Fortum - Financial Statement Release

Low electricity prices and write-downs burdened continuing results – Dividend proposal EUR 1.10 per share

FORTUM CORPORATION FINANCIAL STATEMENTS BULLETIN JANUARY-DECEMBER 2015 3
FEBRUARY 2016 AT 9:00 EET 

October−December 2015, continuing operations

  -- Comparable operating profit EUR 243 (370) million, -34%
  -- Operating profit EUR 38 (584) million, of which EUR -205 (214) million
     relates to items affecting comparability
  -- Earnings per share EUR 0.02 (0.59), -97%, of which EUR -0.20 (0.25) items
     effecting comparability. Earnings per share including the effect from
     discontinued operations are EUR 0.02 (0.64)
  -- Cash flow from operating activities totalled EUR 332 (394) million, -16%
  -- Operating profit impacted by EUR -119 million write-downs and provisions
     for mainly Finnish coal-fired plants and Oskarshamn nuclear units 1 and 2
     (O1 and O2) in Sweden

January−December 2015, continuing operations

  -- Comparable operating profit EUR 808 (1,085) million, -26%
  -- Operating profit EUR -150 (1,296) million, of which EUR -958 (211) million
     relates to items affecting comparability
  -- Earnings per share EUR -0.26 (1.22), -121%, of which EUR -0.97 (0.26) per
     share relates to items affecting comparability including total effect from
     Oskarshamn nuclear units 1 and 2. Earnings per share including the effect
     from discontinued operations are EUR 4.66 (3.55)
  -- Cash flow from operating activities totalled EUR 1,228 (1,406) million,
     -13%
  -- Distribution business treated as discontinued operations from Q1/2015,
     consistent with IFRS 5, divestment completed in June 2015
  -- Fortum's Board proposes a dividend of EUR 1.10 per share

Summary of outlook

  -- Fortum continues to expect the annual electricity demand to grow in the
     Nordic countries by approximately 0.5% on average in the coming years
  -- Power and Technology segment's Nordic generation hedges: for 2016,
     approximately 50% hedged at approximately EUR 33 per MWh; for 2017,
     approximately 20% hedged at approximately EUR 30 per MWh
  -- The operating profit level (EBIT) for the Russia segment, RUB 18.2 billion,
     is targeted to be reached during 2017-2018. The euro-denominated result
     level will be volatile, due to the translation effect

Key financial ratios *                              2015  2014
Return on capital employed, %                       22.7  19.5
Net debt/EBITDA                                     -0.5   1.1
Comparable net debt/EBITDA                          -1.7   2.3
Comparable net debt/EBITDA without Värme financing  n/a    2.0

* Key figure financial ratios are based on total Fortum, including discontinued
operations 



Key figures                                          IV/15  IV/14    2015   2014
--------------------------------------------------------------------------------
Sales, EUR million                                     964  1,133   3,459  4,088
--------------------------------------------------------------------------------
Operating profit, EUR million                                                   
--------------------------------------------------------------------------------
continuing operations                                   38    584    -150  1,296
--------------------------------------------------------------------------------
discontinued operations                                  -     66   4,395  2,132
--------------------------------------------------------------------------------
total Fortum                                            38    650   4,245  3,428
--------------------------------------------------------------------------------
Comparable operating profit, EUR million                                        
--------------------------------------------------------------------------------
continuing operations                                  243    370     808  1,085
--------------------------------------------------------------------------------
discontinued operations                                  -     67     114    266
--------------------------------------------------------------------------------
total Fortum                                           243    436     922  1,351
--------------------------------------------------------------------------------
Profit before taxes, EUR million                                                
--------------------------------------------------------------------------------
continuing operations                                   20    574    -305  1,232
--------------------------------------------------------------------------------
discontinued operations                                  -     65   4,393  2,128
--------------------------------------------------------------------------------
total Fortum                                            20    639   4,088  3,360
--------------------------------------------------------------------------------
Earnings per share, EUR                                                         
--------------------------------------------------------------------------------
continuing operations                                 0.02   0.59   -0.26   1.22
--------------------------------------------------------------------------------
discontinued operations                               0.00   0.05    4.92   2.33
--------------------------------------------------------------------------------
total Fortum                                          0.02   0.64    4.66   3.55
--------------------------------------------------------------------------------
Net cash from operating activities, EUR million,       332    394   1,228  1,406
 continuing operations                                                          
--------------------------------------------------------------------------------
Shareholders’ equity per share, EUR                                 15.53  12.23
--------------------------------------------------------------------------------
Interest-bearing net debt (at end of period), EUR                  -2,195  4,217
 million                                                                        
--------------------------------------------------------------------------------
Interest-bearing net debt without Värme financing                  n/a     3,664
--------------------------------------------------------------------------------

Fortum’s President and CEO Pekka Lundmark:

“Fortum’s performance from continuing operations in 2015 was not satisfactory.
Profitability declined and remained depressed throughout the year due to the
very low electricity prices mainly driven by extreme hydro conditions and low
commodity prices. The weak market in combination with an increasing cost
burden, especially the nuclear capacity tax increase in Sweden, forced early
closures of nuclear capacity. This led to extensive write-downs that further
burdened our results. Fortum’s total operating profit, however, increased
clearly due to the sale of the Swedish distribution business that completed the
divestment of Distribution started in 2013. 

2015 demonstrated again that Finland and Europe are not isolated islands
unaffected by global economic cycles. The rapid decline in commodity prices
(coal, oil) and increase of subsidised renewable production created an urgent
need for the whole utility industry to transform and improve the industry’s
competitiveness. 

Fortum’s balance sheet is strong. At the end of 2015, net debt to EBITDA was
-0.5 as Fortum was net cash positive by more than EUR 2 billion. Net debt
decreased by approximately EUR 6.5 billion during 2015 as a result of the
Distribution divestment. A strong balance sheet and good profitability are
important to Fortum – they ensure flexible implementation of our strategy,
create the capability to carry out our investments and provide the readiness to
seize new opportunities as they arise. 

In Russia, the multi-year investment programme is nearing completion with the
commissioning of two units in Chelyabinsk. The first of the two was finalised
in December 2015 and the last unit is planned to be commissioned during the
first quarter of 2016. 

Given the demanding market, I am, however, very pleased with the continued
positive development in Fortum's stakeholder satisfaction last year. According
to a survey the company conducted, Fortum’s reputation has improved and our
investments in sustainability have received recognition. We now have a good
base to continue building on. Our customers are – and will continue to be – our
key focus area. As a result, both our customer base in electricity sales and
heat has steadily increased. 

In 2016, my priority in my role as Fortum’s CEO will be to lead the
implementation of our new vision and strategy that we will present in more
detail today. In order to further strengthen Fortum’s position in the utility
sector, we will carefully analyse and seize the opportunities our strong
balance sheet enables. We will also work on an agile, lean and efficient
organisation in order to operate more competitively and flexibly as the
forerunner of the industry. 

Finally, I would like to thank our employees for their dedication and
willingness to make Fortum an even better company in the current challenging
operating environment.” 

Fortum’s Distribution divestment completed

In June 2015, Fortum completed the divestment of its Swedish electricity
distribution business. 

The total consideration was approximately SEK 60.6 billion on a debt- and
cash-free basis, corresponding to approximately EUR 6.4 billion. Fortum booked
a one-time sales gain of approximately EUR 4.3 billion, corresponding to EUR
4.82 per share, in the second-quarter 2015 results. 

The transaction concluded the divestment of Fortum's Distribution business, a
process that began in 2013. The total consideration from the divestments in
Finland, Sweden and Norway is approximately EUR 9.3 billion on a debt- and
cash-free basis and approximately EUR 6.2 billion in non-taxable sales gains
booked during 2014 and 2015. 

IFRS restatement relating to discontinued operations

After the divestment of the Swedish distribution business, Fortum has no
distribution operations. Therefore, as of the first-quarter 2015 interim
report, the Distribution segment has been treated as discontinued operations,
consistent with IFRS 5 "Non-current assets held for sale and Discontinued
operations". The income statement, including other comprehensive income, cash
flow statement and certain key ratios has been restated for the 2014
comparative period. In the segment information, the Distribution segment is
reclassified as discontinued operations. 

Financial results discussed in this financial statements bulletin are for the
continuing operations of Fortum Group. 

Financial results

October–December 2015

In the fourth quarter of 2015, sales were EUR 964 (1,133) million, the decrease
was mainly due to weak power prices and the Russian rouble. Comparable
operating profit totalled EUR 243 (370) million and the reported operating
profit totalled EUR 38 (584) million. Fortum's operating profit for the period
was affected by approximately EUR -119 million from impairments and provisions,
as well as non-recurring items EUR 1 (238) million, an IFRS accounting
treatment (IAS 39) of derivatives mainly used for hedging Fortum's power
production, and nuclear fund adjustments for continuing operations amounting to
EUR -87 (-24) million (Note 4). 

Sales by segment

EUR million                            IV/15  IV/14   2015   2014
-----------------------------------------------------------------
Power and Technology                     440    588  1,722  2,156
-----------------------------------------------------------------
Heat, Electricity Sales and Solutions    352    393  1,187  1,332
-----------------------------------------------------------------
Russia                                   266    281    893  1,055
-----------------------------------------------------------------
Other                                     28     15    114     58
-----------------------------------------------------------------
Netting of Nord Pool transactions        -97   -121   -336   -422
-----------------------------------------------------------------
Eliminations                             -26    -24   -122    -91
-----------------------------------------------------------------
Total continuing operations              964  1,133  3,459  4,088
-----------------------------------------------------------------
Discontinued operations                    -    173    274    751
-----------------------------------------------------------------
Eliminations                               -    -21    -31    -89
-----------------------------------------------------------------
Total Fortum                             964  1,285  3,702  4,751
-----------------------------------------------------------------

Comparable operating profit by segment

EUR million                            IV/15  IV/14  2015   2014
----------------------------------------------------------------
Power and Technology                     142    276   561    877
----------------------------------------------------------------
Heat, Electricity Sales and Solutions     53     49   108    104
----------------------------------------------------------------
Russia                                    69     59   201    161
----------------------------------------------------------------
Other                                    -21    -14   -63    -57
----------------------------------------------------------------
Total continuing operations              243    370   808  1,085
----------------------------------------------------------------
Discontinued operations                    -     67   114    266
----------------------------------------------------------------
Total Fortum                             243    436   922  1,351
----------------------------------------------------------------

Operating profit by segment

EUR million                            IV/15  IV/14   2015   2014
-----------------------------------------------------------------
Power and Technology                     -65    318   -396    855
-----------------------------------------------------------------
Heat, Electricity Sales and Solutions     54    221    105    337
-----------------------------------------------------------------
Russia                                    69     59    203    161
-----------------------------------------------------------------
Other                                    -21    -14    -62    -58
-----------------------------------------------------------------
Total continuing operations               38    584   -150  1,296
-----------------------------------------------------------------
Discontinued operations                    -     66  4,395  2,132
-----------------------------------------------------------------
Total Fortum                              38    650  4,245  3,428
-----------------------------------------------------------------

January–December 2015

In 2015, sales were EUR 3,459 (4,088) million, the decrease was mainly due to
weak power prices and the Russian rouble. Comparable operating profit totalled
EUR 808 (1,085) million and the reported operating profit totalled EUR -150
(1,296) million. Fortum's operating profit for the period was affected by EUR
-794 million impact from the early closure of Oskarshamn nuclear units 1 and 2
(O1 and O2) in Sweden (Note 6), other impairments and provisions EUR -124 (0)
million as well as non-recurring items EUR 22 (305) million, an IFRS accounting
treatment (IAS 39) of derivatives mainly used for hedging Fortum's power
production and nuclear fund adjustments for continuing operations amounting to
EUR -62 (-94) million (Note 4). Total Fortum’s operating profit EUR 4,245
(3,428) million includes the sales gain from the divestment of the Swedish
electricity distribution business, approximately EUR 4.3 billion (approximately
EUR 1.9 billion from Finnish and Norwegian operations in 2014). 

The share of profit from associates was EUR 20 (146) million, the negative
impact came mainly from the write-down of Oskarshamn nuclear units 1 and 2, in
Sweden. The impact on earnings per share from the early closure of nuclear
units O1 and O2 was EUR -0.82 per share. Fortum Värme represented EUR 47 (67)
million, the decrease was mainly due to the paid compensation for refinancing
the interest-bearing loans from Fortum. The share of profit from Hafslund and
TGC-1 are based on the companies' published third-quarter 2015 interim reports
(Note 14). 

The net financial expenses were EUR -175 (-210) million. Net financial expenses
include changes in the fair value of financial instruments of EUR -18 (-5)
million. 

Profit before taxes was EUR -305 (1,232) million.

Taxes for the period totalled EUR 78 (-143) million. Taxes for the period are
positive as the group is in loss position. This is mainly due to the write-down
related to early closure of nuclear units O1 and O2 units in Sweden. The tax
rate according to the income statement was 25.4% (11.6%). The tax rate,
excluding the impact of the share of profit from associated companies, joint
ventures as well as non-taxable capital gains, was 23.5% (2014: 18.0%) (Note
10). 

The profit for the period for continuing operations was EUR -228 (1,089)
million. Earnings per share for continuing operations were EUR -0.26 (1.22), of
which EUR -0.97 (0.26) per share relates to items affecting comparability,
including total effect related to early closure of nuclear units O1 and O2.
Earnings per share for total Fortum, including the effect from discontinued
operations, were EUR 4.66 (3.55), including the EUR 4.82 gain from the sale of
the Swedish electricity distribution business. Earnings per share for total
Fortum in 2014 were impacted by EUR 2.08 per share from the sale of the Finnish
electricity distribution business (Note 7). 

Financial position and cash flow

Cash flow

In 2015, net cash from operating activities from continuing operations
decreased by EUR 178 million to EUR 1,228 (1,406) million, mainly due to lower
EBITDA. Realised foreign exchange gains and losses of EUR 292 (352) million
were related to the rollover of foreign exchange contract hedging loans to
Fortum's Swedish and Russian subsidiaries. Total net cash from operating
activities including discontinued operations amounted to EUR 1,381 (1,762)
million. 

Capital expenditures for continuing operations decreased by EUR 95 million to
EUR 527 (622) million. Net cash from investing activities for total Fortum was
EUR 6,268 (2,816) million, including the impact from discontinued operations
amounting to EUR 6,303 (2,574) million. Cash flow before financing activities
for total Fortum increased by EUR 3,072 million to EUR 7,650 (4,578) million,
including the net impact of discontinued operations of EUR 6,457 (2,930)
million. 

Fortum paid dividends totalling EUR 1,155 million in April 2015. The net
increase in liquid funds during the period was EUR 5,490 million. 

Assets and capital employed

Total assets increased by EUR 1,392 million to EUR 22,767 (21,375) million.

Liquid funds increased by EUR 5,436 million to EUR 8,202 (2,766) million, and
property, plant and equipment decreased by  EUR 2,485 million, both arising
mainly from the divestment of the Swedish distribution business. The long-term
interest-bearing receivables decreased by EUR 1,268 million to EUR 773 (2,041)
million mainly due to the early closure of Oskarshamn units 1 and 2 in Sweden
and repayments by Fortum Värme. At the end of 2015 Fortum did not have any loan
receivables from Fortum Värme. 

Capital employed for total Fortum was EUR 19,870 (17,918) million, an increase
of EUR 1,952 million. 

Equity

Total equity attributable to owners of the parent company totalled EUR 13,794
(10,864) million. 

The increase in equity attributable to owners of the parent company totalled
EUR 2,930 million and was mainly from the gain on the divestment of Swedish
distribution business of approximately EUR 4.3 billion, partly offset by the
dividend payment of EUR -1,155 million for 2014. 

Financing

Fortum was net cash positive at the end of the period as net debt decreased by
EUR 6,412 million during 2015 from net debt EUR 4,217 million to net cash EUR
2,195 million. 

At the end of 2015, the Group’s liquid funds totalled EUR 8,202 (2,766)
million. Liquid funds include cash and bank deposits held by OAO Fortum
amounting to EUR 76 (134) million. In addition to liquid funds, Fortum had
access to approximately EUR 2.2 billion of undrawn committed credit facilities
(Note 16). 

The net financial expenses were EUR -175 (-210) million of which net interest
expenses were 
EUR -152 (-165) million. Net financial expenses include compensation from
prepayment of loans by Fortum Värme EUR 37 million and changes in the fair
value of financial instruments of EUR -18 (-5) million. 

On 5 June 2015, Standard & Poor's downgraded Fortum’s long-term rating to BBB+
from A- and affirmed the A-2 short-term rating. The outlook is stable. The
long-term corporate credit rating was removed from CreditWatch, where it had
been placed since 18 March 2015. On 17 November 2015, Fitch Ratings downgraded
Fortum’s long-term Issuer Default Rating (IDR) and senior unsecured rating to
BBB+ from A-, while affirming the short-term IDR at F2 with a stable outlook. 

Key figures

At year-end 2015, net debt to EBITDA was -0.5 (1.1) and comparable net debt to
EBITDA -1.7 (2.3). At year-end 2015, Fortum was no longer financing Fortum
Värme. 

Gearing was -16% (39%) and the equity-to-assets ratio 61% (51%). Equity per
share was EUR 15.53 (12.23). For the year 2015, return on capital employed
totalled 22.7% (19.5%). 

Market conditions

Nordic countries

According to preliminary statistics, electricity consumption in the Nordic
countries was 103 (104) terawatt-hours (TWh) during the fourth quarter of 2015.
In January-December 2015, it was 381 (378) TWh. The full-year increase was
mainly driven by higher industrial consumption in Sweden and Norway. 

At the beginning of 2015, the Nordic water reservoirs were at 80 TWh, which is
3 TWh below the long-term average and 2 TWh lower than a year earlier. By the
end 2015, reservoirs were at 98 TWh, which is 15 TWh above the long-term
average and 18 TWh higher than at the end of 2014. Reservoir surplus compared
to the long-term average increased further during the fourth quarter due to
high precipitation and mild weather, which delayed snow accumulation. Snow
reservoirs were approximately normal at year-end. 

In the fourth quarter of 2015, the average system spot price of electricity in
Nord Pool was EUR 21.9 (30.7) per megawatt-hour (MWh). Mild weather reduced
consumption and high water reservoirs put pressure on prices. In Finland, the
average area price was EUR 30.6 (36.4) per MWh and in Sweden SE3 (Stockholm)
EUR 23.0 (31.3) per MWh. 

During January–December 2015, the average system spot price was EUR 21.0
(29.6). The decline was due to the highest annual inflow ever reported and
correspondingly very high hydro production volumes as well as mild weather and
low commodity prices.  In addition, wind power production increased during the
year, impacting spot prices negatively. The average area price in Finland was
EUR 29.7 (36.0) and in Sweden SE3 (Stockholm) EUR 22.0 (31.6). 

In Germany the average spot price during the fourth quarter of 2015 was EUR
33.2 (34.8) per MWh and during January-December 2015 EUR 31.6 (32.8) per MWh. 

The market price of CO2 emission allowances (EUA) was at approximately EUR 7.1
per tonne at the beginning of the year and EUR 8.3 at the end of 2015. 

Russia

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

According to preliminary statistics, Russia consumed 275 (282) TWh of
electricity during the fourth quarter of 2015. The corresponding figure in
Fortum’s operating area in the First price zone (European and Urals part of
Russia) was 211 (214) TWh. In January-December 2015, Russia consumed 1,007
(1,021) TWh of electricity. The corresponding figure in Fortum’s operating area
in the First price zone was 772 (777) TWh. 

In the fourth quarter of 2015, the average electricity spot price, excluding
capacity price, increased by 5% to RUB (Russian rouble) 1,178 (1,120) per MWh
in the First price zone. In January-December 2015, the average electricity spot
price, excluding capacity price, decreased by 0.8% to RUB 1,154 (1,163) per MWh
in the First price zone. 

More detailed information about the market fundamentals is included in the
tables at the end of the report (page 59-61). 

European business environment and carbon market

Paris Agreement
In December 2015, a global climate agreement for the post-2020 period was
adopted. All countries are obligated to prepare national contributions,
including mitigation, adaptation and financing, to be reviewed every five
years. The long-term goal is to keep the temperature increase well below 2°C
above pre-industrial levels with efforts to limit it to 1.5°C. 

The agreement increases long-term stability and predictability, encourages
market-driven actions and reduces the risk of carbon leakage. Potentially, it
can result in an accelerated low-carbon energy transition and new business
opportunities. However, there will be no direct impact on CO2 price unless the
EU decides to increase its 2030 target. The EU Heads of States will discuss the
results of Paris and the possible consequences on EU targets and policies in
March 2016. 

EU emissions trading reform
In 2015, the EU Council formally adopted the European Commission’s proposal to
create a reserve to hold surplus CO2 permits under the EU Emissions Trading
System. This means that the proposed Market Stability Reserve will become
operational in January 2019 and will remove 12% of the net surplus each year,
as long as it remains above 833 million tonnes. The EU Environment Council
adopted the legislation on behalf of the wider EU Council. 

EU power market development
The public consultation on the new EU electricity market design was closed in
2015. Although the aim of the consultation is to collect input from different
stakeholders, the European Commission has already stated quite clearly that its
preference is to focus on further development of the current energy-only market
design rather than going towards capacity markets. In particular, fixed
capacity payments are not favoured because of their highly distortive nature.
The Commission will put forward proposals for a comprehensive revision of the
energy market-related legislation in the autumn 2016. 

State of the Energy Union Report
In November 2015, the European Commission published the first edition of the
annual “State of the EU Energy Union” report. It included reports on each
member states’ progress in implementing the EU energy and climate targets, and
the key principles for the governance system to ensure implementation of the
Energy Union in a transparent and predictable way. The report also underlines
the EU’s ambition to continue the EU leadership in the transition to a
low-carbon economy after COP21, and to ensure that the transition is socially
fair and consumer-centred. Continuing geopolitical challenges are also noted in
the report. 

Circular Economy Package
In December 2015, the EU Commission also proposed a Circular Economy package
aiming at better resource efficiency and high-quality reuse of products and
recycling of waste. The proposal includes amendments to several waste-related
directives and ambitious EU targets for reuse and recycling of all waste
streams. The Commission is proposing a ban on the landfilling of separately
collected waste and limiting the share of landfilled municipal waste to a
maximum of 10% by 2030. 

When waste cannot be prevented or recycled, using it for energy is preferred to
landfilling. ‘Waste to energy’ can therefore play a bigger role in the EU
energy and climate policy. The Commission will examine how the energy potential
can best be exploited and will adopt a waste-to-energy initiative in the
framework of the Energy Union during 2016. 

Outlook

Key drivers and risks

Fortum's financial results are exposed to a number of economic, strategic,
political, financial and operational risks. One of the key factors influencing
Fortum's business performance is the wholesale price of electricity in the
Nordic region. The key drivers behind the wholesale price development in the
Nordic region are the supply-demand balance, the prices of fuel and CO2
emissions allowances, as well as the hydrological situation. The completion of
Fortum’s investment programme in Russia is also a key driver in the company’s
result growth, due to the increase in production volumes and CSA payments. 

The continued global and European uncertainty has kept the outlook for economic
growth unpredictable. The overall economic uncertainty impacts commodity and
CO2 emissions allowance prices, and this could maintain downward pressure on
the Nordic wholesale price of electricity. In Fortum's Russian business, the
key factors are economic growth, the rouble exchange rate, 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 profitability. In addition, increased volatility
in exchange rates due to financial turbulence could have both translation and
transaction effects on Fortum's financials, especially through the Russian
rouble and Swedish krona. In the Nordic countries, also the regulatory and
fiscal environment for the energy sector has added risks for utility companies. 

Nordic market

Despite macroeconomic uncertainty, electricity is expected to continue to gain
a higher share of the total energy consumption. Electricity demand is expected
to grow in the Nordic countries by approximately 0.5% on average in the coming
years. 

During January-December 2015, the price of the European Union emissions
allowances appreciated, whereas oil and coal prices declined. The price of
electricity for the upcoming twelve months declined in the Nordic area as well
as in Germany. 

In late-January 2016 the quotation for coal (ICE Rotterdam) for the rest of
2016 was around USD 42 per tonne, and for CO2 emission allowances for 2016
about EUR 6 per tonne. The Nordic system electricity forward price in Nasdaq
Commodities for the rest of 2016 was around EUR 19 per MWh and for 2017 around
EUR 18 per MWh. In Germany, the electricity forward price for the rest of 2016
was around EUR 25 per MWh and for 2017 around EUR 24 per MWh. Nordic water
reservoirs were about 9 TWh above the long-term average and 8 TWh above the
corresponding level of 2015. 

Power and Technology

The Power and Technology segment’s (achieved) Nordic power price typically
depends on such factors as hedge ratios, hedge prices, spot prices,
availability and utilisation of Fortum's flexible production portfolio and
currency fluctuations. Excluding the potential effects from changes in the
power generation mix, a 1 EUR/MWh change in the Power and Technology segment’s
Nordic power sales (achieved) price will result in an approximately EUR 45
million change in Fortum's annual comparable operating profit. In addition, the
comparable operating profit of the Power and Technology segment will be
affected by the possible thermal power generation volumes and its profits. 

As a result of the nuclear stress tests in the EU, the Swedish nuclear safety
authority (SSM) has decided to propose new regulations for Swedish nuclear
reactors. The process is ongoing. Fortum emphasises that maintaining a high
level of nuclear safety is the highest priority, but considers EU-level
harmonisation of nuclear safety requirements to be of utmost importance. 

In 2015, the Swedish Government increased the nuclear waste fund fee for the
period 2015-2017 from approximately 0.022 to approximately 0.04 SEK/kWh. The
estimated impact on Fortum is approximately EUR 25 million annually. The
process to review the Swedish nuclear waste fees is done in a three-year cycle.
However, as a result of the decision on early closure of nuclear power plants,
the Swedish Radiation Safety Authority, SSM, recalculated the waste fees for
the Oskarshamn and Ringhals power plants. The new assessment needs the approval
of the Swedish Government. 

In addition, the Swedish Parliament decided to approve the proposed tax
increase of 17% on installed nuclear capacity. The tax was implemented as of 1
August 2015. The estimated impact on Fortum is approximately EUR 15 million in
2016, albeit corporate tax-deductible. The future of the nuclear tax is subject
to active political debate in Sweden. 

In October 2015, OKG AB's extraordinary shareholders' meeting decided on the
closure of Oskarshamn nuclear power plant units 1 and 2 in Sweden. For unit 1,
it means that the unit will be taken out of operation and transferred into
service mode after the applied environmental permit has been received,
approximately during 2017-2019. For unit 2, which has been out of operation
since June 2013 due to an extensive safety modernisation, it means that the
unit will not be put back into operation. The closing process for both units is
estimated to take several years. 

In August 2015, Fortum decided to participate in the Fennovoima nuclear power
project in Finland with a 6.6%-share and on the same terms and conditions as
the other Finnish companies currently participating in the project.
Participation will be carried out through Voimaosakeyhtiö SF. 

Russia

The Russia segment's new capacity generation built after 2007 under the Russian
Government's capacity supply agreement (CSA) is a key driver for earnings
growth in Russia, as it is expected to bring income from new volumes sold and
also to receive considerably higher capacity payments than the old capacity. It
receives guaranteed capacity payments currently for a period of 10 years. A
draft regulation related to the time frame (in the future 10 or 15 years)
regarding the calculation has been submitted for review to the federal
executive authorities, and a decision is expected during first half of 2016.
Prices for capacity under CSA are defined in order to ensure a sufficient
return on investments. The received capacity payment will vary depending on the
age, location, size and type of the plants as well as on seasonality and
availability. The return on the new capacity is guaranteed, as regulated in the
CSA. CSA payments can vary somewhat annually because they are linked to Russian
Government long-term bonds with 8 to 10 years maturity. In addition, the
regulator will review the earnings from the electricity-only market three years
and six years after the commissioning of a unit and could revise the CSA
payments accordingly. 

In February 2016, the System Administrator of the wholesale market is planning
to publish data on the weighted average cost of capital (WACC) and the consumer
price index (CPI) for 2015, which is used to calculate the capacity price on
CSA in 2016. 

The value of the remaining part of Fortum's investment programme, calculated at
the exchange rates prevailing at the end of December 2015, is estimated to be
approximately EUR 100 million, as of January 2016. 

According to the new rules approved by the Russian Government in 2015, the
competitive capacity selection for generation built prior to 2008 (CCS, without
capacity supply agreements) takes place annually. At the end of 2015, the CCS
for 2016 and the long-term CCS for 2017-2019 were held. The majority of
Fortum’s plants were selected. The volume of Fortum’s installed capacity not
selected in the auction totalled 195 MW for which Fortum has obtained forced
mode status, i.e. it will receive payments for the capacity. In 2016, the CCS
for year 2020 will take place. 

The targeted operating profit (EBIT) level of RUB 18.2 billion in the Russia
segment is targeted to be reached during 2017-2018. The segment’s profits are
impacted by changes in power demand, gas prices and other regulatory
development. The economic sanctions, currency crisis, oil price and the surge
in inflation have impacted overall demand. As a result, gas prices and
electricity prices have not developed favourably as expected. Previously, the
run-rate operating profit level (EBIT) was targeted to be reached during 2015
after finalising the investment programme. 

The euro-denominated result level will be volatile due to the translation
effect. The income statements of non-euro subsidiaries are translated into the
Group reporting currency using the average exchange rates. The Russia segment's
result is also impacted by seasonal volatility caused by the nature of the heat
business, with the first and last quarter being clearly the strongest. 

In 2014, the new heat market model roadmap proposed by the Ministry of Energy
was approved by the Russian Government; if implemented the reform should give
heat market liberalisation by 2020 or, in some specific areas, by 2023. 

As forecasted by the Russian Ministry of Economic Development, Russian annual
average gas price growth is estimated to be 4.9% in 2016. 

Restructuring of TGC-1 according to strategy in Russia

In December 2014, Fortum, Gazprom Energoholding LLC and Rosatom State
Corporation signed a protocol to start a restructuring process of the ownership
of TGC-1 in Russia. The discussions have not yet come to a conclusion. It is
not possible to estimate the timetable. 

Capital expenditure and divestments

Fortum currently expects its capital expenditure for its continuing operations
in 2016 to be approximately EUR 650 million. The annual maintenance capital
expenditure is estimated to be about EUR 300-350 million in 2016, below the
level of depreciation. 

Taxation

The effective corporate income tax rate for Fortum in 2016 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 August 2014, the Finnish Board of Adjustment of the Large Taxpayers’ Office
approved Fortum Corporation's appeal of the income tax assessment imposed on
Fortum for the year 2007 in December 2013. The Tax Recipients’ Legal Services
Unit appealed the matter (Note 23). In December 2014, Fortum received a
non-taxation decision regarding its financing companies for the remaining years
2008−2011, based on the same audit. This is in line with the Supreme
Administrative Court’s (SAC) precedent decision. The Tax Recipients' Legal
Services Unit has appealed the decisions in February 2015, and the cases for
years 2008−2011 are now pending the Board of Adjustment of the Large Taxpayers'
Office decision. In line with the 2007 case, Fortum considers the claims
unjustifiable. 

In June, the Swedish Parliament approved the 17% increase on the tax on
installed nuclear capacity, re-proposed by the Swedish Government. The tax was
implemented as of 1 August 2015. The estimated impact on Fortum is
approximately EUR 15 million in 2016, albeit corporate tax-deductible. 

Hedging

At the end of December 2015, approximately 50% of Power and Technology's
estimated Nordic power sales volume was hedged at approximately EUR 33 per MWh
for the year 2016. The corresponding figures for the 2017 calendar year were
approximately 20% at approximately EUR 30 per MWh. 

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 Nasdaq Commodities forwards. 

Dividend distribution proposal

The distributable funds of Fortum Oyj as at 31 December 2015 amounted to EUR
5,417,422,951.23 including the profit of the period of EUR 1,133,611,072.83.
After 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 a dividend
of EUR 1.10 per share be paid for 2015. 
Based on the number of registered shares as of 2 February 2016 the total amount
of dividend proposed to be paid is EUR 977,203,749.50. The Board of Directors
proposes that the remaining part of the profit be retained in shareholders’
equity. 

Annual General Meeting 2016

Fortum's Annual General Meeting is planned to take place at 14:00 on Tuesday, 5
April 2016, at the Finlandia Hall, Mannerheimintie 13, in Helsinki, Finland. 



Espoo, 2 February 2016
Fortum Corporation
Board of Directors

Further information:
Pekka Lundmark, President and CEO, tel. +358 10 452 4112
Timo Karttinen, CFO, tel. +358 10 453 6555

Fortum’s Investor Relations, Sophie Jolly, tel. +358 10 453 2552, Rauno
Tiihonen, tel. +358 10 453 6150, Marja Mäkinen +358 10 452 3338 and
investors@fortum.com 

The Board of Directors has approved Fortum's 2015 financial statements and
Fortum's auditors issued their unqualified audit report for 2015 on 2 February
2016. The financial statements bulletin has been prepared in accordance with
International Accounting Standard (IAS) 34, Interim Financial Reporting, as
adopted by the EU. 


Reporting, AGM, and Capital Markets Day in 2016:

Fortum’s Financial statements and the Operating and financial review for 2015
will be published during week 10 at the latest. 

Fortum will publish three interim reports in 2016:
- January-March on 28 April 2016 at approximately 9:00 a.m. EEST
- January-June on 20 July 2016 at approximately 9:00 a.m. EEST
- January-September on 25 October 2016 at approximately 9:00 a.m. EEST

Fortum's Annual General Meeting is planned to take place on 5 April 2016 and
the possible dividend related dates planned for 2016 are:
- Ex-dividend date 6 April 2016
- Record date for dividend payment 7 April 2016
- Dividend payment date 14 April 2016

Fortum's Capital Markets Day is planned to take place on 16 November in
Helsinki. 

Distribution:
Nasdaq Helsinki
Key media
www.fortum.com

More information, including detailed quarterly information, is available on
Fortum’s website at www.fortum.com/investors.