Stock exchange release

Results on last year's levels

20 October 2011, 09:00 EEST


July - September 2011

- Comparable operating profit EUR 297 (302) million, -2%
- Earnings per share EUR 0.23 (0.27), -15%
- Volumes in hydro and nuclear generation increased
- Nordic spot prices clearly lower compared to third quarter 2010

January - September 2011

- Comparable operating profit EUR 1,294 (1,292) million, 0%
- Earnings per share EUR 1.52 (1.20), +27%
- Financial position remained strong
- Russian investment programme continued to progress

Key figures III/11 III/10 I-III/11 I-III/10 2010 LTM*
Sales, EUR million 1,144 1,152 4,494 4,394 6,296 6,396
Operating profit, EUR million 314 312 1,823 1,387 1,708 2,144
Comparable operating profit, EUR million 297 302 1,294 1,292 1,833 1,835
Profit before taxes, EUR million 240 285 1,696 1,330 1,615 1,981
Earnings per share, EUR 0.23 0.27 1.52 1.20 1.46 1.78
Net cash from operating activities, EUR million 277 273 1,141 1,216 1,437 1,362
Shareholders’ equity per share, EUR     10.05 9.27 9.24 N/A
Interest-bearing net debt
(at end of period), EUR million
    6,929 6,608 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 13.5
Return on shareholders’ equity, % 15.7 18.5
Net debt/EBITDA 3.0 2.5


- Fortum currently expects that the annual electricity demand growth in the Nordic countries will be about 0.5% in the coming years
- Power Division's Nordic generation hedges: Rest of 2011, 65% at EUR 47 per MWh. 2012, 55% at EUR 47 per MWh.  2013, 25% at EUR 46 per MWh

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

“Electricity demand improved slightly both in the Nordic countries and Russia in the third quarter of 2011 compared to the same period in 2010. Fortum’s operational enhancements and especially the improved hydro levels and nuclear availability enabled us to deliver satisfactory comparable operating profit as well as a good cash flow in the quarter. The investments to support our long-term goals and financial targets continued according to plan.  We are constantly monitoring the need for any steps necessary to offset headwinds that may occur as a result of the challenging economic situation and business environment.

The underlying fundamentals for energy demand have not changed and the mitigation of climate change is necessary. Fortum therefore emphasises that the future energy system should be based on CO2-free power production, energy security and energy efficiency. We believe that the energy system will gradually transform from today’s traditional power generation technologies, limited energy sources and fossil fuels towards solar economy. However, changes in the capital-intensive energy industry are slow. With the exception of hydro and wind power as well as bio-energy, other production forms in the solar economy are still in the development phase. Fortum is actively researching future en¬ergy production technologies, such as solar and wave power and bio-fuels for combined heat and power production (CHP). However, hydro, nuclear and CHP continue to be the major sources for power and heat generation for Fortum. Fortum is continuously developing its existing hydro assets and will for example participate in the tendering processes for hydropower concession renewals in France, as announced at the end of last year.

The EU-wide nuclear safety reviews, commenced after the Fukushima accident in Japan, will be ready in October. They are an important step towards more uniform international nuclear safety standards. In Fortum’s opinion, different concepts of nuclear power plants should also be considered in the future. Over the years, Fortum has built up extensive competence in the area of nuclear power; security, availability and efficiency of Fortum’s own power plants are very high by international standards.”

Financial results

July - September

In July – September, Group sales were EUR 1,144 (1,152) million. Group operating profit totalled EUR 314 (312) million. Fortum's operating profit for the third quarter of 2011 was affected by a EUR 23 (-16) 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 297 (302) million.

The total of non-recurring items, mark-to-market effects and nuclear fund adjustments in the third quarter of 2011 amounted to EUR 17 (10) million.

The share of profits from associates in the third quarter was EUR -2 (10) million, of which Hafslund ASA represented EUR 6 (8) million and TGC-1 EUR 0 (0) million. The share of profits from TGC-1 is based on the company's published IFRS second-quarter interim report. The share of profits from Hafslund is based on the company's second-quarter interim report; excluding a write-down of the Hafslund shareholding in Renewable Corporation (REC) amounting to EUR 20 million which Fortum already included in its second quarter results (see also Note14).

Sales by division 

EUR million III/11 III/10 I-III/11 I-III/10 2010 LTM
Power 560 584 1,827 1,950 2,702 2,579
Heat 212 220 1,259 1,172 1,770 1,857
Russia 156 137 646 550 804 900
Distribution* 203 196 729 676 963 1,016
Electricity Sales* 139 305 695 1,269 1,798 1,224
Other 27 23 76 44 51 83
Netting of Nord Pool transactions -99 -264 -615 -1,208 -1,736 -1,143
Eliminations -54 -49 -123 -59 -56 -120
Total 1,144 1,152 4,494 4,394 6,296 6,396

* Part of the Electricity Solutions and Distribution Division

Comparable operating profit by division

EUR million III/11 III/10 I-III/11 I-III/10 2010 LTM
Power 268 267 850 962 1,298 1,186
Heat -14 -12 182 153 275 304
Russia -16 -16 39 -9 8 56
Distribution* 62 61 246 216 307 337
Electricity Sales* 4 11 25 8 11 28
Other -7 -9 -48 -38 -66 -76
Total 297 302 1,294 1,292 1,833 1,835

* Part of the Electricity Solutions and Distribution Division

Operating profit by division

EUR million III/11 III/10 I-III/11 I-III/10 2010 LTM
Power 273 256 1,033 1,003 1,132 1,162
Heat -10 -15 280 179 303 404
Russia -16 14 39 37 53 55
Distribution* 60 62 437 228 321 530
Electricity Sales* 6 12 9 6 46 49
Other 1 -17 25 -66 -147 -56
Total 314 312 1,823 1,387 1,708 2,144

* Part of the Electricity Solutions and Distribution Division

January - September
In January-September, Group sales were EUR 4,494 (4,394) million. Group operating profit totalled EUR 1,823 (1,387) million. Fortum's operating profit for the period was affected by a EUR 272 (5) 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 1,294 (1,292) million.

Non-recurring items, mark-to-market effects and nuclear fund adjustments in January-September 2011 amounted to EUR 529 (95) million. Of this total, non-recurring items totalled EUR 275 (86) million, which mainly relates to the divestment of the district heat operations and production facilities outside Stockholm and the divestment of shares in Fingrid Oyj.

The average Swedish krona (SEK) rate was approximately 7% stronger against the euro 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 during the first half of the year also had a negative impact on the cash flow.

The share of profits of associates and joint ventures was EUR 72 (41) 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 199 (98) million. The increase is attributable to higher interest expenses, mainly due to higher SEK interest rates and to higher average net debt in 2011 than during the comparable period in 2010. Net financial expenses were also negatively affected by changes in the fair value of financial instruments of EUR -2 (20) million.

Profit before taxes was EUR 1,696 (1,330) million.

Taxes for the period totalled EUR 278 (236) million. The tax rate according to the income statement was 16.4% (17.7%). The tax rate excluding mainly the impact of the share of profits of associated companies and joint ventures as well as non-taxable capital gains was 20.8% (19.3%).

The profit for the period was EUR 1,418 (1,094) million. Fortum's earnings per share were EUR 1.52 (1.20). The effect on earnings per share by the accounting treatment of derivatives was EUR 0.23 (0.00).  

Non-controlling (minority) interests amounted to EUR 70 (25) million. These are mainly attributable to Fortum Värme Holding AB, in which the city of Stockholm has a 50% economic interest. The increase in January-September 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 1,141 (1,216) million. It was affected by the realised foreign exchange gains and losses, which amounted to EUR -215 (-394) million in January-September 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 13.5% (11.6% at the end of 2010), return on shareholders' equity 18.5% (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

Fortum's financial results are exposed to a number of strategic, financial and operational risks. The key factor influencing Fortum's business performance is the wholesale price of electricity in the Nordic region. The key drivers behind the wholesale price development in the Nordic region are the supply-demand balance, fuel and CO2-emissions allowance prices as well as the hydrological situation.

The increasing global economic uncertainty and Europe's sovereign-debt crisis weakens the outlook for economic growth and recovery, especially in the Euro zone. This, in combination with a stronger hydrological situation in the Nordic region, could put downward pressure on the Nordic wholesale price for electricity in the short to medium term. In the Russian business, the key factors are the regulation around electricity and capacity markets and operational risks related to the investment programme. Increased volatility in exchange rates due to financial turbulence might have both translation and transaction effects on Fortum's financials especially through the SEK and RUB.

For further details on Fortum's risks and risk management, see Fortum's Operating and Financial Review and Financial Statements for 2010.

Nordic market

Electricity will continue to gain a higher share of the total energy consumption. Fortum currently expects that the annual electricity demand growth in the Nordic countries will be about 0.5% in the coming years.

Oil, coal and gas prices have decreased a few percentages during the third 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 were at approximately the same level at the end of the quarter as in the previous quarter. Increased water reservoir levels as well as decreased CO2 price impacted Nordic forward prices which decreased by about 6%.

In mid-October 2011, the electricity forward price in Nord Pool for the rest of 2011 was around EUR 44 per MWh. The electricity forward price for 2012 was around EUR 44 per MWh and for 2013 around EUR 44 per MWh. In Germany, the electricity forward price for the rest of the year was around EUR 59 per MWh and EUR 56 per MWh for 2012. At the same time, the future quotations for coal (ICE Rotterdam) for the rest of 2011 were around USD 118 per tonne and the market price for CO2-emissions allowances (EUA) for 2011 was about EUR 10 per tonne.

In mid-October 2011, Nordic water reservoirs were about 4 TWh above the long-term average and 19 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 auction 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 the available capacity instead of the previously 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 2012-2015 period 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. However, the price differs, depending on age, the location, size and type of the plants as well as seasonality. The first and fourth quarters have higher old capacity income than the second and third quarters due to the seasonality of the business. The return for the new capacity is guaranteed, but could vary somewhat because it is linked to the Russian Government long-term bonds with 8 to 10 years maturity. After completing the ongoing investment programme Fortum targets a positive economic value added for the Russia Division.

In light of the improved 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 September 2011, is estimated to be approximately EUR 1.1 billion as of October 2011. The first two new units started capacity sales in early February and June 2011. The third unit in Tobolsk was taken into commercial operation on 1 October 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 part of electricity price is indexed to the regulated gas price and inflation on an annual basis.

Capital expenditure and divestments

Fortum currently expects its capital expenditure in 2011 to be around EUR 1.5 billion and in 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 of Fortum's Russian investment programme. The annual maintenance capital expenditure is estimated to be about 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 effective corporate tax rate for Fortum in 2011 is estimated to be 19-21% excluding the impact of the share of profits of associated companies and joint ventures, non-taxable capital gains and non-recurring items.

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

In addition, 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.


At the end of September 2011, approximately 65% of the Power Division's estimated Nordic power sales volume was hedged at approximately EUR 47 per MWh for the rest of the 2011 calendar year. The corresponding figures for the 2012 calendar year are about 55% at approximately EUR 47 per MWh. And the corresponding figures for the 2013 calendar year are approximately 25% at approximately EUR 46 per MWh.

The hedge price for Fortum Power Division's Nordic generation excludes hedging of condensing power margin. In addition, the hedge ratio excludes the financial hedges and physical volume of Fortum's coal-condensing generation as well as the division’s imports from Russia.

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 may be introduced for new and nuclear power plants. In 2011, the Power 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 increased hydro volumes.

In Finland, the budget proposal for 2012 does not include windfall or uranium taxes - the implementation of which the Government proposed to investigate in its programme published earlier this year.

According to the legislation in Sweden, the nuclear waste fees and guarantees are updated at regular intervals. The next period covers 2012 – 2014.The Swedish nuclear authority has therefore sent a proposal, which indicates an increase in fees. The Government will decide upon the fees and the guarantees by the end of 2011.

Fortum has managed its performance well and has maintained a solid financial position in a volatile and challenging environment. The strong balance sheet, combined with a flexible, cost-efficient and sustainable generation portfolio, creates a firm basis going forward.

Espoo, 19 October 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 / [email protected]

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

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