Stock exchange release

Q1 overall a good start of the year

28 April 2011, 9:00 EEST

Interim report January - March 2011

  • Comparable operating profit EUR 649 (651) million, 0%
  • Earnings per share EUR 0.76 (0.63), +21%
  • Clearly lower hydro volumes partly offset by improved nuclear availability
  • Nordic power price and hedge definition modified. 70% hedged at EUR 44 per MWh for the rest of 2011 and 45% hedged at EUR 45 per MWh for 2012 (according to the old definition: 65% at EUR 44 per MWh for 2011 and 45% at EUR 45 per MWh for 2012)
Key figures I/11 I/10 2010 LTM*
Sales, EUR million 2,034 1,947 6,296 6,383
Operating profit, EUR million 900 724 1,708 1,884
Comparable operating profit, EUR million 649 651 1,833 1,831
Profit before taxes, EUR million 904 713 1,615 1,806
Earnings per share, EUR 0.76 0.63 1.46 1.60
Net cash from operating activities, EUR million 454 521 1,437 1,370
Shareholders’ equity per share, EUR 9.30 8.96 9.24 N/A
Interest-bearing net debt
(at end of period), EUR million
6,367 5,679 6,826 N/A
Average number of shares, 1,000s 888,367 888,367 888,367 888,367

*) Last twelve months

Key financial ratios 2010 LTM
Return on capital employed, % 11.6 12.6
Return on shareholders’ equity, % 15.7 17.5
Net debt/EBITDA 3.0 2.6


Fortum’s President and CEO Tapio Kuula in connection with the first quarter 2011:

“Our first quarter 2011 results provide a good basis for the year. The Heat and Russia divisions as well as the Distribution and Electricity Sales businesses clearly improved their results from a year ago. Power Division’s results were burdened mainly by a lower power sales price and clearly lower hydro volumes, which were partly offset by improved nuclear availability. Characteristic for Fortum’s business is its seasonality and in 2011 we expect the Power Division’s result to be more weighted towards the end of the year compared to 2010. This will be mainly driven by improved nuclear availability and current forward prices for power.

The Nordic power consumption decreased somewhat and the overall Russian power demand was flat in the first quarter of 2011. Industrial activity has clearly picked up in Fortum's key market areas and the Russian economy has continued along a solid path of recovery. Furthermore, the Russian power market reform progressed in line with the Russian Government’s decisions, liberalising the electricity wholesale market from the beginning of 2011.

In March, the world’s strongest earthquake in 40 years and the ensuing tsunami caused immense damage and immeasurable human suffering in Japan. The incident that followed in the Fukushima nuclear power plant has proven to be very serious.

An emergency meeting of energy ministers and nuclear operators convened by the EU Energy Commissioner took place shortly after the incident in March. The proposed EU-wide safety reviews for nuclear power plants are an important step towards using more uniform international standards to test nuclear plant safety. An open dialogue about risks and nuclear power safety benefits both energy producers and consumers. The incident in Japan has not changed the underlying fundamentals of the Loviisa nuclear plant replacement investments. 

Major decisions concerning our sector must be made with careful consideration and with a long-term horizon, because they also impact the lives of future generations. The energy industry, and the electricity sector in particular, has become one of the most interesting branches of business globally, and its importance will only grow in the future. Fortum therefore continues to look for further opportunities for future growth stemming from the need for CO2-free and energy-efficient solutions and the increasing demand for electricity."

Financial results


Group sales were EUR 2,034 (1,947) million. Group operating profit totalled EUR 900 (724) million. Fortum's operating profit for the first quarter 2011 was affected by EUR 173 (36) million by the IFRS accounting treatment (IAS 39) of derivatives mainly used for hedging Fortum's power production. The comparable operating profit, which was not impacted by the accounting treatment, totalled EUR 649 (651) million.

The total of non-recurring items, mark-to-market effects and nuclear fund adjustments in the first quarter of 2011 amounted to EUR 251 (73) million. Of this total, non-recurring items totalled EUR 82 (46) million, which mainly relates to the divestment of the district heat operations and production facilities outside Stockholm.

Sales by division

EUR million I/11 I/10 2010 LTM
Power 693 769 2,702 2,626
Heat 725 651 1,770 1,844
Russia 295 244 804 855
Distribution* 311 280 963 994
Electricity Sales* 373 637 1,798 1,534
Other 30 5 51 76
Netting of Nord Pool transactions -366 -683 -1,736 -1,419
Eliminations -27 44 -56 -127
Total 2,034 1,947 6,296 6,383

* Part of the Electricity Solutions and Distribution Division

Comparable operating profit by division

EUR million I/11 I/10 2010 LTM
Power 325 424 1,298 1,199
Heat 171 132 275 314
Russia 34 16 8 26
Distribution* 124 102 307 329
Electricity Sales* 11 -13 11 35
Other -16 -10 -66 -72
Total 649 651 1,833 1,831

* Part of the Electricity Solutions and Distribution Division

Operating profit by division

EUR million I/11 I/10 2010 LTM
Power 489 467 1,132 1,154
Heat 265 159 303 409
Russia 34 32 53 55
Distribution* 125 113 321 333
Electricity Sales* -20 -29 46 55
Other 7 -18 -147 -122
Total 900 724 1,708 1,884

* Part of the Electricity Solutions and Distribution Division

The average Swedish krona (SEK) rate was approximately 11% stronger against the euro during the first quarter 2011 than during the corresponding period in 2010. The SEK effect impacted Heat and Distribution positively, while Power was burdened by the higher cost levels due to the SEK /EUR ratio and the euro-denominated power sales. The strong SEK also had a negative impact on the cash flow.

The share of profits of associates and joint ventures was EUR 59 (16) million. The increase was mainly due to the improvement in the contribution from Hafslund ASA that booked a capital gain on the sales of Hafslund Fibernett AS.

The Group’s net financial expenses increased to EUR 55 (27) million. The increase is attributable to higher interest expenses and to the change in the fair value of financial instruments of EUR -1 (11) million.

Profit before taxes was EUR 904 (713) million.

Taxes for the period totalled EUR 158 (130) million. The tax rate according to the income statement was 17.5% (18.2%).

The profit for the period was EUR 746 (583) million. Fortum's earnings per share were EUR 0.76 (0.63). The effect on earnings per share by the accounting treatment of derivatives was EUR 0.14 (0.03).  

Non-controlling (minority) interests amounted to EUR 68 (24) million. These are mainly attributable to Fortum Värme Holding AB, in which the city of Stockholm has a 50% economic interest. The increase in the first quarter of 2011, compared the corresponding period in 2010, is mainly due to the minority's share, EUR 30 million, of the gain recognised from the divestment of Fortum Värme’s heat businesses outside the Stockholm area.

Cash flow from operating activities totalled EUR 454 (521) million. It was affected by the realised foreign exchange losses, which amounted to EUR 254 (137) million during the first quarter of 2011. The foreign exchange gains and losses relate to the rollover of foreign exchange contracts hedging loans to Fortum’s Swedish subsidiaries.

Fortum’s financial key ratios for the last twelve months were: return on capital employed 12.6% (12.3), return on shareholders' equity 17.5% (17.6) and net debt to EBITDA 2.6 (3.0 at the end of 2010). The comparable net debt to EBITDA for the last twelve months was 2.6.


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 2010.

Nordic market

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 on an annual level.

In the wake of political unrest in the Middle East and Northern Africa, the oil price increased throughout the first quarter 2011. The earthquake in Japan with the ensuing damages to their nuclear power plants led to a surge in liquefied natural gas to replace damaged nuclear generation, which resulted in a relief of the oversupply of gas in Europe. As a result, spot gas prices in Europe have increased. The increasing gas prices combined with uncertainty regarding nuclear power policy in Germany have led to a 3% increase in the coal price and a 22% increase in CO2 prices.

In Germany, forward prices increased by 10% at the end of the quarter as a consequence of increasing fuel and CO2 costs as well as the announced German nuclear moratorium. Nordic forward prices increased as well, but to a lesser extent partly due to increased water reservoir levels.

In late April 2011, the electricity forward price in Nord Pool for the rest of 2011 was around EUR 57 per MWh. The electricity forward price for 2012 was around EUR 51 per MWh and for 2013 around EUR 48 per MWh. In Germany, the electricity forward price for the rest of the year was around EUR 60 per MWh and EUR 59 per MWh for 2012. At the same time, the future quotations for coal (ICE Rotterdam) for the rest of 2011 were around USD 127 per tonne and the market price for CO2-emissions allowances (EUA) for 2011 was about EUR 17 per tonne.

In late April 2011, Nordic water reservoirs were about 11 TWh below the long-term average and 2 TWh above the corresponding level of 2010.


The Russian wholesale power sector reform has proceeded. The wholesale power market was liberalised from the beginning of 2011. All generating companies continue to sell a part of their electricity and capacity equalling the consumption of households under regulated prices.

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. The original plan to decide the CCS for the period 2012-2015 during the fourth quarter in 2011 has been changed and now covers only year 2012. The long-term CSS is expected to be arranged in 2012.

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. In 2011, OAO Fortum's weighted price of old capacity is expected to be on average approximately RUB 160 000/MW/month, marginally lower than earlier expected, due to removal of inflation correction for 2011. The price might, however, differ due to the location of the plants and due to seasonality. The first and fourth quarters have higher capacity income than the second and third quarters lower due to the seasonality of the business. The payments for new capacity are currently estimated to be approximately 3-4 times higher than the average price for the old capacity. The return for the new capacity is guaranteed, but might vary somewhat because it is linked to the Russian Government long-term bonds with 8 to 10 years maturity.

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 investment programme and is planning 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 March 2011, is estimated to be approximately EUR 1.4 billion as of April 2011. The first new unit started capacity sales early February 2011. Two more new units are estimated to start capacity sales in mid-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.

OAO Fortum's efficiency improvement programme is proceeding according to plans. Efficiency improvements are expected 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 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. The annual maintenance capital expenditure is estimated to be approximately EUR 500 - 550 million in 2011, approximately at the level of depreciation.

In March, Fortum divested its district heat operations outside the Stockholm area in Sweden. The sales price was approximately EUR 220 million.

In addition, Fortum finalized the divestment of its 25% shareholding in the Finnish transmission system operator Fingrid Oyj in April. The sales price was EUR 325 million. 


The Swedish Government increased the hydro property tax rates at the beginning of 2011. The additional cost from the tax rate increase is estimated to be approximately EUR 15 million in 2011.

As of 1 January 2011, taxes on fuels for heat production as well as taxes on electricity were increased considerably in Finland. Tax increases are reflected in end-user prices of heat and electricity, accordingly.

The corporate tax rate in 2011 is currently estimated to be 19-21% excluding the impact of share of profits of associated companies and joint ventures, non-taxable capital gains as well as one-time items.


Fortum has modified the way it defines its hedge ratios and price to correspond better to the existing environment and to the way Fortum's hedging is conducted. According to the new definition, the hedge price for Fortum Power Division's Nordic generation excludes hedging of condensing power margin, i.e. hedging of Meri-Pori and Inkoo coal condensing power plants. In addition, the hedge ratio now excludes the financial hedges and physical volume of Fortum's coal condensing generation as well as imports from Russia.

At the end of March 2011, approximately 70% of the Power Division's estimated Nordic power sales volume was hedged at approximately EUR 44 per MWh for the rest of the calendar year 2011. The corresponding figures for the calendar year 2012 were approximately 45% at approximately EUR 45 per MWh. (According to the old definition, the corresponding figures would have been: For the rest of the calendar year 2011, an approximate 65% hedge ratio at approximately EUR 44per MWh and for the calendar year 2012, an approximate 45% hedge ratio at approximately EUR 45 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.


The Power Division's 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 Division’s Nordic power sales price results in an approximately EUR 45 million change in Fortum's annual comparable operating profit. In addition the comparable operating profit of the Power Division will be affected by the possible thermal power generation amount and its profit. Fortum believes that additional safety criteria could be introduced for new and old nuclear power plants. In 2011, the division's costs are estimated to remain roughly at the same level as in 2010 excluding the SEK translation and Swedish hydro property tax effects. The impact of the expired Russian power import contract is estimated to be approximately EUR -40 million for the full year 2011. Power Division’s result is expected to be more year-end weighted compared to 2010, mainly driven by improving nuclear availability and current forward prices for power.

The development of Fortum's result has been good. The company has managed its performance well and kept its financial position solid in a demanding environment. The strong balance sheet combined with a flexible, cost-efficient and sustainable generation portfolio creates a firm basis going forward.

Espoo, 28 April 2011
Fortum Corporation
Board of Directors 

Further information:

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 (investors[at]fortum[dot]com)

Disclosure procedure

Fortum Corporation applies the disclosure procedure described in the Finnish Financial Supervision Authority's Standard 5.2b and publishes its interim reports with a stock exchange release as of this January-March 2011 interim report. The full report is attached and further information, including detailed quarterly information, is available on Fortum’s website at

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