Comparable operating profit remained firm
- Comparable operating profit EUR 1,833 (1,888) million, -3%
- Earnings per share EUR 1.46 (1.48), -1%, decreased due to accounting treatment of derivatives used for hedging (effect EUR -0.18 per share)
- Russian investment programme accelerated
- 70% of Power Division’s forecast volume for 2011 hedged at EUR 45 per MWh and 40% for 2012 hedged at EUR 44 per MWh
- Fortum’s Board proposes a dividend of EUR 1.00 per share
|Sales, EUR million||1,902||1,563||6,296||5,435|
|Operating profit, EUR million||321||522||1,708||1,782|
|Comparable operating profit, EUR million||541||570||1,833||1,888|
|Profit before taxes, EUR million||285||505||1,615||1,636|
|Earnings per share, EUR||0.26||0.46||1.46||1.48|
|Net cash from operating activities, EUR million||221||396||1,437||2,264|
|Shareholders’ equity per share, EUR||9.24||9.04|
| Interest-bearing net debt |
(at end of period), EUR million
|Average number of shares, 1,000s||888,367||888,230|
|Key financial ratios||2010||2009|
|Return on capital employed, %||11.6||12.1|
|Return on shareholders’ equity, %||15.7||16.0|
Fortum’s President and CEO Tapio Kuula in connection with the financial statements bulletin:
“I am pleased with our 2010 results. The Heat and Russia divisions as well as the Distribution business were able to improve their results from a year ago. Electricity Sales’ results were negatively impacted in the first and last quarter, mainly due to high wholesale market prices. In the Power Division, costs increased partly due to continued power upgrade and modernisation programmes in Swedish associated nuclear generating companies.
The overall Nordic and Russian power consumption continued to increase in 2010. Industrial activity has clearly picked up in Fortum's key market areas and the Russian economy has continued a solid path of recovery.
The Russian wholesale power sector reform progressed as planned by the Federal Government. As of January 2011, the wholesale power market has been fully liberalised. In addition, the new rules for the long-term capacity market starting from 2011 have been approved by the Government regarding capacity supply agreements (CSA – “new capacity”) and competitive capacity selection (CCS – “old capacity”).
Recovering electricity demand and the development of the capacity market encouraged Fortum to slightly adjust the schedule of its Russian investment programme, now to be finalised one year earlier than previously estimated, in 2014. The profits from the Russia Division are estimated to build up in pace with the capacity increase.
Fortum’s updated strategy was launched in September. The strategy builds on the company's core competence in CO2-free nuclear and hydro power, energy and resource-efficient combined heat and power production as well as the company's expertise and proven track-record in operating in competitive energy markets. In the coming years, Fortum will continue to leverage its strong position in the Nordic power and heat market while creating solid earnings growth in Russia.
Further opportunities for future growth stem from the need for CO2-free and energy-efficient solutions, and increasing demand in fast growing, liberalising energy markets, especially in emerging Euro-Asian countries. Coupled with the integration of the European energy market and with Fortum's Russian business' increasing weight, the importance of the Nordic power price as the main driver of Fortum's earnings will gradually decrease. The existing electricity distribution and retail sales businesses will continue to have a substantial role in the Nordic market. In other regions, Fortum sees more attractive earnings and growth prospects in power and heat generation.
Our targets for financial key ratios are to achieve return on capital employed of 12%, a return on shareholder’s equity of 14% and a net debt to EBITDA of approximately 3.
Finally, I want to take the opportunity to thank all Fortum employees for a job well done."
Group sales were EUR 1,902 (1,563) million. Group operating profit totalled EUR 321 (522) million. Fortum's operating profit for the fourth quarter 2010 was affected more than usually by the IFRS accounting treatment (IAS 39) of derivatives used for hedging Fortum's power production. High power forward prices at year-end 2010 caused mark-to-market valuation of electricity derivatives to decrease Fortum's operating profit; the full-year impact was EUR -216 million. The comparable operating profit was not impacted by the accounting treatment and totalled EUR 541 (570) million. Fortum's cash flow was not impacted by the accounting treatment.
The accounting treatment affected Fortum's last-quarter 2010 earnings per share by EUR -0.18.
The total of non-recurring items, mark-to-market effects and nuclear fund adjustments in the fourth quarter of 2010 amounted to EUR -220 (-48) million. Of this total, non-recurring items were EUR 7 (8) million.
Sales by division
|Netting of Nord Pool transactions||-528||-325||-1,736||-1,095|
* Part of the Electricity Solutions and Distribution Division
Comparable operating profit by division
* Part of the Electricity Solutions and Distribution Division
Operating profit by division
* Part of the Electricity Solutions and Distribution Division
Group sales were EUR 6,296 (5,435) million. Group operating profit totalled EUR 1,708 (1,782) million. High power forward prices at year-end 2010 caused mark-to-market valuation of electricity derivatives to decrease Fortum's operating profit. The effect on the operating profit for the full year 2010 was EUR -216 million. The accounting treatment did not have an impact on Fortum's cash flow or comparable operating profit. Comparable operating profit totalled EUR 1,833 (1,888) million.
Non-recurring items, mark-to-market effects and nuclear fund adjustments during the financial year amounted to EUR -125 (-106) million. The share of non-recurring items was EUR 93 (29) million and consisted of sales gains from the Swedegas and Karlskoga Energi & Miljö shares in Sweden as well as the Kurgan Generating Company, Federal Grid Company and St. Petersburg Sales Company shares in Russia.
The average Swedish krona (SEK) rate was approximately 10% stronger against the euro during 2010 than in 2009. The positive translation effect caused by the higher average SEK rate impacted the comparable operating profit by approximately EUR 103 million. The translation effect mainly impacted the Power Division. The strong SEK had a negative impact on the cash flow.
The share of profits of associates and joint ventures was EUR 62 (21) million. The improvement was mainly due to the improvement in the contribution from Hafslund ASA.
The Group’s net financial expenses decreased to EUR 155 (167) million. The decrease is attributable to lower interest expenses. The change in fair value of financial instruments was EUR 12 (-1) million.
Profit before taxes was EUR 1,615 (1,636) million.
Taxes for the period totalled EUR 261 (285) million. The tax rate according to the income statement was 16.2% (17.4%).
The profit for the period was EUR 1,354 (1,351) million. Fortum's earnings per share were EUR 1.46 (1.48). The effect on earnings per share by the accounting treatment of derivatives was EUR -0.18.
Non-controlling (minority) interests amounted to EUR 54 (39) million. These are mainly attributable to Fortum Värme Holding AB, in which the city of Stockholm has a 50% economic interest.
Cash flow from operating activities totalled EUR 1,437 (2,264) million and was affected by the realised foreign exchange gains and losses, which amounted to EUR -535 (298) million during 2010. The foreign exchange gains and losses mainly relate to the rollover of foreign exchange contracts hedging loans to Fortum’s Swedish subsidiaries.
Fortum’s financial key ratios: return on capital employed was 11.6%(12.1%),return on shareholders' equity was 15.7%(16.0%)and net debt to EBITDA was 3.0 (2.6 at the end of 2009) for the year 2010. The comparable net debt to EBITDA was 2.8.
During the fourth quarter, the average system spot price for power in Nord Pool was EUR 62.1 (36.6) per megawatt-hour (MWh). The Finnish and Swedish area prices were above the system price level, at EUR 66.5 (40.0) per MWh in Finland and EUR 66.6 (40.0) per MWh in Sweden. The difference between the system price and the Finnish and Swedish area prices was mainly due to cheaper import from Germany and the Netherlands that helped to keep prices down in southern Norway and Denmark. Especially during cold weather, there is not enough transmission capacity from southern Norway and Denmark to Sweden and northern Norway. Exports are reduced to keep the balance in the Oslo area in Norway.
In 2010, the average system spot price for power in Nord Pool was EUR 53.0 (35.0) per MWh. The Finnish and Swedish area prices were above the system price level, at EUR 56.6 (37.0) per MWh in Finland and EUR 56.8 (37.0) per MWh in Sweden. The difference between the system price and the Finnish and Swedish area prices was mainly attributable to the first and the fourth quarter. In the first quarter, reduced nuclear availability in Sweden coupled with the reduced transmission capacity resulted in higher prices in Sweden and Finland. In the last quarter, the hydrological deficit in both Sweden and Norway together with the reduced transmission capacity affected the prices.
At the beginning of 2010, the Nordic water reservoirs were 7 terawatt-hours (TWh) below the long-term average. At the end of 2010, the Nordic water reservoirs were at historically low levels, 29 TWh below the long-term average and 20 TWh below the levels at the end of 2009.
According to preliminary statistics, the Nordic countries consumed 111 (103) TWh of electricity in the last quarter of 2010, which was about 8% more than in the previous year. The increase was mainly due to higher industrial consumption and colder than normal weather. During 2010, the Nordic countries consumed in total about 396 (378) TWh of electricity – about 5% more than in 2009. The increase was mainly due to the cold weather in the first and last quarter and higher industrial consumption.
According to preliminary statistics, Russia consumed 277 (271) TWh of electricity in the fourth quarter of 2010, about 2% more than in the corresponding period of the previous year. During 2010, Russia consumed about 1,005 (964) TWh of electricity. The increase is mainly due to the general recovery of the Russian economy and increased industrial activity.
OAO Fortum operates in the Tyumen and Chelyabinsk areas. In the Tyumen area, where industrial production is dominated by the oil and gas industries, electricity demand was approximately at the same level compared to the previous year. The recession did not affect electricity demand in the Tyumen region in the previous year and therefore year-on-year electricity demand was flat. In the Chelyabinsk area, which is dominated by the metal industry, electricity demand increased by about 4% in the fourth quarter and by approximately 9% during 2010 compared to the previous year. The increase is mainly due to the recovery in industrial consumption.
The average electricity spot price, excluding capacity price, in the First price zone (European and Urals part of Russia) increased 22% to RUB 886 (728) per MWh in the fourth quarter of 2010.
More detailed information about the market fundamentals is included in the tables at the end of the report.
Climate change mitigation, the reduction of carbon dioxide emissions and energy efficiency are important for Fortum.
Fortum’s target in the EU is to decrease its emissions in power generation to less than 80 grams per kilowatt-hour (g/kWh) by 2020 as a five-year average. During 2010 the five-year average performance is below the target level at 69 g/kWh. In heat production, the aim has been to reduce the specific emissionsin each EU country by at least 10% from 2006 until 2020. Outside the EU, Fortum is committed to increasing energy efficiency and thereby reducing specific emissions.
In 2010, approximately 66% (69%) of the power generated by Fortum was CO2-free. The corresponding figure for Fortum's power generation within the EU was 86% (91%).
Fortum's total CO2-emissions in 2010 amounted to 25.3 (22.0) million tonnes (Mt), of which 9.7 (7.7) Mt were within the EU's emission trading scheme (ETS).
| Fortum’s total CO2-emissions |
(million tonnes, Mt)
|Emissions subject to ETS||3.0||2.7||9.7||7.7|
|Free emissions allocation||--||--||5.6||5.5|
|Emissions in Russia||4.4||3.9||14.6||13.8|
|Fortum’s specific CO2-emissions from power generation (g/kWh)||IV/10||IV/09||2010||2009|
|Emissions in the EU||118||60||84||41|
|Emissions in Russia||541||436||532||493|
The Power Division consists of Fortum’s power generation, physical operation and trading as well as expert services for power producers.
|- power sales||715||639||2,580||2,413|
|- other sales||37||24||122||118|
|Comparable operating profit||336||391||1,298||1,454|
|Net assets (at period-end)||5,806||5,494|
|Return on net assets, %||19.5||24.5|
|Comparable return on net assets, %||22.3||26.4|
|Capital expenditure and gross investments in shares||35||33||122||153|
|Number of employees||1,819||1,916|
The division's power generation in the Nordic countries amounted to 12.3 (11.1) TWh during the fourth quarter of 2010. Approximately 90% (96%) of that was CO2-free.
In 2010, the division's power generation in the Nordic countries was 46.3 (43.7) TWh and approximately 93% (97%) of the division’s power generation was CO2-free.
During the fourth quarter, the division's power generation in the Nordic countries increased by 11% compared to the corresponding period of the previous year. Nuclear generation volumes increased year-on-year, although Oskarshamn 3 and Forsmark 2 had operating difficulties and Loviisa 2 had a long scheduled annual outage. The share of thermal power generation increased significantly due to higher electricity prices as well as due to the return of the Meri-Pori power plant to Fortum’s own use.
During 2010, the division's Nordic power generation was 2.6 TWh higher than in 2009. Especially thermal generation increased mainly due to high electricity prices and the end of Meri-Pori lease contract. Also nuclear generation volumes improved slightly.
Eight out of Fortum’s ten owned or associated nuclear power reactors operated well during 2010. Forsmark 2 was able to overcome the problems related to modernised valves by replacing them with a different solution: it has been running at full capacity since the beginning of November. Oskarshamn 3 faced significant bearing problems with its renewed turbine, which caused production losses until the end of December. Currently it is running at an approximately 1,050 megawatt (MW) power level, which corresponds to the power level before the capacity increases. To secure availability during the winter months, the plan is to run the unit at this power level and to re-start commissioning test runs on 1 March 2011. After this, the test period will continue until the scheduled shut down for maintenance on 22 May 2011.
|Power generation by source, TWh||IV/10||IV/09||2010||2009|
|Nuclear power, Nordic||5.4||5.1||22.0||21.4|
|Thermal power, Nordic||0.9||0.1||2.3||0.2|
|Total in the Nordic countries||12.3||11.1||46.3||43.7|
|Thermal power in other countries||0.3||0.3||1.1||1.2|
|Nordic sales volume, TWh||13.7||12.4||51.5||48.8|
|of which pass-through sales||0.7||1.0||3.2||3.6|
|Sales price, EUR/MWh||IV/10||IV/09||2010||2009|
|Power's Nordic power price*||51.4||51.5||49.7||49.8|
* For the Power Division in the Nordic countries, excluding pass-through sales.
In the fourth quarter of 2010, the Nordic power price achieved by the Power Division amounted to EUR 51.4 per MWh, which was at about the same level as in 2009.
In 2010, the division achieved a Nordic power price of EUR 49.7 per MWh, which was at about the same level as in 2009. The clearly higher Nord Pool spot prices almost offset lower hedge prices. The total achieved price remained stable due to the higher prices achieved in thermal power during peak hours.
In the fourth quarter of 2010, The Power Division's comparable operating profit was lower than in the corresponding period of the previous year. A different production mix and higher costs in the Swedish associated nuclear generating companies decreased profits.
In 2010, Power's comparable profit decreased. Continued capacity upgrades and modernisation programmes in Swedish associated nuclear generating companies, a production mix with increased thermal generation volumes together with an increase in nuclear-related provisions and the Loviisa 3 project increased costs in 2010 compared to 2009.
Fortum and the Russian State Atomic Energy Corporation ROSATOM signed a Memorandum of Understanding on cooperation in the field of nuclear power in November 2010. Furthermore, Fortum, ROSATOM and the national Bulgarian utility NEK signed a Memorandum of Understanding on cooperation in the development of the Belene nuclear power plant in Bulgaria. According to the Memorandum of Understanding with ROSATOM and NEK, Fortum is endeavouring to participate in the Belene project by providing competences in nuclear technology and safety. In relation to technology services, Fortum has reserved an opportunity to obtain a 1 % share of the equity in the project company that will be established and will be the owner of the power plant and the electricity generated by it.
Fortum decided to discontinue the Meri-Pori carbon capture and storage project, which the company has developed together with Teollisuuden Voima (TVO) at the companies’ jointly-owned Meri-Pori power plant. Previously, also TVO had decided to withdraw from the project.
Fortum is preparing to participate in the tender processes for hydropower concessions in France, which are expected to officially start in 2011. In the frame of the European directive, France is to open up the hydro concession renewal process for competition. The French Government is thus putting the first tranche of ten concessions with a total capacity of 5,300 MW into a tender process in 2011-2015.
At year-end, the Power Division's total power generating capacity was 9,728 (9,709) MW, of which 9,588 (9,569) MW was in the Nordic countries. Hydro power capacity in the Nordic countries totalled 4,684 (4,666) MW, nuclear power capacity 3,217 (3,212) MW and condensing capacity 1,687 (1,691) MW.
The Heat Division consists of combined heat and power (CHP) generation, district heating activities and business-to-business heating solutions in the Nordic countries and other parts of the Baltic Rim.
|- heat sales||428||341||1,269||1,055|
|- power sales||129||84||368||224|
|- other sales||41||33||133||120|
|Comparable operating profit||122||104||275||231|
|Net assets (at period-end)||4,182||3,787|
|Return on net assets, %||8.4||7.9|
|Comparable return on net assets, %||7.7||7.3|
|Capital expenditure and gross investments in shares||117||101||305||359|
|Number of employees||2,394||2,552|
Heat sales volumes during the fourth quarter of 2010 amounted to 8.8 (7.8) TWh and were mainly generated in the Nordic countries. During the same period, power sales volumes totalled2.2(1.6) TWh. The volume increase was mainly due to new combined heat and power (CHP) capacity and the cold weather.
During 2010, heat sales volumes amounted to 26.1 (22.9) TWh and were mainly generated in the Nordic countries. During the same period, power sales volumes totalled6.5(4.4) TWh. The increased volumes were a result of cold weather during the winter months, increased industrial sales and new CHP capacity in Finland and Estonia.
The division’s fourth quarter comparable operating profit improved on the corresponding period last year and totalled EUR 122 (104) million. The increase was mainly due to higher power price and volumes as well as due to the stronger SEK currency.
The comparable operating profit for 2010 for the Heat Division was EUR 275 (231) million. The increase was mainly due to higher volumes and power prices. Fuel costs were higher than in the previous year. In Sweden, the negative peak-load impact on production costs during the winter was offset by a stronger SEK currency.
During the fourth quarter of 2010, commercial operation began at two new CHP plants, one in Częstochowa, Poland and one in Pärnu, Estonia. Fortum also started site activities on a new waste-to-energy CHP plant in Klaipeda, Lithuania, and construction of a new waste-to-energy plant in Brista, near Stockholm in Sweden. In addition, Fortum signed an agreement to acquire two Polish power and heat companies from the Polish state. The companies were sold as part of the privatisation of the power and heat sector in Poland. Also in the fourth quarter, an agreement was signed on the divestment of Fortum's heat operations outside the Stockholm area to Macquarie-managedfunds.
During the year, Heat divested some 30 plants comprising smaller heat-only boilers. The restructuring activities support Fortum's updated strategy that focuses on the further development of CHP production.
In Sweden, in November 2010, the Swedish Competition Authority (SCA) announced that the authority dropped its investigation concerning the market position and price setting of Fortum's district heating in the Stockholm area. The authority concluded that the real price of district heat has decreased in Stockholm by 1.5% during 2005-2010.
In Finland, taxes on fuels for heat production as well as taxes on electricity were increased considerably as of 1 January 2011. Tax increases will be reflected in the end-user prices of heat and electricity accordingly.
|Heat sales by area, TWh||IV/10||IV/09||2010||2009|
|Power sales, TWh||IV/10||IV/09||2010||2009|
At year-end, the Heat Division's power generating capacity totalled 1,600 (1,446) MW, of which 1,478 (1,412) MW was in the Nordic countries. The Heat Division's total heat production capacity was 10,448 (10,284) MW, of which 8,488 (8,414) MW was in the Nordic countries.
Electricity Solutions and Distribution
The divisionis responsible for Fortum's electricity sales and distribution activities and consists of two business areas: Distribution and Electricity Sales.
Fortum owns and operates distribution and regional networks and distributes electricity to a total of 1.6 million customers in Sweden, Finland, Norway and Estonia.
|- distribution network transmission||240||192||820||685|
|- regional network transmission||24||21||92||75|
|- other sales||23||14||51||40|
|Comparable operating profit||91||80||307||262|
|Net assets (at period-end)||3,683||3,299|
|Return on net assets, %||9.7||8.7|
|Comparable return on net assets, %||9.3||8.6|
|Capital expenditure and gross investments in shares||86||63||213||193|
|Number of employees||962||1,088|
The volume of distribution and regional network transmissions during the fourth quarter of 2010 totalled 8.3 (7.5) TWh and 4.7 (4.4) TWh, respectively.
During 2010, electricity transmission via the regional distribution network totalled 14.8 (13.6) TWh in Sweden and 2.8 (2.8) TWh in Finland.
The Distribution business area's comparable operating profit in the fourth quarter was EUR 91 million, an increase of EUR 11 million compared to the corresponding period of the previous year. The main reasons for the improvement were higher sales due to the colder weather. The improvement was partly offset by higher variable, maintenance and fault repair costs. The stronger SEK improved the comparable operating profit with some EUR 5 million during the fourth quarter.
During 2010, the business area's comparable operating profit was EUR 307 (262) million. The improvement was mainly due to higher sales and was partly offset by higher variable, maintenance and fault repair costs. In addition, the stronger SEK increased the comparable operating profit by some EUR 20 million.
The pilot rollout of smart metering to network customers in Finland started in October 2010. Smart metering has several benefits for customers, including better information about electricity consumption and therefore better control of it. The new Finnish legislation on meter reading requirements will be effective as of 1 January 2014.
In Sweden, the new distribution price regulation model will come into effect in 2012. The work with the new model is still ongoing and the parameters are currently being defined. In Finland, the preparation work for the 3rd regulatory period (2012-2015) started. Final decisions for the Finnish regulation model by the regulator are expected in November 2011.
Distribution improves efficiency through automation and by focusing on its core processes. As a consequence, some field operations were outsourced during the fourth quarter.
|Volume of distributed electricity in distribution network, TWh||IV/10||IV/09||2010||2009|
|Number of electricity distribution customers by area, thousands||31 Dec 2010||31 Dec 2009|
The Electricity Salesbusiness area 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. Electricity Salesbuys its electricity from the Nordic power exchange.
|- power sales||524||400||1,778||1,417|
|- other sales||5||10||20||32|
|Comparable operating profit||3||11||11||22|
|Net assets (at period-end)||210||125|
|Return on net assets, %||38.4||28.9|
|Comparable return on net assets, %||9.3||18.6|
|Capital expenditure and gross investments in shares||0||0||0||1|
|Number of employees||525||611|
During the fourth quarter of 2010, the business area's electricity sales volumes totalled 8.1 (8.3) TWh while electricity sales volumes in 2010 totalled 29.8 (30.0) TWh.The restructuring of the unprofitable Business Market segment started in February 2010 and has impacted the sales volume of the Electricity Sales business area from the fourth quarter of 2010 onwards.
Electricity Sales' comparable operating profit in the fourth quarter decreased and totalled EUR 3 (11) million. Colder than normal weather conditions and the low hydrological situation that drove the market spot prices significantly up, were the main reasons for the lower sales margins. This, combined with the price peaks during the first quarter of 2010, resulted in a lower comparable operating profit, which totalled EUR 11 (22) million, for the full year 2010.
The Russia Division consists of power and heat generation and sales in Russia. It includes OAO Fortum and Fortum’s over 25% holding in TGC-1, which is an associated company and is accounted for using the equity method.
|- power sales||150||109||505||390|
|- heat sales||98||76||287||219|
|- other sales||6||12||12||23|
|Comparable operating profit||17||8||8||-20|
|Net assets (at period-end)||2,817||2,260|
|Return on net assets, %||2.4||0.0|
|Comparable return on net assets, %||0.7||0.0|
|Capital expenditure and gross investments in shares||257||98||599||218|
|Number of employees||4,294||4,855|
OAO Fortum operates in the well-developed industrial regions of the Urals and in oil-producing western Siberia.
The Russia Division's power sales volumes amounted to 4.9 (5.3) TWh during the fourth quarter of 2010. During the same period, heat sales totalled 9.0 (8.9) TWh. The full-year 2010 power sales volumes were 18.7 TWh (19.5 TWh) and heat sales volumes 26.8 TWh (25.6 TWh).
During 2010, OAO Fortum sold 61% of its power production at a liberalised electricity price.
|Key electricity, capacity and gas prices for OAO Fortum||IV/10||IV/09|| Change ||2010||2009||Change|
|Electricity spot price (market price), Urals hub, RUB/MWh||817||693||124||835||633||202|
|Average regulated electricity price for OAO Fortum, RUB/MWh||613||536||77||614||533||81|
|Average regulated capacity price, tRUB/MW/month||167||186||-19||169||187||-18|
| Average regulated gas price in |
Urals region, RUB/1000 m3
|2 221||1 937||284||2 221||1 781||440|
The Russia Division’s comparable operating profit was EUR 17 (8) million in the fourth quarter of 2010.The improvement was mainly attributable to higher electricity market prices and OAO Fortum's efficiency improvement programme.
In January-December 2010, the division's comparable operating profit totalled EUR 8 (-20) million. The improved result was mainly due to higher electricity market prices and OAO Fortum's efficiency improvement programme, which progressed well.
OAO Fortum’s business is typically very seasonal: Its results are usually strongest during the first and the last quarters of the year.
The Russian wholesale power sector reform is proceeding. From 1 January 2010 onwards, 60% of all power generated in Russia was sold on the competitive market. The share increased to 80% at the beginning of July 2010 and the wholesale power market has been fully liberalised from the beginning of 2011.
The new rules for the long-term capacity market starting from 2011 have been approved by the Russian Government. The generation capacity built after 2007 under the government capacity supply agreements (CSA) will receive guaranteed payments for a period of 10 years. Prices for capacity under CSA are defined in order to ensure a sufficient return on investments. Capacity that is not under CSA will compete in competitive capacity selection (CCS). In December 2010, the first CCS for the year 2011 was held in accordance with the new rules of the long-term capacity market.
Upon completion, OAO Fortum's new capacity will be a key driver for solid earnings growth in Russia as it will bring income from new volumes sold and receive considerably higher capacity payments than the old capacity. The payments for new capacity will be approximately 3-4 times higher than the average price for the old capacity. The average price of old capacity is expected to be approximately RUB 165 000/MW/month for OAO Fortum.
In light of the recovering post-crises demand and the development of the Russian capacity market, Fortum has accelerated the schedule of OAO Fortum's committed 2,300 MW-investment programmes and plans to commission the last new units in 2014. The value of the remaining part of the investment programme, calculated at the exchange rates prevailing at the end of December 2010, is estimated to be approximately EUR 1.5 billion as of January 2011.
In December 2010, a new unit was inaugurated at Fortum’s Tyumen CHP-1 power plant. The unit is the first of the new units in Fortum’s extensive investment programme in Russia; the first unit is estimated to be in commercial operation during the first half of 2011 and additional two units are estimated to start their commercial operation during mid-year 2011.
OAO Fortum's efficiency improvement programme is proceeding according to plans. Efficiency improvements are expected to to be approximately EUR 100 million in 2011 compared to the level at the time of the acquisition in 2008.
At year-end, the Russia Division's total power generating capacity was 2,785 (2,785) MW. At year end, the division's total heat production capacity was 13,796 (13,796) MW.
Capital expenditures, divestments and investments in shares
Capital expenditures and investments in shares totalled EUR 1,249(929)million in 2010. Investments, excluding acquisitions, were EUR 1,222(862)million.
Fortum expects to start the supply of power and heat from new power plants and upgrade existing ones as follows:
|Type||Electricity capacity, MW|| Heat |
|Supply starts *|
|Klaipeda, Lithuania||Waste (CHP)||20||60||2012|
|Nyagan 1||Gas (CCGT)||418||2012|
|Nyagan 2||Gas (CCGT)||418||2012|
*) Start of commercial operation, preceded by test runs, licensing, etc.
In August 2010, Fortum announced that it will acquire a 40% stake in the Blaiken wind power project in Sweden. The remaining 60% is held by the Swedish energy company Skellefteå Kraft. Fortum and Skellefteå Kraft's joint venture, Blaiken Vind AB, is planning to start construction of a wind farm in the Blaiken region in northern Sweden. The wind farm will have a maximum of 100 wind turbines with a total capacity of 250 MW and an estimated annual production of 600–720 gigawatt-hours (GWh). According to the plan, the wind farm will be built in phases, with construction to begin in 2011 and to be completed in 2015. Fortum's share of the total investment during the project will amount to a maximum of EUR 160 million.
The Finnish Government gave a negative decision-in-principle on Fortum's application concerning the construction of a new nuclear power plant unit, Loviisa 3. Fortum is also, with an approximately 25% interest, a shareholder in Teollisuuden Voima Oyj (TVO), whose decision-in-principle application for a new nuclear power plant unit, Olkiluoto 4, was approved by the Finnish Government and ratified by the Finnish Parliament. Fortum is involved in the project development.
Through its interest in TVO, Fortum is participating in the building of Olkiluoto 3, a 1,600-MW nuclear power plant unit in Finland. The AREVA-Siemens Consortium, TVO's turnkey supplier of Olkiluoto 3, reported that most of the works will be completed in 2012. The supplier indicated that commissioning will take eight months, which means regular operation will start during the latter half of 2013.
In September 2010, Fortum divested its share in the Finnish wind power producer Hyötytuuli Oy.
In January 2010, Fortum acquired a CHP plant in Nokia, Finland. The plant's capacity is around 85 MW heat and 70 MW electricity.
In February 2010, Fortum decided to invest in a new waste-fuelled CHP plant in Klaipeda, Lithuania. The value of the investment amounts to approximately EUR 140 million. According to plan, the power plant will be ready for production by the end of 2012 and it will use municipal and industrial waste and biomass as fuels. The plant's production capacity will be approximately 60 MW heat and 20 MW electricity.
The sale of Fortum's shares in the Swedish gas transmission company Swedegas AB was closed in February. The gain from the sale was included in the first-quarter non-recurring items.
In September 2010, Fortum inaugurated a CHP plant in Poland in the city of Częstochowa. Commercial operation started during the fourth quarter. The plant is fuelled by biomass (around 25%) and coal. The total value of the investment was about EUR 135 million. The new Częstochowa CHP plant has a heat production capacity of 120 MW and an electricity production capacity of 64 MW.
Also Fortum’s new CHP plant in Pärnu, Estonia, was synchronised to the grid in September 2010. Commercial operation started during the fourth quarter. The total value of the investment was around EUR 80 million. The production capacity of the biomass- and peat-fired power plant is 50 MW heat and 24 MW electricity.
In October, Fortum started to build a new waste-to-energy CHP unit in Brista, Sweden, where it will be part of the Stockholm-region district heating system. The value of the investment is about EUR 200 million, and the completion of the new production unit is planned for 2013. The estimated capacity of the unit is 60 MW heat and 20 MW electricity. The plant will be co-owned with Sollentuna Energi, the energy company of the nearby Sollentuna municipality.
In November, Fortum signed an agreement to acquire two Polish power and heat companies from the Polish state. The companies were sold as part of the privatisation of the power and heat sector in Poland. The acquisition significantly increases Fortum's power production capacity in Poland. The investment amounted to approximately EUR 21 million and the final closing of the acquisition was made after the year end, on 3 January 2011.
In December, Fortum and Macquarie-managed funds signed an agreement whereby Fortum will divest its district heat operations and heat production facilities outside the Stockholm area in Sweden. The sales price is approximately EUR 200 million. Fortum expects to finalise the divestment during the first quarter of 2011.
In December, Fortum in collaboration with the Naantali, Raisio and Kaarina municipalities and Turku Energia signed a letter of intent on consolidating energy production in the Turku area to one co-owned production company, Turun Seudun Maakaasu ja Energiantuotanto (TSME). Fortum will provide energy production services to TSME. The district heat produced will be sold to Turku Energia, the steam to Fortum and the electricity to TSME shareholders. Fortum owns 50.5% of TSME.
In addition, Fortum divested approximately 30 small heating plants during 2010: the divestments had a minor impact on results.
The investments and divestments are part of the renewed strategy to focus on the development of CHP production.
In early February 2010, Fortum sold its 49% shareholding in Karlskoga Energi & Miljö in Sweden to the Karlskoga municipality for approximately EUR 42 million. The sales gain was included in the first quarter non-recurring items.
In December 2010, Fortum inaugurated a new unit at its combined heat and power plant Tyumen CHP-1 in the city of Tyumenin Western Siberia. The new unit was the first of seven units in Fortum’s extensive investment programme in Russia; the unit is estimated to begin its commercial operation during the first half of 2011.
Fortum sold its shares in Federal Grid Company (Fortum's ownership was 0.119%) and in Kurgan Generating Company (49% of the voting rights) in Russia during the first quarter of 2010. The sales gains were included in the first-quarter non-recurring items.
Fortum divested its approximately 31% holding in joint stock company Saint-Petersburg Sale Company (JSC SSC) to the Russian INTER RAO UES. The sales gain was included in the third-quarter non-recurring items.
In December 2010, Fortum's associated company Hafslund ASA, ownership 34.1%, announced the sale of shares in its fully-owned subsidiary Hafslund Fibernett AS for a sales price of NOK 1,477 million (approx. EUR 188 million). Hafslund will book a gain of approximately NOK 900 million (approx. EUR 114 million). Consequently, Fortum will book a gain of roughly EUR 40 million corresponding to approximately EUR 0.04 per share. The gain will be booked in the first quarter of 2011 as profit from associated companies.
Net debt increased during the last quarter by EUR 218 million to EUR 6,826 million (year end 2009: EUR 5,969 million). The increase in net debt during the year is mainly linked to the stronger SEK and translation of SEK-denominated debt in the Group.
Total liquid funds decreased by EUR 424 million from EUR 980 million to EUR 556 million (year-end 2009: 890 million). Liquid funds include cash and bank deposits held by OAO Fortum and amount to EUR 348 million (year end 2009: 632 million). In addition to the liquid funds, Fortum had access to approximately EUR 2.9 billion of undrawn committed credit facilities.
The Group's net financial expenses were EUR 155 (167) million. The decrease is mainly attributable to lower average interest rates in 2010 compared to the previous year. Net financial expenses include changes in the fair value of financial instruments of EUR 12 (-1) million.
Net debt to EBITDA for the year 2010 was 3.0 (2.6 at year-end 2009).
Fortum Corporation’s long-term credit rating from Moody’s and Standard and Poor's was A2 (stable) and A (stable), respectively.
Shares and share capital
In 2010, a total of 493.4 (580.9) million Fortum Corporation shares, totalling EUR 9,399 million, were traded on the NASDAQ OMX Helsinki. Fortum's market capitalisation, calculated using the closing quotation of the last trading day of the year 2010, was EUR 20,015 million. The highest quotation of Fortum Corporation shares on the NASDAQ OMX Helsinki during 2010 was EUR 22.69, the lowest EUR 17.18, and the volume-weighted average EUR 19.05. The closing quotation on the last trading day of the year 2010 was EUR 22.53 (18.97).
In addition to NASDAQ OMX Helsinki, Fortum shares were traded on several alternative market places, (for example at Chi-X Europe, BATS and Turquoise). In 2010, a total of 199.4 million Fortum Corporation shares, or approximately 29% of the total amount of traded shares, were traded on alternative market places.
At the end of 2010, Fortum Corporation’s share capital was EUR 3,046,185,953 and the total number of registered shares was 888,367,045. Fortum Corporation did not own its own shares.
The Finnish State's holding in Fortum was 50.8% at the end of 2010. The proportion of nominee registrations and direct foreign shareholders was 30.2%.
The Board of Directors has no unused authorisations from the Annual General Meeting of Shareholders to issue convertible loans or bonds with warrants or to issue new shares.
The number of employees at the end of 2010 was 10,585 (11,613 at the end of 2009).
Research and development
Sustainable solutions are the centrepiece of Fortum’s strategy, and Fortum’s research and development activities enable environmentally-benign energy solutions.
Nuclear R&D is the largest and most valuable part of Fortum’s R&D portfolio. In 2010, important milestones were achieved e.g. regarding higher burn up of nuclear fuel and reactor pressure vessel licensing for the Loviisa power plant.
Other important R&D themes in 2010 were CHP development and fuel flexibility, carbon capture and storage (CCS) as well as sustainable cities. Fortum continued development work on pyrolysis technology in collaboration with Metso, UPM and VTT Technical Research Centre of Finland. The bio-oil being generated in the process can be used to replace heavy fuel oil and thus result in significantly reduced CO2-emissions. Furthermore, new fuel tests were conducted using crushed olive stones as fuel at the Värtan power plant in Stockholm.
Fortum has carried out significant R&D during several years on CCS technologies for large coal condensing power plants, and on CCGT linked to the possibility of enhanced oil recovery as a storage solution. In 2010, the focus was switched to solutions for large CHP plants.
Over the year, Fortum actively developed solutions for sustainable urban living in various projects. Fortum, ABB and the KTH Royal Institute of Technology received funding (13.4 MSEK) from Swedish Energy Agency and Vinnova for a pre-study on the design and installation of a smart and flexible large-scale electricity grid in the sustainable Stockholm Royal Seaport commercial and residential area.
In September 2010, Fortum and Aalto University agreed on wide-ranging research cooperation.
The Group’s total R&D expenditure in 2010 was EUR 30 million (2009: 30 million). Fortum’s R&D expenditure in 2010 was 0.5% of net sales (2009: 0.5%) and 0.8% of total expenses (2009: 0.9%).
Events after the balance sheet date
In January 2011, Fortum, the Finnish State and Ilmarinen Mutual Pension Insurance Company came to a preliminary agreement according to which Fortum will sell its 25%-shareholding in the Finnish transmission system operator Fingrid Oyj. The State will buy approximately 81% and Ilmarinen approximately 19% of Fortum's Fingrid shares. The transaction is subject to a final agreement between the parties and to the necessary approvals by their decision-making bodies. Furthermore, the completion of the transaction requires the approval of the Finnish Competition Authority.
The sales price for the total amount of shares is EUR 325 million and consequently, Fortum expects to book a gain of roughly EUR 200 million, corresponding to approximately EUR 0.22 per share once the transaction has been completed. Fortum estimates that the divestment will be finalised during the first half of 2011. The proceeds will be used on general corporate purposes.
Fortum is selling its holding in Fingrid as a result of the EU's third energy market package that calls for the separation of high voltage transmission and power generation. The package entered into force in September 2009 and, according to it, Fortum will have to divest its entire ownership in the Finnish transmission system operator Fingrid by early 2012.
Key drivers and risks
The key factor influencing Fortum's business performance is the wholesale price of electricity. The key drivers behind wholesale price development are the supply-demand balance, fuel and CO2-emissions allowance prices as well as the hydrological situation. The exchange rates of the Swedish krona (SEK) and Russian rouble (RUB) also affect Fortum's financials. The balance sheet translation effects from changes in currency exchange rates are booked in Fortum’s equity.
Fortum's financial results are exposed to a number of strategic, financial and operational risks. For further details on Fortum's risks and risk management, see Fortum's Operating and Financial Review and Financial Statements for 2009.
Fortum currently expects Nordic power demand to recover back to the 2008 level by 2012-2014. Electricity will continue to gain a higher share of the total energy consumption. Temperature-corrected power consumption in the Nordic countries is still approximately 4% (16 TWh)lower than in 2008.
At the end of January 2011, the electricity forward price in Nord Pool for the rest of 2011 was around EUR 55 per MWh. The electricity forward price for 2012 was around EUR 47 per MWh and for 2013 around EUR 45 per MWh. At the same time, the future quotations for coal (ICE Rotterdam) for the rest of 2011 were around USD 116 per tonne and the market price for CO2-emissions allowances (EUA) for 2011 was about EUR 15 per tonne.
At the end of January 2011, Nordic water reservoirs were at historically low levels and about 29 TWh below the long-term average and 20 TWh below the corresponding level of 2010.
The Russian wholesale power sector reform is proceeding. The wholesale power market has been fully liberalised from the beginning of 2011.
The new rules for the long-term capacity market starting from 2011 have been approved by the Russian Government. The generation capacity built after 2007 under government capacity supply agreements (CSA – “new capacity”) will receive guaranteed payments for a period of 10 years. Prices for capacity under CSA are defined in order to ensure a sufficient return on investments. Capacity not under CSA will compete in competitive capacity selection (CCS – “old capacity”). In December 2010 the first CCS for the year 2011 was held in accordance with the new rules of the long-term capacity market.
Upon completion, OAO Fortum's new capacity will be a key driver for solid earnings growth in Russiaas it will bring income from new volumes sold and receive considerably higher capacity payments than the old capacity. The payments for new capacity will be approximately 3-4 times higher than the average price for the old capacity. The average price of old capacity is expected to be approximately RUB 165 000/MW/month for OAO Fortum.
In light of the recovering post-crises demand and development of the Russian capacity market, Fortum has accelerated the schedule of OAO Fortum's committed 2,300-MW investment programme and plans to commission the last new units by the end of 2014. The value of the remaining part of the investment programme, calculated at exchange rates prevailing at the end of December 2010, is estimated to be approximately EUR 1.5 billion as of January 2011. The first new unit is estimated to be in commercial operation during the first half of 2011 and additional two units are estimated to start their commercial operation during mid-year 2011.
The average regulated gas price increased by 15% from the beginning of the year compared with the average price in 2010. The regulated gas price is expected to remain unchanged for the rest of 2011. The regulated electricity price is indexed to the regulated gas price and inflation on an annual basis.
Efficiency improvements are expected to to be approximately EUR 100 million in 2011 compared to the level at the time of the acquisition in 2008.
Capital expenditure and divestments
Fortum's capital expenditure in 2010 was approximately EUR 1.2 billion – slightly less than indicated earlier. Fortum currently expects capital expenditure in 2011 and 2012 to be around EUR 1.6 -1.8 billion, excluding potential acquisitions. The annual level of Fortum's capital expenditure in 2013-2014 is estimated to total EUR 1.1-1.4 billion. The main reason for high capital expenditures in 2011-2012 is the acceleration in Fortum's Russian investment programme.
In 2010, Fortum signed an agreement whereby it will divest its district heat operation facilities outside the Stockholm area in Sweden. The sales price is approximately EUR 200 million. The divestment is expected to be finalised during the first quarter of 2011.
In addition, Fortum came to a preliminary agreement over the divestment of its 25%-shareholding in the Finnish transmission system operator Fingrid Oyj. The sales price is EUR 325 million. The divestment is estimated to be finalised during the first half of 2011.
The Swedish Government has decided to increase hydro property tax rates from the beginning of 2011. Fortum estimates that the additional cost from the tax rate increase would be around EUR 15 million.
In Finland, taxes on fuels for heat production as well as taxes on electricity were increased considerably as of 1 January 2011. Tax increases will be reflected in end-user prices of heat and electricity accordingly. The windfall tax was removed from the Government agenda in Finland.
The tax rate is currently in 2011 is estimated to be 19-21%.
At the end of December 2010, approximately 70% of the Power Division's estimated Nordic electricity sales volume for the calendar year 2011 was hedged at approximately EUR 45 per MWh. For the calendar year 2012, approximately 40% of the division's estimated Nordic electricity sales volume is hedged at approximately EUR 44 per MWh.
The reported hedge ratios may vary significantly, depending on Fortum's actions on the electricity derivatives markets. Hedges are mainly financial contracts, most of them Nord Pool forwards or standardised futures, consisting of several types of products and maturities.
The first and last quarters of the year are usually the strongest quarters for the power and heat businesses.
The Power Division's achieved Nordic power price typically depends on e.g. the hedge ratio, hedge price, spot prices, availability and utilisation of Fortum's flexible production portfolio and currency fluctuations. Excluding the potential effects from the changes in the power generation mix, a 1 EUR/MWh change in Power’s achieved Nordic sales price results in an approximately EUR 50 million change in Fortum's annual operating profit.
Fortum's results were solid. The company has a flexible, cost-efficient and climate-benign generation portfolio. Fortum's financial position and liquidity are strong.
Dividend distribution proposal
The parent company's distributable equity as of 31 December 2010 amounted to EUR 4,191,864,236.08. Since the end of the financial period, there have been no material changes in the financial position of the Company.
The Board of Directors proposes to the Annual General Meeting that Fortum Corporation pay a cash dividend of EUR 1.00 per share for 2010, totalling EUR 888 million based on the number of registered shares as of 1 February 2011.
Espoo, 1 February 2011
Board of Directors
Tapio Kuula, President and CEO, tel. +358 10 452 4112
Juha Laaksonen, CFO, tel. +358 10 452 4519
Fortum’s Investor Relations, Sophie Jolly, +358 10 453 2552 and Rauno Tiihonen, +358 10 453 6150 / investors [at] fortum [dot] com
The Board of Directors has approved Fortum's 2010 financial statements and Fortum's
auditors have issued their audit report for 2010 on 1 February 2011. The condensed interim financial statements have been prepared in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting, as adopted by the EU.
Fortum's Annual General Meeting will take place on 31 March 2011 and the possible dividend-related dates planned for 2011 are:- Ex-dividend date 1 April 2011, - Record date for dividend payment 5 April 2011 and- Dividend payment date 12 April 2011 Fortum's annual report for 2010 will be published on week 10 at the latest. Publication of financial results in 2011:
- Interim Report January-March on 28 April 2011 at approximately 9.00 EEST,
- Interim Report January-June on 19 July 2011 at approximately 9.00 EEST and
- Interim Report January-September on 20 October 2011 at approximately 9.00 EEST.
NASDAQ OMX Helsinki
Tables are attached.
More information, including detailed quarterly information, is available on Fortum’s website at www.fortum.com/investors.