Stock exchange release

Fortum January-March 2017 Interim Report: Improved results in a demanding market – Russian EBIT target reached

27 April 2017, 09:00 EEST


January−March 2017 

  •  Comparable operating profit EUR 313 (275) million, +14%
  •  Operating profit EUR 389 (369) million, of which EUR 76 (94) million relates to items affecting comparability
  •  Earnings per share EUR 0.38 (0.37), of which EUR 0.07 (0.08) related to items affecting comparability
  •  Cash flow from operating activities totalled EUR 282 (375) million
  •  City Solutions division divided into City Solutions and Consumer Solutions to support strategy implementation
  •  The operating profit target level (EBIT) RUB 18.2 billion for the Russia segment was reached during the last twelve months

Summary of outlook 

  •  Fortum continues to expect the annual electricity demand to grow in the Nordic countries by approximately 0.5% on average
  •  The Generation segment's Nordic generation hedges: approximately 55% hedged at EUR 29 per MWh for the rest of 2017 and approximately 45% hedged at EUR 27 per MWh for 2018

Key financial ratios 

   ​​2016  LTM 
Return on capital employed, %  4.0  4.0 
Comparable net debt/EBITDA  0.0  -0.3 

Key figures 

EUR million or as indicated​​  I/17  I/16  2016  LTM 
Sales  1,232  989  3,632  3,875 
Comparable EBITDA  423  357  1,015  1,081 
Comparable operating profit  313  275  644  682 
Operating profit  389  369  633  653 
Share of profits of associates and
  joint ventures 
59  67  131  123 
Profit before taxes  412  390  595  617 
Earnings per share, EUR  0.38  0.37  0.56  0.57 
Net cash from operating activities  282  375  621  528 
Shareholders’ equity per share, EUR  15.82  15.97  15.15    
Interest-bearing net debt (at end of period)  -347  -2,158  -48  -347 

Fortum’s President and CEO Pekka Lundmark: 

“After a challenging 2016, the market conditions have been slightly more favourable in the early part of 2017. Wholesale prices have increased, but are still low and continue to burden the results of all power producers. During the first quarter of 2017, the Nordic precipitation and inflow were above the long-term average. This capped the increase in spot prices although the reservoir levels showed a slight deficit.

In spite of the demanding market conditions, the first quarter results were quite satisfactory. Our comparable operating profit increased by 14% to EUR 313 million compared to the first quarter 2016.

One of the highlights was, again, the Russia segment with a comparable operating profit of EUR 132 million, compared to EUR 79 million in the first quarter 2016. Over the last twelve months, the EBIT for the Russia segment was EUR 277 million, exceeding the RUB 18.2 billion target. We have previously communicated that we are expecting to reach the targeted EBIT level during 2017-2018 and thus, our Russia segment has reached the target according to schedule. In the Generation segment, the results weakened mainly due to lower hydro volumes. However, Generation’s higher achieved power price partially offset the decline.

During the first quarter, we developed our organisational structure further. We divided our City Solutions division into two; one focusing on heating, cooling and circular economy solutions and one focusing on our retail customers. The respective business models are so different that separate management focus is required in order to be successful.

We have also continued to drive forward the implementation of our strategy along the guidelines presented at Fortum’s Capital Markets Day on 16 November 2016. Yesterday, we were pleased to announce the planned restructuring of our assets in Norway. Together with the City of Oslo, we have agreed to rearrange the ownership of Hafslund ASA. According to the agreement, Fortum will sell its 34.1% ownership in Hafslund ASA to the City of Oslo. Further, we will acquire 100% of the electricity sales business of Hafslund, increasing our Nordic customer base from 1.3 to 2.4 million. In the heat and waste-to-energy business, Fortum and the City of Oslo will join forces in a co-owned company combining Hafslund’s heat business and Oslo’s waste-to-energy plant Klemetsrudanlegget. Finally, Fortum will acquire a 10% share in the production business of Hafslund. The transactions are subject to approval by the Oslo City Council (Bystyret) and necessary regulatory approvals. The planned transaction meets all the key criteria we have defined for investments in the first phase of our strategy implementation.

In the first quarter results we can already see the positive effects of last year’s acquisitions of Ekokem and DUON. Our strategy implementation is improving our results and the restructuring of Hafslund will continue to do so. We have consolidated businesses that are within our existing core competencies, we have stayed close to our current home markets, and we have gotten access to existing cash flows.

Our strategy implementation will continue and we still have significant financial headroom available for market consolidation.“

Financial results 

Sales by segment 

EUR million I/17 ​​I/16 2016 LTM
Generation  474 467 1,657 1,664
City   Solutions  290 228 782 844
Consumer   Solutions  242 175 668 735
Russia  349 249 896 996
Other  24 24 92 92
Netting of   Nord Pool transactions  -118 -120 -384 -382
Eliminations  -29 -34 -79 -74
Total  1,232  989  3,632  3,875 

 Comparable EBITDA by segment 

EUR million I/17 ​​I/16 2016 LTM
Generation  166 182 527 511
City   Solutions  94 70 186 210
Consumer   Solutions  14 14 55 55
Russia  168 105 312 375
Other  -20 -13 -64 -71
Total  423  357  1,015  1,081 

 Comparable operating profit by segment 

EUR million I/17 I/16 ​​2016 LTM
Generation  136 155 417 398
City   Solutions  56 44 64 76
Consumer   Solutions  12 14 48 46
Russia  132 79 191 244
Other  -24 -16 -77 -85
Total  313  275  644  682 

 Operating profit by segment 

EUR million I/17 I/16 2016 LTM
Generation  230 211 338 357
City   Solutions  59 58 86 87
Consumer   Solutions  -9 5 59 45
Russia  132 111 226 247
Other  -23 -15 -77 -85
Total  389  369  633  653 

January–March 2017 

In January-March 2017, sales were EUR 1,232 (989) million. The increase was due to the strengthening Russian rouble and the consolidation of Ekokem and DUON. Comparable EBITDA totalled EUR 423 (357) million. Comparable operating profit totalled EUR 313 (275) million and reported operating profit totalled EUR 389 (369) million. Fortum's operating profit for the period was impacted by items affecting comparability, including sales gains, and the IFRS accounting treatment (IAS 39) of derivatives mainly used for hedging, as well as nuclear fund adjustments, amounting to EUR 76 (94) million (Note 4).

The share of profit from associates and joint ventures was EUR 59 (67) million, of which Hafslund represented EUR 14 (14), TGC-1 EUR 1 (9) and Fortum Värme EUR 44 (44) million. The share of profit from Hafslund and TGC-1 are based on the companies' published fourth quarter 2016 interim reports (Note 12).

Net financial expenses were EUR -36 (-47) million and include changes in the fair value of financial instruments of EUR 1 (2) million.

Profit before taxes was EUR 412 (390) million.

Taxes for the period totalled EUR -72 (-59) million. The effective income tax rate according to the income statement was 17.4% (15.0%). The comparable effective income tax rate, excluding the impact of the share of profit from associated companies and joint ventures as well as non-taxable capital gains, was 20.4% (18.1%) (Note 8).

The profit for the period was EUR 340 (331) million. Earnings per share were EUR 0.38 (0.37), of which EUR 0.07 (0.08) per share relates to items affecting comparability.

Financial position and cash flow 

Cash flow 

In January-March 2017, net cash from operating activities decreased by EUR 93 million to EUR 282 (375) million, due to EUR 66 million higher comparable EBITDA, and EUR 186 million lower realised foreign exchange gains and losses. The foreign exchange gains and losses of EUR -58 (128) million in January-March 2017 relate to the rollover of foreign exchange contracts hedging loans to Russian and Swedish subsidiaries.

Capital expenditures increased by EUR 67 million to EUR 180 (113) million. Net cash used in investing activities decreased to EUR 1 (379) million. The change was mainly due to the decrease in cash collaterals given as trading collaterals to commodity exchanges of EUR 182 (-176) million.

Cash flow before financing activities was EUR 280 (-4) million.

Payments of long-term liabilities totalled EUR 292 (3) million, including repayment of two SEK bonds equivalent to EUR 290 million. The net increase in liquid funds was EUR 56 (21) million.

Assets and capital employed 

Total assets increased by EUR 228 million to EUR 22,192 (21,964 at the end of 2016) million.

Liquid funds at the end of the period were EUR 5,222 (5,155 at the end of 2016) million.

Capital employed was EUR 19,023 (18,649 at the end of 2016) million, an increase of EUR 374 million.


Equity attributable to owners of the parent company totalled EUR 14,057 (13,459 at the end of 2016) million.

The increase in equity attributable to owners of the parent company totalled EUR 598 million and was mainly due to the net profit for the period of EUR 335 million and translation differences of EUR 192 million.


Fortum was net cash positive at the end of the period. Net cash increased by EUR 299 million to EUR 347 (48 at the end of 2016) million.

At the end of March, the Group’s liquid funds totalled EUR 5,222 (5,155 at the end of 2016) million. Liquid funds include cash and bank deposits held by OAO Fortum amounting to EUR 236 (105 at the end of 2016) million. In addition to liquid funds, Fortum had access to EUR 2.0 billion of undrawn committed credit facilities (Note 16).

Net financial expenses were EUR -36 (-47) million, of which net interest expenses were EUR -30 (-39) million.

Fortum’s long-term credit ratings were unchanged. Standard & Poor's rating is BBB+ and the short-term rating A-2. The outlook is stable. Fitch Ratings long-term Issuer Default Rating (IDR) and senior unsecured rating is BBB+ and the short-term IDR is F2 with a stable outlook.

Key figures 

At the end of March, the comparable net debt to EBITDA for the last 12 months was -0.3 (0.0 at the end of 2016). 

Gearing was -2% (0% at the end of 2016) and the equity-to-assets ratio 64% (62% at the end of 2016). Equity per share was EUR 15.82 (15.15 at the end of 2016). Return on capital employed for the last 12 months totalled 4.0% (4.0% at the end of 2016). 

Market conditions 

Nordic countries 

According to preliminary statistics, electricity consumption in the Nordic countries was 114 (117) terawatt-hours (TWh) during January-March 2017. The lower consumption was caused by warmer weather in the first quarter compared to the first quarter of 2016. 

At the beginning of 2017, the Nordic water reservoirs were at 75 TWh, which is 8 TWh below the long-term average and 23 TWh lower than a year earlier. By the end of March, reservoirs were 3 TWh below the long-term average and 10 TWh lower than a year earlier. The deficit has decreased during the beginning of the year, due to higher than long-term average precipitation and inflow as well as lower consumption and high nuclear availability. 

In January-March 2017, the average system spot price in Nord Pool was EUR 31.1 (24.0) per MWh. The main drivers for the price increase were the clearly higher marginal cost of coal condense than a year earlier and hydro reservoirs below the long-term average. The average area price in Finland was EUR 32.9 (30.4) per MWh and in Sweden SE3 (Stockholm) EUR 31.8 (24.1) per MWh. 

In Germany, the average spot price in January-March 2017 was EUR 41.3 (25.2) per MWh. The spot price increased due to lower nuclear generation, low hydro reservoirs, increased fuel prices and cold conditions in the continent during January. 

The market price of CO2 emission allowances (EUA) was EUR 6.5 per tonne at the beginning of the year and EUR 4.7 per tonne at the end of March 2017. 


Fortum operates both in the Tyumen and Khanty-Mansiysk area of Western Siberia, where industrial production is dominated by the oil and gas industries, and in the Chelyabinsk area of the Urals, which is dominated by the metal industry. 

According to preliminary statistics, Russian electricity consumption was 283 (279) TWh in January-March 2017. The corresponding figure in Fortum’s operating area in the First price zone (European and Urals part of Russia) was 217 (212) TWh. 

The average electricity spot price, excluding capacity price, increased by 2.9% to RUB 1,180 (1,147) 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 54-55). 

European business environment and carbon market 

Revision of the EU ETS at the final stage 

The last decisive stages of the revision process of the EU Emissions Trading (ETS) Directive for the period 2021-2030 are ongoing. The European Parliament adopted its position and the Council approved a General Approach in February. The trilogue negotiations between the Commission, Parliament and the Council started 4 April 2017 and are expected to be finalised during the summer. The directive could be formally approved during this year. 

Strengthening of the Market Stability Reserve (MSR), including a temporary doubling of the MSR intake rate is the key issue from the market balance and pricing perspective. More contentious issues between the Parliament and Council are cancellation of allowances (amount and timing), flexible auction share and the indirect cost compensation. 

Circular economy legislation impacting energy recovery of waste 

In January 2017, the Commission released a progress report on its Circular Economy (CE) package from 2015. In addition, the Commission issued guidance to member states on converting waste to energy. 

The trilogue negotiations on the CE package between the Commission, the Parliament and the Council will officially start after the Council has adopted its final position and the goal is to finalize the legislative package during the summer. The package includes amendments of waste, landfill, packaging waste and three other waste-related directives. The debated key issues are municipal waste and the reuse and recycling targets. 

The Waste-to-Energy Communication includes non-legislative guidance on energy recovery of waste in the context of a circular economy. Energy recovery of waste is seen as a way to stop landfilling and as a needed treatment method for the rejects from recycling processes. 

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, the prices of fuel and CO2 emissions allowances, and the hydrological situation. 

The continued uncertainty in the global and European economies 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 of electricity. In Fortum's Russian business, the key drivers are economic growth, the rouble exchange rate, regulation around the heat business, and the further development of the electricity and capacity markets. 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 and Swedish krona. 

In the Nordic countries, the regulatory and fiscal environment for the energy and environmental management sectors has also added risks for companies. The main strategic risk is that the regulatory and market environment develops in a way that we have not been able to foresee and prepare for. In response to these uncertainties, Fortum has analysed and assessed a number of future energy market and regulation scenarios, including the impact of these on different generation forms and technologies. As a result, Fortum’s strategy was renewed in 2016 to include broadening the base of revenues and diversification into new businesses, technologies and markets. The environmental management business is based on the framework and opportunities created by the environmental regulation. Being able to respond to the customer needs created by the tightening regulation is a key success factor. 


Nordic market 

Despite macroeconomic uncertainty, electricity is expected to continue to gain a higher share of total energy consumption. Electricity demand in the Nordic countries is expected to grow by approximately 0.5% on average, while the growth rate for the next few years will largely be determined by macroeconomic developments in Europe, and especially in the Nordic countries.   

During January-March 2017, the oil price continued to increase, the coal price stayed fairly stable, and the price of CO2 emission allowances (EUA) declined. The price of electricity for the upcoming twelve months decreased in the Nordic area as well as in Germany. 

In mid-April 2017, the quotation for coal (ICE Rotterdam) for the remainder of 2017 was around USD 71 per tonne and for CO2 emission allowances for 2017 around EUR 5 per tonne. The Nordic system electricity forward price in Nasdaq Commodities for the rest of 2017 was around EUR 26 per MWh and for 2018 around EUR 23 per MWh. In Germany, the electricity forward price for the rest of 2017 was around EUR 33 per MWh and for 2018 around EUR 30 per MWh. Nordic water reservoirs were about 2 TWh below the long-term average and 8 TWh below the corresponding level in 2016. 


The Generation segment’s achieved Nordic power price typically depends on such factors as the 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 Generation 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 Generation segment will be affected by possible thermal power generation volumes and its profits. 

As a result of the nuclear stress tests in the EU, the Swedish Radiation Safety Authority (SSM) has decided on new regulations for Swedish nuclear reactors. For the operators, this means safety investments that should be in place no later than 2020.

The process to review the Swedish nuclear waste fees is done in a three-year cycle. The Swedish Nuclear Fuel and Waste Management Co (SKB) has updated the new technical plan for the SSM to review. The final decision on the new nuclear waste fees will be made by the Swedish government in December 2017. However, as a result of the decision on early closure of nuclear power plants, SSM recalculated the waste fees for the Oskarshamn and Ringhals power plants. 

In April 2017, the Swedish government announced that during the second quarter they will submit a proposal to the parliament regarding the calculations of nuclear waste fees and the investment of the nuclear waste fund. According to the announcement the operating time for calculating the waste fee would be 50 years, as opposed to the current 40 years. The fund would also be allowed to invest in other financial instruments than government bonds. The proposed changes are expected to reduce the nuclear waste fees. 

In September 2016, the Swedish government presented the budget proposal for the coming years. One of the key elements was the proposal that taxation of different energy production forms should be more equal and the tax burden of nuclear and hydro should be taken to the level of other production technologies. The budget states that the nuclear capacity tax will be reduced to 1,500 SEK/MW per month from 1 July 2017 and abolished on 1 January 2018. In 2017, the tax for Fortum is estimated to decrease by approximately EUR 32 million to EUR 52 million due to the tax decrease and by another EUR 5 million due to the premature closure of Oskarshamn 1 in the middle of the year. In 2018, there is no capacity tax. 

The hydropower real-estate tax will decrease over a four-year period beginning in 2017, from todays 2.8% to 0.5%. The real-estate tax on hydro will, as stated in the government’s budget, be reduced in four steps: in January 2017 to 2.2%; in January 2018 to 1.6%; in January 2019 to 1.0%; and in January 2020 to 0.5%. In 2017, the tax for Fortum is estimated to decrease by approximately EUR 20 million to approximately EUR 95 million. 

In addition to the decrease in the tax rate, the hydropower real-estate tax values, which are linked to electricity prices, will be updated in 2019. The real-estate tax values are updated every six years. With the current low electricity prices, the tax values in 2019 will be clearly lower than today. The process for renewing existing hydro permits will also be reformed. 

In October 2016, the Swedish Energy Agency presented a concrete proposal on how to increase the production of renewable electricity by 18 TWh in 2020-2030 within the electricity certificate system, as part of the Energy Agreement. In April 2017, the Swedish government decided that the increase will be carried out in a linear manner.

In 2015, Swedish OKG AB decided to permanently discontinue electricity production at Oskarhamn’s nuclear plant unit 1 and 2. The discontinuing of production and start of decommissioning has been set to 30 June 2017 in unit 1. Unit 2, which has been out of operation since June 2013, will stay out of operation. The closing processes for both units are estimated to take several years. 

City Solutions 

In City Solutions steady growth, cash flow and earnings are achieved through investments in new plants and through acquisitions. Fuel cost, availability, flexibility and efficiency as well as gate fees are key drivers in profitability, but also power supply/demand balance, electricity price and the weather affect the profitability. 

In May 2016, the Finnish government decided to increase the tax on heating fuels by EUR 90 million annually from 2017 onwards. The negative impact on Fortum is estimated to be approximately EUR 5 million per year. 

Consumer Solutions 

In the Consumer Solutions profitability is achieved by competitive product offerings, efficient operations, scale benefits in systems and operations as well as prudent risk management. As the Consumer Solutions segment hedges most of the market risk exposure it is typically more exposed to short-term variations in power prices and demand than long-term price trends. Short-term volatility, often caused by temperature, can have a substantial impact on power prices as well as power demand. The competitive environment effects the Consumer Solutions segment both through the sales margins of the products sold as well as the size of the customer base. 


The Russia segment's new capacity generation built after 2007 under the Russian Capacity Supply Agreement (CSA) is a key driver for earnings growth in Russia, as it is expected to bring income from new volumes sold and also to receive considerably higher capacity payments than the old capacity. Fortum will receive guaranteed capacity payments for a period of 10 years from the commissioning of a plant. The received CSA payment will vary depending on the age, location, size and type of the plants, as well as on seasonality and availability. 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. 

The long-term Competitive Capacity Selection (CCS) for the years 2017-2019 was held at the end of 2015, and the long-term CCS for year 2020 was held in September 2016. The majority of Fortum’s plants were selected. The volume of Fortum’s installed "old" capacity not selected in the auctions totalled 195 MW (out of 2,214 MW), for which Fortum has obtained forced mode status, i.e. it will receive payments for the capacity. 

The Russian annual average gas price growth was 3.6% in 2016. Fortum estimates the Russian annual average gas price growth to be 2.0% in 2017. 

Capital expenditure and divestments 

Fortum currently expects its capital expenditure, excluding acquisitions, to be approximately EUR 800 million in 2017. The annual maintenance capital expenditure is estimated to be below EUR 300 million in 2017, well below the level of depreciation. 


The effective corporate income tax rate for Fortum in 2017 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. 


At the end of March 2017, approximately 55% of Generation's estimated Nordic power sales volume was hedged at EUR 29 per MWh for the rest of 2017 and approximately 45% at EUR 27 per MWh for 2018. 

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 electricity derivatives quoted on Nasdaq Commodities. 

Change of Fortum Corporation's trading and issuer codes 

As of 25 January 2017, Fortum Corporation changed its trading and issuer codes. The trading code of Fortum Corporation's share changed from FUM1V to FORTUM, and Fortum's issuer code was changed from FUM to FORTUM. 

Dividend payment 

The Annual General Meeting 2017 decided to pay a dividend of EUR 1.10 per share for the financial year that ended 31 December 2016. The record date for the dividend was 6 April 2017 and the dividend payment date was 13 April 2017. 

Espoo, 26 April 2017 

Fortum Corporation
Board of Directors 

Further information: 

Pekka Lundmark, President and CEO, tel. +358 10 452 4112
Markus Rauramo, CFO, tel. +358 10 452 1909                          

Investor Relations & Financial Communications, Sophie Jolly, tel. +358 10 453 2552 , Rauno Tiihonen, tel. +358 10 453 6150, Måns Holmberg, tel. +358 44 518 1518, Pirjo Lifländer +358 40 643 3317, and investors [at] fortum [dot] com 

Media, Corporate Press Officer, Pauliina Vuosio, tel. +358 50 453 2383  

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. 

Financial calendar in 2017 

In 2017, Fortum will publish: 

  •  Half-year Financial Report January-June on 20 July 2017, at approximately 9:00 EEST 
  •  Interim Report January-September on 26 October 2017, at approximately 9:00 EEST 

Nasdaq Helsinki
Key media 

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

Fortum January-March 2017 Interim Report (pdf)