Stock exchange release

Results continued to develop well

19 July 2011, 09:00 EEST

Interim report January - June 2011

  • Comparable operating profit EUR 997 (990) million, +1%
  • Earnings per share EUR 1.29 (0.93), +39%
  • Financial position remained strong
  • Russian investment programme progressed as planned; second unit started commercial operations
Key figures II/11 II/10 I-II/11 I-II/10 2010 LTM*
Sales, EUR million 1,316 1,295 3,350 3,242 6,296 6,404
Operating profit, EUR million 609 351 1,509 1,075 1,708 2,142
Comparable operating profit, EUR million 348 339 997 990 1,833 1,840
Profit before taxes, EUR million 552 332 1,456 1,045 1,615 2,026
Earnings per share, EUR 0.53 0.30 1.29 0.93 1.46 1.83
Net cash from operating activities, EUR million 410 422 864 943 1,437 1,358
Shareholders’ equity per share, EUR     9.93 9.19 9.24  
Interest-bearing net debt
(at end of period), EUR million
    6.783 6.506 6,826  
Average number of shares, 1,000s     888,367 888,367 888,367  

*) Last twelve months


Key financial ratios 2010 LTM
Return on capital employed, % 11.6 13.8
Return on shareholders’ equity, % 15.7 19.1
Net debt/EBITDA 3.0 2.5


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

“Our second quarter 2011 results realised according to our expectations and our financial position remained strong. Both sales and comparable operating profit increased year-on-year. The Nordic power consumption decreased slightly, while the overall Russian power demand was slightly up in the second quarter of 2011 compared to the same period in 2010. The world-wide economic situation and energy policy sentiment in Europe has created uncertainty in the market.

In light of Japan’s Fukushima accident, it is understandable that the heightened concern all over the world about the nuclear safety has implications on nuclear power investments and their timing. For Fortum it is very important that nuclear power has wide political and social acceptance. Safety reviews of nuclear power plants and an open dialogue about the risks are necessary in order to restore public confidence towards the industry.

In May, Germany announced plans to abandon nuclear energy by 2022, outlining a reversal of its previous policy. The decision was made in the wake of the Fukushima disaster aiming to replace nuclear power with renewable energy sources. Phasing out nuclear power within a decade will be a challenge and may affect the industry across Europe.

In June, the new Finnish Government announced its programme. The new policy framework for the coming four-year period states that the Government will not make any new decisions-in-principle on nuclear power. Furthermore, the Government proposes to investigate a possible implementation of a windfall tax and a uranium tax. The Government will also review support schemes for renewable energy.

We must, however, not forget that climate change is – and will remain – a serious global challenge in need of solutions. Curbing emissions and the scarcity of natural resources are weighed against the increase in energy consumption that is driven by population and economic growth. Energy efficiency must be increased when bringing electricity and modern energy systems to a growing number of people. On the other hand, the need to improve energy efficiency emphasises the role of electricity and offers business opportunities for Fortum. As investments in power and heat generation are highly capital intensive, Fortum stresses the importance of a predictable and consistent energy policy and operating environment.

Supported by our strategy, we are preparing for growth. Maintaining a strong balance sheet that enables us to tap into attractive growth opportunities also in the long run is a priority for us. A central part of our core competence is emissions-free hydropower production, which has an important role in our strategy also in the future. It is also needed to balance production and consumption as electricity is gradually produced more with, for example, wind and solar energy.

In addition to hydro- and nuclear power, our strategy builds on our deep expertise in combined heat and power (CHP) production with a flexible fuel mix. CHP-based district heating, cooling and smart grid solutions support the development of sustainable and modern urban living. In the future, we will continue to increase the utilisation of local biofuels and waste to reduce CO2 emissions and to improve resource efficiency.

Alongside our Nordic core business, our operations in Russia are continuously growing. Russia is the fastest growing national economy in Fortum’s current market areas, and Fortum has committed to a sizeable investment programme in the country. The building of new units in Russia is based on energy-efficient technologies that save fuel and offer clear environmental benefits. We have already inaugurated two new units in Russia and are currently finalising the third unit. The two new units already contributed positively to the results. Commissioning of new units decreases Fortum’s risk for penalties caused by possible delays’ and thus we did a reversal of the provision, allocated to these two units, made at the time of the acquisition. 

Financial results

April - June

In April – June, Group sales were EUR 1,316 (1,295) million. Group operating profit totalled EUR 609 (351) million. Fortum's operating profit for the second quarter 2011 was affected by a EUR 76
(-15) million 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 348 (339) million.

The total of non-recurring items, mark-to-market effects and nuclear fund adjustments in the second quarter of 2011 amounted to EUR 261 (12) million. Of this total, EUR 192 million relates to the sales gain of the divestment of shares in Fingrid Oyj.

The share of profits from associates in the second quarter was EUR 15 (15) million, of which Hafslund ASA represented EUR -11 (12) million and TGC-1 EUR 30 (9) million. Share of profits from TGC-1 is based on the company's published IFRS first quarter interim report. The share of profits from Hafslund is based on the company's first quarter interim report including a write-down of Hafslund shareholding in Renewable Corporation (REC) amounting to EUR 20 million based on the REC share price as of 30 June 2011 (see also Note14). The effect of Hafslund’s second quarter excluding REC is not included in Fortum's second quarter results since the share of profits is based on the previous quarter information.

Sales by division

EUR million II/11 II/10 I-II/11 I-II/10 2010 LTM
Power 574 597 1,267 1,366 2,702 2,603
Heat 322 301 1,047 952 1,770 1,865
Russia 195 169 490 413 804 881
Distribution* 215 200 526 480 963 1,009
Electricity Sales* 183 327 556 964 1,798 1,390
Other 19 16 49 21 51 79
Netting of Nord Pool transactions -150 -261 -516 -944 -1,736 -1,308
Eliminations -42 -54 -69 -10 -56 -115
Total 1,316 1,295 3,350 3,242 6,296 6,404

* Part of the Electricity Solutions and Distribution Division

Comparable operating profit by division

EUR million II/11 II/10 I-II/11 I-II/10 2010 LTM
Power 257 271 582 695 1,298 1,185
Heat 25 33 196 165 275 306
Russia 21 -9 55 7 8 56
Distribution* 60 53 184 155 307 336
Electricity Sales* 10 10 21 -3 11 35
Other -25 -19 -41 -29 -66 -78
Total 348 339 997 990 1,833 1,840

* Part of the Electricity Solutions and Distribution Division

Operating profit by division

EUR million II/11 II/10 I-II/11 I-II/10 2010 LTM
Power 271 280 760 747 1,132 1,145
Heat 25 35 290 194 303 399
Russia 21 -9 55 23 53 85
Distribution* 252 53 377 166 321 532
Electricity Sales* 23 23 3 -6 46 55
Other 17 -31 24 -49 -147 -74
Total 609 351 1,509 1,075 1,708 2,142

* Part of the Electricity Solutions and Distribution Division

January - June

In January-June, Group sales were EUR 3,350 (3,242) million. Group operating profit totalled EUR 1,509 (1,075) million. Fortum's operating profit for the period was affected by a EUR 249 (21) million 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 997 (990) million.

Non-recurring items, mark-to-market effects and nuclear fund adjustments in January-June 2011 amounted to EUR 512 (85) million. Of this total, non-recurring items totalled EUR 275 (50) million, which mainly relates to the divestment of the district heat operations and production facilities outside Stockholm and divestment of shares in Fingrid Oyj.

The average Swedish krona (SEK) rate was approximately 9% stronger against the euro during the first half of 2011 than during the corresponding period in 2010. Power Division 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 74 (31) million. The improvement from last year was mainly due to the improvement in the contribution from TGC-1 and Hafslund ASA.

The Group’s net financial expenses increased to EUR 127 (61) million. The increase is attributable to higher interest expenses and to the change in the fair value of financial instruments of EUR -3 (19) million.

Profit before taxes was EUR 1,456 (1,045) million.

Taxes for the period totalled EUR 232 (191) million. The tax rate according to the income statement was 15.9% (18.3%).

The profit for the period was EUR 1,224 (854) million. Fortum's earnings per share were EUR 1.29 (0.93). The effect on earnings per share by the accounting treatment of derivatives was EUR 0.21 (0.02).  

Non-controlling (minority) interests amounted to EUR 74 (32) 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 half of 2011, compared to the corresponding period in 2010, is mainly due to the minority's share, EUR 30 million, of the gain recognised in the first quarter from the divestment of Fortum Värme’s heat businesses outside the Stockholm area.

Cash flow from operating activities totalled EUR 864 (943) million. It was affected by the realised foreign exchange gains and losses, which amounted to EUR -251 (-277) million in January-June 2011. The negative currency impact occurred during the first quarter. 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 13.8% (11.6% at the end of 2010), return on shareholders' equity 19.1% (15.7% at the end of 2010) and net debt to EBITDA 2.5 (3.0 at the end of 2010). The comparable net debt to EBITDA for the last twelve months was 2.8.


Key drivers and risks

Increasing global economic uncertainty and Europe’s sovereign-debt crisis weakens the outlook for economic growth and recovery. 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.

Oil, coal and gas prices have decreased a few percentages during the second quarter of 2011. CO2 prices, however, decreased by over 20 % at the end of the quarter due to financial uncertainty in Europe and energy-efficiency proposals in the EU.

In Germany, forward prices decreased by 5% at the end of the quarter as a consequence of decreasing CO2 costs. Also Nordic forward prices decreased by about 5 % due to decreased CO2 costs as well as increased water reservoir levels.

In mid July 2011, the electricity forward price in Nord Pool for the rest of 2011 was around EUR 49 per MWh. The electricity forward price for 2012 was around EUR 47 per MWh and for 2013 around EUR 47 per MWh. In Germany, the electricity forward price for the rest of the year was around EUR 59 per MWh and EUR 57 per MWh for 2012. At the same time, the future quotations for coal (ICE Rotterdam) for the rest of 2011 were around USD 125 per tonne and the market price for CO2-emissions allowances (EUA) for 2011 was about EUR 12 per tonne.

In mid July 2011, Nordic water reservoirs were about 2 TWh below the long-term average and 14 TWh above the corresponding level of 2010.


The Russian 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 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 capacity market. The new rules stipulate that capacity payments under CCS are made according to available capacity instead of earlier used installed capacity. This decreases the old capacity payments for CHP power plants especially during the summer period. 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 the year 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 the old capacity is expected to be, on average, approximately RUB 160,000/MW/month, marginally lower than earlier expected, due to removal of the 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 due to the seasonality of the business. The payments for the 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 the 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 June 2011, is estimated to be approximately EUR 1.3 billion as of July 2011. The first two new units started capacity sales in early February and June 2011. One more new unit is estimated to start capacity sales in the third quarter of 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 has proceeded according to plans. During the second quarter of 2011, OAO Fortum reached its targeted annual efficiency improvements of EUR 100 million compared to the level at the time of the acquisition in 2008.

Capital expenditure and divestments

Fortum currently expects annual 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 2011, Fortum divested its district heat operations outside the Stockholm area in Sweden. The sales price was approximately EUR 220 million.

In addition, Fortum finalised the divestment of its 25% shareholding in the Finnish transmission system operator Fingrid Oyj in April 2011. 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 effective corporate tax rate for Fortum 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 non-recurring items.


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 June 2011, approximately 70% of the Power Division's estimated Nordic power sales volume was hedged at approximately EUR 45 per MWh for the rest of the calendar year 2011. The corresponding figures for the calendar year 2012 are approximately 50% at approximately EUR 46 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 the Power Division’s Nordic power sales price will result 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. The Power Division’s comparable operating profit is expected to be more year-end weighted in 2011 compared to 2010, mainly driven by improved nuclear availability and strengthened hydro balance.

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, 19 July 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

More information, including detailed quarterly information, is available on Fortum’s website at

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