Annual Report 2014 | Suomeksi |

19 Property, plant and equipment

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Accounting policies + -
Property, plant and equipment comprise mainly power and heat producing buildings and machinery, transmission lines, tunnels, waterfall rights and district heating network. Property, plant and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses as applicable in the consolidated balance sheet. Historical cost includes expenditure that is directly attributable to the acquisition of an item and borrowing costs capitalised in accordance with the Group’s accounting policy. Cost may also include transfers from equity of any gains or losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Acquired assets on the acquisition of a new subsidiary are stated at their fair values at the date of acquisition.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.
Additionally the cost of an item of property, plant and equipment includes the estimated cost of its dismantlement, removal or restoration.
See Note 31 Other provisions for information about asset retirement obligations.
Land, water areas, waterfall rights and tunnels are not depreciated since they have indefinite useful lives. Depreciation on other assets is calculated using the straight‑line method to allocate their cost to their residual values over their estimated useful lives, as follows:
Hydro power plant buildings, structures and machinery
Thermal power plant buildings, structures and machinery
Nuclear power plant buildings, structures and machinery
CHP power plant buildings, structures and machinery
Substation buildings, structures and machinery
Distribution network
District heating network
Other buildings and structures
Other tangible assets
Other machinery and equipment
Other non‑current investments
40–50 years
25 years
25 years
15–25 years
30–40 years
15–40 years
30–40 years
20–40 years
20–40 years
3–20 years
5‑10 years
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each closing date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
Impairment of non‑financial assets
The individual assets’ carrying values are reviewed at each closing date to determine whether there is any indication of impairment. An asset's carrying amount is written down immediately to its recoverable amount if it is greater than the estimated recoverable amount.
When considering the need for impairment the Group assesses if events or changes in circumstances indicate that the carrying amount may not be recoverable. This assessment is documented once a year in connection with the Business Plan process. Indications for impairment are analysed separately by each division as they are different for each business and include risks such as changes in electricity and fuel prices, regulatory/political changes relating to energy taxes and price regulations etc. Impairment testing needs to be performed if any of the impairment indications exists. Assets that have an indefinite useful life and goodwill, are not subject to amortisation and are tested annually for impairment.
An impairment loss is recognised in the income statement for the amount by which the assets' carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash‑generating units). Goodwill is allocated to cash‑generating units for the purpose of impairment testing. The allocation is made to those cash‑generating units or groups of cash‑generating units that are expected to benefit from the business combination in which the goodwill arose.
Value in use is determined by discounting the future cash flows expected to be derived from an asset or cash‑generating unit. Cash flow projections are based on the most recent Business Plan that has been approved by management and the Board of Directors. Cash flows arising from future investments such as new plants are excluded unless projects have been started. The cash outflow needed to complete the started projects is included.
The period covered by cash flows is related to the useful lives of the assets reviewed for impairment. According to IFRS, projections used should cover a maximum period of five years, but longer period can be justifiable in certain circumstances. The Group uses a longer projection period than normally allowed by IFRS, which reflects the long useful lives of power plants and other major assets. Cash flow projections beyond the period covered by the most recent business plan are estimated by extrapolating the projections using growth rates estimated by management for subsequent years.
Non‑financial assets other than goodwill that suffered an impairment charge are reviewed for possible reversal of the impairment at each reporting date.
Government grants
Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to costs are deferred and recognised in the income statement over the period necessary to match them with the costs that they are intended to compensate. Government grants relating to the purchase of property, plant and equipment are deducted from the acquisition cost of the asset and are recognised as income by reducing the depreciation charge of the asset they relate to.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
Joint operations
Fortum owns, through its subsidiary Fortum Power and Heat Oy, the coal condensing power plant Meri‑Pori in Finland. Teollisuuden Voima Oyj (TVO) has the contractual right to participate in the plant with 45.45%. The capacity and production is divided between Fortum and TVO. Each owner can decide when and how much capacity to use for production. Both Fortum and TVO purchase fuel and emission rights independently. Since Fortum and TVO are sharing control of the power plant, Meri‑Pori is accounted for as a joint operation. Fortum is accounting for its part of the investment, i.e. 54.55%. Fortum is also entitled to part of the electricity TVO produces in Meri‑Pori through its shareholding of 26.58% of TVO C‑series shares.
For further information regarding Fortum’s shareholding in TVO, see Note 20 Participations in associated companies and joint ventures.
Critical accounting estimates: Assumptions related to impairment testing + -
The Group has significant carrying values in property, plant and equipment as well as goodwill which are tested for impairment according to the accounting policy described in the notes. The recoverable amounts of cash‑generating units have been determined based on value in use calculations. These calculations are based on estimated future cash flows from most recent approved business plan. Preparation of these estimates requires management to make assumptions relating to future expectations. Assumptions vary depending on the business the tested assets are in. For power and heat generation business the main assumptions relate to the estimated future operating cash flows and the discount rates used to present value them. The distribution business is regulated and supervised by national authorities. Estimated future cash flows include assumptions relating to the development of the future regulatory framework.
Estimates are also made in an acquisition when determining the fair values and remaining useful lives of acquired intangible and tangible assets, see note 18 Intangible assets.
EUR million Land, waterfall,
rights and
tunnels
Buildings, plants
and structures
Machinery
and equipment
Other tangible assets Advances paid and construction
in progress
Total
Cost 1 January 2014 2,974 3,424 11,120 144 1,161 18,824
Translation differences and other adjustments ‑164 ‑426 ‑1,176 ‑4 ‑274 ‑2,043
Capital expenditure 2 22 28 0 700 752
Nuclear asset retirement cost 0 0 ‑3 0 0 ‑3
Disposals ‑1 ‑5 ‑259 0 ‑1 ‑266
Sale of subsidiary companies ‑1 ‑88 ‑443 ‑1 ‑16 ‑549
Reclassifications 0 182 461 ‑4 ‑666 ‑27
Cost 31 December 2014 2,810 3,110 9,728 136 904 16,687
Accumulated depreciation 1 January 2014 0 1,321 4,542 111 0 5,974
Translation differences and other adjustments 0 ‑67 ‑330 ‑3 0 ‑400
Disposals 0 ‑1 ‑258 0 0 ‑259
Sale of subsidiary companies 0 ‑31 ‑287 ‑1 0 ‑319
Depreciation for the period 0 111 387 3 0 502
Reclassifications 0 ‑5 ‑1 0 0 ‑5
Accumulated depreciation 31 December 2014 0 1,328 4,054 111 0 5,492
Carrying amount 31 December 2014 2,810 1,782 5,674 25 904 11,195
The change in property, plant and equipment was negative, even though capital expenditures were higher than depreciation during the year. The decreases were mainly due to the translation differences and sale of subsidiary companies. The main increase was due to the ongoing investment programme in OAO Fortum.
See Note 9 Assets held for sale
For more information on credit risks regarding ongoing investments, see Note 3.7 Credit risk.
Property, plant and equipment that are subject to restrictions in the form of real estate mortgages amount to EUR 274 million (2013: 240).
See Note 35 Pledged assets.
EUR million Land, waterfall,
rights and
tunnels
Buildings, plants
and structures
Machinery
and equipment
Other tangible assets Advances paid and construction
in progress
Total
Cost 1 January 2013 3,069 3,080 12,414 137 2,284 20,985
Translation differences and other adjustments ‑93 ‑146 ‑466 5 ‑139 ‑839
Increases through business combinations 0 1 9 0 0 10
Capital expenditure 1 74 269 2 613 959
Nuclear asset retirement cost 0 0 45 0 0 45
Disposals ‑1 ‑133 ‑136 ‑1 ‑1 ‑272
Reclassifications 1 579 960 1 ‑1,546 ‑5
Moved to assets held for sale ‑3 ‑30 ‑1,977 ‑1 ‑50 ‑2,061
Cost 31 December 2013 2,974 3,424 11,120 144 1,161 18,824
Accumulated depreciation 1 January 2013 0 1,343 5,300 107 0 6,750
Translation differences and other adjustments 0 ‑40 ‑151 1 0 ‑190
Increases through business combinations 0 0 0 0 0 0
Disposals 0 ‑100 ‑97 ‑1 0 ‑198
Depreciation for the period 0 112 478 4 0 594
Reclassifications 0 28 ‑32 1 0 ‑3
Moved to assets held for sale 0 ‑22 ‑957 ‑1 0 ‑980
Accumulated depreciation 31 December 2013 0 1,321 4,542 111 5,974
Carrying amount 31 December 2013 2,974 2,103 6,579 33 1,161 12,849
19.1 Capitalised borrowing costs
Buildings, plants and structures Machinery and equipment Advances paid and construction
in progress
Total
EUR million 2014 2013 2014 2013 2014 2013 2014 2013
1 January 40 17 162 73 57 143 259 233
Translation differences and other adjustments ‑14 ‑2 ‑56 ‑11 ‑21 ‑11 ‑91 ‑24
Increases / disposals ‑6 0 12 0 37 60 43 60
Reclassification 9 27 21 108 ‑31 ‑136 ‑1 ‑1
Depreciation 5 ‑1 ‑14 ‑6 0 0 ‑9 ‑7
Moved to Assets held for sale 0 0 0 ‑1 0 0 0 ‑1
31 December 35 40 125 162 42 57 202 259
Borrowing costs of EUR 47 million were capitalised in 2014 (2013: 60) for the OAO Fortum investment program. The interest rate used for capitalisation varied between 3,3 ‑ 16,6% (2013: 2.8 ‑ 8.7%).
19.2 Capital expenditure 1)
Finland Sweden Estonia Poland Norway Other countries,
total
Total
EUR million 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013
Power and Technology
Hydropower 16 17 87 91 103 108
Nuclear power 80 60 80 60
Fossil‑based electricity 2 0 2
Renewable‑based electricity 7 4 1 3 3 11 7
Other 3 2 3 2
Total Power and Technology 106 85 88 94 0 0 0 0 0 0 3 0 197 179
Heat, Electricity Sales and Solutions
Fossil‑based heat 3 7 5 2 1 8 10
Fossil‑based electricity 1 2 1 2
Renewable, 
of which
24 17 13 39 37 56
waste 3 14 3 14
biofuels 6 17 0 25 6 42
other 18 10 28 0
District heat network 13 14 8 16 8 6 0 4 2 4 31 44
Other 4 8 2 1 1 3 9 10
Total Heat, Electricity Sales and Solutions 44 46 0 2 9 16 15 10 0 4 18 44 86 123
Distribution 11 128 133 121 0 0 0 0 3 9 0 0 147 255
Other 2 10 0 0 0 0 0 0 0 0 1 3 3 12
Total excluding Russia segment 163 269 221 217 9 16 15 10 3 13 22 47 433 570
Russia
Fossil‑based electricity 305 387
Fossil‑based heat 35 48
Other 0 0
Total Russia 340 435
Total including Russia segment 774 1,005
1) Includes capital expenditure to both intangible assets and property, plant and equipment.
Fortum classifies investments in four main categories. Maintence investments during 2014 in property, plant and equipment were EUR 181 million (2013: 200). Investments due to requirements of legislation were EUR 149 million (2013: 174). Investments increasing productivity were EUR 134 million (2013: 176) and growth investments were EUR 309 million (2013: 453).
19.2.1 Power and Technology
In Finland, Fortum invested EUR 80 million (2013: 60) into the Loviisa nuclear power plant. Fortum invested additionally EUR 103 million (2013: 108) into hydro production, mainly refurbishment and productivity investments. The biggest of these were Höljes and Skedvi refurbishment in Sweden, EUR 30 million (2013: 24) and Imatra refurbishment in Finland, EUR 8 million (2013: 4). Investments for CO2 free production were EUR 194 million (2013: 175).
19.2.2 Heat, Electricity Sales and Solutions
Growth investments in Heat, Electricity Sales and Solutions segment totalled EUR 34 million (2013: 89) in year 2014. Refurbishment and legislation investments totalled EUR 53 million (2013: 34). This amount consists mainly of investments in district heat networks and plants as well as the maintenance of existing CHP plants and measures defined by legal requirements. Larger ongoing projects in 2014 comprised of new heat pump and bio‑pellet fuel conversion in heat boiler in Espoo and district heat connection in Poland. Investments for CO2 free production were EUR 37 million (2013: 56).
19.2.3 Distribution
Distribution invested EUR 147 million (2013: 255) in reliability of electricity distribution, maintenance and new investments in Finland, Sweden, and Norway. Lower investment level is consequense of Fortum's divestments of its Finnish electricity distribution business to Suomi Power Networks in March 2014 and its Norwegian electricity business to the Hafslund Group in May 2014.
19.2.4 Russia
OAO Fortum has an extensive investment programme aiming to almost double its power capacity with 2,300 MW. During 2014 EUR 235 million (2013: 249) was invested in this programme. The value for the remaining part of the programme is estimated to be approximately EUR 0.2 billion from January 2015 onwards. The last two units are to be completed by mid of 2015. The third unit at Nyagan power plant started commercial operation at the end of 2014. Altogether, Fortum’s extensive investment programme in Russia consists of eight new units.
19.3. Impairment testing of non‑financial assets in 2014
Key assumptions used in impairment testing are presented below as well as the basis for determining the value of each assumption. Assumptions are based on internal and external data that are consistent with observable market information, when applicable. The assumptions are determined by management as part of the business planning process for the Fortum Group.
Key assumptions Basis for determining the value for key assumptions
Power market development Historical analysis and prospective forecasting
Regulation framework Current market setup and prospective forecasting (e.g. CSA mechanism)
Utilisation of power plants Past experience, technical assessment and forecasted market development
Forecasted maintenance investments Past experience, technical assessment and planned maintenance work
Finalisation of the investment programme Project forecasts
Discount rate Mostly market based information
The cash flows used in testing are based on the most recent business plans and are determined in local currency. The period covered by cash flows is related to the useful lives of the assets being reviewed for impairment. The growth rate used to extrapolate the cash flow projections until the end of assets' useful lives is in line with the assumed inflation. In Russia the generation capacity built after 2007 under the Russian Government's Capacity Supply Agreements receives guaranteed capacity payments for a period of 10 years.
The discount rate takes into account the risk profile of the country in which the cash flows are generated. There have not been any major changes in the discount rate components or in the methods used to determine them. The long‑term pre‑tax discount rate used for Russia was 10.8% (2013: 10.5%).
The net operating assets of OAO Fortum, including fair value adjustments and goodwill arising from the acquisition of the company are tested yearly for possible impairment. As of 31 December 2014, the recoverable values were greater than their carrying values and therefore no impairments were booked. In light with the sharp rise in the Russian interest rates at the end of 2014 an additional assessment has been performed in January 2015 using a pre‑tax discount rate of 12.3%. The reassessment confirmed the results from the earlier testing.
The Group has considered the sensitivity of key assumptions as part of the impairment testing. When doing this any consequential effect of the change on the other variables has also been considered. The calculations are most sensitive to changes in estimated future operating profit levels and changes in discount rate.
Management estimates that a reasonably possible change in the discount rate used or in future earnings would not cause Russian cash generating unit's carrying amount to exceed its recoverable amount. Based on the sensitivity analysis done, if the estimated future operating profits before depreciation were 10% lower than management's estimates or pre‑tax discount rate applied was 10% higher than the one used, the Group would not need to recognise impairment losses for property plant and equipment or goodwill.

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