 514 306 158 57 421
Capital expenditure 207 123 49 335 201 128 57 341
continuing operations,
MEUR
Return on capital 15.3 16.7 18.2 15.8 15.0 17.0 18.6 17.2
employed, %
Return on shareholders' 17.6 19.2 19.5 18.2 18.4 20.9 19.9 20.1
equity, %
Interest coverage 10.6 11.3 11.6 8.0 7.8 8.3 7.1 10.0
Funds from 42.9 44.2 39.3 36.4 33.1 38.2 44.4 47.3
operations/interest-
bearing net debt, %
Gearing, % 47 53 71 67 77 82 86 -
Equity per share, EUR 7.86 7.64 7.67 8.62 8.19 7.77 7.41 -
Equity-to-assets ratio,
% 47 43 43 44 41 40 38 -
Average number of 10 279 11 066 13 135 12 859 13 112 13 097 13 023 -
employees
Average number of
shares, 872 438 872 316 871 710 852 625 849 823 849 698 849 698 868515
1 000 shares
Diluted adjusted
average 889 157 883 629 883 774 861 772 870 806 867 907 867 344 -
number of shares,
1 000
shares
Number of shares,
1 000 872 981 872 793 871 854 869 749 850 262 849 813 849 813 -
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 Q3 Q3 Q1-Q3 Q1-Q3 2004 Last
2005 2004 2005 2004 twelve
months
Power Generation 450 453 1 460 1 501 2 084 2 043
- of which internal 6 11 74 73 128 134
Heat 147 149 738 709 1 025 1 054
- of which internal 1 1 12 40 49 21
Distribution 149 150 511 513 707 705
- of which internal 2 3 6 7 10 10
Markets 284 287 974 1 009 1 387 1 352
- of which internal 19 17 66 64 92 94
Other 26 22 71 67 90 94
- of which internal 13 22 50 65 93 87
Eliminations *) -282 -296 -989 -1 048 -1 458 -1 399
Sales from continuing operations 774 765 2 765 2 751 3 835 3 849
Sales from discontinued operations 2 091 2 061 5 801 7 909
Eliminations -20 -20 -68 -85
Total 774 2 836 4 806 8 484 11 659
*) 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 Q3 Q3 Q1-Q3 Q1-Q3 2004 Last
2005 2004 2005 2004 twelve
months
Power Generation 181 128 529 522 763 770
Heat 13 12 175 143 218 250
Distribution 48 45 175 183 234 226
Markets 7 13 21 34 34 21
Other -9 -21 -27 -50 -54 -31
Operating profit from continuing 240 177 873 832 1 195 1 236
operations
Operating profit from discontinued 165 517 538 721
operations
Total 240 342 1 390 1 370 1 916
COMPARABLE OPERATING PROFIT BY SEGMENTS, CONTINUING OPERATIONS
MEUR Q3 Q3 Q1-Q3 Q1-Q3 2004 Last
2005 2004 2005 2004 twelve
months
Power Generation 161 135 557 498 730 789
Heat 12 7 156 132 207 231
Distribution 47 51 168 183 240 225
Markets 7 10 22 24 23 21
Other -7 -12 -29 -38 -52 -43
Comparable operating profit from 220 191 874 799 1 148 1 223
continuing operations
Non-recurring items 2 -4 20 -11 18 49
Other items effecting comparability 18 -10 -21 44 29 -36
Operating profit from continuing 240 177 873 832 1 195 1 236
operations
NON-RECURRING ITEMS BY SEGMENTS
MEUR Q3 Q3 Q1-Q3 Q1-Q3 2004 Last
2005 2004 2005 2004 twelve
months
Power Generation 3 -2 3 -9 9 21
Heat 1 0 12 0 4 16
Distribution 0 0 1 0 2 3
Markets 0 0 0 0 0 0
Other -2 -2 4 -2 3 9
Total 2 -4 20 -11 18 49
OTHER ITEMS EFFECTING COMPARABILITY BY
SEGMENTS
MEUR Q3 Q3 Q1-Q3 Q1-Q3 2004 Last
2005 2004 2005 2004 twelve
months
Power Generation 17 -5 -31 33 24 -40
Heat 0 5 7 11 7 3
Distribution 1 -6 6 0 -8 -2
Markets 0 3 -1 10 11 0
Other 0 -7 -2 -10 -5 3
Total 18 -10 -21 44 29 -36
DEPRECIATION, AMORTISATION AND IMPAIRMENT CHARGES BY SEGMENTS
MEUR Q3 Q3 Q1-Q3 Q1-Q3 2004 Last
2005 2004 2005 2004 twelve
months
Power Generation 27 20 83 74 104 113
Heat 30 30 92 89 124 127
Distribution 36 33 109 99 133 143
Markets 3 4 11 12 16 15
Other 5 4 10 8 11 13
Total depreciation, amortisation
and
impairment charges
from continuing operations 101 90 305 282 388 411
Total depreciation, amortisation and
impairment charges from
discontinued operations - 33 36 101 139
Total 101 123 341 383 527
SHARE OF PROFITS IN ASSOCIATES AND JOINT VENTURES BY SEGMENTS
MEUR Q3 Q3 Q1-Q3 Q1-Q3 2004 Last
2005 2004 2005 2004 twelve
months
Power Generation *) 10 -2 6 -10 -18 -2
Heat 0 1 8 9 15 14
Distribution 1 3 14 11 16 19
Markets 1 0 1 0 0 1
Other 0 -1 -1 -1 -1 -1
Share of profits in associates
and joint 12 1 28 9 12 31
ventures from continuing
operations
Share of profits in associates
and joint - 18 -2 29 36
ventures from discontinued
operations
Total 12 19 26 38 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
Sept 30 Sept 30 Dec 31
2005 2004 2004
Power Generation 1 203 1 196 1 208
Heat 130 92 127
Distribution 205 193 196
Markets 9 7 8
Other 0 1 0
Investments in associates and joint ventures from 1 547 1 489 1 539
continuing operations
Investments in associates and joint ventures from - 134 140
discontinued operations
Total 1 547 1 623 1 679
CAPITAL EXPENDITURE AND INVESTMENTS IN SHARES BY SEGMENTS
MEUR
Q3 Q3 Q1-Q3 Q1-Q3 2004
2005 2004 2005 2004
Power Generation 21 92 60 152 210
Heat 38 25 71 75 175
Distribution 25 25 65 65 106
Markets 3 2 7 4 6
Other 3 4 10 10 17
Capital expenditure and investments in shares from 90 148 213 306 514
continuing operations
Capital expenditure and investments in shares from - 77 99 195 316
discontinuing operations
Total 90 225 312 501 830
NET ASSETS BY SEGMENTS
MEUR Sept 30 Sept 30 Dec 31
2005 2004 2004
Power Generation 6 037 6 183 6 218
Heat 2 336 2 362 2 440
Distribution 3 033 3 086 3 091
Markets 143 137 194
Other and Eliminations 139 25 -43
Net assets from continuing operations 11 688 11 793 11 900
Net assets from discontinued operations - 1 963 2 011
Eliminations - 1 2
Total 11 688 13 757 13 913
RETURN ON NET ASSETS BY SEGMENTS
% Sept 30 June 30 March Dec 31 Sept 30 June 30 March Last
2005 2005 31 2004 2004 2004 31 twelve
2005 2004 months
Power Generation 11.7 11.3 14.6 12.1 11.0 12.5 14.0 11.5
Heat 10.3 14.2 19.3 9.8 8.6 11.8 18.3 11.1
Distribution 8.2 9.1 10.1 8.1 8.3 9.4 11.3 7.9
Markets 15.6 14.6 11.5 25.3 37.9 36.8 77.6 15.8
COMPARABLE RETURN ON NET ASSETS BY SEGMENTS
% Sept 30 June 30 March Dec 31 Sept 30 June 30 March Last
2005 2005 31 2004 2004 2004 31 twelve
2005 2004 months
Power Generation 12.5 13.2 14.9 11.5 10.5 11.5 13.8 11.9
Heat 9.3 12.7 18.5 9.3 8.0 11.3 17.8 10.3
Distribution 7.9 8.7 9.4 8.3 8.3 9.0 11.1 7.9
Markets 16.4 15.7 13.5 17.1 26.7 24.5 43.4 15.8
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 Sept 30 Sept 30 Dec 31
2005 2004 2004
Power Generation 6 575 7 123 7 108
Heat 2 581 2 589 2 742
Distribution 3 431 3 483 3 514
Markets 400 377 375
Other and Eliminations 225 -198 -156
Assets from continuing operations 13 212 13 374 13 583
Assets from discontinuing operations - 2 775 2 756
Eliminations - -37 -32
Assets included in Net assets 13 212 16 112 16 307
Interest-bearing receivables 630 758 728
Deferred taxes 54 15 106
Other assets 163 127 281
Cash and cash equivalents 782 219 145
Total assets 14 841 17 231 17 567
LIABILITIES BY SEGMENTS
MEUR Sept 30 Sept 30 Dec 31
2005 2004 2004
Power Generation 538 940 890
Heat 245 227 302
Distribution 398 397 423
Markets 257 240 181
Other and Eliminations 86 -223 -113
Liabilities from continuing 1 524 1 581 1 683
operations
Liabilities from discontinuing - 812 745
operations
Eliminations - -38 -34
Liabilities included in Net assets 1 524 2 355 2 394
Deferred tax liabilities 1 611 1 751 1 841
Other 552 363 442
Total liabilities included in capital 3 687 4 469 4 677
employed
Interest-bearing liabilities 4 115 5 664 5 240
Total equity 7 039 7 098 7 650
Total equity and liabilities 14 841 17 231 17 567
CHANGES IN INTANGIBLE ASSETS AND PROPERTY, PLANT AND
EQUIPMENT
MEUR Sept 30 Sept 30 Dec 31
2005 2004 2004
Opening balance 12 041 11 923 11 923
Acquisition of subsidiary companies 7 - 31
Capital expenditures 306 377 648
Disposals -16 -34 -152
Depreciation, amortisation and -341 -383 -527
impairment
Translation differences -267 22 118
Closing balance before de- 11 730 11 905 12 041
consolidation of Neste Oil
De-consolidation of Neste Oil -1 609
Closing balance 10 121 11 905 12 041
QUARTERLY SALES BY SEGMENTS
MEUR Q3 Q2 Q1 Q4 Q3 Q2 Q1
2005 2005 2005 2004 2004 2004 2004
Power Generation 450 476 534 583 453 488 560
- of which internal 6 13 55 55 11 26 36
Heat 147 206 385 316 149 198 361
- of which internal 1 -1 12 9 1 3 36
Distribution 149 160 202 194 150 157 206
- of which internal 2 2 2 3 3 1 3
Markets 284 298 392 378 287 303 419
- of which internal 19 22 25 28 17 22 25
Other 26 22 23 23 22 25 20
- of which internal 13 15 22 11 7 9 10
Eliminations -282 -304 -403 -410 -296 -314 -437
Sales from continuing 774 858 1 133 1 084 765 857 1 129
operations
Sales from discontinued - - 2 061 2 108 2 091 2 000 1 710
operations
Eliminations - - -20 -17 -20 -27 -21
Total 774 858 3 174 3 175 2 836 2 830 2 818
QUARTERLY OPERATING PROFIT BY
SEGMENTS
MEUR Q3 Q2 Q1 Q4 Q3 Q2 Q1
2005 2005 2005 *) 2004 2004 2004 2004
Power Generation 181 125 223 241 128 172 222
Heat 13 50 112 75 12 27 104
Distribution 48 56 71 51 45 55 83
Markets 7 8 6 0 13 5 16
Other -9 -12 -6 -4 -21 -11 -18
Operating profit from 240 227 406 363 177 248 407
continuing operations
Operating profit from - 390 127 183 165 223 150
discontinued operations
Total 240 617 533 546 342 471 557
*) The accounting treatment of CO2 emission allowances was changed in Q2 according
to the decision of IASB to withdraw the IFRIC 3 Emission rights with immediate
QUARTERLY COMPARABLE OPERATING PROFIT BY SEGMENTS, CONTINUING OPERATIONS
MEUR Q3 Q2 Q1 Q4 Q3 Q2 Q1
2005 2005 2005 2004 2004 2004 2004
Power Generation 161 172 224 232 135 145 218
Heat 12 37 107 75 7 24 101
Distribution 47 55 66 57 51 51 81
Markets 7 8 7 -1 10 5 9
Other -7 -11 -11 -14 -12 -14 -12
Comparable operating
profit from 220 261 393 349 191 211 397
continuing operations
Non-recurring items 2 12 6 29 -4 -1 -6
Other items effecting 18 -46 7 -15 -10 38 16
comparability
Operating profit from 240 227 406 363 177 248 407
continuing operations
QUARTERLY NON-RECURRING ITEMS IN OPERATING BY SEGMENTS
MEUR Q3 Q2 Q1 Q4 Q3 Q2 Q1
2005 2005 2005 2004 2004 2004 2004
Power Generation 3 0 0 18 -2 -1 -6
Heat 1 11 0 4 0 0 0
Distribution 0 1 0 2 0 0 0
Markets 0 0 0 0 0 0 0
Other -2 0 6 5 -2 0 0
Total 2 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 Q3 Q2 Q1 Q4 Q3 Q2 Q1
2005 2005 2005 2004 2004 2004 2004
Power Generation 17 -47 -1 -9 -5 28 10
Heat 0 2 5 -4 5 3 3
Distribution 1 0 5 -8 -6 4 2
Markets 0 0 -1 1 3 0 7
Other 0 -1 -1 5 -7 3 -6
Total 18 -46 7 -15 -10 38 16
DISCONTINUED OPERATIONS (including eliminations between Fortum and discontinued
operations)
MEUR Q3 Q3 Q1-Q3 Q1-Q3 2 004
2005 2004 2005 *) 2004
Sales - 2 091 2 061 5 801 7 909
Other income - 21 395 52 66
Materials and services - -1 820 -1 726 -4 829 -6 439
Employee benefit costs - -46 -57 -152 -211
Depreciation, amortisation and - -33 -36 -101 -139
impairment charges
Other expenses - -48 -120 -233 -465
Operating - 165 517 538 721
profit
Share of profit of associates and - 18 -2 29 36
joint ventures
Finance costs-net - -7 -6 -27 -19
Profit before income tax - 176 509 540 738
Income tax expense - -39 -35 -108 -149
Profit for the year from discontinued - 137 474 432 589
operations
*) The accounting treatment of CO2 emission allowances was changed in Q2
according to the decision of IASB to withdraw the IFRIC 3 Emission rights with
immediate effect.
Other income includes the capital gain, EUR 390 million, from the
sale of 15% of the shares in Neste Oil Oyj.
CONTINGENT LIABILITIES
MEUR Sept 30 Sept 30 Dec 31
2005 2004 2004
Contingent liabilities
On own behalf
For debt
Pledges 150 163 160
Real estate mortgages 63 92 113
For other commitments
Real estate mortgages 56 57 59
Pledges, company and other 1
mortgages
Sale and leaseback - 8 -
Other contingent liabilities 91 78 76
Total 360 399 408
On behalf of associated companies and joint
ventures
Pledges and real estate 3 11 12
mortgages
Guarantees 211 357 335
Other contingent liabilities 182 182 182
Total 396 550 529
On behalf of others
Guarantees 63 4 3
Other contingent liabilities 12 6 5
Total 75 10 8
Total 831 959 945
Operating lease liabilities
Due within a year 11 82 87
Due after one year and within five years 35 96 81
Due after five years 9 60 64
Total 55 238 232
NUCLEAR
MEUR Sept 30 Sept 30 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 -596 -570 -581
Waste Fund 2)
Liabilities in the balance sheet 3) 0 0 15
1) Discounted liability in the balance sheet is EUR 415 (389) million as of
30 September 2005 (and 2004 respectively).
2) Value of the fund asset in the balance sheet is EUR 415 (389) million as of 30
September 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 Sept 30 Sept 30
2005 2004 Dec 31
2004
Interest and currency derivatives Notional Net Notional Net Notional Net
value fair value fair value fair
value value value
Forward interest rate agreements - - 221 1 - -
Interest rate swaps 2 845 36 3 843 -50 1 218 -28
Forward foreign exchange contracts 5 987 85 7 466 -38 8 176 -32
Interest rate and currency swaps 936 0 323 -3 310 -7
Purchased currency options - - 525 -9 438 17
Written currency options - - 525 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 81 -388 74 -93 70 204
Purchase contracts 44 256 42 125 42 -53
Purchased options 2 0 1 0 1 -1
Written options 11 -12 - - 1 -
Oil derivatives Volume Net Volume Net Volume Net
fair fair fair
value value value
1000 bbl MEUR 1000 bbl MEUR 1000 bbl MEUR
Sales contracts 60 -1 16 010 -19 44 588 26
Purchase contracts 730 11 59 825 48 70 258 7
Purchased options - - 13 495 9 4 797 2
Written options - - 13 993 -8 6 784 -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
transition 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 accounts for the CO2 allowances 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 Reported Current
earlier reporting
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 profit = Operating profit - non-recurring items
- other items effecting comparability
Non-recurring items = Mainly capital gains and losses
Other items effecting comparability = Includes effects from financial
derivatives 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 shareholders' = 100 x Profit for the year
equity, %
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
Net assets average
Comparable return on net = 100 x Comparable operating profit + Share of
assets, % profit (loss) in associated companies and
joint ventures (adjusted for IAS 39
effects)
Comparable 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
(non-interest bearing assets and
liabilities do not include finance related
items, tax and deferred tax and assets and
liabilities from fair valuations of
derivatives where hedge accounting is
applied)
Comparable net assets = Net assets adjusted for non-interest
bearing assets and liabilities
arising from financial derivatives hedging
future cash-flows where hedge
accounting is not applied according to
IAS 39
Interest-bearing net debt = Interest-bearing liabilities - cash and
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 ratio, % = 100 x Total equity including minority interest
Total assets
Interest coverage = Operating profit
Net interest expenses
Earnings per share (EPS) = Profit for the period - minority interest
Adjusted average number of shares during
the period
Stock exchange release
Fortum Corporation - Interim Report January - September 2005
20 October 2005, 09:00 EEST
Fortum Corporation STOCK EXCHANGE RELEASE 20 October 2005 at 9.00 am