Supplement to the redemption offer document regarding Fortum Corporation's redemption offer for the
Fortum Corporation Stock Exchange Release 18 August 2006
Supplement to the redemption offer document regarding Fortum Corporation's
redemption offer for the shares of Fortum Espoo Oyj
Fortum Corporation (Fortum) has on 30 June 2006 published the redemption offer
for the shares of Fortum Espoo Oyj (Fortum Espoo). The redemption offer commenced
on 4 July 2006 according to its terms and conditions.
Fortum Espoo has today published the attached interim report for the period 1
January - 30 June 2006. The redemption offer document dated 29 June 2006
regarding Fortum's redemption offer for the shares of Fortum Espoo will be
supplemented by this release (including the attachment).
Fortum Corporation
Carola Teir-Lehtinen
SVP, Corporate Communications
For more information:
SVP, Corporate Communications Carola Teir-Lehtinen, tel. +358 50 45 24118
Distribution:
Helsinki Stock Exchange
Key Media
APPENDIX
Fortum Espoo Oyj Interim Report January-June 2006
INTERIM REPORT JANUARY 1 - JUNE 30, 2006
(Stated according to IFRS)
Review of the Group's business operations
The Group's electricity sales increased by 4 % to 1,5 TWh during the first six
months of the year compared to the same period last year .
Electricity distribution increased by 6 % to 1,4TWh. The increase in
distribution was mainly due to cold weather during winter period and due to
organic growth in the operating areas.
The Group's district heat sales increased by 8 % to 1,6 TWh. The heating demand
in the first part of the year was higher compared to previous year in the
operating areas.
Electricity generation at the company's production plants totalled 0,6 TWh (0,6
TWh). The Espoo power plant generated 0,4 TWh of electricity and the Joensuu
power plant 0,2 TWh. The Group's own electricity generation accounted for 37 %
(40 %) of all electricity acquired. The Group's own power plants generated
district heat 1,7 TWh (1,6 TWh). The fuels used by the power plants were coal,
natural gas, wood and peat.
Revenue increased and profit decreased
Fortum Espoo's revenue increased by 12% to EUR 140 million (EUR 125
million). Revenue growth in electricity and generation units was due to
higher market price of electricity.
The Group's operating profit decreased by 25 % to EUR 30 million (EUR 40
million). Profit before taxes was EUR 31 million (EUR 41 million). Earnings per
share were EUR 1,52 (EUR 1,96).
The profit declined because of the changes in electricity market price effecting
to the value of derivative hedging contract position. However Group's operating
profit increased compared to profit year before when the change of valuation in
hedging portfolio is excluded.
Segment reviews
Revenue from electricity segment increased by 26 % to EUR 60 million (EUR 48
million). The increase was mainly caused by a higher price level in commission-
based sales.
Operating profit from the electricity segment was EUR 18 million (EUR 27
million). The decrease in the operating profit was due to changes in market
price, which affected the profit through an open position in derivative
contracts. According to the IFRS regulations, any changes in the market values of
electricity derivatives are to be recognised in the income statement, because the
company does not apply derivatives-related hedge accounting in conformance with
the IAS 39.
Revenue from the network segment was 5 % lower than previous year totalling EUR
26 million (EUR 28 million). Prices were lowered both in July and December 2005,
which decreased this year's revenue . On the other hand, distribution volumes
have increased due to organic growth and cold weather conditions in the operating
areas year 2006. Increased distribution volumes compensated some of the decrease
in revenue caused by lower prices. The segment's operating profit totalled EUR
11 million (EUR 12 million).
Revenue from the district heating segment increased by 10 % from the previous
year to EUR 56 million (EUR 51 million). The high heating demand in January -
March increased revenue. However, due to higher fuel costs, the operating profit
of the district heating segment was lower than previous year totalling EUR 9
million (EUR 10 million).
Operating profit of the generation segment was EUR - 7 million (EUR - 8 million).
The valuation of electricity derivatives hedging portfolio turned the result
negative.
Investments mainly network investments
Investments in fixed assets totalled EUR 16 million (EUR 13 million) during the
period. Approx. EUR 7 million was invested in construction of electrical power
networks and approx. EUR 5 million in construction of district heating networks.
Investments were also made in installing meters on the networks and in the
heating plants.
Financial status very good
Group's Interst-bearing loans amounted to EUR 11 million (EUR 17 million) and
cash reserves totalled EUR 64 million (EUR 35 million) on 30 June 2006. Solvency
ratio at the end of period was 44 % (45 %).
Personnel
The Group employed an average of 378 (392) persons during the period under
review. The permanent employees of the Group totalled 346 (367) at the end of the
period.
Share information
During January - June 2006, 31 201 206 of the company's shares were traded on the
Helsinki Stock Exchange at a total value of EUR 1 507 957 763. The average price
was EUR 67 per share. The highest price quoted during the period was EUR 67,01
per share and the lowest was EUR 67 per share. The last closing price quoted was
EUR 67, at which price the company's market capitalisation was EUR 1.054 million.
Fortum Espoo Oyj's Board members and President and CEO do not own Fortum Espoo
Oyj's shares.
The company has not issued convertible bonds or bonds with warrants. The
company's Board has not been authorised by the Annual General Meeting to issue
new shares or to buy back its own shares.
Group structure
The Fortum Espoo Group comprises the parent company Fortum Espoo Oyj, its
operational subsidiary, Kiinteistö Oy Espoon Energiatalo, Viikinki Energia Oy and
the associated company Suomen Energia-Urakointi Oy.
Ownership
Fortum Power and Heat Oy signed an agreement on 18 January 2006 with the City of
Espoo regarding the sale and purchase of 5 351 859 E.ON Finland shares. On 2
February 2006, Fortum Power and Heat Oy and E.ON Nordic AB signed an agreement,
according to which Fortum Power and Heat will acquire all the 10 246 565 E.ON
Finland shares held by E.ON Nordic. Both transactions were subject to approval by
the Finnish Competition Authority. The Finnish Competition Authority confirmed
its approval on 2 June 2006. The approval was subject to certain conditions
concerning Fortum Power and Heat Oy.
The above-mentioned transactions came into force on 26 June 2006. Subsequently
Fortum Power and Heat sold on the same day all its E.ON Finland shares to Fortum
Oyj. After that Fortum owned 15 598 424 E.ON Finland shares (99.8 % of all
shares) and became a parent company of E.ON Finland, name of which was amended to
Fortum Espoo Oyj. Due to its ownership Fortum became liable to make a mandatory
redemption offer to minority shareholders pursuant to the Securities Markets Act.
The mandatory offer was published on 30 June 2006 and the offer period commenced
on 4 July 2006. The redemption price offered by Fortum for each share in Fortum
Espoo is EUR 68.36. The offer period expires on 31 August 2006 at 4.30 p.m.
Fortum has also on 28 June 2006 started a redemption process regarding the
minority shares pursuant to the Finnish Companies Act.
In connection with the ownership arragements it was agreed that the CEO Matti
Manninen will not continue within the company. Timo Karttinen was appointed as
the CEO of the company on 27 June 2006.
The Annual General Meeting
The Annual General Meeting, held on 26 June 2006, approved the Board of
Directors' proposal to change wording of the Articles of Association concerning:
. the change of company's name to Fortum Espoo Oyj
. the composition of Board of Directors so that the Board of Directors
consists of no less than three and no more than five ordinary members
The Annual General Meeting also approved the Board of Directors' proposals:
. to pay dividend of 1,12 euros per share on the financial year 2005, i.e.
17 503 956,96 euros
. to elect members of the Board of Directors; Carola Teir-Lehtinen as the
chairman, Antti Aho, Jouni Huttunen, Timo Karttinen and Satu Relander as
members
. to appoint to company's auditors the authorized public accountants company
Deloitte & Touche Oy.
Risk management
The key aim of risk management in Fortum Espoo is to further the achievement of
the corporate strategic targets in a changing environment. The company's Board
of Directors approves annually the risk policies and mandates related to the
price and volume risks of commodities, such as electricity and coal, as part of
setting financial targets. A risk group assembling monthly supervises compliance
with the limits set. Management policies related to financial risks are approved
as part of the financial strategy.
Outlook for 2006
Changes in the market price of electricity and the prices of fuels, especially
the prices of coal and natural gas, and the price trend of emission allowances,
are the most important factors affecting Fortum Espoo's result.
The wholesale price of electricity in the Nordic market was in the middle of
August for the rest of year 2006 about 67 euros/MWh and the price of CHP emission
allowances was at the same time about 17 euros/CHP tn.
The sales volumes have grown in all businesses segments, electricity,
distribution and district heating, during the first half of the year . With
favourable conditions the growth will continue for the remainder of 2006.
IFRS -principles
As of 1 January 2005 Fortum Espoo Group has applied International Financial
Reporting Standards (IFRS) to its financial reporting. This interim report has
been prepared in accordance with IFRS accounting and valuation principles, but
not in accordance with all IAS 34 (Interim Financial Reporting) requirements.
Fortum Espoo Oyj adapted from 1 July 2006 hedge accounting according IAS 39
requirements to the major part of electricity derivative contracts hedging future
cash flows.
This report is unaudited.
Other
Fortum Espoo Oyj will publish its next interim report for the first six months on
October, 19th, 2006.
Further information: Mr. Timo Karttinen, President and CEO, tel. +358 20 520 5800
and Ms. Reija Väätäinen, CFO, tel. +358 20 520 5900.
Fortum Espoo Oyj
Board of Directors
Timo Karttinen
President and CEO
Distribution HEX Helsinki Exchanges
Principal media
INTERIM REPORT 1.1.-30.6.2006
Consolidated balance sheet
(IFRS)
(MEUR) 30.6.2006 30.6.2005 31.12.2005
ASSETS
Non-current assets
Intangible assets 40,8 40,8 40,7
Property, plant and equipment 311,7 305,1 309,5
Investments in associates 1,1 1,2 1,4
Available-for-sale investments 0,6 0,6 0,6
Other receivables 0,0 0,1 0,1
Deferred tax asset 1,4 1,9 1,4
Current assets
Inventories 18,3 18,6 23,0
Trade receivables 12,3 11,6 13,9
Derivatives 127,3 97,9 69,7
Other receivables 22,8 27,6 32,8
Cash and cash equivalents 63,8 24,9 33,1
Assets, total 600,2 530,3 526,3
EQUITY AND LIABILITIES
Equity 263,0 238,7 256,7
Non-current liabilities
Deferred tax liabilities 36,3 35,2 36,5
Pension obligations 3,8 3,8 3,7
Non-current provisions 0,8 0,8 0,8
Non-current interest-bearing 10,9 10,9 10,9
liabilities
Other non-current liabilities 138,8 134,7 137,5
Current liabilities
Trade payables 4,3 4,8 8,6
Derivatives 108,8 83,6 54,2
Other current liabilities 29,6 10,2 16,5
Current tax payable 3,9 0,0 0,5
Current provisions - 1,7 -
Current interest-bearing - 5,8 0,4
liabilities
Equity and liabilities, total 600,2 530,3 526,3
Consolidated income statement
(IFRS)
(MEUR) 2006/6 2005/6 Change% 2005/12
Revenue 140,0 124,7 12 % 233,9
Materials and services -87,8 -61,9 42 % -123,0
Personnel expenses -10,3 -9,6 8 % -19,5
Depreciation and amortisation -14,0 -14,1 -1 % -28,5
expense
Other operating expenses and 2,4 1,4 73 % 0,8
income
Operating profit 30,3 40,5 -25 % 63,6
Share of profit of associates 0,4 0,1 458 % 0,3
Financial income 0,7 0,6 26 % 1,0
Financial expenses -0,4 -0,4 1 % -0,9
Profit before tax 31,0 40,7 -24 % 64,0
Income tax expenses -7,2 -10,0 -28 % -15,4
Profit for the period 23,8 30,7 -22 % 48,6
Consolidated cash flow statement (IFRS)
(MEUR) 2006/6 2005/6 2005/12
Cash flow from operating
activities
Operating profit 30,3 40,5 63,6
Adjustments to operating profit 14,1 13,9 25,9
Financial income and expenses 0,3 0,1 0,0
Taxes -4,0 -0,6 -2,8
Cash flow from operating 40,7 53,8 86,7
activities before change in net
working capital
Increase (-) / decrease (+) in -0,6 -21,4 -29,6
net working capital
Cash flow from operating 40,1 32,4 57,0
activities
Cash flow from investing -15,6 -12,9 -31,3
activities
Cash flow from financing 1,0 -14,9 -17,7
activities
Change in cash reserves 25,5 4,6 8,0
Cash reserves at beginning of 38,3 30,3 30,3
period
Cash reserves at end of period 63,8 35,0 38,3
25,5 4,6 8,0
Consolidated statement of changes in equity
(MEUR)
Share Statu-to Revaluation Retained Total
capital ry reserve earnings
reserve
Equity 1.1.2005 5,3 23,8 0,1 196,8 226,0
Dividends - - - -18,0 -18,0
Profit for the period - - - 30,7 30,7
Equity 30.6.2005 5,3 23,8 0,1 209,5 238,7
Equity 1.1.2005 5,3 23,8 0,1 196,8 226,0
Dividends - - - -18,0 -18,0
Available-for-sale
investments
Valuation at fair value - - 0,0 - 0,0
The effect of IAS 39
adoption
Amount transferred to - - 0,0 - 0,0
income statement
Profit for the period - - - 48,6 48,6
Equity 31.12.2005 5,3 23,8 0,1 227,5 256,7
Equity 1.1.2006 5,3 23,8 0,1 227,5 256,7
Dividends - - - -17,5 -17,5
Profit for the period - - - 23,8 23,8
Equity 30.6.2006 5,3 23,8 0,1 233,8 263,0
Key indicators 2006/6 2005/6 2005/12
Return on investment,% 23,2 33,0 25,4
Return on equity,% 18,3 26,4 20,1
Earnings per share,EUR 1,52 1,96 3,11
Equity per share,EUR 16,83 15,28 16,42
Solvency ratio,% 43,8 45,0 48,8
Number of shares,1000 15 629 15 629 15 629
pcs
Gross capital 16,4 13,5 32,0
expenditure,MEUR
Personnel on average 378 392 390
Group revenue by segment 2006/6 2005/6 Change% 2005/12
(MEUR)
Electricity 60,2 47,6 26 % 96,5
Network 26,5 27,7 -5 % 53,0
District heating 56,3 51,3 10 % 90,9
Generation 68,1 50,9 34 % 95,8
Other operations and -71,1 -52,9 -34 % -102,4
eliminations
Revenue, total 140,0 124,7 12 % 233,9
Group operating profit by 2006/6 2005/6 Change% 2005/12
segment
(MEUR)
Electricity 18,4 26,9 -32 % 34,5
Network 11,1 12,1 -9 % 17,6
District heating 9,4 10,3 -10 % 13,2
Generation -7,3 -8,3 12 % -0,3
Other operations and -1,2 -0,6 -99 % -1,3
eliminations
Operating profit, total 30,3 40,5 -25 % 63,6
Commitments and contingent 30.6.2006 30.6.2005 31.12.2005
liabilities
(MEUR)
Contingent liabilities
Real estate mortgages 4,7 6,7 4,7
Pledges 8,6 7,0 7,3
Commitments
On behalf of associates
Guarantees issued 1,5 1,5 1,5
Leasing commitments
Due within 12 months 0,1 0,1 0,1
Due after 12 months 0,1 0,2 0,1
Other lease agreements
Minimum rents to be paid based on
non-terminable rental agreements
Less than 1 year 0,3 0,3 0,3
1-5 years 1,3 1,4 1,3
Over 5 years 3,5 3,7 3,6
Derivative contracts
(MEUR) 30.6.2006 30.6.2005 31.12.2005
Net fair Net fair Net fair
values values values
Electricity derivatives:
Nord Pool forward contracts
less than one year 6,7 4,0 7,8
1-3 years 1,6 2,6 3,4
Bilateral forward contracts
Less than one year 8,1 2,1 3,7
1-3 years -0,6 1,3 -0,2
Options
Bought
Less than one year 7,5 9,1 -
1-3 years 7,6 9,3 2,8
Sold
Less than one year -5,9 -7,6 -
1-3 years -6,0 -7,7 -2,6
Total electricity derivatives 18,9 13,0 14,8
Currency derivatives:
Less than one year 0,0 1,3 0,3
Emission right derivatives:
Less than one year -0,1 - 0,2
1-3 years -0,3 - 0,3
Total emission right -0,4 - 0,4
derivatives
The company's physical production of electricity along with its electricity
sales and trading activities exposes it to electricity
price risk. The company actively uses electricity forward contracts and
electricity options to hedge the electricity price risk. The company
systematically monitors the risk position arising from electricity trading and
the risk position in derivatives. Limits have been set relating to electricity
trading and they are monitored systematically.
Foreign exchange risk arises mainly from cash flows denominated in USD. The
foreign exchange position consists of commercial commitments and expected cash
flows from highly probable transactions related to the company business, and
of related hedging in respective currencies.
