Stock exchange release

Flexible hydro production partly offset weak electricity prices

23 October 2014, 09:00 EEST


July−September 2014
• Comparable operating profit EUR 183 (167) million, +10%
• Operating profit EUR 149 (96) million, of which EUR -34 (-70) million relates to items affecting comparability
• Earnings per share EUR 0.10 (0.04), +150%, of which EUR -0.03 (-0.05) per share relates to items affecting comparability
• Cash flow from operating activities totalled EUR 288 (401) million, -28%

January−September 2014
• Comparable operating profit EUR 915 (979) million, -7%
• Operating profit EUR 2,778 (1,002) million, of which EUR 1,863 (22) million relates to items affecting comparability, i.e. mainly to the sale of the electricity distribution business in Finland
• Earnings per share EUR 2.91 (0.84), +246%, of which EUR 2.11 (0.03) per share relates to items affecting comparability. The main effect relates to the sale of the Finnish electricity distribution business totalling EUR 2.08 per share
• Sale of the Finnish and Norwegian electricity distribution as well as the Norwegian heat business finalised
• Cash flow from operating activities totalled EUR 1,310 (1,150) million, +14%


Key figures               III/14           III/13*     I-III/14     I-III/13            2013*          LTM**
Sales, EUR million 976 1,060 3,466 3,918 5,309 4,857
Operating profit, EUR million 149 96 2,778 1,002 1,508 3,284
Comparable operating profit, EUR million 183 167  
1,403 1,339
Profit before taxes, EUR million 95 27 2,721 904 1,398 3,215
Earnings per share, EUR 0.10 0.04 2.91 0.84 1.36 3.42
Net cash from operating activities, EUR million 288 401  
1,548 1,708
Shareholders’ equity per share, EUR     12.67 10.81 11.28  
Interest-bearing net debt (at end of period), EUR million         4,790 7,834 7,793  


Key financial ratios      2013*         LTM**
Return on capital employed, % 9.0 18.9
Return on shareholders’ equity, % 12.0 29.0
Net debt/EBITDA 3.7 1.2
Comparable net debt/EBITDA 3.9 2.6
Comparable net debt/EBITDA without Värme financing 3.4 2.2

*) Comparative period figures for 2013 presented in the interim report are restated due to an accounting change for Fortum Värme and segment reporting changes; see page 6 as well as Notes 2 and 4.
**) LTM, Last 12 months

Summary of outlook

• Fortum continues to expect the annual electricity demand growth in the Nordic countries to be on average 0.5% in the coming years
• Capital expenditure guidance: EUR 0.9-1.1 billion in 2014, excluding potential acquisitions
• Power and Technology Segment's Nordic generation hedges: for the rest of the calendar year 2014, approx. 70% hedged at EUR 43 per MWh; for the 2015 calendar year, approx. 40% hedged at EUR 41 per MWh; and for 2016, 10% hedged at EUR 39 per MWh
• The run-rate operating profit (EBIT) target for the Russia Segment RUB 18.2 billion, is to be reached during 2015. The euro-denominated result level will be volatile mainly due to the translation effect

Fortum’s President and CEO Tapio Kuula

”During the third quarter of 2014, electricity demand was flattish both in the Nordic countries and in Fortum's operating areas in Russia. However, Fortum was able to use its flexible production portfolio to its advantage in a market otherwise characterised by low electricity prices.

Hydro production volumes, in particular, contributed positively in the third quarter and partly offset the negative effects from lower electricity prices. Heat and distribution volumes were lower and hence impacted negatively on the results. The new capacity in Russia had a positive effect on the result. In late September, the third unit at Fortum's Nyagan Power Plant passed the comprehensive certification tests that precede commissioning. The commercial operation of the unit is planned to take place by the end of 2014 and capacity payments are scheduled to start as of 1 January 2015. Cash flow from operating activities for the company continued strong.

The efficiency programme started in late 2012 to maintain and strengthen Fortum’s flexibility and competitiveness, is close to completion and is estimated to be successfully finalised by the end of 2014.

We continued the work on preparing and evaluating the possible future divestment of our Swedish electricity distribution business.

It is important to be prepared for possible industrial restructuring opportunities in today’s market. The successful execution of the ongoing efficiency programme and divestments of the Finnish and Norwegian electricity distribution business have further strengthened Fortum’s balance sheet. Fortum possesses the competencies, strategic positioning and balance sheet strength to take advantage of new opportunities that might occur in the market, and our target is to grow in line with our strategy."

Efficiency programme 2013-2014

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.

At the end of 2014, the cost run-rate is targeted to be approximately EUR 150 million lower compared to 2012, including growth projects.

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

At the end of September, Fortum had announced non-core asset divestments of approximately EUR 500 million since the start of the efficiency programme.The company has also been able to decrease its costs and improve its working capital efficiency according to plan. The programme is close to completion and is estimated to be successfully finalised by the end of 2014.

Assessment of the electricity distribution business

The decision to start a strategic assessment of future alternatives for Fortum’s electricity distribution business was made in 2013.

In March 2014, Fortum completed the divestment of its Finnish electricity distribution business. In June, Fortum finalised its sale of the Norwegian electricity distribution business. The sales gains from the both transactions were booked in Fortum's Distribution Segment in the first and second quarter of 2014, respectively (Note 6).

Fortum is currently preparing and evaluating possibilities to divest its distribution business in Sweden.

Restatement related to IFRS changes and the new reporting structure

As of 1 January 2014, Fortum has applied the new IFRS 10 Consolidated Financial Statements and 11 Joint Arrangements standards. The major effect of this reassessment relates to Fortum Värme, which is treated as a joint venture and thus consolidated with the equity method (Note 2). Comparative information for 2013 presented in this interim report has been restated accordingly.

The segment information for 2013 has been restated due to the change in the organisation from 1 March 2014.

As of 2014, presented figures have been rounded and consequently the sum of individual figures may deviate from the sum presented.

Financial results


In the third quarter of 2014, Group sales were EUR 976 (1,060) million. Comparable operating profit totalled EUR 183 (167) million and the reported operating profit totalled EUR 149 (96) million. Fortum's operating profit for the period was affected by non-recurring items. Sales gains as well as an IFRS accounting treatment (IAS 39) of derivatives mainly used for hedging Fortum's power production and nuclear fund adjustments amounted to EUR -34 (-70) million (Note 4).


Sales by segment

EUR million      III/14      III/13    I-III/14    I-III/13 2013      LTM
Power and Technology 495 496 1,568 1,709 2,252 2,111
Heat, Electricity Sales and Solutions 224 255  
1,516 1,361
Russia 207 210 774 805 1,119 1,088
Distribution 130 217 578 784 1,064 858
Other 14 14 42 43 63 62
Netting of Nord Pool transactions -67 -90 -301 -356 -478 -423
Eliminations -26 -42 -134 -161 -228 -201
Total 976 1,060 3,466 3,918 5,309 4,857


Comparable operating profit by segment

EUR million III/14 III/13 I-III/14 I-III/13 2013 LTM
Power and Technology 167 139 601 652 859 808
Heat, Electricity Sales and Solutions -4 -3  
109 96
Russia 1 -15 102 46 156 212
Distribution 36 59 200 256 332 276
Other -16 -14 -43 -42 -54 -55
Total 183 167 915 979 1,403 1,339


Operating profit by segment

EUR million III/14 III/13 I-III/14 I-III/13 2013 LTM
Power and Technology 124 44 537 644 922 815
Heat, Electricity Sales and Solutions 4 8  
134 167
Russia 1 -15 102 46 156 212
Distribution 36 76 2,066 274 349 2,141
Other -16 -17 -44 -45 -53 -52
Total 149 96 2,778 1,002 1,508 3,284


In January-September 2014, Group sales were EUR 3,466 (3,918) million. Comparable operating profit totalled EUR 915 (979) million and the reported operating profit totalled EUR 2,778 (1,002) million. Fortum's operating profit for the period was affected by non-recurring items, mainly the sale of the Finnish electricity distribution business, the Norwegian electricity distribution and heat businesses as well as an IFRS accounting treatment (IAS 39) of derivatives mainly used for hedging Fortum's power production and nuclear fund adjustments amounting to EUR 1,863 (22) million (Note 4).

The share of profit from associates in January-September was EUR 111 (115) million, of which Fortum Värme represents EUR 42 (49) million. The share of profit from Hafslund and TGC-1 are based on the companies' published second-quarter 2014 interim reports (Note 12).

The Group’s net financial expenses were EUR 169 (212) million. Net financial expenses include changes in the fair value of financial instruments of EUR -10 (-8) million.

Profit before taxes was EUR 2,721 (904) million.

Taxes for the period totalled EUR 134 (157) million. The tax rate according to the income statement was 4.9% (17.4%). In Finland, the corporate tax rate was decreased from 24.5% to 20.0% starting 1 January 2014. The tax rate, excluding the impact of the share of profit from associated companies and joint ventures as well as non-taxable capital gains, was 19.4% (20.7%).

The profit for the period was EUR 2,587 (748) million. Fortum's earnings per share were EUR 2.91 (0.84), of which EUR 2.11 (0.03) per share relates to items affecting comparability. The earnings per share impact from the sale of the Finnish electricity distribution business was EUR 2.08 per share (Note 6).

Financial position and cash flow

Cash flow

In January-September 2014, total net cash from operating activities increased by EUR 160 million to EUR 1,310 (1,150) million, mainly due to the EUR 262 million positive impact of realised foreign exchange differences, which were partly offset with a lower EBITDA. Realised foreign exchange gains and losses of EUR 216 (-46) million were related to the rollover of foreign exchange contract hedging loans to Fortum's Swedish and Russian subsidiaries. Capital expenditures decreased by EUR 146 million to EUR 524 (670) million. Proceeds from divestments of shares totalled EUR 2,687 (107) million, mainly from the divestment of the Finnish distribution business as well as the Norwegian electricity distribution and heat businesses (Note 6). Proceeds from interest-bearing receivables included EUR 467 million paid by Fortum Värme. Total net cash used in investing activities was positive EUR 2,677 (-497) million. Cash flow before financing activities, i.e. financing, increased by EUR 3,334 million to EUR 3,987 (653) million.

The proceeds were partially used to pay dividends totalling EUR 977 million in April as well as payments of interest-bearing debt amounting to EUR 2,136 million. Cash and cash equivalents at the end of the period were EUR 2,178 (1,265 at year-end 2013) million.

Assets and capital employed

Total assets decreased by EUR 1,708 million to EUR 21,640 (23,348 at year-end 2013) million, which includes the decrease of non-current assets, EUR 1,057 million. Translation differences decreased intangible assets, property, plant and equipment as well as participation in associates and joint ventures by EUR 580 million and divestments by EUR 302 million.

Assets of the Finnish distribution business, amounting to EUR 1,173 million, were presented as Assets held for sale at the end of 2013. Cash and cash equivalents increased by EUR 913 million.

Capital employed was EUR 18,305 (19,183 at year-end 2013) million, a decrease of EUR 878 million.


Total equity was EUR 11,336 (10,124 at year-end 2013) million, of which equity attributable to owners of the parent company totalled EUR 11,255 (10,024) million and non-controlling interests EUR 81 (101) million.

The increase in equity attributable to owners of the parent company totalled EUR 1,231 million and was mainly from the net profit of EUR 2,583 million for the period, offset by translation differences of EUR -305 million and paid dividends of EUR 977 million.


Net debt decreased during January-September 2014 by EUR 3,003 million to EUR 4,790 (7,793 at year-end 2013) million.

At the end of September 2014, the Group’s liquid funds totalled EUR 2,178 (1,265 at year-end 2013) million.  Liquid funds include cash and bank deposits held by OAO Fortum amounting to EUR 259 (113 at year-end 2013) 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-September 2014 were EUR 169 (212) million. Net financial expenses include changes in the fair value of financial instruments of EUR -10 (-8) million.

Fortum Corporation's long-term credit rating with both S&P and Fitch has remained unchanged and is A- (negative outlook).

Key figures

For the last twelve months, net debt to EBITDA was 1.2 (3.7 at year-end 2013) and comparable net debt to EBITDA 2.6 (3.9 at year-end 2013). Fortum is currently financing Fortum Värme, and these loans, EUR 639 (1,135 at year-end 2013) million, are presented as interest-bearing loan receivables in Fortum’s balance sheet. However, the aim is to refinance the loans during 2014-2015. If these loans are deducted from the net debt, the last-twelve-months comparable net debt to EBITDA is 2.2 (3.4 at the year-end 2013).

Gearing was 42% (77%) and the equity-to-assets ratio 52% (43%). Equity per share was EUR 12.67 (11.28). For the last twelve months, return on capital employed totalled 18.9% (9.0% at year-end 2013) and return on shareholders’ equity 29% (12.0% at year-end 2013). Both return on capital employed and return on equity were positively affected by the capital gain from the sale of the Finnish electricity distribution business as well as the sale of the Norwegian electricity distribution and heat businesses.


Key drivers and risks

Fortum's financial results are exposed to a number of economic, strategic, political, financial and operational risks. One of the key factors 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 and CSA payments.

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 emissions allowance prices, and this could maintain downward pressure on the Nordic wholesale price for electricity in the short term. In Fortum's Russian business, the key factors are economic growth, the rouble exchange rate, 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 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 Swedish krona (SEK) and the Russian rouble (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 is expected to continue to gain a higher share of the total energy consumption. Fortum continues to expect the 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 macroeconomic development in Europe and especially in the Nordic countries.

During January-September 2014, the price of oil and European Union emissions allowances (EUA) appreciated, whereas the coal price declined. The price of electricity for the upcoming twelve months ended practically unchanged in the Nordic area whereas in Germany it decreased.

In mid-October 2014, the future quotation for coal (ICE Rotterdam) for the rest of 2014 was around USD 71 per tonne, and the price for CO2 for 2014 was about EUR 6 per tonne. The electricity forward price in Nord Pool for the rest of 2014 was around EUR 32 per MWh. For 2015, the price was around EUR 31 per MWh, and, for 2016, around EUR 30 per MWh. In Germany, the electricity forward price for the rest of 2014 was around EUR 34 per MWh and for 2015 EUR 34 per MWh. Nordic water reservoirs were about 10 TWh below the long-term average and 2 TWh above the corresponding level of 2013.

Power and Technology

The Power and Technology Segments Nordic power price typically depends on factors such 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 and Technology Segment’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 and Technology Segment will be affected by the possible thermal power generation volumes and its profits.

The ongoing, multi-year Swedish nuclear investment programmes are expected to 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.

As a result of the nuclear stress tests in the EU, the Swedish nuclear safety authority (SSM) has decided to propose new regulations for Swedish nuclear reactors. The process is on-going and the final proposal is expected by the end 2014. Fortum emphasises that maintaining a high level of nuclear safety is the highest priority, but considers EU-level harmonisation of nuclear safety requirements to be of utmost importance.

The process to review the Swedish nuclear waste fees is done in a three-year cycle, and therefore SSM has given a new proposal for the nuclear waste fees. A government decision is expected by the end of 2014.

The new Swedish government has proposed  to increase the tax on installed nuclear capacity by 17% as of 2015. Fortum's position is that the tax issue should be referred to an upcoming parliamentary energy commission in order to get a broadly established view on how the needs of energy and effect can be resolved.


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. The issue of prolonged CSA payments from 10 to 15 years have been under discussion in the Russian Government; however, no official decisions have yet been made.

Capacity not under CSA competes in the competitive capacity selection (CCS – “old capacity”). The capacity selection for generation built prior to 2008 (CCS – “old capacity”) for 2015 was held in September 2014. All of Fortum’s capacity was allowed to participate in the selection for 2015 and the majority of Fortum’s plants were also selected. The volume of Fortum’s installed capacity not selected in the auction totalled 195 MW (approximately 3.7% of Fortum’s total old capacity in Russia) for which Fortum plans to obtain forced mode status.

The Russia Segment's new capacity will be a key driver for earnings growth in Russia, as it is expected to bring income from new volumes sold and to 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 on seasonality and availability. The return on the new capacity is guaranteed, as regulated in the CSA. CSA payments can vary somewhat annually because they are linked to Russian government long-term bonds with 8 to 10 years maturity. In addition, the regulator will review the earnings from the electricity-only market three years and six years after the commissioning of a unit and may revise the CSA payments accordingly.

The value of the remaining part of the investment programme, calculated at the exchange rates prevailing at the end of September 2014, is estimated to be approximately EUR 0.3 billion, as of October 2014.

The Russian result is impacted by seasonal volatility caused by the nature of the heat business, with the first and last quarter being clearly the strongest.

At the time of the acquisition of the Russian subsidiary OAO Fortum in 2008, the EUR 500 million run-rate level in operating profit (EBIT) target set to be reached during 2015 in the Russia Segment corresponded to approximately RUB 18.2 billion at the then prevailing euro-rouble exchange rates. As earlier communicated, the segment’s profits are mainly impacted by changes in currency exchange rates as well as power demand, gas prices and other regulatory development. Fortum is keeping its rouble-denominated target intact, but, mainly due to the translation effect, the euro-denominated result level will be volatile. Currently, the unfavourable exchange balance converts into a lower profit level in euros. However, every effort to mitigate the negative impacts is continuously being made.

In 2013, the Ministry of Energy stated that the heat reform should be developed before changing the current electricity and capacity market model.The Ministry of Energy proposed a new heat market model (for public discussion), which is supposed to ensure a transition to economically justified heat tariffs by 2020 and attract investments into the heat sector. In September 2014, the heat market reform road map was approved by Russian Government. According to the roadmap the reform shall give heat market liberalization by 2020 or, in some specific areas, by 2023.

As forecasted by the Russian Ministry of Economic Development, Russian gas price indexation did not take place in July 2014. However, year-on-year gas price growth is estimated to be 7.6% in 2014.


Fortum is preparing for a possible sale of the Swedish electricity distribution business. The decision to complete the process is dependent on market development and development of national regulation, among other factors.

In Sweden, legal processes are under way concerning the appeal filed regarding the network income regulatory period 2012-2015. The Administrative Court in Sweden ruled in favour of the network companies in December 2013. The Energy Market Inspectorate decided to appeal the decision, and was given during leave to appeal to the Administrative Court of Appeals during the first quarter; therefore, the process continues. The court hearing is expected in Q4 2014 or Q1 2015. 

The work to define the Swedish network income regulation model for the next regulatory period 2016-2019 is ongoing. In September 2014, the Swedish government made a decision regarding the capital base ordinance; however, the details will be decided by the Energy Market Inspectorate. Decisions are expected to be made during 2014.

Capital expenditure and divestments

Fortum currently expects its capital expenditure in 2014 to be approximately EUR 0.9-1.1 billion, excluding potential acquisitions. The Finnish distribution business is included in the figure until the end of the first quarter 2014 and the Norwegian distribution business until the end of the second quarter 2014. The annual maintenance capital expenditure is estimated to be about EUR 400-500 million in 2014, below the level of depreciation. Capex for electricity distribution in Finland and Norway was approximately EUR 150 million annually.

Fortum will gradually decrease its financing to Fortum Värme, the co-owned power and heat company operating in the capital area in Sweden, during 2014-2015. At the end of September 2014, Fortum Värme's remaining interest bearing liability to Fortum is approximately EUR 0.6 billion.


The effective corporate income tax rate for Fortum in 2014 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 reduced from 24.5% to 20% as of 1 January 2014.

The Finnish government decided in June that it will not, after all, introduce a power plant tax (windfall tax) on nuclear, hydro and wind power built before 2004. The final decision to revoke the tax will be made by the Parliament in autumn 2014.

In August, the Finnish Board of Adjustment of the Large Taxpayers’ Office had unanimously approved Fortum Corporation's appeal for the income tax assessment imposed on Fortum for the year 2007 in December 2013. The Tax Recipients’ Legal Services Unit has the right to appeal in the matter (Note 21).


At the end of September 2014, approximately 70% of Power and Technology's estimated Nordic power sales volume was hedged at approximately EUR 43 per MWh for the rest of 2014. The corresponding figures for the calendar year 2015 were approximately 40% at approximately EUR 41 per MWh and for the calendar year 2016 approximately 10% at approximately EUR 39 per MWh.

The hedge price for Power and Technology'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 segment’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 2014 decided to pay a dividend of EUR 1.10 per share for 2013. The record date for the dividend was 11 April 2014, and the dividend payment date was 22 April 2014.

Espoo, 22 October 2014
Fortum Corporation
Board of Directors

Further information:
Tapio Kuula, President and CEO, tel. +358 10 452 4112
Timo Karttinen, CFO, tel. +358 10 453 6555

Fortum’s Investor Relations, Sophie Jolly, tel. +358 10 453 2552, Rauno Tiihonen, tel. +358 10 453 6150, Marja Mäkinen, tel. +358 10 452 3338 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.

Fortum Corporation’s Financial statements bulletin for the year 2014 will be published on 4 February 2015 at approximately 9.00 EET.

Fortum will publish three interim reports in 2015:
- January-March on 29 April 2015 at approximately 9.00 EEST
- January-June on 17 July 2015 at approximately 9.00 EEST
- January-September on 22 October 2015 at approximately 9.00 EEST

Fortum’s Financial statements and Operating and financial review for 2014 will be published during week 10 at the latest.

Fortum's Annual General Meeting is planned to take place on 31 March  2015 and the possible dividend related dates planned for 2015 are:
- Ex-dividend date 1 April 2015
- Record date for dividend payment 2 April 2015
- Dividend payment date 14 April 2015

Key media

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