Fortum Corporation Interim Report January - March 2005
Fortum Corporation Stock Exchange Release 3 May 2005
Fortum Corporation
Interim Report January - March 2005
Good first-quarter results
- Neste Oil separation successfully completed
January-March in brief
- Profit before taxes from continuing operations EUR 384 (333) million
- Fortum total EPS EUR 0.37 (0.36), net profit EUR 349 (324) million
- Successful hedging and portfolio optimisation - achieved Nordic Generation
power price up by 6%
- The separation and listing of Neste Oil successfully executed
Oil operations in Fortum are reported on a separate line as discontinued
operations in the income statement, and are not included in net sales or in
operating profit. All figures are reported according to IFRS.
Key figures I/05 I/04 2004 Last 12
Income statement and cash flow months
for continuing operations (LTM)
Net sales, EUR million 1,133 1,129 3,835 3,839
Operating profit, EUR million 404 407 1,195 1,192
- excluding non-recurring 398 413 1,177 1,162
items, EUR million
Profit before taxes, EUR 384 333 962 1,013
million
Earnings per share, Fortum 0.28 0.24 0.79 0.83
continuing operations, EUR
Total earnings per share, EUR 0.37 0.36 1.48 1.49
*)
Total net cash from operating 214 453 1,758 1,519
activities,
EUR million *)
Net cash from operating 62 357 1,232 937
activities, Fortum continuing
operations, EUR million
Average number of shares, 000s 871,710 849,698 852,625 856,404
*) Including Oil operations related items, reported as discontinued operations
in income statement. EUR 21 million transfer tax on Neste Oil shares dividend
distribution is booked in discontinued operations. The gain on the sale of Neste
Oil shares, currently estimated at EUR 389 million, will be recorded in the
second quarter discontinued operations.
Key figures I/05 I/04 2004 Last 12
Balance sheet months
(LTM)
Shareholders equity per share, 7.69 7.41 8.62
EUR
Interest-bearing net debt 4,878 5,526 5,095
(at end of period), EUR million
*)
Return on capital employed, % 18.0 18.6 15.8 16.8
Return on shareholders equity, 19.2 19.9 18.2 19.8
%
Gearing, %*) 71 86 67
*) The balance sheet includes an interest-bearing receivable from Neste Oil of
EUR 804 million which Neste Oil repaid in April. In the second quarter net debt
will also be effected by received net proceeds (estimated to EUR 553 million)
from the sale of 15% shareholding in Neste Oil and the paid out cash dividend
(EUR 506 million). Adjusting for these effects, Fortum's pro forma net debt
would have been EUR 4,027 million at the end of the quarter and the gearing
would have been 59%.
The first quarter of 2005 was a good quarter for Fortum. The company's operating
results were at the same level as last year, despite the average market price
for power being 9% lower. Neste Oil was successfully separated and subsequently
listed in the Helsinki Stock Exchange on 18 April.
The average Nordic Generation power price (the achieved sales price in the Power
Generation segment in the Nordic area, excluding pass-through sales) was EUR
31.6 per MWh, 6% higher than a year ago due to successful hedging and power
generation portfolio optimisation.
The operating profit of the Power Generation segment was at the same level as
last year, while Heat segment improved slightly. The Distribution segment's
operating profit was weaker, mainly due to the costs arising from the January
storms in Sweden and Norway. The Markets segment reported weaker profit than
last year.
First quarter net debt decreased by EUR 217 million compared to year-end, of
which EUR 150 million is due to the deconsolidation of Neste Oil.
Due to the separation of Neste Oil, and to the adoption of International
Financial Reporting Standards (IFRS), Fortum's financial reporting has changed
significantly. All Oil business-related figures are reported as discontinued
operations in the income statement and in the cash flow statement. At the end of
the quarter, Fortum still held approximately 15% of the shares in Neste Oil. The
shareholding was valued at fair value (sales price reduced by transaction
costs). The fair value adjustment is included in equity in the first quarter and
will be shown in the income statement as a capital gain in the second quarter,
disclosed in discontinued operations.
Net sales and results
Group sales from continuing operations stood at EUR 1,133 (1,129) million.
Net sales from continuing operations, by segment
EUR million I/05 I/04
Power Generation 534 560
Heat 385 361
Distribution 202 206
Markets 392 419
Other 23 20
Eliminations -403 -437
Total 1,133 1,129
Group operating profit from continuing operations totalled EUR 404 (407)
million.
Operating profit from continuing operations, by segment
EUR million I/05 I/04
Power Generation 222 222
Heat 111 104
Distribution 71 83
Markets 6 16
Other - 6 -18
Total 404 407
Despite the 9% decrease in the average market price for power and the lower
generation volume in the first quarter, the Power Generation segment reached
last year's operating profit level of EUR 222 million. This was due to higher
hydropower generation and successful hedging.
The Heat segment's sales were slightly higher than last year, mainly due to the
acquisition of a district heating company in the city of Czestochowa in Poland
last December. The operating profit for the segment improved to EUR 111 million.
Heat segment's power sales volume was lower than last year.
The Distribution segment's sales were EUR 202 (206) million. The segment's
operating profit of EUR 71 (83) million was negatively impacted by the EUR 11
million in costs from the January storms in Sweden and Norway.
Markets' sales decline was mainly due to the termination of some large
contracts. In the first quarter of 2005, the segment experienced a positive
inflow of customers. The lower operating profit of EUR 6 (16) million mainly
stems from increased costs related to customer service quality improvement
actions and tighter competition.
Profit before taxes from continuing operations was EUR 384 (333) million.
The Group's net financial expenses from continuing operations were lower than
last year and amounted to EUR 35 (78) million. The main reasons for the decrease
were lower interest rate, lower level of net debt and a positive approximately
EUR 10 million change in the fair value of certain SEK derivatives which do not
qualify for hedge accounting under IFRS.
The share of profit of associates and joint ventures from continuing operations
was EUR 15 (4) million.
Minority interests accounted for EUR 25 (20) million. The minority interests are
mainly attributable to Fortum Värme Holding, in which the City of Stockholm has
a 50% economic interest.
Taxes for the period totalled EUR 116 (111) million. The tax rate according to
the income statement was 30.3% (33.3%).
Total net profit for the period was EUR 349 (324) million. The net profit from
continuing operations was EUR 268 (222) million. Total Fortum earnings per share
were EUR 0.37 (0.36), and earnings per share from continuing operations were EUR
0.28 (0.24). Return on capital employed was 18.0% (18.6%) and return on
shareholders' equity was 19.2% (19.9%).
Market conditions
According to preliminary statistics, the Nordic countries consumed 115 (114) TWh
of electricity during the first quarter of the year, which was 1% more than
during the corresponding period of the previous year.
During the first quarter, the average spot price for power in Nord Pool, the
Nordic power exchange, was EUR 25.9 (28.6) per megawatt-hour, or 9% lower than
during the corresponding period in 2004.
In the first quarter of 2005, the average market price for emissions allowances
for 2005 was around EUR 9 per ton of CO2, ranging between EUR 7 and EUR 15 per
ton. The average market price for coal was around EUR 51 per ton,
ranging between EUR 49 and EUR 57 per ton. During first quarter of 2004,
the market price for coal varied between EUR 50 and EUR 57 per ton.
The year started out with mild and rainy weather and a surplus in the Nordic
water reservoirs. Continuously high hydro production combined with a cold and
dry period starting in mid-February brought the water reservoirs to a deficit
level. At the same time, the spot price rose and the power forward prices
started to increase. The increasing trend in the forward market was further
supported by higher prices for emissions allowances in March. In mid-April, the
Nordic water reservoirs were about 3 TWh below the average and 9 TWh above the
corresponding level in 2004.
Fortum's power generation in the Nordic countries during January-March was 14.3
(15.2) TWh, 12% (13%) of Nordic electricity consumption.
Fortum's total power and heat generation figures are presented below. In
addition, the segment reviews include the respective figures by segment.
Fortum's total power I/05 I/04 2004 LTM
and heat generation,
TWh
Power generation 14.7 15.4 55.5 54.8
Heat generation 9.7 9.3 25.4 25.8
Fortum's own power I/05 I/04 2004 LTM
generation by source,
TWh,
total in the Nordic
countries
Hydropower 5.6 4.7 19.1 20.0
Nuclear power 7.0 7.0 25.8 25.8
Thermal power 1.7 3.5 9.5 7.7
Total 14.3 15.2 54.4 53.5
Share of own I/05 I/04 2004 LTM
production, %,
total in the Nordic
countries
Hydropower 39 31 35 37
Nuclear power 49 46 47 48
Thermal power 12 23 18 15
Total 100 100 100 100
Total electricity and heat sales figures
Fortum's total electricity sales amounted to 16.6 (17.7) TWh. Sales volumes in
the Nordic countries were at 16.2 (17.3) TWh, representing approximately 14%
(15%) of Nordic electricity consumption during January-March. Heat sales in the
Nordic countries amounted to 7.5 (7.6) TWh and in other countries to 1.6 (1.2)
TWh.
The segments sell their electricity to Nord Pool or external customers and
purchase from Nord Pool or other external sources. In the table below, Fortum's
Nord Pool transactions are calculated as a net amount of hourly sales and
purchases at the Group level.
Fortum's total I/05 I/04 2004 LTM
electricity and heat
sales, EUR million
Electricity sales 546 564 2,017 1,999
Heat sales 314 284 809 839
Fortum's total I/05 I/04 2004 LTM
electricity sales by
area, TWh
Sweden 8.2 8.1 27.6 27.7
Finland 7.4 8.5 31.1 30.0
Other countries 1.0 1.1 3.6 3.5
Total 16.6 17.7 62.3 61.2
Fortum's total heat I/05 I/04 2004 LTM
sales by area, TWh
Sweden 3.9 4.0 9.6 9.5
Finland 3.6 3.5 10.5 10.6
Other countries 1.6 1.2 3.7 4.1
Total 9.1 8.7 23.8 24.2
SEGMENT REVIEWS
Power Generation
The business area comprises power generation and sales in the Nordic countries
and the provision of operation and maintenance services in the Nordic area and
selected international markets. The Power Generation segment sells its
production to Nord Pool. The segment includes business units Generation,
Portfolio Management and Trading (PMT), and Service.
EUR million I/05 I/04 2004 LTM
Net sales 534 560 2,084 2,058
- power sales 453 466 1,695 1,682
- other sales 81 94 389 376
Operating profit 222 222 763 763
- excluding non- 222 228 754 748
recurring items
Net assets (at end of 6,106 6,087 6,218
period)
Return on net assets, % 14.5 14.0 12.1 12.2
In January-March, the segment's power generation in the Nordic countries was
12.8 (13.3) TWh, of which about 5.6 (4.7) TWh or 44% (35%) was hydropower-based,
7.0 (7.0) TWh or 55% (53%) nuclear power-based and 0.2 (1.6) TWh or 1% (12%)
thermal power-based. The increase in hydro power generation was due to a
strengthened hydrological situation. The decrease in thermal power generation
was due to lower power prices and higher fuel and CO2 allowance prices.
Power generation by I/05 I/04 2004 LTM
area, TWh
Sweden 7.5 7.0 25.8 26.3
Finland 5.3 6.3 24.0 23.0
Other countries 0.3 0.3 1.1 1.1
Total 13.1 13.6 50.9 50.4
Nordic sales volume, 14.4 15.2 55.7 54.9
TWh
of which pass-through 1.4 1.5 4.7 4.6
sales
Sales price, EUR/MWh I/05 I/04 2004 LTM
Nordic Generation power 31.6 29.9 29.2 29.7
price*
*) For the Power Generation segment in the Nordic area, excluding pass-through
sales.
The average Nordic Generation power price (excluding pass-through items) was 6%
higher than a year ago due to successful hedging and power production portfolio
optimisation. The corresponding sales volume was 13.0 (13.7) TWh.
In February the shareholders of Lenenergo, Kolenergo and RAO UES agreed on the
formation of TGC-1, the regional power generation company of North-Western
Russia. This company will initially lease the generation assets of Lenenergo,
Karelenergo and Kolenergo and is preparing to start operating them as of 1 July
2005. Fortum will become a shareholder in the company.
In January, Fortum started the modernisation of automation systems at the
Loviisa nuclear power plant. The work will be carried out during normal outages.
All new automation systems related to the programme will be implemented by 2014.
Fortum service has been heavily involved in storm related maintenance work in
Sweden during the first quarter.
Heat
The business area comprises heat generation and sales in the Nordic countries
and other parts of the Baltic Rim. Fortum is the leading heat producer in the
region. The segment also generates power in the combined heat and power plants
(CHP) and sells it to end-customers mainly by long-term contracts, as well as to
Nord Pool. The segment includes business units Heat and Värme.
EUR million I/05 I/04 2004 LTM
Net sales 385 361 1,025 1,049
- heat sales 306 276 779 809
- power sales 55 63 159 151
- other sales 24 22 87 89
Operating profit 111 104 218 225
- excluding non- 111 104 214 221
recurring items
Net assets (at end of 2,457 2,373 2,440
period)
Return on net assets, % 19.1 18.3 9.8 10.1
The segment's heat sales during the first quarter amounted to 8.6 (8.2) TWh,
most of which was generated in the Nordic countries. In January-March, power
sales at combined heat and power plants (CHP) totalled 1.6 (1.8) TWh.
Last December, Fortum acquired an 85% share of a Polish district heating company
PESC Czestochowa, with annual sales of some 780 GWh. This had a minor, but
positive impact in the first-quarter operating profit.
Heat sales by area, TWh I/05 I/04 2004 LTM
Sweden 3.9 4.0 9.6 9.5
Finland 3.6 3.5 10.5 10.6
Other countries 1.1 0.7 1.7 2.1
Total 8.6 8.2 21.8 22.2
Power sales, TWh I/05 I/04 2004 LTM
Total 1.6 1.8 4.8 4.6
Distribution
Fortum owns and operates distribution and regional networks and distributes
electricity to a total of 1.4 million customers in Sweden, Finland, Norway
and Estonia.
EUR million I/05 I/04 2004 LTM
Net sales 202 206 707 703
- distribution network 173 176 593 590
transmission
- regional network 23 23 83 83
transmission
- other sales 6 7 31 30
Operating profit 71 83 234 222
- excluding non- 71 83 232 220
recurring items
Net assets (at end of 3,113 3,095 3,091
period)
Return on net assets, % 10.1 11.3 8.1 7.7
During the first quarter, the volume of distribution and regional transmissions
totalled 7.2 (7.2) TWh and 5.1 (5.2) TWh, respectively.
Electricity transmissions via the regional distribution network to customers
outside the Group totalled 4.2 (4.3) TWh in Sweden and 0.9 (0.9) TWh in Finland.
In January, storms caused major power outages on the west coast of Sweden and
Norway, leaving approximately 80,000 Fortum customers in Sweden and 12,800 in
Norway without electricity. Customers who suffered from long distribution
interruptions will be compensated and the total cost, including fault
restoration and temporary solutions, was approximately EUR 11 million and booked
in the first-quarter results. The government of Sweden addressed the question of
reliability to the Energy Market Inspection, which has proposed actions on how
to improve the future reliability of electricity distribution.
In Sweden, the dialogue continues with the Energy Market Authority about
supervision of the year 2003 distribution tariffs in selected distribution
areas. Further details are expected to be published later this year.
Volume of distributed I/05 I/04 2004 LTM
electricity in
distribution network,
TWh
Sweden 4.4 4.4 14.2 14.2
Finland 2.0 2.0 6.2 6.2
Norway 0.7 0.7 2.1 2.1
Estonia 0.1 0.1 0.2 0.2
Total 7.2 7.2 22.7 22.7
Number of electricity 31.3.2005 31.3.2004 2004
distribution customers by
area, 000s
Sweden 860 860 860
Finland 405 400 405
Other countries 115 115 115
Total 1,380 1,375 1,380
Markets
Markets is responsible for retail sales of electricity to a total of 1.1 million
private and business customers as well as to other electricity retailers in
Sweden, Finland and Norway. Markets buys its electricity through Nord Pool.
EUR million I/05 I/04 2004 LTM
Net sales 392 419 1,387 1,360
Operating profit 6 16 34 24
- excluding nonrecurring 6 16 34 24
items
Net assets (at end of 222 153 194
period)
Return on net assets, % 11.5 77.6 25.3 13.6
During the first quarter, Markets' electricity sales totalled 11.8 (12.8) TWh.
The decrease was due to the termination of some large contracts.
Retail electricity prices on the Nordic market during the first quarter were
lower than during the corresponding period the previous year. Fortum lowered the
retail prices of current priced contracts in February. Prices for new fixed term
contracts followed the price development of Nord Pool's financial market.
Development of the customer interface and the improvement of customer
satisfaction are starting to generate positive results and lead to a positive
inflow of customers during the last quarter. Some examples of these activities
are the new products for both private and business customers and enhanced
Internet services. The customer ombudsman function is now operational in
Finland, Sweden and Norway.
Improvements in customer service and the new customer guarantees have resulted
in increased costs compared to the corresponding period of the previous year.
Capital expenditure and investments in shares
Investments in capital expenditure and investments in shares for continuing
operations in January-March totalled EUR 49 (57) million. There were no
investments in shares in the first quarter of 2005.
Financing
First quarter 2005 net debt decreased with EUR 150 million by the de-
consolidation of Neste Oil and stood at EUR 4,878 million (EUR 5,095 million at
year-end). The balance sheet includes an interest-bearing receivable against
Neste Oil of EUR 804 million which has been repaid on 12 April. In the second
quarter net debt will also be effected by received net proceeds (estimated to
EUR 553 million) from the sale of 15% shareholding in Neste Oil and the paid out
cash dividend (EUR 506 million). Adjusting for these effects, Fortum's pro forma
net debt would have been EUR 4,027 million at the end of the quarter.
The net cash from operating activities decreased to EUR 62 (357) million for the
continuing activities. The reasons for the low cash flow were relatively high
paid taxes, a EUR 20 million realised foreign exchange loss and a significant
increase in working capital. This was mainly attributable to the change in
invoicing practices. Fortum changed from pre-debiting to post-debiting of its
retail customers during the winter.
The Group's net financial expenses were EUR 35 (78) million. The main reasons
for the decrease were lower interest rate and lower level of net debt and a
positive approximately EUR 10 million change in the fair value of certain SEK
derivatives which do not qualify for hedge accounting under IFRS.
Fortum's long-term credit rating from Moody's is Baa1 (stable). Fortum's long-
term credit rating from Standard & Poor's is BBB+ (stable). Both ratings were
unchanged in the first quarter of 2005.
Separation of oil businesses
The separation of Fortum Oil, renamed Neste Oil Corporation in February, was
executed successfully. The final decision to separate the oil company by
distributing 85% of Neste Oil shares as dividends to shareholders was taken by
the Annual General Meeting on 31 March. The remaining 15% of shares, a total of
38,440,137 shares, were sold to institutional and individual investors in April.
Both the institutional offering and the retail offering were priced at EUR 15
per share.
The impact of the sale of Neste Oil shares on the income statement and net debt
will be recorded in the second quarter. The gross proceeds from the sale of the
shares were EUR 577 million and the tax-free capital gain is estimated to amount
to EUR 389 million after fees and expenses. In the first quarter, the capital
gain is included in equity as a fair value adjustment and will in the second
quarter be booked in discontinuing operations in the income statement. Fortum's
equity has in the first quarter been effected also by the share dividend
distribution through de-consolidation of Neste Oil. Transfer taxes related to
the share dividend distribution, EUR 21 million, were recorded in discontinuing
operations in the first quarter.
The listing of Neste Oil Corporation shares commenced on the Helsinki Stock
Exchange Prelist on 18 April and on the Main List on 21 April.
Group management
After the separation of oil businesses, responsibilities within the Group
management were adjusted. The members in the Fortum Management Team, formerly
Corporate Executive Committee, as of 1 April are:
Mikael Lilius - President and CEO
Mikael Frisk - SVP, Human Resources
Timo Karttinen - SVP, Corporate Development, Heat
Tapio Kuula - SVP, Generation, PMT, Värme, Service
Juha Laaksonen - CFO
Christian Lundberg - SVP, Markets, Distribution
Carola Teir-Lehtinen - SVP, Corporate Communications
Shares and share capital
During the first quarter, a total of 186.3 million Fortum Corporation shares
totalling EUR 2,714 million were traded. Fortum's market capitalisation,
calculated using the closing quotation of the last trading day of the quarter,
was EUR 13,095 million. The highest quotation of Fortum Corporation shares on
the Helsinki Stock Exchange in the first quarter was EUR 16.05, the lowest EUR
12.70, and the average quotation EUR 14.57. The closing quotation on the last
trading day of the quarter was EUR 15.02.
A total of 4,770,293 shares subscribed for based on the share option schemes
were entered into the trade register in the first quarter of 2005. After these
subscriptions, Fortum's share capital is EUR 2,964,304,273 and the total number
of registered shares is 871,854,198.
At the end of the quarter, the Finnish state's holding in Fortum was 58.9%. The
proportion of international shareholders stood at 25.7%.
Currently the Board of Directors has no unused authorisations from the General
Meeting of Shareholders to issue convertible loans or bonds with warrants, issue
new shares or acquire the company's own shares.
Annual General Meeting
At the Annual General Meeting held on 31 March 2005, a cash dividend of EUR 0.58
(0.42) per share was approved.
In addition the Annual General Meeting resolved to distribute as a dividend a
total of 217,963,549 Neste Oil Corporation shares so that each shareholder of
Fortum Corporation receives as a dividend one (1) Neste Oil Corporation share
for each four (4) Fortum Corporation shares, which have a par value of EUR 3.40.
The number of members of Fortum's Supervisory Board was confirmed to be 12. The
following persons were re-elected to the Supervisory Board: Members of
Parliament Lasse Hautala, Rakel Hiltunen, Mikko Immonen, Timo Kalli, Kimmo
Kiljunen, Jari Koskinen, Ben Zyskowicz, Industrial Counsellor Kimmo Kalela, and
Director General Jorma Huuhtanen. Members of Parliament Jouni Backman and Oras
Tynkkynen as well as the second vice chairman of the City Council Martti
Alakoski were elected as new members. Timo Kalli was elected as Chairman and
Jouni Backman as Deputy Chairman of the Supervisory Board. The Supervisory Board
was elected until the end of the following Annual General Meeting.
The number of members in the Board of Directors was confirmed to be seven. The
following persons were re-elected to the Board of Directors: Peter Fagernäs
(Chairman), Birgitta Kantola (Deputy Chairman), Birgitta Johansson-Hedberg,
Lasse Kurkilahti and Erkki Virtanen. Matti Lehti and Marianne Lie were elected
as new members. The Board of Directors was elected until the end of the
following Annual General Meeting.
Authorised Public Accountant PricewaterhouseCoopers Oy was re-elected as
auditor.
Group personnel
The average number of employees in the Group during the period from January to
March was 13,135 (13,023). The number of employees at the end of the period was
8,731 (13,029). The decrease is due to the separation of Neste Oil.
Events after the period under review
Kotkan Energia and Nordic Environment Finance Corporation sold their 60 percent
and 20 percent ownerships of the company UAB Suomijos Energija to Fortum. After
these transactions Fortum will own 90 % of the shares in the company. The
acquisition supports the growth targets of Fortum's heat business in Lithuania.
The new name of the company will be UAB Fortum Heat Lietuva.
Fortum decided to extend the period of validity regarding its offer to buy the
shares of E.ON Finland Oyj owned by the City of Espoo to 30 June 2005.
Outlook
The key market driver influencing Fortum's business performance is the market
price of power. Starting in 2005, emission trading has become an important new
factor affecting the market price of power.
According to general market information, electricity consumption in the Nordic
countries is predicted to increase by about 1% a year over the next few years.
During the first quarter, the average spot price for power was EUR 25.9 (28.6)
per megawatt-hour on the Nordic power exchange, or 9% lower than the corresponding
figure in 2004.
In mid-April, the Nordic water reservoirs were about 3 TWh below the average and
9 TWh above the corresponding level for 2004. At the end of April, the market
price for emissions allowances for 2005 was around EUR 16 -18 per tonne of CO2
and the market price for coal for the rest of 2005 was around EUR 54 per tonne.
At the same time, the power price in the forward market for the rest of 2005 was
in the range of EUR 32 - 33 per MWh.
At the beginning of April, Fortum had hedged approximately 60% of its Nordic
Power Generation sales volume for the next 12 months at approximately the same
level as the achieved Nordic Generation power price during the last 12 months.
The Oil separation has been completed successfully. Fortum's Nordic strategy
remains unchanged and the company's financial position is strong. The
prerequisites for future good performance are in place.
Espoo, 3 May 2005
Fortum Corporation
Board of Directors
The figures have not been audited.
Fortum's financial reporting in 2005:
Interim Reports
- January-June on 19 July 2005
- January-September on 20 October 2005
Further information:
Mikael Lilius, President and CEO, tel. +358 10 452 9100
Juha Laaksonen, CFO, tel. +358 10 452 4519
FORTUM GROUP
JANUARY-MARCH 2005
Interim financial statements are unaudited
CONDENSED CONSOLIDATED INCOME STATEMENT
MEUR Q1 Q1 2004 Last
2005 2004 twelve
months
Continuing operations:
Sales 1133 1129 3835 3839
Other income 38 32 91 97
Materials and services -438 -446 -1507 -1499
Employee benefit costs -129 -115 -462 -476
Depreciation, amortisation and -103 -93 -388 -398
impairment charges
Other expenses -97 -100 -374 -371
Operating 404 407 1195 1192
profit
Share of profit of associates 15 4 12 23
and joint ventures
Finance costs-net -35 -78 -245 -202
Profit before income tax 384 333 962 1013
Income tax expense -116 -111 -259 -264
Profit for the period from 268 222 703 749
continuing operations
Discontinued
operations:
Profit for the period from 81 102 589 568
discontinued operations
Profit for the period 349 324 1292 1317
Attributable to:
Equity holders of the company 324 304 1259 1279
Minority interest 25 20 33 38
349 324 1292 1317
Earnings per share for profit from total Fortum Group
attributable to the equity holders of the company during
the year (in per share)
Basic 0,37 0,36 1,48 1,49
Diluted 0,36 0,35 1,46 1,47
Earnings per share for profit from continuing operations
attributable to the equity holders of the company during
the year (in per share)
Basic 0,28 0,24 0,79 0,83
Diluted 0,27 0,23 0,78 0,82
Earnings per share for profit from discontinued
operations attributable to the equity holders of the
company during the year (in per share)
Basic 0,09 0,12 0,69 0,66
Diluted 0,09 0,12 0,68 0,65
CONDENSED CONSOLIDATED BALANCE SHEET
MEUR March 31 March 31 Dec 31
2005 2004 2004
ASSETS
Non-current assets
Intangible assets 185 160 116
Property, plant and equipment 10241 11583 11925
Other long-term investments 2122 2119 2355
Other long-term receivables 73 100 90
Long-term interest bearing 649 711 727
receivables
Total non-current assets 13270 14673 15213
Current assets
Inventories 231 578 654
Trade and other receivables 1129 1527 1555
Interest-bearing receivable 804 - -
Available for sale financial assets 553 - -
Cash and cash equivalents 158 193 145
Total current assets 2875 2298 2354
Total assets 16145 16971 17567
EQUITY
Capital and reserves attributable the
Company's equity holders
Share capital 2964 2889 2948
Other equity 3736 3412 4552
Total 6700 6301 7500
Minority interest 171 136 150
Total equity 6871 6437 7650
LIABILITIES
Non-current liabilities
Interest-bearing liabilities 4063 4468 4450
Deferred tax liabilities 1645 1796 1841
Provisions 577 566 608
Other liabilities 503 535 507
Total non-current liabilities 6788 7365 7406
Current liabilities
Interest-bearing liabilities 973 1251 790
Trade and other payables 1) 1513 1918 1721
Total current liabilities 2486 3169 2511
Total liabilities 9274 10534 9917
Total equity and liabilities 16145 16971 17567
1) Dividends to Fortum shareholders EUR 506 million (EUR 357
million in 2004) are booked as a liability at the end of the first
quarter. The cash-flow impact is shown in the second quarter.
CHANGE IN TOTAL EQUITY
MEUR Share Share Share Other Fair Retained Minority Total
capital issue premium restrict value earnings
ed funds and
other
reserves
Total equity 2948 13 62 134 4343 150 7650
at 31.12.2004
Stock options 16 -13 7 10
excercised
Translation and other -2 -11 1 -12
differences
Cash dividend -506 -506
Share dividend 2) -927 -6 -933
Cash flow and fair value -119 28 1 -90
hedges
Other fair value 410 -7 403
adjustments
Net profit for the period 324 25 349
Total equity 2964 0 69 -2 425 3244 171 6871
at 31.3.2005
Total equity 2886 5 36 0 63 3399 120 6509
at 31.12.2003
Stock options 3 -5 2 0
excercised
Translation and other 14 -4 10
differences
Cash dividend -357 -357
Cash flow and fair value -54 2 -52
hedges
Other fair value 3 3
adjustments
Net profit for the period 304 20 324
Total equity 2889 0 38 0 12 3362 136 6437
at 31.3.2004
2) The effect from the share dividend on Fortum Group equity is EUR 927
million. In the parent company the effect on retained earnings is EUR 969
million.
CONSOLIDATED CASH FLOW STATEMENT
MEUR
March 31 March 31 Dec 31
2005 2004 2004
Cash flow from operating activities
Operating profit before depreciations 521 504 1595
continuing operations
Non-cash flow items and divesting activities -30 -1 -49
Financial items and realised foreign -84 5 -181
exchange gains and losses
Taxes -121 -33 -160
Funds form operations continuing operations 286 475 1205
Change in working capital -224 -118 27
Net cash from operating activities 62 357 1232
continuing operations
Net cash from operating activities 152 96 526
discontinued operations
Total net cash from operating activities 214 453 1758
Cash flow from investing activities
Capital expenditures -49 -57 -335
Acquisition of shares -179
Proceeds from sales of fixed assets 6 6 60
Proceeds from sales of shares 2 1 15
Change in other investments -4 -45 -20
Net cash used in investing activities -45 -95 -459
continuing operations
Net cash used in investing activities -137 -47 -277
discontinued operations
Total net cash used in investing activities -182 -142 -736
Cash flow from financing activities
Net change in loans -15 -508 -811
Dividends paid to the Company´s equity holders -357
Other financing items 10 -2 94
Net cash used in financing activities -5 -510 -1074
continuing operations
Net cash used in financing activities 49 -41 -236
discontinued operations 3)
Total net cash used in financing activities 44 -551 -1310
Total net increase (+)/decrease (-) in cash
and marketable securities 76 -240 -288
De-consolidation of Neste Oil -63
Total net increase (+)/decrease (-) in cash
and marketable securities, continuing 13
operations
3) The cash flow from financing activities discontinued operations is shown as
used to repay loans since the Treasury operations have been centralised for
the total Fortum Group. In first quarter 2005 the effect on cash from de-
consolidation of Neste Oil is netted in financing activities.
KEY RATIOS 4)
MEUR March March June 30 Sept 30 Dec 31 Last
31 31 2004 2004 2004 twelve
2005 2004 months
Earnings per share total 0,37 0,36 0,8 1,09 1,48 1,49
Fortum (basic), EUR
Earnings per share 0,28 0,24 0,45 0,58 0,79
continuing operations
(basic), EUR
Capital employed, MEUR 5) 11907 12156 12447 12762 12890
Interest-bearing net 4878 5526 5512 5445 5095
debt, MEUR
Capital expenditure and 49 57 158 306 514 506
investments in shares
continuing operations, MEUR
Capital expenditure 49 57 128 201 335 327
continuing operations, MEUR
Return on capital 18,0 18,6 17,0 15,0 15,8 16,8
employed, %
Return on shareholders' 19,2 19,9 20,9 18,4 18,2 19,8
equity, %
Interest coverage 11,5 7,1 8,3 7,8 8,0 9,2
Funds from 39,3 44,4 38,2 33,1 36,4 35,3
operations/interest-
bearing net debt, %
Gearing, % 71 86 82 77 67
Equity per share, EUR 7,69 7,41 7,77 8,19 8,62
Equity-to-assets ratio, % 43 38 40 41 44
Average number of 13135 13023 13097 13112 12859
employees
Average number of 871710 849698 849698 849823 852625
shares, 1 000 shares
Diluted adjusted average 883774 867344 867907 870806 861772
number of shares, 1 000
shares
Number of shares, 1 000 871854 849813 849813 850262 869749 856404
shares
4) Key ratios are based on Fortum total numbers including continuing and
discontinued operations if otherwise not stated
5) Capital employed at March 31 2005 does not represent continuing
operations since 15% of the shares in Neste Oil and the interest-bearing
receivable from Neste Oil are included
CHANGES IN INTANGIBLE ASSETS AND PROPERTY, PLANT AND EQUIPMENT
MEUR March 31 March 31 Dec 31
2005 2004 2004
Opening balance 12041 11923 11923
Acquistion of subsidiary companies -2 31
Capital expenditures 148 107 648
Emission rights 144
Disposals -2 -14 -152
Depreciation, amortisation and impairment -139 -125 -527
Translation differences -111 -148 118
Closing balance before de-consolidation 12079 11743 12041
of Nest Oil
De-consolidation of Neste Oil -1653
Closing balance 10426 11743 12041
SALES BY SEGMENTS
MEUR Q1 Q1 2004 Last twelve
2005 2004 months
Power Generation 534 560 2084 2058
- of which internal 55 36 128 147
Heat 385 361 1025 1049
- of which internal 12 36 49 25
Distribution 202 206 707 703
- of which internal 2 3 10 9
Markets 392 419 1387 1360
- of which internal 25 25 92 92
Other 23 20 90 93
- of which internal 22 19 93 96
Eliminations 6) -403 -437 -1458 -1424
Sales from continuing operations 1133 1129 3835 3839
Sales from discontinued 2061 1710 7909 8260
operations
Eliminations -20 -21 -85 -84
Total 3174 2818 11659 12015
6) Eliminations include sales and purchases with Nordpool that is netted on
Group level on an hourly basis and posted either as revenue or cost
depending on if Fortum is a net seller or net buyer during any particular hour
OPERATING PROFIT BY SEGMENTS
MEUR Q1 Q1 2004 Last twelve
2005 2004 months
Power Generation 222 222 763 763
Heat 111 104 218 225
Distribution 71 83 234 222
Markets 6 16 34 24
Other -6 -18 -54 -42
Operating profit from 404 407 1195 1192
continuing operations
Operating profit from 124 150 721 695
discontinued operations
Total 528 557 1916 1887
NON-RECURRING ITEMS IN OPERATING PROFIT BY SEGMENTS
MEUR Q1 Q1 2004 Last twelve
2005 2004 months
Power Generation 0 -6 9 15
Heat 0 0 4 4
Distribution 0 0 2 2
Markets 0 0 0 0
Other 6 0 3 9
Non-recurring items from 6 -6 18 30
continuing operations
Non-recurring items from 59 9 97 147
discontinued operations
Total 65 3 115 177
Includes positive one-time effects of change in treatment of Finnish TEL
disability pension liability in Q4 2004.
DEPRECIATION, AMORTISATION AND IMPAIRMENT CHARGES BY SEGMENTS
MEUR Q1 Q1 2004 Last twelve
2005 2004 months
Power Generation 28 28 104 105
Heat 31 28 124 127
Distribution 37 33 133 137
Markets 4 4 16 16
Other 3 0 11 14
Depr., amort. and imp. 103 93 388 398
charges from continuing operations
Depr., amort. and imp. 36 32 139 143
charges from discontinued operations
Total 139 125 527 541
SHARE OF PROFITS IN ASSOCIATES AND JOINT VENTURES BY SEGMENTS
MEUR Q1 Q1 2004 Last twelve
2005 2004 months
Power Generation 7) 2 -5 -18 -11
Heat 6 5 15 16
Distribution 7 5 16 18
Markets 0 0 0 0
Other 0 -1 -1 0
Share of profits in ass. 15 4 12 23
from continuing operations
Share of profits in ass. -2 3 36 31
from discontinued operations
Total 13 7 48 54
7) The main part of the associated companies in Power Generation are power
production companies from which Fortum purchase produced electricity at
cost. The share of profit according to IFRS also includes depreciations on
fair value adjustments made when acquiring the shareholdings (in FAS
included in Other expenses)
INVESTMENTS IN ASSOCIATES AND JOINT VENTURES BY SEGMENTS
MEUR March
31 March 31 Dec 31
2005 2004 2004
Power Generation 1204 1084 1208
Heat 140 92 127
Distribution 200 189 196
Markets 8 10 8
Other 0 0 0
Investments in associated from continuing 1552 1375 1539
operations
Investments in associates from discontinued - 114 140
operations
Total 1552 1489 1679
CAPITAL EXPENDITURE AND INVESTMENTS IN SHARES BY SEGMENTS
MEUR Q1 Q1 2004
2005 2004
Power Generation 18 14 210
Heat 12 23 175
Distribution 15 14 106
Markets 1 2 6
Other 3 4 17
Capital expenditure and investments in 49 57 514
shares from continuing operations
Capital expenditure and investments in 99 50 316
shares from discontinuing operations
Total 148 107 830
NET ASSETS BY SEGMENTS
MEUR March 31 March 31 Dec 31
2005 2004 2004
Power Generation 6106 6087 6218
Heat 2457 2373 2440
Distribution 3113 3095 3091
Markets 222 153 194
Other and Eliminations 163 128 -43
Net assets from continuing operations 12061 11836 11900
Net assets from discontinued operations - 1808 2011
Eliminations - 14 2
Total 12061 13658 13913
RETURN ON NET ASSETS BY SEGMENTS
% March March March March Dec Dec Last Last
31 31 31 31 31 31 twelve twelve
2005 2005*) 2004 2004*) 2004 2004*) months months*)
Power 14,5 14,5 14,0 14,4 12,1 11,9 12,2 12,0
Generation
Heat 19,1 19,1 18,3 18,3 9,8 9,6 10,1 9,9
Distribution 10,1 10,1 11,3 11,3 8,1 8,0 7,7 7,7
Markets 11,5 11,5 77,6 77,6 25,3 25,3 13,6 13,6
Return on net assets is calculated by dividing the sum of operating profit
and share of profit of associated companies and joint venturers with average
net assets.
*) Non-recurring items deducted from operating profit
ASSETS BY SEGMENTS
MEUR March March Dec
31 31 31
2005 2004 2004
Power Generation 7015 6960 7108
Heat 2798 2644 2742
Distribution 3537 3494 3514
Markets 476 500 375
Other and Eliminations -42 -221 -156
Assets from continuing operations 13784 13377 13583
Assets from discontinuing operations - 2495 2756
Eliminations - -24 -32
Assets included in Net assets 13784 15848 16307
Interest-bearing receivables 1453 711 728
Deferred taxes 61 21 106
Other assets 136 198 281
Available for sale financial assets 553
Cash and cash equivalents 158 193 145
Total assets 16145 16971 17567
LIABILITIES BY SEGMENTS
MEUR March March Dec
31 31 31
2005 2004 2004
Power Generation 909 873 890
Heat 341 271 302
Distribution 424 399 423
Markets 254 347 181
Other and Eliminations -205 -349 -113
Liabilities from continuing operations 1723 1541 1683
Liabilities from discontinuing operations - 687 745
Eliminations - -38 -34
Liabilities included in Net assets 1723 2190 2394
Deferred tax liabilities 1645 1796 1841
Other 8) 870 829 442
Total liabilities included in capital employed 4238 4815 4677
Interest-bearing liabilities 5036 5719 5240
Total equity 6871 6437 7650
Total equity and liabilities 16145 16971 17567
8) Cash dividends to Fortum shareholders, EUR 506 million in 2005 (EUR 357
million in 2004), are booked as a liability at the end of the first quarter.
The cash-flow impact is shown in the second quarter.
QUARTERLY SALES BY SEGMENTS
MEUR Q1 Q4 Q3 Q2 Q1
2005 2004 2004 2004 2004
Power Generation 534 583 453 488 560
- of which internal 55 55 11 26 36
Heat 385 316 149 198 361
- of which internal 12 9 1 3 36
Distribution 202 194 150 157 206
- of which internal 2 3 3 1 3
Markets 392 378 287 303 419
- of which internal 25 28 17 22 25
Other 23 23 22 25 20
- of which internal 22 11 7 9 10
Eliminations -403 -410 -296 -314 -437
Sales from continuing operations 1133 1084 765 857 1129
Sales from discontinued 2061 2108 2091 2000 1710
operations
Eliminations -20 -17 -20 -27 -21
Total 3174 3175 2836 2830 2818
QUARTERLY OPERATING PROFIT BY SEGMENTS
MEUR Q1 Q4 Q3 Q2 Q1
2005 2004 2004 2004 2004
Power Generation 222 241 128 172 222
Heat 111 75 12 27 104
Distribution 71 51 45 55 83
Markets 6 0 13 5 16
Other -6 -4 -21 -11 -18
Operating profit from continuing 404 363 177 248 407
operations
Operating profit from 124 183 165 223 150
discontinued operations
Total 528 546 342 471 557
FAS operating profit is not comparable with previously reported. Share of
profit in associated companies and joint ventures is according to IFRS
recorded
after operating profit.
DISCONTINUED OPERATIONS (including eliminations between Fortum and
discontinued operations)
MEUR Q1 Q1 2004
2005 2004
Sales 2061 1710 7909
Other income 12 12 66
Materials and services -1736 -1444 -6439
Employee benefit costs -57 -52 -211
Depreciation, amortisation and impairment -36 -32 -139
charges
Other expenses -120 -44 -465
Operating profit 124 150 721
Share of profit of associates and joint -2 3 36
ventures
Finance costs-net -6 -20 -19
Profit before income tax 116 133 738
Income tax expense -35 -31 -149
Profit for the year from discontinued 81 102 589
operations
CONTINGENT LIABILITIES
MEUR March 31 March 31 Dec 31
2005 2004 2004
Contingent liabilities
On own behalf
For debt
Pledges 156 161 160
Real estate 71 91 113
mortgages
For other commitments
Real estate 70 55 59
mortgages
Sale and leaseback - 8 -
Other contingent liabilities 72 101 76
Total 369 416 408
On behalf of associated companies
and joint ventures
Pledges and real estate mortgages 3 12 12
Guarantees 247 478 335
Other contingent liabilities 182 182 182
Total 432 672 529
On behalf of others
Guarantees 3 16 3
Other contingent liabilities 2 6 5
Total 5 22 8
Total 806 1110 945
Operating lease liabilities
Due within a year 15 73 87
Due after one year and within five years 39 76 81
Due after five years 10 65 64
Total 64 214 232
NUCLEAR
MEUR March 31 March 31 Dec 31
2005 2004 2004
Liability for nuclear waste disposal according
to the Nuclear Energy Act in Finland
Liability 1) 596 570 596
Share of reserves in the Nuclear Waste -596 -570 -581
Disposal Fund 2)
Liabilities in the balance sheet 3) 0 0 15
1) Discounted liability in the balance sheet is EUR 404 (366) million as of 31
March 2005 (and 2004 respectively).
2) Value of the Fund Asset in the balance sheet is EUR 404 (366) million as of
31 March 2005 (and 2004 respectively) due to IFRIC Interpretation 5, which
states that it can not exceed the value of the related liabilities
3) Mortgaged bearer papers as security.
In addition to other contingent liabilities, a guarantee has been given on
behalf of Gasum Oy, which covers 75% of the natural gas commitments arising
form the natural gas supply agreement between Gasum and OOO Gazexport.
DERIVATIVES
MEUR March 31 March 31 Dec 31
2005 2004 2004
Interest and currency Notional Net Notional Net Notional Net
derivatives value fair value fair value fair
value value value
Forward interest rate - - 330 - - -
agreements
Interest rate swaps 3359 -41 4178 -104 1218 -28
Forward foreign exchange 8338 44 8076 86 8176 -32
contracts4)
Interest rate and currency 317 -15 339 8 310 -7
swaps
Purchased currency options 727 -7 425 -5 438 17
Written currency options 357 5 425 -4 438 6
4) Include also contracts for equity hedging
Electricity derivatives Volume Net Volume Net Volume Net
fair fair fair
value value value
TWh MEUR TWh MEUR TWh MEUR
Sales contracts 74 -125 66 -198 70 204
Purchase contracts 46 162 42 194 42 -53
Purchased options 1 -1 - - 1 -1
Written options 7 -3 - - 1 -
Oil derivatives Volume Net Volume Net Volume Net
fair fair fair
value value value
1000 MEUR 1000 MEUR 1000 MEUR
bbl bbl bbl
Sales contracts 50 -1 30596 1 44588 26
Purchase contracts 770 11 33712 9 70258 7
Purchased options - - 3650 - 4797 2
Written options - - 2598 - 6784 -2
Accounting principles
This interim report has been prepared in accordance with IAS 34, Interim
Financial Reporting. As of 2005 Fortum is applying
International Financial reporting Standards (IFRS).
The most important changes for Fortum continuing operations are:
- Derivatives are being carried at fair value in the balance sheet. Fair
value changes effects the income statement if hedge accounting is not applied.
(IAS 39)
- Fortum´s part of the Finnish nuclear waste fund and the future liabilities
for spent fuel and decomissioning regarding nuclear production are disclosed
gross in the balance sheet according to IFRIC Interpretation 5.
- The minority preference shares with option agreement in Nybroviken Kraft
AB Group accounted for as minority interest under Finnish GAAP is reclassified
as interest-bearing liabilities under IFRS.
- The accounting of pension liabilities according to IAS 19 creates a change
to Finnish GAAP, but impacts mainly 2004 since the accounting treatment of the
Finnish TEL´s disability pension component changed during the year.
- The oil operations in Fortum are regarded as discontinued operations as of
March 31, 2005. Discontinued operations are disclosed on one line in the income
statement and shown separately in the cash-flow. 2004 comparison financials are
restated.
Fortum has in a press release on April 26, 2005, described the impact of the
trabnsition to IFRS on 2004 financial information. The document also included
restated quarterly information and reconciliations of equity and net profit
between Finnish GAAP and IFRS. The detailed accounting principles used can be
found on the Fortum website: www.fortum.com/Investors/Financial Information
Emission rights
As of January 1, 2005 Fortum is applying IFRIC Interpreatation 3 in accounting
for emission rights. The emission rights scheme gives rise to an asset for
emission rights held, a government grant and a liability for the obligation
to deliver emission rights equal to actual emissions as well as recordings of
applicable deferred taxes. Emission rights received are accounted as government
grants in accordance with IAS 20 (Accounting for Government Grants and
Disclosure of Government Assistance) i.e. is recognized as deferred income at
current market value of the allowance at receipt and amortized in proportion
to actual and estimated emissions during the year. Emission rights are
recognized in the balance sheet as intangible assets according to IAS 38
(Intangible assets) and valued at fair value. Reductions in fair value are
charged to income statement and increases to equity. Liability for the
obligation to deliver emission rights is accounted for in accordance with
IAS 37 (Provisions, Contingent Liabilities and Contingent Assets).
The liability is recognized based on actual emissions and at current market
value of the emission rights. Changes in the liability are charged to income.
Definitions of key figures in IFRS reporting
Return on = 100 x Profit for the period
shareholders'
equity, %
Total equity
average
Return on capital = 100 x Profit before taxes + interest and other
employed, % financial expenses
Capital employed average
Return on net = 100 x Operating profit + share of profit (loss) in
assets, % associated companies and joint ventures
Net assets average
Capital employed = Total assets - non-interest bearing liabilities
- deferred tax liabilities - provisions
Net assets = Non-interest bearing assets + interest-bearing
assets related to the Nuclear Waste Fund
- non-interest bearing liabilities -
provisions
(excluding finance related items, tax and
deferred tax and assets and liabilities from
fair
valuations of derivatives where hedge
accounting is applied)
Interest-bearing = Interest-bearing liabilities - cash and cash
net debt equivalents
Gearing, % = 100 x Interest-bearing net debt
Total equity
Equity per share, = Shareholder´s
EUR equity
Number of shares at the close of the
period
Equity-to-assets = 100 x Total equity including minority interest
ratio, %
Total assets
Interest coverage = Operating profit
Net interest expenses
Earnings per share = Profit for the period
(EPS)
Adjusted average number of shares during the
period
