Stock exchange release

Fortum Corporation's Interim Report Q2 2012: Satisfactory results in a very demanding market environment

19 July 2012, 09:00 EEST


April - June 2012

- Comparable operating profit EUR 281 (348) million, -19%
- Operating profit was EUR 283 (609) million, of which EUR 2 (261) million relates to items affecting comparability
- Earnings per share EUR 0.21 (0.53), -60%, of which EUR 0.00 (0.27) per share relates to items affecting comparability
- Nuclear volumes decreased mainly due to prolonged repairs in Sweden. Hydro volumes increased due to higher inflow and water reservoir levels
- Nordic power prices were significantly lower compared to second quarter 2011. During the second quarter, the average system spot price of electricity in Nord Pool was EUR 24 per megawatt-hour (MWh) lower. The average area prices in Finland were EUR 20 per MWh and in Sweden (SE3) EUR 23 per MWh lower

January - June 2012

- Comparable operating profit EUR 932 (997) million, -7%
- Operating profit was EUR 1,019 (1,509) million, of which EUR 87 (512) million relates to items affecting comparability
- Earnings per share EUR 0.77 (1.29), -40%, of which EUR 0.10 (0.47) per share relates to items affecting comparability
- Nordic power prices were significantly lower compared to the same period in 2011.The average system spot price was EUR 26 per MWh lower and the average area price in Finland EUR 21 per MWh lower and in Sweden (SE3) EUR 25 per MWh lower
- Financial position remained strong

Key figures        II/12        II/11       I-II/12      I-II/11 2011      LTM*
Sales, EUR million 1,284 1,316 3,185 3,350 6,161 5,996
Operating profit, EUR million 283 609 1,019 1,509 2,402 1,912
Comparable operating profit, EUR million 281 348 932 997 1,802 1,737
Profit before taxes, EUR million 236 552 889 1,456 2,288 1,661
Earnings per share, EUR 0.21 0.53 0.77 1.29 1.99 1.46
Net cash from operating activities, EUR million 319 410 872 864 1,613 1,621
Shareholders’ equity per share, EUR     10.66 9.93 10.84         n/a
Interest-bearing net debt
(at end of period), EUR million
    7,420 6,783 7,023         n/a
Average number of shares, 1,000s     888,367 888,367 888,367 888,367

*) Last twelve months 

Key financial ratios 2011        LTM
Return on capital employed, % 14.8 11.3
Return on shareholders’ equity, % 19.7 14.0
Net debt/EBITDA 2.3 2.9
Comparable Net debt/EBITDA 3.0 3.2


- Fortum currently expects the annual electricity demand growth in the Nordic countries to be on average 0.5% in the coming years.
- Power Division's Nordic generation hedges: For the rest of the calendar year 2012, 65% hedged at EUR 49 per MWh, and for the 2013 calendar year, 55% hedged at EUR 45 per MWh.

Fortum’s President and CEO Tapio Kuula, in connection with the second quarter of 2012:

”The result was satisfactory, considering the extremely challenging business environment Fortum operates in at the moment. Operating profit declined in the second quarter mainly due to items affecting comparability, which amounted to approximately EUR 260 million. High uncertainty in Europe and in the world economy in general, has kept the economic activity slow in our main markets.

The Nordic water reservoir surplus levels continued and were above the long-term average throughout the second quarter. In addition, low carbon dioxide (CO2) emission allowance prices and coal prices have created a downward pressure on system and area prices in the Nordic market. Hence, Nord Pool Spot system prices were at very low levels, and in July the price level has continued to decline. The system price has been as low as at approximately EUR 7 – a level rarely experienced in the 21st century.

Electricity consumption in the Nordic countries increased slightly during the quarter, however, the increase was attributable to colder weather and partly offset by decreased industrial demand. It reflects well the current demanding economic situation in Europe. According to Finnish Energy Industries (Energiateollisuus ry), the domestic industrial electricity consumption grew only in the chemicals industry. The technology sector development was flat, while consumption in the forest industry has been decreasing since the beginning of the year. Also in Sweden, the industrial demand decreased slightly during January-June 2012.

In Russia, electricity prices also decreased during the second quarter and consumption was somewhat down in the areas Fortum operates in. The very extensive and demanding construction project of the new units in Nyagan will be delayed slightly further. Actions are taken to avoid any further delays. This does not change the overall schedule or financial targets of the investment programme, which is to be finalised at the end of 2014.

A satisfactory result, however, is not good enough. Great effort is put in managing the current situation. The coming months still look challenging, both due to the external market and timing of internal operational actions. Therefore, as in 2011, we expect the income stream to be year-end weighted. The industry-typical seasonality and the external environment may cause short-term volatility; nevertheless, Fortum has a strong financial situation and we are continuing to work according to our long-term strategy.”

Financial results

April - June

In the second quarter of 2012, Group sales were EUR 1,284 (1,316) million. The comparable operating profit totalled EUR 281 (348) million. Group operating profit totalled EUR 283 (609) million. Fortum's operating profit for the period was affected by non-recurring items, IFRS accounting treatment (IAS 39) of derivatives mainly used for hedging Fortum's power production and nuclear fund adjustments amounting to EUR 2 (261) million.

The share of profits from associates in the second quarter was EUR 26 (15) million. The share of profits from Hafslund and TGC-1 are based on the companies' published first-quarter interim reports. In addition, the share of profits from TGC-1's fourth-quarter 2011 is included (Note 14).

Sales by division

EUR million        II/12        II/11      I-II/12      I-II/11 2011       LTM
Power 535 574 1,190 1,267 2,481 2,404
Heat 321 322 946 1,047 1,737 1,636
Russia 198 195 508 490 920 938
Distribution* 223 215 531 526 973 978
Electricity Sales* 135 183 382 556 900 726
Other 29 19 73 49 108 132
Netting of Nord Pool transactions -88 -150 -276 -516 -749 -509
Eliminations -69 -42 -169 -69 -209 -309
Total 1,284 1,316 3,185 3,350 6,161 5,996

* Part of the Electricity Solutions and Distribution Division


Comparable operating profit by division

EUR million       II/12          II/11      I-II/12      I-II/11 2011       LTM
Power 222 257 563 582 1,201 1,182
Heat 23 25 184 196 278 266
Russia 4 21 52 55 74 71
Distribution* 49 60 159 184 295 270
Electricity Sales* 11 10 20 21 27 26
Other -28 -25 -46 -41 -73 -78
Total 281 348 932 997 1,802 1,737

* Part of the Electricity Solutions and Distribution Division


Operating profit by division

EUR million       II/12          II/11      I-II/12      I-II/11 2011       LTM
Power 214 271 581 760 1,476 1,297
Heat 20 25 233 290 380 323
Russia 15 21 63 55 74 82
Distribution* 50 252 167 377 478 268
Electricity Sales* 11 23 22 3 3 22
Other -27 17 -47 24 -9 -80
Total 283 609 1,019 1,509 2,402 1,912

* Part of the Electricity Solutions and Distribution Division

January - June
In January-June, Group sales were EUR 3,185 (3,350) million. The comparable operating profit totalled EUR 932 (997) million. Group operating profit totalled EUR 1,019 (1,509) million. Fortum's operating profit for the period was affected by non-recurring items, IFRS accounting treatment (IAS 39) of derivatives mainly used for hedging Fortum's power production and nuclear fund adjustments.

Non-recurring items, mark-to-market effects and nuclear fund adjustments in January-June 2012 amounted to EUR 87 (512) million. Changes in fair values of derivatives hedging future cash flow accounted for EUR -18 (249) million. Non-recurring items totalled EUR 121 (275) million and were mainly related to the divestments of shares in power and heat operations (Note 4).

The share of profits of associates and joint ventures was EUR 19 (74) million. The decrease from last year was mainly due to lower share of profits from Hafslund ASA, and TGC-1 as well as the share of profits from Fingrid Oyj, which was divested during Q2 2011.

The Group’s net financial expenses increased to EUR 149 (127) million. The increase is attributable to higher interest expenses, mainly due to higher SEK interest rates and to higher average net debt in 2012 than during the comparable period in 2011. Net financial expenses were also negatively affected by changes in the fair value of financial instruments of EUR 8 (3) million.

Profit before taxes was EUR 889 (1,456) million.

Taxes for the period totalled EUR 165 (232) million. The tax rate according to the income statement was 18.5% (15.9%). 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 21.1% (21.1%).

The profit for the period was EUR 724 (1,224) million. Fortum's earnings per share were EUR 0.77 (1.29), of which EUR 0.10 (0.47) per share relates to items affecting comparability.

Non-controlling (minority) interests amounted to EUR 43 (74) million. These are mainly attributable to Fortum Värme Holding AB, in which the city of Stockholm has a 50% economic interest. The decrease compared to last year is mainly due to the minority's share, EUR 32 million, of the gain recognised in the first quarter 2011 from the divestment of Fortum Värme’s heat businesses outside the Stockholm area.

Financial position and cash flow

Cash flow

In January-June 2012, total net cash from operating activities increased slightly to EUR 872 (864)  million. Capital expenditures in cash flow increased by EUR 74 million to EUR 577 (503) million. Proceeds from divestments totalled EUR 301 (535) million in cash flow. Cash flow before financing activities, i.e. dividend distributions and financing, decreased by EUR 303 million to EUR 579 (882) million. The strong SEK during the first half of the year had a negative impact on the cash flow through realised net foreign exchange losses amounting to EUR 113 (251) million related to rollover of foreign exchange contracts hedging loans to Fortum Swedish subsidiaries.

During the reporting period, dividends totalling EUR 888 million were paid on 23 April 2012 using the cash and cash equivalents.  

Assets and capital employed

Total assets decreased by EUR 379 million to EUR 22,619 (22,998 at year-end 2011) million. Non-current assets increased by EUR 432 million from EUR 20,210 million to EUR 20,642 million. The majority, EUR 391 million, came from the increased value of property, plants and equipment; due to the investments, strengthening Swedish krona and other currencies. The decrease in current assets was EUR 811 million, totalling EUR 1,977 million. The majority of the decrease relates to the lower amount of cash and cash equivalents, EUR 327 million, decrease in trade and other receivables EUR 275 million, and the EUR 183 million decrease in assets held for sale relating to divestments closed during January-June.

Capital employed was EUR 17,848 (17,931 at year-end 2011) million, a decrease of EUR 83 million. The decrease was due to the lower amount of total assets totalling EUR 379 million, and a decrease in interest-free liabilities, totalling EUR 296 million.


Total equity was EUR 10,024 (10,161 at year-end 2011) million, of which equity attributable to owners of the parent company totalled EUR 9,472 (9,632 at year-end 2011) million and non-controlling interests EUR 552 (529 at year-end 2011) million. The decrease in equity attributable to owners of the parent company totalled EUR 160 million and arose mainly from net profit for the period, amounting to EUR 681 million and from the dividends paid totalling EUR 888 million.


Net debt increased during the second quarter by EUR 897 million to EUR 7 420 (7,023 at year-end 2011) million mainly as a result of dividend payment in April of EUR 888 million.  

At the end of June 2012, the Group’s liquid funds totalled EUR 404 (747 at year-end 2011) million. Liquid funds include cash and bank deposits held by OAO Fortum amounting to EUR 240 (211 at year-end 2011) million. In addition to the liquid funds, Fortum had access to approximately EUR 2.7 billion of undrawn committed credit facilities.

The Group's net financial expenses during January-June 2012 were EUR 149 (127) million. The increase in financial expenses is mainly attributable to higher market interest rates and higher average net debt during the first half of the year. Net financial expenses also include changes in the fair value of financial instruments of EUR 8 (3) million.

Fortum Corporation's long-term credit rating from S&P, A (negative) and Fortum Corporation’s long-term credit rating from Moody’s, A2 (stable), remained unchanged.

Key figures

For the last twelve months, net debt to EBITDA was 2.9 (2.3 at year-end 2011) and comparable net debt to EBITDA 3.2 (3.0 at year-end 2011), impacted by EUR 888 million in dividend payments. Gearing was 74% (69% at year-end 2011) and the equity-to-assets ratio 44% (44% at year-end 2011). For the last twelve months, return on capital employed was 11.3% (14.8% at year-end 2011) and return on equity 14.0% (19.7% at year-end 2011). Equity per share was EUR 10.66 (10.84 at year-end 2011).


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 completion of Fortum’s investment programme in Russia is also one key driver to the company’s result growth.

The continued global economic uncertainty and Europe's sovereign-debt crisis weaken the outlook for economic growth in the mid-term, especially in the Euro zone. The overall economic uncertainty impacts the commodity and CO2 emission allowance prices and this in combination with the stronger hydrological situation in the Nordic region, could maintain downward pressure on the Nordic wholesale price for electricity in the short-term. In the Russian business, the key factors are the development of the regulation around electricity and capacity markets and operational risks related to the investment projects according to the investment programme. In all regions, fuel prices and power plant availability also impact the profitability. In addition, 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.

Nordic market

Despite macroeconomic uncertainty, electricity will continue to gain a higher share of the total energy consumption. Fortum currently expects the average annual growth rate in electricity consumption to be on average 0.5%, while the growth rate for the nearest years will largely be determined by the macroeconomic development in Europe and especially in the Nordic countries.

During the second quarter of 2012, the price of crude oil decreased steadily, whereas the decrease in the coal price stabilised towards the end of the quarter. The price of CO2 emissions allowances (EUA) weakened somewhat during the quarter. The forward price of electricity for the next twelve months came down both in the Nordic area and in Germany.

The future quotations for coal (ICE Rotterdam) for the rest of 2012 were around USD 92 per tonne and the market price for CO2 emissions allowances (EUA) for 2012 was about EUR 8 per tonne.

In mid-July 2012, the electricity forward price in Nord Pool for the rest of 2012 was around EUR 34 per MWh. For 2013, the electricity forward price was around EUR 38 per MWh and for 2014 around EUR 39 per MWh. In Germany, the electricity forward price for the rest of 2012 was around EUR 45 per MWh and for 2013 EUR 49 per MWh.

In mid-July 2012, Nordic water reservoirs were about 2 TWh above the long-term average and 3 TWh above the corresponding level of 2011.


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.

The several years of ongoing Swedish nuclear investment programmes will enhance safety, improve availability and increase the capacity of the current nuclear fleet. The implementation of the investment programmes might affect availability. Fortum’s power procurement costs from co-owned nuclear companies are affected by these investment programmes through increased depreciation and finance costs.

European-wide safety evaluations have been carried out post Fukushima. As part of the evaluations, so-called peer reviews were carried out in March 2012 in several European nuclear power plants, including the Loviisa nuclear power plant. The European Commission is estimated to submit a consolidated report of the national reports to the European Council in October 2012. Fortum believes that some additional safety criteria could be introduced for nuclear power plants based on the evaluations and that they could be implemented for the Loviisa nuclear power plant within the framework of the annual investment programmes.

According to the legislation in Sweden, nuclear waste fees and guarantees are updated at regular intervals. At the end of December 2011, the Government decided upon fees and guarantees for 2012-2014. The negative impact from increased nuclear waste fees on Fortum’s comparable operating profit is estimated to be approximately EUR 15 million per year in 2012-2014.

Nuclear fuel costs in all Fortum nuclear power plants are expected to increase in total by approximately EUR 15 million in 2012, due to the increased market price of uranium and enrichment.


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 and a special group of consumers (Northern Caucasus Republic, Tyva Republic, Buryat Republic) 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”) 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 competes in competitive capacity selection (CCS – “old capacity”). The capacity selection for 2012 was held in September 2011. The majority of Fortum’s power plants were selected in the auction, with a price level close to the level received in 2011. Approximately 4% (120 MW) of the old capacity was not allowed to participate in the selection due to tightened minimal technical requirements. It will, however, receive capacity payments at the capacity market price for two additional years.

OAO Fortum's new capacity will be a key driver for earnings growth in Russia as it will bring income from new volumes sold and also receive considerably higher capacity payments than the old capacity. However, the received capacity payment will differ depending on age, the location, size and type of the plants as well as seasonality and availability. Especially the old capacity payments for CHP power plants are burdened during the summer period due to the temperature constraints evolving from lower heat demand.

The return on the new capacity is guaranteed as regulated in the Capacity Supply Agreement. The regulator will review the earnings from the electricity-only market after three years and six years and could revise the CSA payments accordingly. CSA payments can vary annually somewhat because they are linked to Russian Government long-term bonds with 8 to 10 years maturity.

The commissioning of Fortum’s largest new investment greenfield projects in Nyagan has been somewhat further postponed. Fortum has ongoing discussions with its main contractor and Fortum estimates the commissioning of Nyagan 1 to take place around the turn of the year and Nyagan 2 during the first half of 2013 due to construction delays. This does not change the overall schedule or financial targets of the investment programme. In 2008, Fortum made a provision for penalties caused by possible commissioning delays, already. According to the agreement with the contractor, Fortum is entitled to adequate remedies in case of damages caused by contractor delays.

In June, Fortum announced its decision to build the last two 250-megawatt (MW) units of its Russian investment programme at Chelyabinsk in the Urals. Initially, the units were planned for construction in the Tyumen region in Western Siberia. The units are included within the sphere of the Capacity Supply Agreement originally agreed in 2008.

The new units are to be constructed at Chelyabinsk GRES. Within the scope of the project, Fortum also plans to modernise and upgrade the existing power plant equipment.

Fortum is planning to commission the last new units of its EUR 2.5 billion investment programme in Russia 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 2012, is estimated to be approximately EUR 800 million as of July 2012. 
After completing the ongoing investment programme, Fortum’s goal is to achieve an operating profit level of about EUR 500 million in its Russia Division and to create positive economic added value in Russia.

The Russian Government decided to increase the gas prices as of the beginning 1 July 2012; the increase was approximately 15%. On the other hand, prices for regulated electricity sales, heat sales and CCS capacity income will be indexed at rates lower than in 2011.

Capital expenditure and divestments

Fortum currently expects its capital expenditure in 2012 to be around EUR 1.6-1.8 billion and in 2013-2014 around EUR 1.1 -1.4 billion, excluding potential acquisitions. The main reason for the high capital expenditures in 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 2012, approximately at the level of depreciation.


The effective corporate tax rate for Fortum in 2012 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. In Finland, the corporate tax rate was decreased to 24.5% from 26% starting 1 January 2012.

In March 2012, the Finnish Government announced that a so-called windfall tax will be introduced in 2014.

The process to update the real-estate taxation values for the year 2013 is ongoing in Sweden. The update is done in a cycle of six years.


At the end of June 2012, approximately 65% of the Power Division's estimated Nordic power sales volume was hedged at approximately EUR 49 per MWh for the rest of the calendar year 2012. The corresponding figures for the calendar year 2013 were about 55% at approximately EUR 45 per MWh.

The hedge price for 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.

Dividend Payment

The Annual General Meeting decided to pay a dividend of EUR 1.00 per share for 2011. The record date for the dividend payment was 16 April 2012 and the dividend payment date was 23 April 2012.

Espoo, 18 July 2012
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, Rauno Tiihonen, +358 10 453 6150 and Janna Haahtela, +358 10 453 2538 / investors [at] fortum [dot] com

The condensed interim financial statements have been prepared in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting, as adopted by the EU. The interim financials have not been audited.

Publication of financial results in 2012:               
Interim Report January – September on 19 October 2012 at approximately 9:00 EEST

Publication of financial results in 2013:               
Financial statement bulletin for the year 2012 will be published on 31 January 2013 at approximately 9:00 EET
Interim Report January – March on 25 April 2013 at approximately 9:00 EEST
Interim Report January – June on 19 July 2013 at approximately 9:00 EEST
Interim Report January – September on 23 October 2013 at approximately 9:00 EEST

Fortum’s Financial statements and Operating and financial review for 2012 will be published during week 12 at the latest.

Fortum's Annual General Meeting is planned to take place for 9 April 2013 and the possible dividend related dates planned for 2013 are:
- The ex-dividend date 10 April 2013
- The record date for dividend payment 12 April 2013
- The dividend payment date 19 April 2013

Key media

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