FORTUM CORPORATION INTERIM REPORT JANUARY-JUNE 2015 17 JULY 2015 at 9:00 EET
April−June 2015, continuing operations
• Comparable operating profit EUR 143 (210) million, -32%
• Operating profit EUR 144 (233) million, of which EUR 1 (23) million relates to items affecting comparability and sales gains
• Earnings per share EUR 0.13 (0.22), -41%, of which EUR 0.00 (0.03) per share relates to items affecting comparability and sales gains. EPS for total Fortum including the effect from discontinued operations, is EUR 4.98 (0.28)
• Cash flow from operating activities totalled EUR 229 (394) million, -42%
• Fortum’s Distribution divestment finalised
January−June 2015, continuing operations
• Comparable operating profit EUR 486 (568) million, -14%
• Operating profit EUR 494 (599) million, of which EUR 8 (30) million relates to items affecting comparability and sales gains
• Earnings per share EUR 0.46 (0.57), -19%, of which EUR 0.01 (0.04) per share relates to items affecting comparability and EPS for total Fortum, including the effect from discontinued operations, is EUR 5.38 (2.81)
• Cash flow from operating activities totalled EUR 745 (799) million, -7%
• Distribution business treated as discontinued operations from Q1/2015, consistent with IFRS 5
• Pekka Lundmark appointed Fortum's President and CEO as of the beginning of September 2015
Summary of outlook
• Fortum continues to expect the annual electricity demand to grow in the Nordic countries by approximately 0.5% on average in the coming years
• Power and Technology segment's Nordic generation hedges: for the rest of 2015, approximately 45% hedged at EUR 41 per MWh; and for 2016, approximately 25% hedged at EUR 35 per MWh
• The run-rate operating profit level (EBIT) for the Russia segment, RUB 18.2 billion, is targeted to be reached during 2015. The euro-denominated result level will be volatile, due to the translation effect
|Key financial ratios *||2014||LTM|
|Return on capital employed, %||19.5||29.0|
|Comparable net debt/EBITDA||2.3||-1.1|
|Comparable net debt/EBITDA without Värme financing||2.0||-1.3|
* Key figure financial ratios are based on total Fortum, including discontinued operations
|Sales, EUR million||794||886||1,834||2,094||4,088||3,828|
|Operating profit, EUR million|
|Comparable operating profit, EUR million|
|Profit before taxes, EUR million|
|Earnings per share, EUR|
|Net cash from operating activities, EUR million, continuing operations||229||394||745||799||1,406||1,352|
|Shareholders’ equity per share, EUR||16.76||12.86||12.23|
|Interest-bearing net debt (at end of period), EUR million||-1,846||
|Interest-bearing net debt without Värme financing||-2,109||4,136||3,664|
Fortum’s interim CEO Timo Karttinen
“Fortum’s results continued to be pressured by low electricity prices. Comparable operating profit for continuing operations declined by 32% during the second quarter. The improvement in operating profit for total Fortum was due to the sale of the Swedish electricity distribution business completed in June: Fortum booked a one-time sales gain of approximately EUR 4.3 billion, corresponding to EUR 4.82 per share.
The ongoing slowdown in Asia together with the European macro-economy situation could lead to increasing uncertainty and consequently slow the European recovery. Additionally, Greece remains a major internal risk to the whole eurozone.
Also the weather has been unusual. The second quarter was characterised by among the highest precipitation in recent history, which resulted in high and partly must-run hydro power production during the quarter. On top of this, as low temperatures have delayed the snow melting in Norway, there is an increased possibility for must-run hydro production also later in the summer. As a result, the Nordic power prices have weakened, and electricity spot prices have been even under EUR 10/MWh. Also area price differences have been volatile. The cost of coal condense, however, which is typically the benchmark for Nordic power prices, remained fairly stable during the quarter.
Fortum continued the negotiations on the restructuring of the territorial generating company, TGC-1 in Russia. The negotiations did not, however, come to conclusions; therefore, Fortum was unable to commit to the Finnish Fennovoima nuclear power project by the end of June. Should the negotiations proceed later, and depending on the conditions of the construction license decision by the Finnish Government, Fortum would still be ready to participate with a minority share of maximum 15% in the nuclear power project on the same terms and conditions as the other Finnish companies currently participating in the project.
Our strategy is based on our strong competence in CO2-free hydro and nuclear power, efficient CHP production and expertise in energy markets. We believe sustainable and energy-efficient solutions will increase in importance as urbanisation and electrification of the world continues.”
Fortum’s Distribution divestment completed
In June 2015, Fortum completed the divestment of its Swedish electricity distribution business.
The total consideration was approximately SEK 60.6 billion on a debt- and cash-free basis, corresponding to approximately EUR 6.4 billion. Fortum booked a one-time sales gain of approximately EUR 4.3 billion, corresponding to EUR 4.82 per share, in the second-quarter 2015 results.
The transaction concluded the divestment of Fortum's Distribution, a process that began in 2013. The total consideration from the divestments in Finland, Sweden and Norway is approximately EUR 9.3 billion on a debt- and cash-free basis and approximately EUR 6.3 billion in non-taxable sales gains booked during 2014 and 2015.
Fortum updated its long-term financial targets
Fortum updated its long-term financial targets in March 2015. After the divestment of Distribution, Fortum's business has a somewhat higher risk profile, which will correspondingly require a stronger balance sheet in order to maintain financial flexibility. The financial targets continue to reflect the long-term business nature of the company and give relevant guidance on Fortum's view of the company's long-term value creation potential and growth strategy.
The updated long-term financial targets are: Return on capital employed (ROCE) 12% and comparable net debt/EBITDA around 2.5 times.
The previous financial targets were: ROCE 12%, comparable net debt/EBITDA around 3 and return on shareholders' equity (ROE) 14%.
IFRS restatement relating to discontinued operations
After the divestment of the Swedish distribution business, Fortum has no distribution operations.Therefore, as of the first-quarter 2015 interim report, the Distribution segment has been treated as discontinued operations, consistent with IFRS 5 "Non-current assets held for sale and Discontinued operations". The income statement including other comprehensive income, cash flow statement and certain key ratios has been restated for the 2014 comparative period. In the segment information, the Distribution segment is reclassified as discontinued operations.
Financial results discussed in this interim report are for the continuing operations of Fortum Group.
In the second quarter of 2015, sales were EUR 794 (886) million. Comparable operating profit totalled EUR 143 (210) million and the reported operating profit totalled EUR 144 (233) million. Fortum's operating profit for the period was affected by non-recurring items including approximately EUR -15 million effect from the cancellation of Olkiluoto 4 nuclear power project, as well as an IFRS accounting treatment (IAS 39) of derivatives mainly used for hedging Fortum's power production, and nuclear fund adjustments for continuing operations amounted to EUR 1 (23) million (Note 4). Total Fortum’s operating profit EUR 4,458 (295) million includes the sales gain EUR 4.3 billion of the Swedish electricity distribution business.
Sales by segment
|Power and Technology||404||487||904||1,072||2,156||1,988|
|Heat, Electricity Sales and Solutions||244||269||650||715||1,332||1,267|
|Netting of Nord Pool transactions||-64||-101||-183||-234||-422||-371|
|Total continuing operations||794||886||1,834||2,094||4,088||3,828|
Comparable operating profit by segment
|Power and Technology||114||183||317||434||877||760|
|Heat, Electricity Sales and Solutions||11||11||68||59||104||113|
|Total continuing operations||143||210||486||568||1,085||1,003|
Operating profit by segment
|Power and Technology||117||151||320||413||855||762|
|Heat, Electricity Sales and Solutions||9||67||73||112||337||298|
|Total continuing operations||144||233||494||599||1,296||1,191|
In January-June 2015, sales were EUR 1,834 (2,094) million. Comparable operating profit totalled EUR 486 (568) million and the reported operating profit totalled EUR 494 (599) million. Fortum's operating profit for the period was affected by non-recurring items including approximately EUR -15 million effect from the cancellation of Olkiluoto 4 nuclear power project, as well as an IFRS accounting treatment (IAS 39) of derivatives mainly used for hedging Fortum's power production, and nuclear fund adjustments for continuing operations amounted to EUR 8 (30) million (Note 4). Total Fortum’s operating profit EUR 4,889 (2,629) million includes the sales gain from the divestment of the Swedish electricity distribution business, approximately EUR 4.3 billion (approximately EUR 1.9 billion from Finnish and Norwegian operations in 2014).
The share of profit from associates was EUR 80 (107) million, of which Fortum Värme represented EUR 31 (48) million. The share of profit from Hafslund and TGC-1 are based on the companies' published first-quarter 2015 interim reports (Note 13).
The net financial expenses were EUR -81 (-109) million. Net financial expenses include changes in the fair value of financial instruments of EUR -11 (0) million.
Profit before taxes was EUR 493 (597) million.
Taxes for the period totalled EUR 80 (89) million. The tax rate according to the income statement was 16.2% (14.9%). 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% (20.4%).
The profit for the period for continuing operations was EUR 413 (508) million. Earnings per share for continuing operations were EUR 0.46 (0.57), of which EUR 0.01 (0.04) per share relates to items affecting comparability. Earnings per share for total Fortum, including the effect from discontinued operations, were EUR 5.38 (2.81), including the EUR 4.82 gain from the sale of the Swedish electricity distribution business. Earnings per share for total Fortum in 2014 were impacted by EUR 2.08 per share from the sale of the Finnish electricity distribution business (Note 7).
Financial position and cash flow
In January-June 2015, net cash from operating activities from total Fortum decreased by EUR 123 million to EUR 899 (1,022) million, mainly due to lower EBITDA and in 2014 divested Finnish and Norwegian distribution businesses, which were offset by the positive impact of realised foreign exchange differences and other financial income. Realised foreign exchange gains and losses of EUR 203 (155) million were related to the rollover of foreign exchange contract hedging loans to Fortum's Swedish and Russian subsidiaries. Capital expenditures decreased by EUR 48 million to EUR 209 (257) million.
Net cash from investing activities for total Fortum was EUR 6,372 (2,706) million including the impact from discontinued operations amounting to EUR 6,303 (2,648) million. Cash flow before financing activities for total Fortum increased by EUR 3,545 million to EUR 7,272 (3,727) million, including the net impact of discontinued operations of EUR 6,457 (2,870) million.
Fortum paid dividends totalling EUR 1,155 million in April. During the period net increase in liquid funds were EUR 5,877 million.
Assets and capital employed
Total assets increased by EUR 3,173 million to EUR 24,548 (21,375 at year-end 2014) million.
Liquid funds increased by EUR 5,846 million to EUR 8,612 (2,766 at year-end 2014) million, netted by the decrease of property, plant and equipment of EUR 2,049 million, mainly arising from the divestment of Swedish distribution.
Capital employed for total Fortum was EUR 21,733 (17,918 at year-end 2014) million, an increase of EUR 3,815 million.
Total equity was EUR 14,968 (10,935 at year-end 2014) million, of which equity attributable to owners of the parent company totalled EUR 14,889 (10,864 at year-end 2014) million.
The increase in equity attributable to owners of the parent company totalled EUR 4,025 million and was mainly from the gain on divestment of Swedish distribution approximately EUR 4.3 billion and dividend payment for 2014, EUR -1,155 million, offset by the net profit of EUR 413 million for continuing operations for the period, and translation differences totalling EUR 427 million.
Fortum was net cash positive at the end of the period as net debt decreased by EUR 6,063 million during January-June 2015 from net debt EUR 4,217 million at year-end 2014 to net cash EUR 1,846 million. Without Fortum Värme financing Fortum was net cash positive EUR 2,109 million (net debt 3,664 at year-end 2014).
At the end of June 2015, the Group’s liquid funds totalled EUR 8,612 (2,766 at year-end 2014) million. Liquid funds include cash and bank deposits held by OAO Fortum amounting to EUR 158 (134 at year-end 2014) million. In addition to liquid funds, Fortum had access to approximately EUR 2.2 billion of undrawn committed credit facilities (Note 15).
The net financial expenses were EUR -81 (-109) million. Net financial expenses include changes in the fair value of financial instruments of EUR -11 (0) million.
On 5 June 2015, Standard & Poor's downgraded Fortum’s long-term rating to BBB+ from A- and affirmed the A-2 short-term rating. The outlook is stable. The long-term corporate credit rating was removed from CreditWatch, where it had been placed since 18 March 2015. The Fitch rating remained unchanged as A- (negative outlook).
For the last twelve months, net debt to EBITDA was -0.3 (1.1 at year-end 2014) and comparable net debt to EBITDA -1.1 (2.3 at year-end 2014). Fortum is currently financing Fortum Värme, and these loans, EUR 263 (553 at year-end 2014) million, are presented as interest-bearing loan receivables in Fortum’s balance sheet. However, the aim is to refinance the loans during 2015. If these loans are deducted from the net debt, the last-twelve-months comparable net debt to EBITDA was -1.3 (2.0 at the year-end 2014).
Gearing was -12% (39% at year-end 2014) and the equity-to-assets ratio 61% (51% at year-end 2014). Equity per share was EUR 16.76 (12.23 at the year-end 2014). For the last twelve months, return on capital employed totalled 29.0% (19.5% at the year-end 2014).
According to preliminary statistics, electricity consumption in the Nordic countries was 87 (86) terawatt-hours (TWh) during the second quarter of 2015. In January-June 2015, it was 197 (196) terawatt-hours (TWh). The increase in non-industrial demand compensated the decrease in industrial demand.
At the beginning of 2015, the Nordic water reservoirs were at 80 TWh, 3 TWh below the long-term average and 2 TWh lower than a year earlier. By the end of the second quarter, the reservoirs were 15 TWh lower than the long-term average and 14 TWh lower than a year before. The precipitation during January-June, however, was among the highest recorded this century in Norway and Sweden. In Norway, by the end of the second quarter, large amounts of the precipitation still remained as snow because of the delayed snow melt.
In the second quarter of 2015, the average system spot price of electricity in Nord Pool was EUR 20.7 (25.7) per megawatt-hour (MWh). The decline was mainly due to the very high precipitation leading to high hydropower production, but also partly to substantially higher wind power production than a year ago. In Finland, the average area price was EUR 25.8 (34.6) per MWh and in Sweden SE3 (Stockholm) EUR 21.1 (31.6) per MWh.
During January–June 2015, the average system spot price was EUR 24.4 (27.9), and the area price in Finland EUR 28.9 (34.9) and in Sweden SE3 (Stockholm) EUR 24.8 (30.8).
In Germany, the average spot price during the second quarter of 2015 was EUR 28.3 (31.2) per MWh and during January-June 2015 EUR 30.2 (32.4) per MWh.
The market price of CO2 emission allowances (EUA) was at approximately EUR 7.1 per tonne at the beginning of the year and EUR 7.5 in the end of June 2015. The volatility of the price decreased during the second quarter when the political uncertainties in the ETS Market Stability Reserve (MSR) started to decrease. The content on the MSR was agreed in May and formal approval is foreseen during the summer or early autumn.
Fortum operates in the Urals and Western Siberia in the Tyumen and Khanty-Mansiysk area, where industrial production is dominated by the oil and gas industries, and in the Chelyabinsk area, which is dominated by the metal industry.
According to preliminary statistics, Russia consumed 230 (230) TWh of electricity during the second quarter of 2015. The corresponding figure in Fortum’s operating area in the First price zone (European and Urals part of Russia) was 178 (176) TWh. In January-June 2015 Russia consumed 506 (507) TWh of electricity. The corresponding figure in Fortum’s operating area in the First price zone (European and Urals part of Russia) was 388 (387) TWh.
In the second quarter of 2015, the average electricity spot price, excluding capacity price, decreased by 6% to RUB (Russian rouble) 1,132 (1,203) per MWh in the First price zone. In January-June 2015, the average electricity spot price, excluding capacity price, decreased by 3% to RUB 1,127 (1,156) per MWh in the First price zone.
More detailed information about the market fundamentals is included in the tables at the end of the report (page 54).
European business environment and carbon market
EU power market development
In July, the European Commission published a consultative Communication on the future EU market design. The emphasis of the Commission is on further development of the current energy-only market design rather than promoting a capacity-based market design. In May the Commission launched a first-ever state-aid sector inquiry on capacity mechanisms to collect input for the market design development.
EU emissions trading reform
A compromise between the EU institutions on the market stability reserve (MSR) of the EU emissions trading system was reached in May 2015. The main elements of the agreement are the implementation of the mechanism in 2019 and the placing of backloaded and non-allocated allowances directly into the reserve. The Commission published a proposal to revise the Emissions Trading Directive in 15 July. The main aim of the revision is to enable meeting the tighter emission cuts agreed for 2030 by increasing the factor according to which the amount of emission allowances put on the market decreases.
In a so-called White Paper on market design, published in early July, the country decided against capacity market, but chooses instead to develop the current electricity market further as well as to set up a separate capacity reserve as a backup. In addition, the controversial plan to introduce a special climate levy for older lignite plants (in addition to the EU ETS) has been abandoned. The targeted cuts in German CO2 emissions will be delivered, among other measures, by moving 2.7 GW of lignite power plants to the capacity reserve stepwise between 2017 and 2020.
New Finnish Government
Following the general elections in April, the new three party Government (Centre Party, National Coalition Party, and the Finns Party), led by Prime Minister Juha Sipilä (Centre Party) published its programme in May. The main objectives are improving Finland's competitiveness and job creation through structural reforms, as well as making the country a forerunner in cleantech and bioeconomy; increasing renewables and phasing out coal in the energy sector.
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, prices of fuel and CO2 emissions allowances 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 and European uncertainty 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 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 Russian rouble (RUB) and Swedish krona (SEK). In the Nordic countries, also the regulatory and fiscal environment for the energy sector has added risks for utility companies.
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 approximately 0.5%, while the growth rate for the next few years will largely be determined by macroeconomic development in Europe and especially in the Nordic countries.
During January-June 2015, the price of the European Union emissions allowances (EUA) and oil prices appreciated, whereas coal prices declined. The price of electricity for the upcoming twelve months declined in the Nordic area as well as in Germany.
In mid-July 2015, the future quotation for coal (ICE Rotterdam) for the rest of 2015 was around USD 59 per tonne, and the price for CO2 emission allowances for 2015 was about EUR 8 per tonne. The electricity forward price in Nasdaq Commodities for the rest of 2015 was around EUR 21 per MWh and for 2016 around EUR 26 per MWh. In Germany, the electricity forward price for the rest of 2015 was around EUR 33 per MWh and for 2016 around EUR 32 per MWh. Nordic water reservoirs were about 6 TWh belowthe long-term average and 5 TWh below the corresponding level of 2014.
Power and Technology
The Power and Technology segment’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 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 long-term 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 ongoing. 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 Swedish Government has increased the nuclear waste fund fee for the period 2015-2017 from approximately 0.022 to approximately 0.04 SEK/kWh. The estimated impact on Fortum will be approximately EUR 25 million annually. The process to review the Swedish nuclear waste fees is done in a three-year cycle.
In June 2015, the Swedish Parliament decided to approve the proposed tax increase of 17% on installed nuclear capacity. The tax will be implemented as of 1 August 2015. The estimated impact on Fortum is approximately EUR 15 million annually, albeit corporate tax-deductable.
In June, E.ON, as the majority owner of Oskarshamn nuclear reactors 1 and 2 in Sweden, announced their intention to start the closing process of the two reactors. In contrast to E.ON’s view, Fortum believes that it is possible to continue production with Oskarshamn units 1 and 2 until the end of their planned operational lifetimes. The final decision will be made by the OKG Aktiebolag shareholders – after which Fortum will assess the impact of the decision.
Provided that Fortum reaches an agreement on the restructuring of TGC-1 in Russia, and depending on the content of the construction license decision by the Finnish Government, Fortum would be ready to participate with a minority stake of maximum 15% in the Finnish Fennovoima nuclear power project on the same terms and conditions as the other Finnish companies currently participating in the project.
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. A regulation draft concerning the extension of CSA payments from 10 to 15 years has been submitted to the Russian Government, and a decision is anticipated during 2015. A prolonged period is expected to have a neutral net present value impact.
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 7% of Fortum’s total old capacity in Russia) for which Fortum has obtained forced mode status, i.e. will receive payments for the capacity.
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 also receive considerably higher capacity payments than the old capacity. 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 could revise the CSA payments accordingly.
In February 2015, the System Administrator of the wholesale market published data on the weighted average cost of capital (WACC) and the consumer price index (CPI) for 2014, which is used to calculate the sales price on CSA in 2015. The CSA payments were revised upwards accordingly to reflect the higher bond rates.
The value of the remaining part of Fortum's investment programme, calculated at the exchange rates prevailing at the end of June 2015, is estimated to be approximately EUR 0.1 billion, as of July 2015.
The Russia segment's result is impacted by seasonal volatility caused by the nature of the heat business, with the first and last quarter being clearly the strongest.
The run-rate operating profit (EBIT) level of RUB 18.2 billion in the Russia segment is targeted to be reached during 2015 after finalising the ongoing investment programme. The segment’s profits are mainly impacted by changes in 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. The income statements of non-euro subsidiaries are translated into the Group reporting currency using the average exchange rates.
In 2014, the new heat market model roadmap proposed by the Ministry of Energy was approved by the Russian Government; the reform should give heat market liberalisation by 2020 or, in some specific areas, by 2023.
As forecasted by the Russian Ministry of Economic Development, Russian gas price growth is estimated to be 3.5% in 2015.
Restructuring of TGC-1 according to strategy in Russia
In December 2014, Fortum, Gazprom Energoholding LLC and Rosatom State Corporation signed a protocol to start a restructuring process of the ownership of TGC-1 in Russia. The negotiations have not yet come to a conclusion. It is not possible to estimate the negotiating timetable.
Capital expenditure and divestments
Fortum currently expects its capital expenditure for its continuing operations in 2015 to be approximately EUR 0.8 billion. The annual maintenance capital expenditure is estimated to be about EUR 300-350 million in 2015, below the level of depreciation.
During 2015, Fortum will gradually decrease its financing to Fortum Värme, the CHP joint venture with the City of Stockholm, operating in the capital area in Sweden. At the end of June 2015, Fortum Värme's remaining interest-bearing liability to Fortum was approximately EUR 0.3 billion.
The effective corporate income tax rate for Fortum in 2015 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 August 2014, the Finnish Board of Adjustment of the Large Taxpayers’ Office approved Fortum Corporation's appeal of the income tax assessment imposed on Fortum for the year 2007 in December 2013. The Tax Recipients’ Legal Services Unit appealed the matter (Note 22). In December 2014, Fortum received a non-taxation decision regarding its financing companies for the remaining years 2008−2011, based on the same audit. This is in line with the Supreme Administrative Court’s (SAC) precedent decision. The Tax Recipients' Legal Services Unit has appealed the decisions in February 2015, and the cases for years 2008−2011 are now pending the Board of Adjustment of the Large Taxpayers' Office decision. In line with the 2007 case, Fortum considers the claims unjustifiable.
In June, the Swedish Parliament approved the 17% increase on the tax on installed nuclear capacity, re-proposed by the Swedish Government. The tax will be implemented as of 1 August 2015. The estimated impact on Fortum is approximately EUR 15 million annually, albeit corporate tax-deductable.
At the end of June 2015, approximately 45% of Power and Technology's estimated Nordic power sales volume was hedged at approximately EUR 41 per MWh for the rest of 2015. The corresponding figures for the 2016 calendar year were approximately 25% at approximately EUR 35 per MWh.
The hedge price for Power and Technology segment'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 Nasdaq Commodities forwards.
The Annual General Meeting decided to pay a dividend of EUR 1.10 per share and an extra dividend of EUR 0.20 per share, i.e. a total amount of EUR 1.30 per share, for the financial year that ended 31 December 2014.
The record date for the dividend was 2 April 2015, and the dividend payment date was 14 April 2015.
Espoo, 16 July 2015
Board of Directors
Timo Karttinen, CFO, Interim President and CEO, 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 +358 10 452 3338 and investors [at] fortum [dot] com
The condensed interim report has 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 2015:
January-September on 22 October 2015 at approximately 9:00 EET
More information, including detailed quarterly information, is available on Fortum’s website at www.fortum.com/investors.