2012-04-26 08:00:04 CEST
2012-04-26 08:00:19 CEST
REGULATED INFORMATION
Fortum - Interim report (Q1 and Q3)
Interim Report Q1 2012: Overall good operative results
Espoo, Finland, 2012-04-26 08:00 CEST (GLOBE NEWSWIRE) -- FORTUM CORPORATION
INTERIM REPORT 26 APRIL 2012 AT 9:00 EEST
January - March 2012
-- Comparable operating profit was EUR 651 (649) million, 0%
-- Operating profit was EUR 736 (900) million, of which EUR
-16 (173) million relates to the IFRS accounting treatment of derivatives.
-- Earnings per share was EUR 0.56 (0.76),-26%, of which -0.01 (0.14) EUR
per share relates to the IFRS accounting treatment of derivatives
-- Cash flow from operating activities was strong and reached EUR 553 (454)
million, +22%
-- Nordic system spot price was clearly lower than last year, EUR 38.2 (66.2)
Key figures I/12 I/11 2011 LTM*
--------------------------------------------------------------------------------
Sales, EUR million 1,901 2,034 6,161 6,028
--------------------------------------------------------------------------------
Operating profit, EUR million 736 900 2,402 2,238
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Comparable operating profit, EUR million 651 649 1,802 1,804
--------------------------------------------------------------------------------
Profit before taxes, EUR million 653 904 2,228 1,977
--------------------------------------------------------------------------------
Earnings per share, EUR 0.56 0.76 1.99 1.79
--------------------------------------------------------------------------------
Net cash from operating activities, EUR 553 454 1,613 1,712
million
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Shareholders' equity per share, EUR 11.65 9.30 10.84 N/A
--------------------------------------------------------------------------------
Interest-bearing net debt 6,523 6,367 7,023 N/A
(at end of period), EUR million
--------------------------------------------------------------------------------
Average number of shares, 1,000s 888,367 888,367 888,367 888,367
--------------------------------------------------------------------------------
*) Last twelve months
Key financial ratios 2011 LTM
---------------------------------------------
Return on capital employed, % 14.8 12.8
---------------------------------------------
Return on shareholders' equity, % 19.7 16.7
---------------------------------------------
Net debt/EBITDA 2.3 2.3
---------------------------------------------
Comparable net debt/EBITDA 3.0 2.7
---------------------------------------------
Outlook
-- Fortum currently expects that the annual electricity demand growth in the
Nordic countries will be about 0.5% in the coming years.
-- Power Division's Nordic generation hedges: For the rest of the calendar
year 2012, 70% hedged at EUR 48 per MWh and for the 2013 calendar year, 45%
hedged at EUR 46 per MWh.
Fortum's President and CEO Tapio Kuula:
“Fortum performed well in the first quarter of 2012, despite the continuously
demanding business environment. Nordic spot prices were clearly lower than last
year. The Nordic water reservoir levels continued to increase and were above
the long-term average throughout the first quarter. The strong hydro situation
combined with warmer weather and pressed carbon dioxide (CO2) emission
allowance prices, among other things, pushed Nordic electricity prices to below
last year's prices and below the continental prices. Electricity demand
decreased in the Nordic countries, but increased slightly in Russia compared to
the same period in 2011. Characteristic for Fortum's business is its
seasonality and we expect 2012 to be no different. The seasonal differences are
driven by hydro levels, power prices, and the normal seasonality of the heat
businesses.
In the first quarter 2012 the company's comparable operating profit was on last
year's level, and both the balance sheet as well as liquidity remained strong.
The Power Division's first-quarter comparable operating profit was somewhat
higher than in the corresponding period in 2011. The system and all area prices
were clearly lower, but a higher hedge price kept the achieved power price
close to last year's level. In addition, higher reservoir levels in the
beginning of the year, compared to the corresponding period in 2011, increased
hydro generation significantly. The Heat Division's comparable operating profit
decreased somewhat mainly due to lower volumes related to divestments in
Sweden, Finland and Estonia. The comparable operating profit development in
Russia was good, although electricity prices were clearly lower than a year
ago. The Distribution business area's comparable operating profit decreased
slightly. The decrease was mainly due to the warm weather, especially in March.
Electricity Sales' comparable operating profit in the first quarter of 2012 was
at last year's level.
A strong business foundation is essential in a changing business environment.
Fortum is committed to continuously improving its operational performance.”
Financial results
January - March
In the first quarter of 2012, Group sales were EUR 1,901 (2,034) million. Group
operating profit totalled EUR 736 (900) million. Fortum's operating profit for
the period was affected by a EUR -16 (173) million IFRS accounting treatment
(IAS 39) of derivatives mainly used for hedging Fortum's power production. The
comparable operating profit, which was not impacted by the accounting
treatment, totalled EUR 651 (649) million.
Non-recurring items, mark-to-market effects and nuclear fund adjustments
amounted to EUR 85 (251) million, of which EUR -16 (173) million was attributed
to changes in fair values of derivatives to hedge future cash flow.
Non-recurring items totalled EUR 110 (82) million, which mainly relates to the
divestment of shares in power and heat operations (Note 4).
Sales by division
EUR million I/12 I/11 2011 LTM
-------------------------------------------------------------
Power 655 693 2,481 2,443
-------------------------------------------------------------
Heat 625 725 1,737 1,637
-------------------------------------------------------------
Russia 310 295 920 935
-------------------------------------------------------------
Distribution* 308 311 973 970
-------------------------------------------------------------
Electricity Sales* 247 373 900 774
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Other 44 30 108 122
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Netting of Nord Pool transactions -188 -366 -749 -571
-------------------------------------------------------------
Eliminations -100 -27 -209 -282
-------------------------------------------------------------
Total 1,901 2,034 6,161 6,028
-------------------------------------------------------------
* Part of the Electricity Solutions and Distribution Division
Comparable operating profit by division
EUR million I/12 I/11 2011 LTM
--------------------------------------------
Power 341 325 1,201 1,217
--------------------------------------------
Heat 161 171 278 268
--------------------------------------------
Russia 48 34 74 88
--------------------------------------------
Distribution* 110 124 295 281
--------------------------------------------
Electricity Sales* 9 11 27 25
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Other -18 -16 -73 -75
--------------------------------------------
Total 651 649 1,802 1,804
--------------------------------------------
* Part of the Electricity Solutions and Distribution Division
Operating profit by division
EUR million I/12 I/11 2011 LTM
--------------------------------------------
Power 367 489 1,476 1,354
--------------------------------------------
Heat 213 265 380 328
--------------------------------------------
Russia 48 34 74 88
--------------------------------------------
Distribution* 117 125 478 470
--------------------------------------------
Electricity Sales* 11 -20 3 34
--------------------------------------------
Other -20 7 -9 -36
--------------------------------------------
Total 736 900 2,402 2,238
--------------------------------------------
* Part of the Electricity Solutions and Distribution Division
The share of profits of associates and joint ventures was EUR -7 (59) million.
The Russian territorial generating company 1 (TGC-1) and Hafslund ASA
contributed to the positive figure in the first quarter of 2011. TGC-1 is not
included in the first-quarter results as TGC-1 has not published its 2011 IFRS
Financial Statements.
The Group's net financial expenses increased to EUR 76 (55) million. The
increase is attributable to higher interest expenses, mainly due to higher SEK
interest rates and to higher average net debt. Net financial expenses were
negatively affected by changes in the fair value of financial instruments of
EUR 7 (1) million.
Profit before taxes was EUR 653 (904) million.
Taxes for the period totalled EUR 119 (158) million. The tax rate according to
the income statement was 18.3% (17.5). The tax rate excluding the impact of
share of profits of associated companies and joint ventures as well as
non-taxable capital gains was 21.0% (20.8). In Finland, the corporate tax rate
was decreased to 24.5% from 26%, effective 1 January 2012.
The profit for the period was EUR 534 (746) million. Fortum's earnings per
share were EUR 0.56 (0.76). The effect on earnings per share by the accounting
treatment of derivatives was EUR -0.01 (0.14).
Non-controlling (minority) interests amounted to EUR 39 (68) million. These are
mainly attributable to Fortum Värme Holding AB, in which the city of Stockholm
has a 50% economic interest. The decrease compared to last year is mainly due
to the minority's share, EUR 32 million, of the gain recognised in the first
quarter 2011 from the divestment of Fortum Värme's heat businesses outside the
Stockholm area.
Financial position and cash flow
Cash flow
In the first quarter of 2012, total net cash from operating activities
increased by 22% to EUR 553 (454) million. The major part of the increase was
attributable to lower foreign exchange losses in cash flow, EUR 170 million,
and the lower taxes paid, EUR 36 million, which was offset by the EUR -113
million increase in working capital. The foreign exchange gains and losses
relate to the rollover of foreign exchange contracts hedging loans to Fortum's
Swedish subsidiaries. Capital expenditures in cash flow increased by EUR 66
million to EUR 272 (206) million. Acquisitions of shares totalled EUR 0 (19)million. Proceeds from divestments totalled EUR 276 (207) million in cash flow.
Cash flow before financing activities, i.e. dividend distributions and
financing, increased by EUR 97 million to EUR 536 (439) million.
After the reporting period, dividends amounting to EUR 888 million were paid on
23 April 2012 using the cash and cash equivalents Fortum had on 31 March and
amounting to EUR 1 574 million.
Assets and capital employed
Total assets increased by EUR 1,121 million to EUR 24,119 (22,998 at year-end
2011) million. Non-current assets increased by EUR 392 million from EUR 20,210
million to EUR 20,602 million. The majority, EUR 307 million, came from the
increased value of property, plant and equipment, mainly due to the
strengthening Russian rouble and other currencies. The increase in current
assets was EUR 729 million, totalling EUR 3,517 million. The major part of the
increase relates to the higher amount of cash and cash equivalents, EUR 843
million, offset by the EUR 183 million decrease in assets held for sale. The
higher amount of cash was reserved for dividend payment amounting to EUR 888
million of 23 April 2012.
Capital employed was EUR 19,016 (17,931 at year-end 2011) million, an increase
of EUR 1,085 million. The increase was due to the higher amount of total
assets, totalling EUR 1,121 million and the minor decrease in interest-free
liabilities totalling EUR 36 million. (These interim financial statements do
not reflect the dividend paid in April).
Equity
Total equity was EUR 10,919 (10,161 at year-end 2011) million, of which equity
attributable to owners of the parent company totalled EUR 10,346 (9,632 at
year-end 2011) million and non-controlling interests EUR 573 (529 at year-end
2011) million. The increase in equity attributable to owners of the parent
company totalled EUR 714 million and arose mainly from net profit for the
period, amounting to EUR 495 million and from the translation differences
mainly relating to Russian rouble totalling EUR 207 million.
Financing
Net debt decreased during the first quarter of 2012 by EUR 500 million to EUR
6,523 (7,023 at year-end 2011) million.
At the end of March 2012, the Group's liquid funds totalled EUR 1,574 (747 at
year-end 2011) million. Liquid funds include cash and bank deposits held by OAO
Fortum amounting to EUR 249 (211 at year-end 2011) million. In addition to the
liquid funds, Fortum had access to approximately EUR 2.7 billion of undrawn
committed credit facilities.
The Group's net financial expenses in the first quarter of 2012 were EUR 76
(55) million. The increase in financial expenses is mainly attributable to
higher market interest rates and higher average net debt during the quarter.
Net financial expenses also include changes in the fair value of financial
instruments of EUR -7 (-1) million.
Fortum Corporation's long-term credit rating from S&P and from Moody's remained
unchanged, A (negative) and A2 (stable), respectively.
Key figures
For the last twelve months net debt to EBITDA was 2.3 (2.3 at year-end 2011)
and comparable net debt to EBITDA 2.7 (3.0 at year-end 2011). Gearing was 60%
(69% at year-end 2011) and the equity-to-assets ratio 45% (44% at year-end
2011). For the last twelve months, return on capital employed was 12.8% (14.8%
at year-end 2011) and return on equity 16.7% (19.7% at year-end 2011). Equity
per share was EUR 11.65 (10.84 at year-end 2011).
Outlook
Key drivers and risks
Fortum's financial results are exposed to a number of strategic, 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 continued global economic uncertainty and Europe's sovereign-debt crisis
weaken the outlook for economic growth in the mid-term, especially in the Euro
zone. The overall economic uncertainty impacts the commodity and CO2 emission
allowance prices and 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 development of the regulation around electricity and capacity
markets and operational risks related to the investment projects according to
the investment programme. In all regions, fuel prices and power plant
availability also impacts the profitability. In addition, increased volatility
in exchange rates due to financial turbulence might have both translation and
transaction effects on Fortum's financials especially through the SEK and RUB.
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 about 0.5%, while the
growth rate for the nearest years will largely be determined by the
macroeconomic development in Europe and especially in the Nordic countries.
The price of crude oil increased throughout the first quarter of 2012, whereas
the coal price continued to weaken. After declining since summer of 2011, the
price of CO2 emissions allowance (EUA) abated, and the price fluctuated between
EUR 6.6 - 9.5 per tonne. The electricity forward prices for the upcoming twelve
months declined both in the Nordic countries and in Germany during the quarter,
mainly with a lower expected spot price for the summer.
In late April 2012, the electricity forward price in Nord Pool for the rest of
2012 was around EUR 34 per MWh. The electricity forward price for 2013 was
around EUR 40 per MWh and for 2014 around EUR 41 per MWh. In Germany, the
electricity forward price for the rest of the year was around EUR 47 per MWh
and EUR 51 per MWh for 2013. At the same time, the future quotations for coal
(ICE Rotterdam) for the rest of 2012 were around USD 102 per tonne and the
market price for CO2 emissions allowances (EUA) for 2012 was about EUR 7 per
tonne.
In late April 2012, Nordic water reservoirs were about 15 TWh above the
long-term average and 29 TWh above the corresponding level of 2011.
Power
The Power Division's Nordic power price typically depends on e.g. the hedge
ratio, hedge price, 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 ongoing Swedish nuclear investment programmes over several years will
enhance safety, improve availability and increase the capacity of the current
nuclear fleet. The implementation of the investment programmes might affect
availability. Fortum's power procurement costs from co-owned nuclear companies
are affected by these investment programmes by increasing 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 will submit a consolidated report of the
national reports to the European Council in June 2012. Fortum believes that
some additional safety criteria could be introduced for nuclear power plants
based on the evaluations and that they could be implemented for the Loviisa
nuclear power plant within the framework of the annual investment programmes.
According to the legislation in Sweden, nuclear waste fees and guarantees are
updated at regular intervals. At the end of December 2011, the Government
decided upon fees and guarantees for 2012-2014. The negative impact on Fortum's
comparable operating profit is estimated to be approximately EUR 15 million per
year in 2012-2014.
Nuclear fuel costs in all Fortum nuclear power plants are expected to increase
in total by approximately EUR 15 million in 2012 due to the increased market
price of uranium and enrichment.
Russia
The Russian wholesale power market was liberalised from the beginning of 2011.
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.
The new rules for the capacity market starting from 2011 have been approved by
the Russian Government. The generation capacity built after 2007 under
government capacity supply agreements (CSA - “new capacity”) receive guaranteed
payments for a period of 10 years. Prices for capacity under CSA are defined in
order to ensure a sufficient return on investments.
Capacity not under CSA competes in competitive capacity selection (CCS - “old
capacity”). The capacity selection for 2012 was held in September 2011. The
majority of Fortum's power plants were selected in the auction, with a price
level close to the level received in 2011. Approximately 4% (120 MW) of the old
capacity was not allowed to participate in the selection due to tightened
minimal technical requirements. It will, however, receive capacity payments at
the capacity market price for two additional years.
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 age, the location, size and type of the plants as well
as seasonality and availability. Especially the old capacity payments for CHP
power plants are burdened during the summer period due to the temperature
constraints evolving from lower heat demand.
Fortum is planning to commission the last new units by the end of 2014 of its
EUR 2.5 billion investment programme. The value of the remaining part of the
investment programme, calculated at exchange rates prevailing at the end of
March 2012, is estimated to be approximately EUR 0.9 billion as of April 2012.
The return for the new capacity is guaranteed as regulated in the Capacity
Supply Agreement. The regulator reviews the earnings from the electricity-only
market after three years and six years and could revise the CSA payments
accordingly. CSA payments can vary annually somewhat because they are linked
to Russian Government long-term bonds with 8 to 10 years maturity.
Fortum currently estimates the commissioning of the new units Nyagan 1 and
Nyagan 2 to be postponed by some months due to a construction delay. Fortum has
made a provision (per unit) for penalties caused by possible commissioning
delays, already in 2008. According to the agreement with the contractor, Fortum
is entitled to adequate remedies in case of damages due to delays caused by the
contractor.
After completing the ongoing investment programme in 2015, 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.
The Russian Government decided that gas prices will increase beginning 1 July
2012; the increase is expected to be 15%. On the other hand, prices for
regulated electricity sales, heat sales and CCS capacity income will be indexed
at rates lower than in 2011.
Capital expenditure and divestments
Fortum currently expects its capital expenditure in 2012 to be around EUR
1.6-1.8 billion and in 2013-2014 around EUR 1.1 -1.4 billion, excluding
potential acquisitions. The main reason for the high capital expenditures in
2012 is the acceleration of Fortum's Russian investment programme. The annual
maintenance capital expenditure is estimated to be about EUR 500-550 million in
2012, approximately at the level of depreciation.
Taxation
The effective corporate tax rate for Fortum in 2012 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 to 24.5% from 26% starting 1 January 2012.
In March 2012, the Finnish Government announced that a so-called windfall tax
will be introduced in 2014.
The process to update the real-estate taxation values for the year 2013 is
ongoing in Sweden. The update is done in a cycle of six years.
Hedging
At the end of March 2012, approximately 70% of the Power Division's estimated
Nordic power sales volume was hedged at approximately EUR 48 per MWh for the
rest of the calendar year 2012. The corresponding figures for the calendar year
2013 were about 45% at approximately EUR 46 per MWh.
The hedge price for Fortum Power Division's Nordic generation excludes hedging
of 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 Payment
The Annual General Meeting decided to pay a dividend of EUR 1.00 per share for
2011. The record date for the dividend payment was 16 April 2012 and the
dividend payment date was 23 April 2012.
Espoo, 25 April 2012
Fortum Corporation
Board of Directors
Further information:
Tapio Kuula, President and CEO, tel. +358 10 452 4112
Juha Laaksonen, CFO, tel. +358 10 452 4519
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 condensed interim financial statements have been prepared in accordance
with International Accounting Standard (IAS) 34, Interim Financial Reporting,
as adopted by the EU. The interim financials have not been audited.
Publication of financial results in 2012:
-- Interim Report January - June on 19 July 2012 at approximately 9:00 EEST
-- Interim Report January - September on 19 October 2012 at approximately 9:00
EEST
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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