Fortum Half-year 2023 Financial Report: Good performance in Nordic power generation supported the second quarter - building new Fortum is on the way

FORTUM CORPORATION HALF-YEAR 2023 FINANCIAL REPORT 4 AUGUST 2023 AT 9:00 EEST

This release is a summary of Fortum’s January–June 2023 Half-year Financial Report. The complete report is attached to this release as a PDF file. It is also available on the company's website at www.fortum.com/investors

April−June 2023, continuing operations

• Comparable EBITDA was EUR 344 (362) million.
• Comparable operating profit was EUR 262 (262) million.
• Operating profit was EUR 267 (760) million. In the comparison period, items affecting comparability included tax-exempt capital gains of EUR 638 million.
• Comparable earnings per share were EUR 0.16 (0.22). Comparable EPS were impacted by lower profits of associates, mainly caused by the effects of Swedish nuclear waste-related provisions in co-owned nuclear companies.
• Earnings per share were EUR 0.42 (0.73).
• Cash flow from operating activities totalled EUR 657 (449) million.
• In April, the Russian authorities seized control of Fortum’s assets in Russia, Fortum lost control and deconsolidated and reported these operations as discontinued operations.
• Fortum fully wrote down its Russian assets and recorded impairments of EUR 1.7 billion (equity impact) and deconsolidation-related negative cumulative foreign exchange translation differences of EUR 1.9 billion (no equity impact).
• On 17 May, Fortum successfully issued five- and ten-year bonds with a total nominal amount of EUR 1.15 billion.
• On 7 June, Fortum agreed to acquire the entire shareholding in the Swedish electricity solutions provider Telge Energi AB on a cash and debt-free basis for approximately SEK 450 million (EUR 39 million).
• On 21 June, Fortum announced it will invest approximately EUR 225 million in waste heat projects in Espoo and Kirkkonummi in Finland. 

January−June 2023, continuing operations

• Comparable EBITDA was EUR 1,125 (797) million.
• Comparable operating profit was EUR 960 (588) million.
• Operating profit was EUR 1,036 (1,240) million, mainly impacted by fair value changes in non-hedge-accounted derivatives. In the comparison period, items affecting comparability included tax-exempt capital gains of EUR 638 million.
• Comparable earnings per share were EUR 0.70 (0.48).
• Earnings per share were EUR 1.02 (1.04).
• Cash flow from operating activities totalled EUR 1,132 (901) million.
• Financial net debt was EUR 0.7 billion and the financial net debt-to-comparable EBITDA ratio was at 0.3 times for the last twelve months.
• In March, the Group’s new strategy and new financial and environmental targets were published. A renewed Group operating model, business structure and a revised Fortum Leadership Team became effective at the end of March.

Summary of outlook

• The Generation segment’s Nordic outright generation hedges: approximately 70% hedged at EUR 49 per MWh for the remainder of 2023, and approximately 50% at EUR 46 per MWh for 2024.
• Capital expenditure, including maintenance but excluding acquisitions, is expected to be approximately EUR 700 million in 2023.

Key figures, continuing operations

Key figures, total of continuing and discontinued operations

Fortum’s condensed consolidated income statement and consolidated cash flow statement include the Russia segment as discontinued operations in the first quarter of 2023 and in 2022, and the Uniper segment as discontinued operations in 2022. Comparative information for the first quarter of 2023 and all quarters of 2022 has been restated following the classification of the Russia segment as discontinued operations in the second quarter of 2023. See further details in Note 1.

Fortum’s President and CEO Markus Rauramo:

“Energy prices have decreased significantly since the peaks of last summer and autumn, but the price decline in the second quarter of 2023 was not as sharp as earlier in the year. However, price volatility of gas and electricity will continue with increasing share of intermittent generation in the system and the occasionally re-emerging concerns over security of energy supply. The reduced gas supply from Norway supported prices early in the summer, but low demand and stable supply from other sources ensured strong gas storage injections and pressed gas prices lower. Continental and Nordic power prices declined on seasonality, subdued demand, lower fossil fuel costs and higher renewable power generation. In May, the Nordic spot prices were even more under pressure than the Continental power prices due to spring floods and increased supply. A sideways development in the power futures serves as a reminder of security of energy supply concerns.

After a seasonally very strong winter quarter with high prices, we continued our good performance in Nordic power generation in the second quarter of 2023. Supported especially by high power prices, the Generation segment was again able to improve its profits from the past year. However, unfortunately the Consumer Solutions segment had a rather poor quarter mainly due to the continued churn with customer outflow from certain hedged power contracts. In April–June, the Group’s comparable operating profit was on par with the comparison period at EUR 262 million.

During the quarter, we saw yet again another point of escalation in Russia. In April, the Russian authorities unlawfully seized Fortum’s assets in Russia, and we lost control of our Russian operations. Consequently, the Russia segment is deconsolidated and reported as discontinued operations. We have fully written down the Russian assets and recorded impairments of EUR 1.7 billion and deconsolidation-related negative cumulated foreign exchange translation differences of EUR 1.9 billion. As Russia’s actions are a crude violation of the international investment protection treaties and deprive Fortum of its shareholder rights, we have sent notices of dispute to the Russian Federation and will seek compensation through arbitration, in particular for the value of our shares in PAO Fortum and our investments in Russia.

Our new strategy was launched in March and we have taken several determined steps to implement it. Our focus continues to be on ensuring the uninterrupted supply of power to our customers and the societies around us. In this context, we were pleased to see the start of commercial operations of TVO’s third Olkiluoto nuclear power plant unit in Finland, as this strongly supports security of supply and our strategic priorities to deliver energy reliably. In June, we announced our investments of approximately EUR 225 million in waste heat projects within the Espoo Clean Heat programme, which supports decarbonisation and the building of sustainable waste heat solutions. This is part of a unique collaboration project with Microsoft to capture the excess heat from new data centres. Our aim is to produce coal-free district heat in Finland, already in 2025 and to be carbon-neutral before 2030. Further, our agreement to buy Telge Energi, one of the 10 largest electricity solutions providers in Sweden, is a good fit with our business and increases our retail customer base. We expect to be able to finalise the transaction during the third quarter. We continue to drive decarbonisation of industries and signed new cooperation agreements with both Korea Hydro & Nuclear Power (KHNP) and Westinghouse Electric Company as part of our feasibility study framework to explore prerequisites for the development and deployment of new nuclear in Finland and Sweden. And finally, we announced a joint FEED study with SSAB to explore the possibilities of producing hydrogen-reduced fossil-free sponge iron in Raahe, Finland. Any possible investment decisions on these nuclear and hydrogen projects will be made at a later stage.

According to our plan, we successfully returned to the fixed income market in May with the issuance of two bonds totalling EUR 1.15 billion. Overall, I am very satisfied with our financial position – it is very strong thanks to our good profit performance and cash flow. At the end of June, our leverage was at 0.3 times, and we had undrawn credit facilities and liquid funds of more than four billion euros each. This lays an excellent foundation for developing our operations going forward.

Today, as part of the continuous review of our business portfolio for value creation and new growth, we announced the initiation of a strategic review of our Circular Solutions business. This is a logical next step as we in connection with the launch of the new strategy said that this is not in the core of our business.

In the coming months, we look forward to continuing our strategy execution, focusing on reliable, clean energy production and industrial decarbonisation in the Nordics. The policy proposals of the new Finnish Government – appointed in June – very well support the clean energy transition. I am pleased that Finland aims to be a leader in clean energy e.g. by promoting the build-out of new nuclear, by strengthening the operating conditions for hydropower and by streamlining the permitting of new solar and wind power as well as becoming a key player in the hydrogen economy.

In order to ensure competitiveness in the years to come, we highlight transformation and development in our new strategy. Our Fortum Renew programme includes two tasks: building an efficient and fit-for purpose operating model and developing our culture and leadership to support strategy execution. During the second quarter, the senior leadership appointments were made and the next level appointments are ongoing. We aim to have the entire new organisation fully operational during the fourth quarter of 2023.”

Espoo, 4 August 2023

Fortum Corporation
Board of Directors

Webcast/teleconference

A combined live webcast/teleconference for investors, analysts and media will be arranged online on 4 August, 2023 at 11:00 EEST. For the webcast, use the link at www.fortum.com/investors.

To ask questions, please join the teleconference by registering using the following link: http://palvelu.flik.fi/teleconference/?id=10010570. After the registration you will be provided with phone numbers and a conference ID to access the conference. To ask a question, please press *5 on your telephone keypad to enter the queue.

A recording of the webcast, as well as the transcript will be published on www.fortum.com/investors after the event.

Further information:

Investor Relations and Financial Communications: Ingela Ulfves, tel. +358 40 515 1531, Rauno Tiihonen, tel. +358 10 453 6150, Nora Hallberg, tel. +358 40 720 1775, Pirjo Lifländer, tel. +358 40 643 3317, and investors@fortum.com

Media: Fortum News Desk, tel. +358 040 198 2843

Financial calendar in 2023

Fortum’s January-September Interim Report will be published on 2 November 2023.

Distribution:

Nasdaq Helsinki
Key media
www.fortum.com

Fortum
Fortum is a Nordic energy company. Our purpose is to power a world where people, businesses and nature thrive together. We are one of the cleanest energy producers in Europe and our actions are guided by our ambitious environmental targets. We generate and deliver clean energy reliably and help industries to decarbonise their processes and grow. Our core operations in the Nordics comprise of efficient, CO2-free power generation as well as reliable supply of electricity and district heat to private and business customers. For our ~5 000 employees, we commit to be a safe, and inspiring workplace. Fortum's share is listed on Nasdaq Helsinki. fortum.com