2013-01-31 08:00:03 CET
2013-01-31 08:00:18 CET
REGULATED INFORMATION
Fortum - Financial Statement Release
Fortum Corporation’s Financial statements bulleting 2012: A very demanding market environment in 2012 – efficiency programme proceeding as planned
Espoo, Finland, 2013-01-31 08:00 CET (GLOBE NEWSWIRE) -- FORTUM CORPORATION'S FINANCIAL STATEMENTS BULLETIN 31 January 2013 at 9.00 EET October - December 2012 • Comparable operating profit EUR 587 (508) million, +16% • Operating profit EUR 619 (579) million, of which EUR 32 (71) million relates to items affecting comparability • Earnings per share EUR 0.68 (0.47), +45%, of which EUR 0.03 (0.06) per share relates to items affecting comparability and EUR 0.22 per share to the change in the Swedish corporate tax rate • Efficiency programme proceeding as planned • In Russia, the construction work of the new units progressed January - December 2012 • Comparable operating profit EUR 1,739 (1,802) million, -3% • Operating profit EUR 1,861 (2,402) million, of which EUR 122 (600) million relates to items affecting comparability; i.e. derivatives and the sale of Fingrid in 2011 • Earnings per share EUR 1.59 (1.99), -20%, of which EUR 0.14 (0.55) per share relates to items affecting comparability; i.e. derivatives and the sale of Fingrid in 2011, and EUR 0.22 per share to the Swedish corporate tax rate change that impacted positively in 2012 • Nordic power prices clearly lower compared to 2011 • Fortum launched an efficiency programme to improve cash flow by more than EUR 1 billion during 2013-2014 • The Board has decided to review the strategic position of Fortum's electricity distribution business • The Board proposes a dividend of EUR 1.00 per share Key figures IV/12 IV/11 2012 2011 ------------------------------------------------------------------------------- Sales, EUR million 1,834 1,667 6,159 6,161 ------------------------------------------------------------------------------- Operating profit, EUR million 619 579 1,861 2,402 ------------------------------------------------------------------------------- Comparable operating profit, EUR million 587 508 1,739 1,802 ------------------------------------------------------------------------------- Profit before taxes, EUR million 538 532 1,575 2,228 ------------------------------------------------------------------------------- Earnings per share, EUR 0.68 0.47 1.59 1.99 ------------------------------------------------------------------------------- Net cash from operating activities, EUR million 399 472 1,382 1,613 ------------------------------------------------------------------------------- Shareholders' equity per share, EUR 11.49 10.84 ------------------------------------------------------------------------------- Interest-bearing net debt 7,814 7,023 (at end of period), EUR million ------------------------------------------------------------------------------- Average number of shares, 1,000s 888,367 888,367 ------------------------------------------------------------------------------- Key financial ratios 2012 2011 --------------------------------------------- Return on capital employed, % 10.0 14.8 --------------------------------------------- Return on shareholders' equity, % 14.3 19.7 --------------------------------------------- Net debt/EBITDA 3.1 2.3 --------------------------------------------- Comparable net debt/EBITDA 3.3 3.0 --------------------------------------------- Outlook • Fortum currently expects the annual electricity demand growth in the Nordic countries to be on average 0.5% in the coming years. • Capital expenditure guidance: EUR 1.1-1.4 billion in 2013, and EUR 0.9-1.1 billion in 2014 • Power Division's Nordic generation hedges: For 2013, 70% hedged at EUR 45 per megawatt-hour (MWh), for 2014, 35% hedged at EUR 43 per MWh. Fortum's President and CEO Tapio Kuula ”Fortum's year in 2012 was good, considering the very demanding business environment. Group comparable operating profit totalled EUR 1,739 million in 2012 and net cash flow from operating activities EUR 1,382 million. The economic situation in Europe and globally - and the uncertainty regarding its duration - burdened Fortum. In addition, the hydrological situation - with historically high water reservoir levels - put additional pressure on Nordic prices, which were clearly lower in 2012 than in 2011. In order to ensure the company's strategic flexibility and competitiveness and to enable the company to continue to reach its financial targets in the future, Fortum launched an efficiency programme in the autumn of 2012. The aim is to increase the company's cash flow by more than EUR 1 billion during 2013 - 2014 by reducing capital expenditures, divesting non-core assets, reducing fixed costs and by focusing on working capital efficiency. These targeted actions will increase the efficiency of our core processes and lead to cost reductions. During 2012, Fortum continued to develop its operations to enable future growth in a continuously difficult market situation. While the company continued with investments to support its long-term goals, there was also an emphasis on driving efficiency into existing operations. Some of the year's key topics in the divisions are highlighted below: In the Power Division, outages causing production losses and somewhat higher costs in Oskarshamn, Sweden, burdened the result significantly. Meanwhile water reservoirs were at high levels throughout the year resulting in an all-time high in Fortum's hydro production that compensated for the lower nuclear volumes and lower price levels compared to 2011. The highlight of the Heat Division was the investment decision of approximately EUR 500 million into a new biofuel-fired combined heat and power plant (CHP) in Stockholm, Sweden. The new plant will replace some of the existing heat production with a less expensive biofuel alternative as well as increase Fortum Värme's total electricity production by approximately one third. In 2012, the Russia Division faced delays in its greenfield project in Nyagan. However, in mid-January 2013 the testing of the gas turbine at Nyagan unit 1 was successfully on-going. Development in the heat business was also positive as a commission to address issues such as heat regulation was set up by the Russian Government. In Distribution, the focus was on accelerated improvement of network reliability in Finland spurred by the year-end 2011 storms - most severe in 30 years - that caused considerable damage to the electricity distribution network as well as unfortunate outages for Fortum's customers. In the Electricity Sales business area attention is now on retail sales of electricity to a total of 1.2 million private customers. An emphasis is on eco-labelled and CO2-free electricity as well as on smart electricity solutions and services, which were successfully launched in 2012. In January 2013, Fortum decided that the company will assess the strategic position of its electricity distribution business. Fortum expects to conclude the assessment during 2013. This decision does not change the basics of the efficiency programme, which will continue as originally planned. Fortum's purpose is to create energy that improves life for present and future generations, the aim is to build on our strong Nordic core business, create solid earnings growth in Russia and build a platform for future growth. I feel confident that Fortum is well prepared going into 2013, and I would like to thank all our employees for their efforts and commitment during 2012.” Efficiency programme 2013-2014 In the fourth quarter, due to the increasingly demanding business environment, Fortum started an efficiency programme in order to maintain and strengthen strategic flexibility and competitiveness, and to enable the company to reach its financial targets in the future. The aim is to improve the company's cash flow by more than approximately EUR 1 billion during 2013-2014 by reducing capital expenditures (capex) by EUR 250-350 million, divesting approximately EUR 500 million of non-core assets, reducing fixed costs and focusing on working capital efficiency. Capex in 2013 will be EUR 1.1-1.4 billion and in 2014 EUR 0.9-1.1 billion. At the end of 2014, the cost run rate will be approximately EUR 150 million lower compared to 2012, including growth projects. If headcount reductions are needed, Fortum seeks to limit redundancies, by using natural rotation and retirement whenever possible. The assessments will therefore be done at a unit level. The programme has proceeded according to plan and is integrated into division plans for 2013-2014. Already in 2012, minor cost reductions were achieved. In addition, the divestment of the Naantali power plant resulted in a net cash flow effect of approximately EUR 50 million. Financial results October - December In the fourth quarter of 2012, Group sales were EUR 1,834 (1,667) million. The comparable operating profit totalled EUR 587 (508) million and the reported operating profit totalled EUR 619 (579) million. Fortum's operating profit for the period was affected by non-recurring items, an IFRS accounting treatment (IAS 39) of derivatives mainly used for hedging Fortum's power production, and nuclear fund adjustments amounting to EUR 32 (71) million. The share of profits from associates in the fourth quarter was EUR -5 (19) million. The share of profits from Hafslund and TGC-1 are based on the companies' published third-quarter interim reports. Sales by division EUR million IV/12 IV/11 2012 2011 ------------------------------------------------------------- Power 719 654 2,415 2,481 ------------------------------------------------------------- Heat 477 478 1,628 1,737 ------------------------------------------------------------- Russia 319 274 1,030 920 ------------------------------------------------------------- Distribution* 314 244 1,070 973 ------------------------------------------------------------- Electricity Sales* 221 205 722 900 ------------------------------------------------------------- Other 41 32 137 108 ------------------------------------------------------------- Netting of Nord Pool transactions -161 -134 -503 -749 ------------------------------------------------------------- Eliminations -96 -86 -340 -209 ------------------------------------------------------------- Total 1,834 1,667 6,159 6,161 ------------------------------------------------------------- * Part of the Electricity Solutions and Distribution Division Comparable operating profit by division EUR million IV/12 IV/11 2012 2011 ---------------------------------------------- Power 380 351 1,144 1,201 ---------------------------------------------- Heat 93 96 266 278 ---------------------------------------------- Russia 28 35 68 74 ---------------------------------------------- Distribution* 101 49 317 295 ---------------------------------------------- Electricity Sales* 9 2 38 27 ---------------------------------------------- Other -24 -25 -94 -73 ---------------------------------------------- Total 587 508 1,739 1,802 ---------------------------------------------- * Part of the Electricity Solutions and Distribution Division Operating profit by division EUR million IV/12 IV/11 2012 2011 ---------------------------------------------- Power 387 443 1,173 1,476 ---------------------------------------------- Heat 118 100 339 380 ---------------------------------------------- Russia 28 35 79 74 ---------------------------------------------- Distribution* 103 41 328 478 ---------------------------------------------- Electricity Sales* 5 -6 38 3 ---------------------------------------------- Other -22 -34 -96 -9 ---------------------------------------------- Total 619 579 1,861 2,402 ---------------------------------------------- * Part of the Electricity Solutions and Distribution Division January-December In 2012, Group sales were EUR 6,159 (6,161) million. The comparable operating profit totalled EUR 1,739 (1,802) million and reported operating profit totalled EUR 1,861 (2,402) million. Fortum's operating profit for the period was affected by non-recurring items, an IFRS accounting treatment (IAS 39) of derivatives mainly used for hedging Fortum's power production, and nuclear fund adjustments amounting to EUR 122 (600) million. Non-recurring items, mark-to-market effects and nuclear fund adjustments in 2012 amounted to EUR 122 (600) million. Changes in fair values of derivatives hedging future cash flow accounted for EUR -2 (344) million. Non-recurring items totalled EUR 155 (284) million and were mainly related to the divestments of shares in power and heat operations. The share of profits of associates and joint ventures was EUR 21 (91) million. The decrease from last year was mainly due to the lower share of profits from Hafslund ASA and TGC-1 as well as the share of profits from Fingrid Oyj, which was divested during the second quarter in 2011. Hafslund, an associated company of which Fortum owns 34.1%, announced in October that their third quarter 2012 profit after tax was negatively affected by NOK 551 million due to extraordinary write-downs and provisions. The company stated that this was a result of challenging market conditions and negative profit development within BioWood Norway AS and Bio-El Fredrikstad, and a tax provision following the development of an on-going tax dispute. Fortum booked its share of the impact, approximately EUR -25 million, in its fourth quarter result. The Group's net financial expenses increased to EUR 307 (265) million. The increase is attributable to higher interest expenses, mainly due to higher SEK interest rates, and to higher average net debt in 2012 than in 2011. Net financial expenses were also negatively affected by changes in the fair value of financial instruments of EUR -23 (5) million. Profit before taxes was EUR 1,575 (2,228) million. Taxes for the period totalled EUR 72 (366) million. The tax rate according to the income statement was 4.6% (16.4%), largely due to the Swedish corporate tax rate that was lowered from 26.3% to 22% starting 1 January 2013. The decrease caused a one-time positive effect in 2012 of approximately EUR 0.22 per share. The tax rate, excluding change in tax rate in Sweden, the impact of the share of profits of associated companies and joint ventures as well as non-taxable capital gains, was 21.2% (21.4%). The profit for the period was EUR 1,503 (1,862) million. Fortum's earnings per share were EUR 1.59 (1.99), of which EUR 0.14 (0.55) per share relates to items affecting comparability; in 2011, the impact of the sale of the Fingrid shares was EUR 192 million, or EUR 0.22 per share. Non-controlling (minority) interests amounted to EUR 94 (93) million. These are mainly attributable to Fortum Värme Holding AB, in which the city of Stockholm has a 50% economic interest. Financial position and cash flow Cash flow In 2012, total net cash from operating activities decreased by EUR 231 million to EUR 1,382 (1,613) million. Capital expenditures in cash flow increased by EUR 137 million to EUR 1,422 (1,285) million. Proceeds from divestments totalled EUR 433 (596) million in cash flow. Cash flow before financing activities, i.e. dividend distributions and financing, decreased by EUR 534 million to EUR 254 (788) million. The strong SEK had a negative impact on the cash flow, especially during the second and third quarters, through realised net foreign exchange losses amounting to EUR -268 (-239) million related to the rollover of foreign exchange contract hedging loans to Fortum Swedish subsidiaries. During the reporting period, dividends totalling EUR 888 million were paid on 23 April 2012 using cash and cash equivalents. Assets and capital employed Total assets increased by EUR 1,630 million to EUR 24,628 (22,998 at year-end 2011) million. Non-current assets increased by EUR 1,534 million from EUR 20,210 million to EUR 21,744 million. The majority, EUR 1,263 million, came from the increased value of property, plants and equipment due to the investments, and the stronger Swedish krona and other currencies. The increase in current assets was EUR 96 million, totalling EUR 2,884 million. The increase relates to the higher trade and other receivables of EUR 250 million and the EUR 232 million increase in liquid funds. The increase in current assets was partly offset by a EUR 183 million decrease in assets held for sale relating to divestments closed during 2012, a EUR 100 million decrease in inventories and a EUR 103 million decrease in derivative financial instruments. Capital employed was EUR 19,598 (17,931) million, an increase of EUR 1,667 million. The increase was mainly due to the higher amount of total assets, totalling EUR 24,628 million. Equity Total equity was EUR 10,821 (10,161 at year-end 2011) million, of which equity attributable to owners of the parent company totalled EUR 10,205 (9,632 at year-end 2011) million and non-controlling interests EUR 616 (529 at year-end 2011) million. Financing Net debt increased during the fourth quarter by EUR 50 million to EUR 7,814 (7,023 at year-end 2011) million. In August, Fortum Corporation issued a EUR 1,000 million ten-year Eurobond under its EMTN (Euro Medium Term Note) programme. The bond carries a coupon of 2.25%. At the end of 2012, the Group's cash and cash equivalents totalled EUR 963 (747) million. Cash and cash equivalents include cash and bank deposits held by OAO Fortum amounting to EUR 128 (211) million. In addition to cash and cash equivalents, Fortum had access to approximately EUR 2.7 billion of undrawn committed credit facilities. The Group's net financial expenses during the year 2012 were EUR 307 (265) million. The increase in financial expenses is mainly attributable to higher average net debt in 2012 compared to 2011. Net financial expenses were also negatively affected by changes in the fair value of financial instruments of EUR -23 (5) million. During the fourth quarter, Fortum Corporation's long-term credit rating with S&P was downgraded from A to A- (negative), while Moody's affirmed the A2 rating. Both rating agencies have a negative outlook on the current rating. Key figures Net debt to EBITDA for 2012 was 3.1 (2.3 at year-end 2011) and comparable net debt to EBITDA 3.3 (3.0), impacted by EUR 888 million in dividend payments. Gearing was 72% (69%) and the equity-to-assets ratio 44% (44%). Equity per share was EUR 11.49 (10.84). In 2012, return on capital employed was 10.0% (14.8%) and return on equity 14.3% (19.7%). Market conditions Nordic countries The year 2012 started with the Nordic water reservoir levels clearly above the long-term average - exceptional rainfalls in 2011 contributed to the extreme levels. The reservoir levels remained historically high until late November 2012, but then started to normalise. During 2012, Nordic electricity prices were below Continental prices, resulting in a nearly constant export of electricity from the Nordic area to the Continent. According to preliminary statistics, electricity consumption in the Nordic countries during the fourth quarter of 2012 increased some 7% compared to the same period in 2011 and was 109 (102) terawatt-hours (TWh). This was attributable to lower temperatures and thus higher non-industrial consumption, while industrial consumption remained fairly unchanged. In 2012, electricity consumption in the Nordic countries was 391 (384) TWh, i.e. some 2% higher than the year before. At the beginning of the year, the Nordic water reservoirs were at 95 TWh, i.e. 12 TWh above the long-term average. At the beginning of the fourth quarter, the reservoirs were at 109 TWh, i.e. 8 TWh above the long-term average and 5 TWh above the corresponding level in 2011. By the end of the quarter, the reservoirs had declined to 85 TWh, which is 2 TWh more than the long-term average, but 10 TWh less than in the year before. During the fourth quarter, the average system spot price of electricity in Nord Pool was EUR 37.3 (34.2) per MWh). The average area price in Finland was EUR 40.8 (37.4) per MWh, and in Sweden (SE3) EUR 37.5 (35.7) per MWh. In 2012, the average system spot price was EUR 31.2 (47.1) per MWh, the area price in Finland EUR 36.6 (49.3) per MWh and in Sweden (SE3) EUR 32.3 (47.9) per MWh. The annual system price remained below the 2011 level due to the clearly stronger hydro situation, which depressed prices in the hydropower intensive price areas, particularly during the third quarter. However, long outages in the transmission capacity limited imports from Sweden to Finland, and the difference between the Finnish area price and the system price was higher than in the year before. In the spring, there was a two-month outage in the Fenno-Skan 2 connection; Fenno-Skan 1 has been out of operation since August. Additionally, during 2012, the Finnish area price was impacted by lower imports from Russia compared to the year before. In Germany, the average spot price during the fourth quarter of 2012 was EUR 41.4 (49.9) per MWh and during 2012 EUR 42.6 (51.1) per MWh. At the beginning of 2012, the market price for CO2 emission allowances (EUA) was approximately EUR 6.6 per tonne. During the year, EUA traded between approximately EUR 5.7 and EUR 9.5 per tonne and closed at around EUR 6.7 per tonne. Russia OAO Fortum operates in the Tyumen and Chelyabinsk areas. Both in the Tyumen area, where industrial production is dominated by the oil and gas industries, and in the Chelyabinsk area, which is dominated by the metals industry, electricity demand increased marginally in the fourth quarter compared to the same period of the previous year. According to preliminary statistics, Russia consumed 284 (279) TWh of electricity during the fourth quarter of 2012. The corresponding figure in Fortum's operating area in the First price zone (European and Urals part of Russia) was 209 (207) TWh. In 2012, Russia consumed 1,037 (1,020) TWh of electricity. The corresponding figure in Fortum's operating area in the First price zone (European and Urals part of Russia) was 769 (760) TWh. In the fourth quarter of 2012, the average electricity spot price, excluding capacity price, increased by 13% to RUB 1,037 (918) per MWh in the First price zone. In 2012, the average electricity spot price, excluding capacity price, increased by 1% to RUB 1,001 (990) 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. Events after the balance sheet date Fortum announced 31January 2013 that the company has decided to assess the strategic position of its electricity distribution business. In accordance with its strategy, Fortum seeks growth in low-carbon power generation, energy-efficient combined heat and power (CHP) production and customer offerings. The assessment has no impact on Fortum's electricity distribution customers and excludes the company's electricity retail business. Fortum expects to conclude the assessment during 2013. Outlook Key drivers and risks Fortum's financial results are exposed to a number of strategic, political, financial and operational risks. The key factor 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, fuel and CO2 emissions allowance prices as well as the hydrological situation. The completion of Fortum's investment programme in Russia is also one key driver to the company's result growth, due to the increase in production volumes. The continued global economic uncertainty and Europe's sovereign-debt crisis has kept the outlook for economic growth unpredictable. The overall economic uncertainty impacts the commodity and CO2 emission allowance prices, and this, in combination with the stronger hydrological situation in the Nordic region, could maintain downward pressure on the Nordic wholesale price for electricity in the short-term. In the Russian business, the key factors are the regulation around the heat business and further development of electricity and capacity markets. Operational risks related to the investment projects in the current investment programme are still valid. In all regions, fuel prices and power plant availability also impact the 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 SEK and RUB. In the Nordic countries, also the regulatory and fiscal environment for the energy sector has added risks for utility companies. Nordic market Despite macroeconomic uncertainty, electricity will continue to gain a higher share of the total energy consumption. Fortum currently expects the average annual growth rate in electricity consumption to be 0.5%, while the growth rate for the nearest years will largely be determined by macroeconomic development in Europe and especially in the Nordic countries. During the fourth quarter of 2012, the overall price of crude oil and coal was quite steady, whereas the EUA price weakened clearly. The forward price of electricity for the next twelve months improved somewhat in the Nordic area, but declined in Germany. In late January 2013, the future quotations for coal (ICE Rotterdam) for the rest of 2013 were around USD 92 per tonne and the market price for CO2 emission allowances (EUA) for 2013 was about EUR 4 per tonne. In late January 2013, the electricity forward price in Nord Pool for the rest of 2013 was around EUR 37 per MWh. For 2014, the electricity forward price was around EUR 36 per MWh and for 2015 around EUR 35 per MWh. In Germany, the electricity forward price for the rest of 2013 was around EUR 41 per MWh and for 2014 EUR 41 per MWh. In late January 2013, Nordic water reservoirs were approximately at the same level as the long-term average and 12 TWh below the corresponding level of 2012. Power The Power Division's 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 the changes in the power generation mix, a 1 EUR/MWh change in the Power Division's Nordic power sales price will result in an approximately EUR 45 million change in Fortum's annual comparable operating profit. In addition, the comparable operating profit of the Power Division will be affected by the possible thermal power generation amount and its profit. The several years of ongoing Swedish nuclear investment programmes will enhance safety, improve availability and increase the capacity of the current nuclear fleet. The implementation of the investment programmes could, however, affect availability. Fortum's power procurement costs from co-owned nuclear companies are affected by these investment programmes through increased depreciation and finance costs. European-wide safety evaluations have been carried out post-Fukushima. As part of the evaluations, so-called peer reviews were carried out in March 2012 in several European nuclear power plants, including the Loviisa nuclear power plant. The European Commission submitted a consolidated report of the national reports to the European Council in October 2012. Some additional safety criteria were already introduced after the spring evaluations for nuclear power plants. The required improvements will be done within the framework of the annual investment programmes and planned maintenance. Russia The Russian wholesale power market is liberalised. However, all generating companies continue to sell a part of their electricity and capacity equalling the consumption of households and a special group of consumers (Northern Caucasus Republic, Tyva Republic, Buryat Republic) under regulated prices. Capacity not under CSA competes in competitive capacity selection (CCS - “old capacity”). The capacity selection for 2013 was held at the end of 2012. The majority of Fortum's power plants were selected in the auction, with a price level close to the level received in 2012. Approximately 10% (265 MW) of the old capacity was not allowed to participate in the selection for 2013, due to tightened minimal technical requirements. It will, however, receive capacity payments at the capacity market price for 2013. The generation capacity built after 2007 under government Capacity Supply Agreements (CSA - “new capacity”) receives guaranteed payments for a period of 10 years. Prices for capacity under CSA are defined in order to ensure a sufficient return on investments. OAO Fortum's new capacity will be a key driver for earnings growth in Russia as it will bring income from new volumes sold and also receive considerably higher capacity payments than the old capacity. However, the received capacity payment will differ depending on the age, location, size and type of the plants as well as seasonality and availability. The return on the new capacity is guaranteed as regulated in the Capacity Supply Agreement. The regulator will review the earnings from the electricity-only market after three years and six years and could revise the CSA payments accordingly. CSA payments can somewhat vary annually because they are linked to Russian Government long-term bonds with 8 to 10 years maturity. The commissioning of Fortum's largest new investment greenfield projects in Nyagan was somewhat further postponed during the second quarter of 2012. Fortum has worked hard to resolve the delay and estimates the commissioning of Nyagan 1 to take place during the first quarter 2013 and Nyagan 2 during the first half of 2013 as a result of construction delays. This does not change the overall schedule or financial targets of the investment programme. In 2008, Fortum made a provision for penalties caused by possible commissioning delays. According to the agreement with the contractor, Fortum is entitled to adequate remedies in case of damages caused by contractor delays. In June 2012, Fortum announced its decision to build the last two units of its Russian investment programme at Chelyabinsk in the Urals. Initially, the units were planned for construction in the Tyumen region in Western Siberia. The units are included within the sphere of the Capacity Supply Agreement originally agreed in 2008. The new units are to be constructed at Chelyabinsk GRES power plant. Fortum also plans to modernise and upgrade the existing power plant equipment. Fortum is planning to commission the last new units of its EUR 2.5 billion investment programme in Russia by the end of 2014. The value of the remaining part of the investment programme, calculated at the exchange rates prevailing at the end of December 2012, is estimated to be approximately EUR 540 million as of January 2013. After completing the ongoing investment programme, Fortum's goal is to achieve an operating profit level of about EUR 500 million in its Russia Division and to create positive economic added value in Russia. A commission for heat business development has been set up by the Russian Government. Top priorities will be issues regarding heat regulation, centralised district heating and co-generation efficiency. The Russian Government is likely to increase gas prices beginning 1 July 2013; the increase is expected to be 15%. Efficiency programme 2013-2014 Due to the increasingly demanding business environment, Fortum started an efficiency programme in order to maintain and strengthen strategic flexibility and competitiveness and to enable the company to reach its financial targets in the future. The aim is to improve the company's cash flow by more than approximately EUR 1 billion during 2013—2014 by reducing capital expenditures (capex) by EUR 250—350 million, divesting approximately EUR 500 million of non-core assets, reducing fixed costs and focusing on working capital efficiency. At the end of 2014, the cost run rate will be approximately EUR 150 million lower compared to 2012, including growth projects. The Board's decision to review the strategic position of the electricity distribution business does not change the basics of the efficiency programme, which will continue as originally planned. Capital expenditure Fortum currently expects its capital expenditure in 2013 to be EUR 1.1—1.4 billion and in 2014 EUR 0.9—1.1 billion, excluding potential acquisitions. The annual maintenance capital expenditure is estimated to be about EUR 500—550 million in 2013, somewhat below the level of depreciation. Taxation The effective corporate tax rate for Fortum in 2013 is estimated to be 19—21%, excluding the impact of the share of profits of associated companies and joint ventures, non-taxable capital gains and non-recurring items. In Finland, the corporate tax rate was decreased from 26% to 24.5% starting 1 January 2012. In Sweden, the corporate tax rate was decreased from 26.3% to 22% starting 1 January 2013. The process to update the real-estate taxation values for the year 2013 is ongoing in Sweden and is expected to be finalised by mid-2013. The update is done in a cycle of six years. In 2012, the Finnish Government announced that a so-called windfall tax will be introduced in 2014. Hedging At the end of December 2012, approximately 70% of the Power Division's estimated Nordic power sales volume was hedged at approximately EUR 45 per MWh for the calendar year 2013. The corresponding figures for the calendar year 2014 were about 35% at approximately EUR 43 per MWh. The hedge price for the Power Division's Nordic generation excludes hedging of the condensing power margin. In addition, the hedge ratio excludes the financial hedges and physical volume of Fortum's coal-condensing generation as well as the division's imports from Russia. The reported hedge ratios may vary significantly, depending on Fortum's actions on the electricity derivatives markets. Hedges are mainly financial contracts, most of them Nord Pool forwards. Dividend distribution proposal The parent company's distributable equity as of 31 December 2012 amounted to EUR 4,561,649,150.11. Since the end of the financial period, there have been no material changes in the financial position of the Company. The Board of Directors proposes to the Annual General Meeting that Fortum Corporation pays a cash dividend of EUR 1.00 per share for 2012, totalling EUR 888 million based on the number of registered shares as of 30 January 2013. The dividend is proposed to be paid on 19 April 2013. Annual General Meeting 2013 Fortum Corporation's Annual General Meeting will be held at 14:00 on Tuesday, 9 April 2013, at the Finlandia Hall, Mannerheimintie 13, in Helsinki, Finland. Espoo, 30 January 2013 Fortum Corporation Board of Directors Further information: Tapio Kuula, President and CEO, tel. +358 10 452 4112 Markus Rauramo, CFO, tel. +358 10 452 1909 Fortum's Investor Relations, Sophie Jolly, +358 10 453 2552, Rauno Tiihonen, +358 10 453 6150 and Janna Haahtela, +358 10 453 2538 / investors@fortum.com The Board of Directors has approved Fortum's 2012 financial statements and Fortum's auditors have issued their unqualified audit report for 2012 on 30 January 2013. The condensed interim financial statements have been prepared in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting, as adopted by the EU. Publication of financial results in 2013: - Interim Report January - March on 25 April 2013 at approximately 9:00 EEST - Interim Report January - June on 19 July 2013 at approximately 9:00 EEST - Interim Report January - December on 23 October 2013 at approximately 9:00 EEST Fortum's Financial statements and Operating and financial review for 2012 will be published during week 12 at the latest. Fortum's Annual General Meeting is planned to take place on 9 April 2013 and the possible dividend-related dates planned for 2013 are: - Ex-dividend date 10 April 2013 - Record date for dividend payment 12 April 2013 - Dividend payment date 19 April 2013 Distribution: NASDAQ OMX Helsinki Key media www.fortum.com More information, including detailed quarterly information, is available on Fortum's website at www.fortum.com/investors.
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