Stock exchange release

Fortum Corporation interim report Q2 2013 - Good operational performance in the second quarter

19 July 2013, 9:00 EEST


April−June 2013

•    Comparable operating profit EUR 298 (284) million, +5%
•    Operating profit EUR 438 (286) million, of which EUR 140 (2) million relates to items affecting comparability
•    Earnings per share EUR 0.35 (0.21), +67%, of which EUR 0.12 (0.00) per share relates to items affecting comparability

January−June 2013

•    Comparable operating profit EUR 948 (938) million, +1%
•    Operating profit EUR 1,041 (1,025) million, of which EUR 93 (87) million relates to items affecting comparability
•    Earnings per share EUR 0.80 (0.77), +4%, of which EUR 0.08 (0.10) per share relates to items affecting comparability
•    Efficiency programme progressed well and according to plan
•    Assessment of the electricity distribution business continued

Key figures II/13 II/12* I-II/13 I-II/12* 2012* LTM**
Sales, EUR million 1,327 1,284 3,318 3,185 6,159 6,292
Operating profit, EUR million 438 286 1,041 1,025 1,874 1,890
Comparable operating profit, EUR million 298 284 948 938 1,752 1,762
Profit before taxes, EUR million 388 238 947 893 1,586 1,640
Earnings per share, EUR 0.35 0.21 0.80 0.77 1.59 1.63
Net cash from operating activities, EUR million 400 319 1,046 872 1,382 1,556
Shareholders’ equity per share, EUR     10.89 10.50 11.30 N/A
Interest-bearing net debt
(at end of period), EUR million
    8,035 7,420 7,814 N/A
Average number of shares, 1,000s     888,367 888,367 888,367 888,367


Key financial ratios 2012* LTM**
Return on capital employed, % 10.2 10.5
Return on shareholders’ equity, % 14.6 15.4
Net debt/EBITDA 3.1 3.1
Comparable net debt/EBITDA 3.2 3.3

*) Comparative period figures for 2012 presented in the interim report are restated due to an accounting change for pensions; see page 4.

**) Last twelve months


•    Fortum currently expects the annual electricity demand growth in the Nordic countries to be on average 0.5% in the coming years.
•    Capital expenditure guidance: EUR 1.1-1.4 billion in 2013 and EUR 0.9-1.1 billion in 2014.
•    Power Division's Nordic generation hedges: For the rest of the calendar year 2013, 75% hedged at EUR 45 per MWh, and for the 2014 calendar year, 50% hedged at EUR 42 per MWh.
•    Fortum's goal is to achieve an operating income (EBIT level) of about EUR 500 million run-rate in its Russia division during 2015.


”Fortum's second-quarter operational performance was good in all divisions. Total comparable operating profit amounted to EUR 298 million and net cash flow from operating activities to EUR 400 million. The ongoing efficiency programme has proceeded well according to plan - our costs have reduced, working capital improved and we have divested a number of non-core assets. This gives additional support to our operations going forward.

Europe’s challenging economic situation has continued. Industrial demand has continued to decline, however, this has been offset by an increase in non-industrial consumption. The present low electricity prices and forwards have also narrowed the energy sector’s operating field.

In the beginning of July, the European Parliament approved the so-called backloading proposal, i.e. the decision to withhold the auctioning of excess carbon credits concerning the EU Emissions Trading Scheme (EU ETS). The decision making process is now continuing and the Council and the Parliament will have to find a final agreement before all the details are known and backloading can be executed. It is assumed that this will take the rest of the year and that execution can take place during the first half of 2014. This is the first step in strengthening the European carbon market and establishing a clear price signal for CO2-free energy production. However, Fortum considers a more profound renovation of emissions trading necessary. The carbon market has to be strengthened by setting an ambitious emissions reduction target for 2030 in order to support the long-term investment environment, and by making a structural reform of the scheme, e.g. by establishing an allowance supply adjustment mechanism.

With regard to the Swedish hydro tax, at the end of April Fortum filed a complaint with the EU Commission to find out whether the construction of the tax is in line with the EU tax and state aid regulations. Taxes on electricity should not be levied for production, and different tax rates for different production technologies may constitute state aid − just as the so-called windfall tax would in Finland. The EU Commission informed Fortum in June that it will investigate the Swedish case more in detail.

Fortum continues to explore future alternatives for its electricity distribution business. The assessment is progressing as planned, and our aim is to complete it by the end of 2013. In addition, we announced that Fortum is assessing the future alternatives for its coal-fired condensing power plant in Inkoo, Finland.

New investments were formally finalised with the inaugurations of the first waste-to-energy CHP plant in the Baltics in Klaipeda, Lithuania, and the biofuel-fired CHP plant in Järvenpää, Finland. We also aim to gain experience in different solar technologies and in operating in the Indian power market. This ambition progressed with the acquisition of a 5-MW photo-voltaic solar power plant in Rajasthan, India. Fortum also agreed to extend its district heating network in Tartu, Estonia. We now own the whole district heating network of Tartu.

In the coming months, we will continue to emphasise customers, sustainability and safety as the cornerstones in our daily operations, and we will continue to work together in our ambition to reach our strategic goal as the next generation energy company.”


Fortum started an efficiency programme in 2012 in order to maintain and strengthen its strategic flexibility and competitiveness and to enable the company to reach its financial targets in the future.

The aim is to improve the company’s cash flow by more than approximately EUR 1 billion during 2013–2014 by reducing capital expenditures (capex) by EUR 250–350 million, divesting approximately EUR 500 million of non-core assets, reducing fixed costs and focusing on working capital efficiency.

Capex in 2013 will be EUR 1.1–1.4 billion and in 2014 EUR 0.9–1.1 billion. At the end of 2014, the cost run-rate will be approximately EUR 150 million lower compared to 2012, including growth projects.

If headcount reductions are needed, Fortum seeks to limit redundancies by using natural rotation and retirement whenever possible. The assessments will therefore be done at a unit level.

The programme has proceeded well and according to plan. During January-June, additional cost reductions were achieved. The divestments of small power plants in Sweden were also completed. In addition, as part of the efficiency programme's disposals, Fortum disclosed in June that it will sell its minority holding in Härjeåns Kraft Ab and Infratek ASA.


Fortum is applying an amended IFRS standard for pensions as of 1 January 2013. Adoption of the new standard is done retrospectively and comparative information for 2012 is therefore restated to reflect the change (Note 2). The change had only a minor impact on Fortum’s financial results and financial position; however, it reduced the equity by EUR 124 million as of 1 January 2012. The restated comparative figures for the year 2012 are presented in the attachment to the first-quarter interim report.



In the second quarter of 2013, Group sales were EUR 1,327 (1,284) million. Comparable operating profit totalled EUR 298 (284) million and the reported operating profit totalled EUR 438 (286) million. Fortum's operating profit for the period was affected by non-recurring items, an IFRS accounting treatment (IAS 39) of derivatives mainly used for hedging Fortum's power production and nuclear fund adjustments amounting to EUR 140 (2) million.

The share of profits from associates in the second quarter was EUR 33 (26) million. The share of profits from Hafslund and TGC-1 are based on the companies' published first-quarter interim reports; however, the share of profits for TGC-1 fourth-quarter 2011 results were also included in the second quarter of 2012.

Sales by division

EUR million II/13 II/12 I-II/13 I-II/12 2012 LTM
Power 547 535 1,211 1,190 2,415 2,436
Heat 283 321 912 946 1,628 1,594
Russia 251 198 595 508 1,030 1,117
Distribution* 230 223 572 531 1,070 1,111
Electricity Sales* 153 135 415 382 722 755
Other 15 29 31 73 137 95
Netting of Nord Pool transactions -98 -88 -286 -276 -503 -513
Eliminations -54 -69 -132 -169 -340 -303
Total 1,327 1,284 3,318 3,185 6,159 6,292

* Part of the Electricity Solutions and Distribution Division


Comparable operating profit by division

EUR million II/13 II/12 I-II/13 I-II/12 2012 LTM
Power 210 222 513 564 1,146 1,095
Heat 11 24 181 186 271 266
Russia 20 4 61 52 68 77
Distribution* 60 51 197 161 320 356
Electricity Sales* 13 11 28 20 39 47
Other -16 -28 -32 -45 -92 -79
Total 298 284 948 938 1,752 1,762

* Part of the Electricity Solutions and Distribution Division


Operating profit by division

EUR million II/13 II/12 I-II/13 I-II/12 2012 LTM
Power 337 214 600 582 1,175 1,193
Heat 8 21 183 235 344 292
Russia 21 15 61 63 79 77
Distribution* 61 52 197 169 331 359
Electricity Sales* 26 11 31 22 39 48
Other -15 -27 -31 -46 -94 -79
Total 438 286 1,041 1,025 1,874 1,890

* Part of the Electricity Solutions and Distribution Division

In January-June, Group sales were EUR 3,318 (3,185) million. Comparable operating profit totalled EUR 948 (938) million and the reported operating profit totalled EUR 1,041 (1,025) million. Fortum's operating profit for the period was affected by non-recurring items, an IFRS accounting treatment (IAS 39) of derivatives mainly used for hedging Fortum's power production and nuclear fund adjustments amounting to EUR 93 (87) million.

The share of profits of associates and joint ventures was EUR 62 (19) million. The increase comes mainly from TGC-1. The share of profits from Hafslund and TGC-1 are based on the companies' published fourth-quarter 2012 and first-quarter 2013 interim reports.

The Group’s net financial expenses increased to EUR 156 (151) million. Net financial expenses were negatively affected by changes in the fair value of financial instruments of EUR 6 (8) million.

Profit before taxes was EUR 947 (893) million.

Taxes for the period totalled EUR 181 (166) million. The tax rate according to the income statement was 19.2% (18.5%). 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 20.6% (21.1%).

The profit for the period was EUR 766 (727) million. Fortum's earnings per share were EUR 0.80 (0.77), of which EUR 0.08 (0.10) per share relates to items affecting comparability.

Non-controlling (minority) interests amounted to EUR 51 (43) million. These are mainly attributable to Fortum Värme Holding AB, in which the city of Stockholm has a 50% economic interest.


Cash flow

In January-June 2013, total net cash from operating activities increased by EUR 174 (8) million to EUR 1,046 (872) million, mainly due to a decrease in working capital. Capital expenditures decreased by EUR 30 million to EUR 547 (577) million. Proceeds from divestments totalled EUR 40 (310) million. Cash flow before financing activities, i.e. dividend distributions and financing, decreased by EUR 59 million to EUR 520 (579) million. The strong SEK (Swedish krona) during the first half of the year had a negative impact on the cash flow through realised net foreign exchange losses related to the rollover of foreign exchange contract hedging loans to Fortum's Swedish subsidiaries. Realised foreign exchange gains and losses were EUR -139 (-113) million.

During the reporting period, dividends totalling EUR 888 million were paid on 19 April 2013 using the cash and cash equivalents.

Assets and capital employed

Total assets decreased by EUR 587 million to EUR 23,974 (24,561 at year-end 2012) million. Non-current assets decreased by EUR 425 million from EUR 21,677 million to EUR 21,252 million. The majority, EUR 246 million, was a result of the decreased value of property, plants and equipment due to the weakening Russian rouble, Swedish krona and other currencies. The decrease in current assets was EUR 162 million, totalling EUR 2,722 million. The decrease relates mainly to the decrease in trade and other receivables, totalling EUR 445 million, which is offset by an increase of EUR 217 million in derivative financial instruments, and an increase of EUR 65 million in cash and cash equivalents and an increase of EUR 57 million in assets held for sale relating to contracted divestments.

Capital employed was EUR 19,348 (19,420 at year-end 2012) million, a decrease of EUR 72 million. The decrease was due to the lower amount of total assets, EUR 587 million, and a EUR 515 million decrease in interest-free liabilities.


Total equity was EUR 10,285 (10,643 at year-end 2012) million, of which equity attributable to owners of the parent company totalled EUR 9,671 (10,040) million and non-controlling interests EUR 614 (603) million.

The decrease in equity attributable to owners of the parent company totalled EUR 369 million and is mainly due to the payment of the dividends totalling EUR 888 million, net profit of EUR 715 million for the period and translation differences of EUR -268 million.


Net debt increased during January-June by EUR 221 million to EUR 8,035 (7,814 at year-end 2012) million mainly as a result of the dividend payment of EUR 888 million in April.   

During the second quarter Fortum issued three new bonds with a total value of about 330 million. The amount of Fortum's Revolving Credit Facility (RCF) was lowered from EUR 2,5 billion to 2,0 billion and a majority of the facility was extended from 2016 to 2017.

At the end of June 2013, the Group’s liquid funds totalled EUR 1,028 (963 at year-end 2012) million. Liquid funds include cash and bank deposits held by OAO Fortum amounting to EUR 162 (128 at year-end 2012) million. In addition to the liquid funds, Fortum had access to approximately EUR 2.2 billion of undrawn committed credit facilities.

The Group's net financial expenses during January-June 2013 were EUR 156 (151) million. Net financial expenses include changes in the fair value of financial instruments of EUR -6 (-8) million.

Fortum Corporation's long-term credit rating with S&P was A- (negative outlook).

In February, Fortum decided to terminate the rating relationship with Moody’s Investors Service. Moody’s had an A2 rating with a negative outlook. As of April, Fortum and Fitch Ratings entered into an agreement. Fitch will provide a rating of Fortum Corporation and any subsequently issued securities issued under Fortum's EMTN programme. Fitch's current long-term issuer default rating of Fortum Corporation is A- (negative outlook).

Key figures

For the last twelve months, net debt to EBITDA was 3.1 (3.1 at year-end 2012) and comparable net debt to EBITDA 3.3 (3.2), impacted by EUR 888 million in dividend payments. Gearing was 78% (73%) and the equity-to-assets ratio 43% (43%). Equity per share was EUR 10.89 (11.30). For the last twelve months, return on capital employed was 10.5% (10.2%) and return on equity 15.4% (14.6%).


Key drivers and risks

Fortum's financial results are exposed to a number of strategic, political, 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, due to the increase in production volumes.

The continued global economic uncertainty and Europe's sovereign-debt crisis has kept the outlook for economic growth unpredictable. The overall economic uncertainty impacts commodity and CO2 emission allowance prices, and this could maintain downward pressure on the Nordic wholesale price for electricity in the short term. In the Russian business, the key factors are the regulation around the heat business and further development of electricity and capacity markets. Operational risks related to the investment projects in the current investment programme are still valid. In all regions, fuel prices and power plant availability also impact the profitability. In addition, increased volatility in exchange rates due to financial turbulence could have both translation and transaction effects on Fortum's financials, especially through the SEK and RUB. In the Nordic countries, also the regulatory and fiscal environment for the energy sector has added risks for utility companies.

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 0.5%, while the growth rate for the nearest years will largely be determined by macroeconomic development in Europe and especially in the Nordic countries.

During the second quarter of 2013, the prices of coal, oil and CO2 weakened. The forward prices of electricity for the upcoming twelve months in the Nordic area and in Germany decreased as well.

In mid-July 2013, the future quotation for coal (ICE Rotterdam) for the rest of 2013 was around USD 79 per tonne, and the price for CO2 for year 2013 about EUR 4 per tonne.

In mid-July 2013, the electricity forward price in Nord Pool for the rest of 2013 was around EUR 39 per MWh. For 2014, the price was around EUR 36 per MWh and for 2015 around EUR 34 per MWh. In Germany, the electricity forward price for the rest of 2013 was around EUR 39 per MWh and for 2014 EUR 38 per MWh.

In mid-July 2013, Nordic water reservoirs were about 5 TWh below the long-term average and 12 TWh below the corresponding level of 2012.


The Power Division's Nordic power price typically depends on such factors as hedge ratios, hedge prices, 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 (achieved) 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 volumes and its profits.

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


The generation capacity built after 2007 under the Russian Government's Capacity Supply Agreements (CSA – “new capacity”) receives guaranteed capacity 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 the competitive capacity selection (CCS – “old capacity”). The capacity selection for 2013 was held at the end of 2012. The majority of Fortum’s power plants were selected in the auction, with a capacity price level close to the level received in 2012. Approximately 10% (265 MW) of the old capacity was not allowed to participate in the selection for 2013, due to tightened technical requirements. It will, however, receive capacity payments at the capacity market price for 2013.

The Russia Division'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 the age, location, size and type of the plants as well as seasonality and availability. The return on the new capacity is guaranteed as regulated in the CSA. The regulator will review the earnings from the electricity-only market after three years and six years, after the commissioning of a unit, and could revise the CSA payments accordingly. CSA payments can vary somewhat annually because they are linked to Russian Government long-term bonds with 8 to 10 years maturity.

Fortum estimates that the commissioning of the Nyagan unit 2 will take place at the end of 2013 and that Nyagan 3 will be finalised at the end of 2014 at the latest. This will optimise the investment with regard to both capital and operational expenditures, received electricity sales and capacity payments. The capacity payments for Nyagan unit 3 will start as of 1 January 2015. In accordance with the CSA terms, no penalties for unit 3 will be claimed before 1 January 2016.

The last two units of Fortum's Russian investment programme that are also under construction will be built in Chelyabinsk instead of Tyumen, as originally planned. The units are to be constructed at the Chelyabinsk GRES power plant. These last new units of the CSA agreement are planned to be constructed by the end of 2014. In addition, Fortum plans to modernise and upgrade the existing equipment of the power plant.

The value of the remaining part of the investment programme, calculated at the exchange rates prevailing at the end of June  2013, is estimated to be approximately EUR 490 million as of July 2013.  The main reasons for why the value has not changed compared to the end of March are the cost increases related to construction work and equipment purchases at the Chelyabinsk GRES power plant.

After completing the on-going investment programme by the end of 2014, Fortum’s goal is to achieve an operating profit level (EBIT) of about EUR 500 million run-rate in its Russia Division during 2015 and to create positive economic added value in Russia.

A commission for heat business development has been set up by the Russian Government. The top priorities will be issues regarding heat regulation, centralised district heating and co-generation efficiency.

In February 2013, the Board of Russia's Federal Tariff Service (FTS) adopted a decision according to which the wholesale gas price for industrial consumers is to be decreased by 3% as of the second quarter 2013, compared to first quarter. Since the beginning of 2013, wholesale gas prices (except private household and industrial consumers) have been reviewed quarterly. The Russian Government decided to increase the gas prices as of the beginning 1 July 2013; the increase in 2013 is expected to be approximately 15% compared to 2012.

Capital expenditure and divestments

Fortum currently expects its capital expenditure in 2013 to be EUR 1.1–1.4 billion and in 2014 EUR 0.9–1.1 billion, excluding potential acquisitions. The annual maintenance capital expenditure is estimated to be about EUR 500–550 million in 2013, somewhat below the level of depreciation.


The effective corporate tax rate for Fortum in 2013 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, a plan to reduce the corporate tax rate from 24.5% to 20% as of 1 January 2014 has been presented. The decrease would cause a one-time positive effect that would be booked in the fourth quarter 2013. In Sweden, the corporate tax rate was decreased from 26.3% to 22% as of 1 January 2013.

The process to update the real estate taxation values for the year 2013 is ongoing in Sweden and is expected to be finalised in the third quarter 2013. Based on the latest Swedish Government budget proposal, it is estimated that Fortum's costs would increase by approximately EUR 40 million in 2013 compared to 2012. The update is done on a six-year cycle. At the end of April, Fortum filed a complaint with the EU Commission on the Swedish hydro tax to find out whether the construction of the tax is in line with the EU tax and state aid regulations. The EU Commission informed Fortum in June that it will investigate the case in more detail.  

In March 2013, the Finnish Government announced that the planned so-called windfall tax, to be introduced in 2014, will be cut to EUR 50 million from EUR 170 million.


At the end of June 2013, approximately 75% 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 2013. The corresponding figures for the calendar year 2014 were about 50% at approximately EUR 42 per MWh.

The hedge price for the Power Division's Nordic generation excludes hedging of the 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 Annual General Meeting 2013 decided to pay a dividend of EUR 1.00 per share for 2012. The record date for the dividend was 12 April 2013, and the dividend payment date was 19 April 2013.

Espoo, 18 July 2013
Fortum Corporation
Board of Directors

Further information:
Markus Rauramo, CFO, tel. +358 10 452 1909

Fortum’s Investor Relations, Sophie Jolly, tel. +358 10 453 2552, Rauno Tiihonen, tel. +358 10 453 6150, Janna Haahtela, tel. +358 10 453 2538 and 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 2013:                
-    Interim Report January – September on 23 October 2013 at approximately 9:00 EEST

Key media

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