2012-07-19 08:00:03 CEST
2012-07-19 08:00:12 CEST
REGULATED INFORMATION
Fortum - Interim report (Q1 and Q3)
Fortum Corporation's Interim Report Q2 2012: Satisfactory results in a very demanding market environment
Espoo, Finland, 2012-07-19 08:00 CEST (GLOBE NEWSWIRE) -- FORTUM CORPORATION
INTERIM REPORT 19 July 2012 at 9:00 EEST
April - June 2012
- Comparable operating profit EUR 281 (348) million, -19%
- Operating profit was EUR 283 (609) million, of which EUR 2 (261) million
relates to items affecting comparability
- Earnings per share EUR 0.21 (0.53), -60%, of which EUR 0.00 (0.27) per share
relates to items affecting comparability
- Nuclear volumes decreased mainly due to prolonged repairs in Sweden. Hydro
volumes increased due to higher inflow and water reservoir levels
- Nordic power prices were significantly lower compared to second quarter 2011.
During the second quarter, the average system spot price of electricity in Nord
Pool was EUR 24 per megawatt-hour (MWh) lower. The average area prices in
Finland were EUR 20 per MWh and in Sweden (SE3) EUR 23 per MWh lower
January - June 2012
- Comparable operating profit EUR 932 (997) million, -7%
- Operating profit was EUR 1,019 (1,509) million, of which EUR 87 (512) million
relates to items affecting comparability
- Earnings per share EUR 0.77 (1.29), -40%, of which EUR 0.10 (0.47) per share
relates to items affecting comparability
- Nordic power prices were significantly lower compared to the same period in
2011.The average system spot price was EUR 26 per MWh lower and the average
area price in Finland EUR 21 per MWh lower and in Sweden (SE3) EUR 25 per MWh
lower
- Financial position remained strong
Key figures II/12 II/11 I-II/1 I-II/1 2011 LTM*
2 1
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Sales, EUR million 1,284 1,316 3,185 3,350 6,161 5,996
--------------------------------------------------------------------------------
Operating profit, EUR million 283 609 1,019 1,509 2,402 1,912
--------------------------------------------------------------------------------
Comparable operating profit, EUR 281 348 932 997 1,802 1,737
million
--------------------------------------------------------------------------------
Profit before taxes, EUR million 236 552 889 1,456 2,288 1,661
--------------------------------------------------------------------------------
Earnings per share, EUR 0.21 0.53 0.77 1.29 1.99 1.46
--------------------------------------------------------------------------------
Net cash from operating 319 410 872 864 1,613 1,621
activities, EUR million
--------------------------------------------------------------------------------
Shareholders' equity per share, 10.66 9.93 10.84 n/a
EUR
--------------------------------------------------------------------------------
Interest-bearing net debt 7,420 6,783 7,023 n/a
(at end of period), EUR million
--------------------------------------------------------------------------------
Average number of shares, 1,000s 888,36 888,36 888,36 888,36
7 7 7 7
--------------------------------------------------------------------------------
*) Last twelve months
Key financial ratios 2011 LTM
---------------------------------------------
Return on capital employed, % 14.8 11.3
---------------------------------------------
Return on shareholders' equity, % 19.7 14.0
---------------------------------------------
Net debt/EBITDA 2.3 2.9
---------------------------------------------
Comparable Net debt/EBITDA 3.0 3.2
---------------------------------------------
Outlook
- Fortum currently expects the annual electricity demand growth in the Nordic
countries to be on average 0.5% in the coming years.
- Power Division's Nordic generation hedges: For the rest of the calendar year
2012, 65% hedged at EUR 49 per MWh, and for the 2013 calendar year, 55% hedged
at EUR 45 per MWh.
Fortum's President and CEO Tapio Kuula, in connection with the second quarter
of 2012:
”The result was satisfactory, considering the extremely challenging business
environment Fortum operates in at the moment. Operating profit declined in the
second quarter mainly due to items affecting comparability, which amounted to
approximately EUR 260 million. High uncertainty in Europe and in the world
economy in general, has kept the economic activity slow in our main markets.
The Nordic water reservoir surplus levels continued and were above the
long-term average throughout the second quarter. In addition, low carbon
dioxide (CO2) emission allowance prices and coal prices have created a downward
pressure on system and area prices in the Nordic market. Hence, Nord Pool Spot
system prices were at very low levels, and in July the price level has
continued to decline. The system price has been as low as at approximately EUR
7 - a level rarely experienced in the 21st century.
Electricity consumption in the Nordic countries increased slightly during the
quarter, however, the increase was attributable to colder weather and partly
offset by decreased industrial demand. It reflects well the current demanding
economic situation in Europe. According to Finnish Energy Industries
(Energiateollisuus ry), the domestic industrial electricity consumption grew
only in the chemicals industry. The technology sector development was flat,
while consumption in the forest industry has been decreasing since the
beginning of the year. Also in Sweden, the industrial demand decreased slightly
during January-June 2012.
In Russia, electricity prices also decreased during the second quarter and
consumption was somewhat down in the areas Fortum operates in. The very
extensive and demanding construction project of the new units in Nyagan will be
delayed slightly further. Actions are taken to avoid any further delays. This
does not change the overall schedule or financial targets of the investment
programme, which is to be finalised at the end of 2014.
A satisfactory result, however, is not good enough. Great effort is put in
managing the current situation. The coming months still look challenging, both
due to the external market and timing of internal operational actions.
Therefore, as in 2011, we expect the income stream to be year-end weighted. The
industry-typical seasonality and the external environment may cause short-term
volatility; nevertheless, Fortum has a strong financial situation and we are
continuing to work according to our long-term strategy.”
Financial results
April - June
In the second quarter of 2012, Group sales were EUR 1,284 (1,316) million. The
comparable operating profit totalled EUR 281 (348) million. Group operating
profit totalled EUR 283 (609) million. Fortum's operating profit for the period
was affected by non-recurring items, IFRS accounting treatment (IAS 39) of
derivatives mainly used for hedging Fortum's power production and nuclear fund
adjustments amounting to EUR 2 (261) million.
The share of profits from associates in the second quarter was EUR 26 (15)
million. The share of profits from Hafslund and TGC-1 are based on thecompanies' published first-quarter interim reports. In addition, the share of
profits from TGC-1's fourth-quarter 2011 is included (Note 14).
Sales by division
EUR million II/12 II/11 I-II/12 I-II/11 2011 LTM
-------------------------------------------------------------------------------
Power 535 574 1,190 1,267 2,481 2,404
-------------------------------------------------------------------------------
Heat 321 322 946 1,047 1,737 1,636
-------------------------------------------------------------------------------
Russia 198 195 508 490 920 938
-------------------------------------------------------------------------------
Distribution* 223 215 531 526 973 978
-------------------------------------------------------------------------------
Electricity Sales* 135 183 382 556 900 726
-------------------------------------------------------------------------------
Other 29 19 73 49 108 132
-------------------------------------------------------------------------------
Netting of Nord Pool transactions -88 -150 -276 -516 -749 -509
-------------------------------------------------------------------------------
Eliminations -69 -42 -169 -69 -209 -309
-------------------------------------------------------------------------------
Total 1,284 1,316 3,185 3,350 6,161 5,996
-------------------------------------------------------------------------------
* Part of the Electricity Solutions and Distribution Division
Comparable operating profit by division
EUR million II/12 II/11 I-II/12 I-II/11 2011 LTM
----------------------------------------------------------------
Power 222 257 563 582 1,201 1,182
----------------------------------------------------------------
Heat 23 25 184 196 278 266
----------------------------------------------------------------
Russia 4 21 52 55 74 71
----------------------------------------------------------------
Distribution* 49 60 159 184 295 270
----------------------------------------------------------------
Electricity Sales* 11 10 20 21 27 26
----------------------------------------------------------------
Other -28 -25 -46 -41 -73 -78
----------------------------------------------------------------
Total 281 348 932 997 1,802 1,737
----------------------------------------------------------------
* Part of the Electricity Solutions and Distribution Division
Operating profit by division
EUR million II/12 II/11 I-II/12 I-II/11 2011 LTM
----------------------------------------------------------------
Power 214 271 581 760 1,476 1,297
----------------------------------------------------------------
Heat 20 25 233 290 380 323
----------------------------------------------------------------
Russia 15 21 63 55 74 82
----------------------------------------------------------------
Distribution* 50 252 167 377 478 268
----------------------------------------------------------------
Electricity Sales* 11 23 22 3 3 22
----------------------------------------------------------------
Other -27 17 -47 24 -9 -80
----------------------------------------------------------------
Total 283 609 1,019 1,509 2,402 1,912
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* Part of the Electricity Solutions and Distribution Division
January - June
In January-June, Group sales were EUR 3,185 (3,350) million. The comparable
operating profit totalled EUR 932 (997) million. Group operating profit
totalled EUR 1,019 (1,509) million. Fortum's operating profit for the period
was affected by non-recurring items, IFRS accounting treatment (IAS 39) of
derivatives mainly used for hedging Fortum's power production and nuclear fund
adjustments.
Non-recurring items, mark-to-market effects and nuclear fund adjustments in
January-June 2012 amounted to EUR 87 (512) million. Changes in fair values of
derivatives hedging future cash flow accounted for EUR -18 (249) million.
Non-recurring items totalled EUR 121 (275) million and were mainly related to
the divestments of shares in power and heat operations (Note 4).
The share of profits of associates and joint ventures was EUR 19 (74) million.
The decrease from last year was mainly due to lower share of profits from
Hafslund ASA, and TGC-1 as well as the share of profits from Fingrid Oyj, which
was divested during Q2 2011.
The Group's net financial expenses increased to EUR 149 (127) 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 during the
comparable period in 2011. Net financial expenses were also negatively affected
by changes in the fair value of financial instruments of EUR 8 (3) million.
Profit before taxes was EUR 889 (1,456) million.
Taxes for the period totalled EUR 165 (232) million. The tax rate according to
the income statement was 18.5% (15.9%). The tax rate, excluding mainly the
impact of the share of profits of associated companies and joint ventures as
well as non-taxable capital gains, was 21.1% (21.1%).
The profit for the period was EUR 724 (1,224) million. Fortum's earnings per
share were EUR 0.77 (1.29), of which EUR 0.10 (0.47) per share relates to items
affecting comparability.
Non-controlling (minority) interests amounted to EUR 43 (74) 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 January-June 2012, total net cash from operating activities increased
slightly to EUR 872 (864) million. Capital expenditures in cash flow increased
by EUR 74 million to EUR 577 (503) million. Proceeds from divestments totalled
EUR 301 (535) million in cash flow. Cash flow before financing activities, i.e.
dividend distributions and financing, decreased by EUR 303 million to EUR 579
(882) million. The strong SEK during the first half of the year had a negative
impact on the cash flow through realised net foreign exchange losses amounting
to EUR 113 (251) million related to rollover of foreign exchange contracts
hedging loans to Fortum Swedish subsidiaries.
During the reporting period, dividends totalling EUR 888 million were paid on
23 April 2012 using the cash and cash equivalents.
Assets and capital employed
Total assets decreased by EUR 379 million to EUR 22,619 (22,998 at year-end
2011) million. Non-current assets increased by EUR 432 million from EUR 20,210
million to EUR 20,642 million. The majority, EUR 391 million, came from the
increased value of property, plants and equipment; due to the investments,
strengthening Swedish krona and other currencies. The decrease in current
assets was EUR 811 million, totalling EUR 1,977 million. The majority of the
decrease relates to the lower amount of cash and cash equivalents, EUR 327
million, decrease in trade and other receivables EUR 275 million, and the EUR
183 million decrease in assets held for sale relating to divestments closed
during January-June.
Capital employed was EUR 17,848 (17,931 at year-end 2011) million, a decrease
of EUR 83 million. The decrease was due to the lower amount of total assets
totalling EUR 379 million, and a decrease in interest-free liabilities,
totalling EUR 296 million.
Equity
Total equity was EUR 10,024 (10,161 at year-end 2011) million, of which equity
attributable to owners of the parent company totalled EUR 9,472 (9,632 at
year-end 2011) million and non-controlling interests EUR 552 (529 at year-end
2011) million. The decrease in equity attributable to owners of the parent
company totalled EUR 160 million and arose mainly from net profit for the
period, amounting to EUR 681 million and from the dividends paid totalling EUR
888 million.
Financing
Net debt increased during the second quarter by EUR 897 million to EUR 7 420
(7,023 at year-end 2011) million mainly as a result of dividend payment in
April of EUR 888 million.
At the end of June 2012, the Group's liquid funds totalled EUR 404 (747 at
year-end 2011) million. Liquid funds include cash and bank deposits held by OAO
Fortum amounting to EUR 240 (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 during January-June 2012 were EUR 149 (127)
million. The increase in financial expenses is mainly attributable to higher
market interest rates and higher average net debt during the first half of the
year. Net financial expenses also include changes in the fair value of
financial instruments of EUR 8 (3) million.
Fortum Corporation's long-term credit rating from S&P, A (negative) and Fortum
Corporation's long-term credit rating from Moody's, A2 (stable), remained
unchanged.
Key figures
For the last twelve months, net debt to EBITDA was 2.9 (2.3 at year-end 2011)
and comparable net debt to EBITDA 3.2 (3.0 at year-end 2011), impacted by EUR
888 million in dividend payments. Gearing was 74% (69% at year-end 2011) and
the equity-to-assets ratio 44% (44% at year-end 2011). For the last twelve
months, return on capital employed was 11.3% (14.8% at year-end 2011) and
return on equity 14.0% (19.7% at year-end 2011). Equity per share was EUR 10.66
(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 completion of Fortum's investment programme in Russia is also
one key driver to the company's result growth.
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 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 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 impact 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 on average 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.
During the second quarter of 2012, the price of crude oil decreased steadily,
whereas the decrease in the coal price stabilised towards the end of the
quarter. The price of CO2 emissions allowances (EUA) weakened somewhat during
the quarter. The forward price of electricity for the next twelve months came
down both in the Nordic area and in Germany.
The future quotations for coal (ICE Rotterdam) for the rest of 2012 were around
USD 92 per tonne and the market price for CO2 emissions allowances (EUA) for
2012 was about EUR 8 per tonne.
In mid-July 2012, the electricity forward price in Nord Pool for the rest of
2012 was around EUR 34 per MWh. For 2013, the electricity forward price was
around EUR 38 per MWh and for 2014 around EUR 39 per MWh. In Germany, the
electricity forward price for the rest of 2012 was around EUR 45 per MWh and
for 2013 EUR 49 per MWh.
In mid-July 2012, Nordic water reservoirs were about 2 TWh above the long-term
average and 3 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 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 might 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 is estimated to submit a consolidated report of
the national reports to the European Council in October 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 from
increased nuclear waste fees 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.
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 vary annually somewhat 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 has been somewhat further postponed. Fortum has ongoing discussions with
its main contractor and Fortum estimates the commissioning of Nyagan 1 to take
place around the turn of the year and Nyagan 2 during the first half of 2013
due to 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, already. According to
the agreement with the contractor, Fortum is entitled to adequate remedies in
case of damages caused by contractor delays.
In June, Fortum announced its decision to build the last two 250-megawatt (MW)
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. Within the scope of
the project, 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 exchange rates prevailing at
the end of June 2012, is estimated to be approximately EUR 800 million as of
July 2012.
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.
The Russian Government decided to increase the gas prices as of the beginning 1
July 2012; the increase was approximately 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 June 2012, approximately 65% of the Power Division's estimated
Nordic power sales volume was hedged at approximately EUR 49 per MWh for the
rest of the calendar year 2012. The corresponding figures for the calendar year
2013 were about 55% at approximately EUR 45 per MWh.
The hedge price for 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, 18 July 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 - September on 19 October 2012 at approximately 9:00 EEST
Publication of financial results in 2013:
Financial statement bulletin for the year 2012 will be published on 31 January
2013 at approximately 9:00 EET
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 - September 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 for 9 April 2013 and
the possible dividend related dates planned for 2013 are:
- The ex-dividend date 10 April 2013
- The record date for dividend payment 12 April 2013
- The dividend payment date 19 April 2013
Distribution:
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