Annual Report 2014 | Suomeksi |

5 Segment reporting

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Accounting policies + -
Fortum discloses segment information in a manner consistent with internal reporting to Fortum's Board of Directors and to Fortum Executive Management Team led by the President and CEO. Fortum has segments based on type of business operations, combined with one segment based on geographical area.
The Group's businesses are divided into the following reporting segments: Power and Technology, Heat, Electricity Sales and Solutions, Russia and Distribution.
Revenue recognition
Revenue comprises the fair value consideration received or receivable at the time of delivery of products and/or upon fulfilment of services. Revenue is shown net of rebates, discounts, value‑added tax and selective taxes such as electricity tax. Revenue is recognised as follows:
Sale of electricity, heat, cooling and distribution of electricity
Sale of electricity, heat, cooling and distribution of electricity is recognised at the time of delivery. The sale to industrial and commercial customers and to end‑customers is recognised based on the value of the volume supplied, including an estimated value of the volume supplied to customers between the date of their last meter reading and year‑end.
Physical energy sales and purchase contracts are accounted for on accrual basis as they are contracted with the Group's expected purchase, sale or usage requirements.
Electricity tax is levied on electricity delivered to retail customers by domestic utilities in Sweden. The tax is calculated on the basis of a fixed tax rate per kWh. The rate varies between different classes of customers. Sale of electricity in the income statement is shown net of electricity tax.
Physical electricity sales and purchases are done through Nord Pool Spot. The sales and purchases are netted on Group level on an hourly basis and posted either as revenue or cost, according to whether Fortum is a net seller or a net buyer during any particular hour.
The prices charged of customers for the sale of distribution of electricity are regulated. The regulatory mechanism differs from country to country. Any over or under income decided by the regulatory body is regarded as regulatory assets or liabilities that do not qualify for balance sheet recognition due to the fact that no contract defining the regulatory aspect has been entered into with a specific customer and thus the receivable is contingent on future delivery. The over or under income is normally credited or charged over a number of years in the future to the customer using the electricity connection at that time. No retroactive credit or charge can be made.
Connection fees
Fees paid by the customer when connected to the electricity, gas, heat or cooling network are recognised as income to the extent that the fee does not cover future commitments. If the connection fee is linked to the contractual agreement with the customer, the income is recognised over the period of the agreement with the customer.
Fees paid by the customer when connected to district heating network in Finland are refundable. These connection fees have not been recognised in the income statement and are included in other liabilities in the balance sheet.
Contract revenue
Contract revenue is recognised under the percentage of completion method to determine the appropriate amount to recognise as revenue and expenses in a given period. The stage of completion is measured by reference to the contract costs incurred up to the closing date as a percentage of total estimated costs for each contract. Costs incurred in the year in connection with future activity on a contract are excluded from contract costs in determining the stage of completion. They are presented as inventories, prepayments or other assets, depending on their nature.
The Group presents as an asset the amount due from customers for contract work for all contracts in progress for which costs incurred plus recognised profits (less recognised losses) exceed progress billings. Progress billings not yet paid by customers and retention are included within 'trade and other receivables'. The Group presents as a liability the amount due to customers for contract work for all contracts in progress for which progress billings exceed costs incurred plus recognised profits (less recognised losses).
5.1 Fortum’s business structure
Fortum renewed its business structure as of 1 March 2014. After reorganisation Fortum's business operations are organised in five divisions and six corporate staff functions.
The business divisions are Hydro Power and Technology, Nuclear and Thermal Power, Heat, Electricity Sales and Solutions, Russia, and Distribution. The staff functions are Finance, Strategy and Mergers & Acquisitions, Legal, Human Resources and IT, Communications and Corporate Relations.
5.2 Segment structure in Fortum
Fortum's reportable segments were also revised in connection with the reorganisation in March 2014. New reportable segments under IFRS include the business divisions Heat, Electricity Sales and Solutions, Russia and Distribution as well as the Power and Technology segment that consists of the Hydro Power and Technology and Nuclear and Thermal Power divisions.
Below is the description of the reportable segments:
Other segment includes mainly the shareholding in the associated company Hafslund ASA and corporate staff functions.
5.3 Definitions for segment information
Financial target setting, follow up and allocation of resources in the group's performance management process is mainly based on the divisions' comparable operating profit including share of profit from associated companies and comparable return on net assets. Fortum discloses in the segment information operating profit, comparable operating profit, comparable EBITDA and share of profit from associated companies as well as return on net assets and comparable return on net assets.
Consolidation by segment is based on the same principles as for the Group as a whole.
Segment information Definition
Comparable operating profit and operating profit Comparable operating profit is reported to give a better view of each segment's performance. The difference between Comparable operating profit and Operating profit is that Comparable operating profit does not include “Items affecting comparability”, which are:
• non‑recurring items, which mainly consist of capital gains and losses;
• effects from fair valuations of derivatives hedging future cash flows which do not obtain hedge accounting status according to IAS 39. The major part of Fortum's cash flow hedges obtain hedge accounting where the fair value changes are recorded in equity;
See Note 7 Fair value changes of derivatives and underlying items in income statement.
• effects from the accounting of Fortum's part of the State Nuclear Waste Management Fund where the assets in the balance sheet cannot exceed the related liabilities according to IFRIC 5.
See Note 30 Nuclear related assets and liabilities.
Net assets The segments’ net assets consist primarily of non‑interest‑bearing assets and liabilities such as property, plant and equipment, intangible assets, participations in associated companies, inventories, operative related accruals and trade and other receivables and liabilities. Net assets also include Fortum's share of the State Nuclear Waste Management Fund, nuclear related provisions, pension and other provisions as well as assets and liabilities from fair valuations of derivatives hedging future cash flows which do not obtain hedge accounting status according to IAS 39.
Interest‑bearing receivables and liabilities and related accruals, current and deferred tax items, as well as assets and liabilities from fair valuations of derivatives hedging future cash flows which obtain hedge accounting status according to IAS 39 are not allocated to the segments' net assets.
Comparable net assets In comparable net assets, segment’s net assets are adjusted for assets and liabilities from fair valuations of derivatives hedging future cash flows which do not obtain hedge accounting status according to IAS 39 to be in line with comparable operating profit.
Gross investments in shares Gross investments in shares include investments in subsidiary shares, shares in associated companies and other shares in available for sale financial assets. Investments in subsidiary shares are net of cash and grossed with interest‑bearing liabilities in the acquired company.
Gross divestments in shares Gross divestments in shares include divestments in subsidiary shares, shares in associated companies and other shares in available for sale financial assets. Divestments in subsidiary shares are net of cash and grossed with interest‑bearing liabilities in the sold company.
See also Financial key figures,
Definitions of key figures
and Quarterly financial information.
Quarterly segment information from 2005 to 2014 is available on Fortum's website www.fortum.com/en/investors/financial‑information/pages/default.aspx
5.4 Inter‑segment transactions and eliminations
Power and Technology segment sells its production to Nord Pool Spot and Electricity Sales buys its electricity from Nord Pool Spot. Eliminations of sales include eliminations of sales and purchases with Nord Pool Spot that are netted on group level on an hourly basis and posted either as revenue or cost depending on if Fortum is a net seller or net buyer during any particular hour. Inter‑segment sales, expenses and results for the different business segments are affected by intra‑group deliveries, which are eliminated on consolidation. Inter‑segment transactions are based on commercial terms.
5.5 Segment information 2014
Income statement 2014
EUR million Note Power and
Technology
Heat,
Electricity
Sales and
Solutions
Russia Distri‑
bution
Other Netting and
eliminations 1)
Total
Sales 2,156 1,332 1,055 751 58 ‑601 4,751
of which internal 85 34 0 17 44 ‑179 0
External sales 2,071 1,298 1,055 735 13 ‑422 4,751
Depreciation, amortisation and impairment ‑121 ‑100 ‑147 ‑150 ‑8 ‑526
Comparable EBITDA 998 204 304 416 ‑49 1,873
Comparable operating profit 877 104 161 266 ‑57 1,351
Non‑recurring items 6 52 254 0 1,865 0 2,171
Changes in fair values of
derivatives hedging
future cash‑flow 6 7 ‑70 ‑20 0 0 0 ‑90
Nuclear fund adjustment 6 30 ‑3 ‑3
Operating profit 855 337 161 2,132 ‑58 3,428
Share of profit of associated
companies and
joint ventures 20 30 ‑14 88 35 3 37 149
Finance costs ‑ net ‑217
Income taxes ‑199
Profit for the year 3,161
1) Netting and eliminations include eliminations of Group internal sales and netting of Nord Pool Spot transactions. Sales and purchases with Nord Pool Spot, EUR 422 million, are netted on Group level on an hourly basis and posted either as revenue or cost depending on if Fortum is a net seller or net buyer during any particular hour.
Impairment losses and restructuring costs 2014
EUR million Power and
Technology
Heat,
Electricity
Sales and
Solutions
Russia Distri‑
bution
Other Total
Recognised impairment losses for trade receivables 0 ‑5 ‑4 ‑2 0 ‑11
Recognised impairment losses for intangible assets and property, plant and equipment ‑1 ‑1 0 0 0 ‑2
Restructuring costs ‑2 0 0 0 ‑1 ‑3
Impairment losses and restructuring costs are included in comparable operating profit.
Assets and liabilities 2014
EUR million Power and
Technology
Heat,
Electricity
Sales and
Solutions
Russia Distri‑
bution
Other Eliminations Total
Non‑interest‑bearing assets 6,205 2,127 2,444 2,707 324 ‑186 13,620
Participations in associated companies and joint ventures 859 523 326 0 319 0 2,027
Assets included in
Net assets
7,064 2,650 2,769 2,707 643 ‑186 15,647
Interest‑bearing receivables 2,045
Deferred taxes 98
Other assets 818
Liquid funds 2,766
Total assets 21,375
Liabilities included in
Net assets
1,063 538 172 92 147 ‑186 1,827
Deferred tax liabilities 1,159
Other liabilities 470
Total liabilities included in Capital employed 3,456
Interest‑bearing liabilities 6,983
Total equity 10,935
Total equity and liabilities 21,375
Investments/Divestments 2014
EUR million Note Power and
Technology
Heat,
Electricity
Sales and
Solutions
Russia Distri‑
bution
Other Total
Gross investments in shares 8 20 2 37 27 0 4 69
Capital expenditure 18, 19 197 86 340 147 3 774
of which capitalised borrowing costs 3 1 43 0 0 47
Gross divestments of shares 67 446 0 2,681 2 3,196
Comparable return on net assets 2014
Net assets
by segments
EUR millon
Return
on net
assets, %
Comparable
return
on net assets, %
Power and Technology 6,001 13.6 14.2
Heat, Electricity Sales and Solutions 2,112 19.1 8.7
Russia 2,597 5.6 5.6
Distribution 2,615 73.6 9.3
Other 496 ‑5.3 ‑5.8
Employees 2014
Power and
Technology
Heat,
Electricity
Sales and
Solutions
Russia Distri‑
bution
Other Total
Number of employees 31 Dec 1,639 1,807 4,213 390 543 8,592
Average number of employees 1,685 1,913 4,196 492 536 8,821
5.6 Segment information 2013
Income statement 2013
EUR million Note Power and
Technology
Heat,
Electricity
Sales and
Solutions
Russia Distri‑
bution
Other Netting and
eliminations 1)
Total
Sales 2,252 1,516 1,119 1,064 63 ‑706 5,309
of which internal 69 87 0 19 54 ‑228 0
External sales 2,184 1,430 1,119 1,045 9 ‑478 5,309
Depreciation, amortisation and impairment ‑148 ‑102 ‑150 ‑216 ‑5 ‑621
Comparable EBITDA 1,007 211 258 548 ‑49 1,975
Comparable operating profit 859 109 156 332 ‑54 1,403
Non‑recurring items 6 25 18 0 17 1 61
Changes in fair values of
derivatives hedging
future cash‑flow 6, 7 15 7 0 0 21
Nuclear fund adjustment 6, 30 23 23
Operating profit 922 134 156 349 ‑53 1,508
Share of profit of associated
companies and
joint ventures 20, 30 4 91 46 4 32 178
Finance costs ‑ net ‑289
Income taxes ‑186
Profit for the year 1,212
1) Netting and eliminations include eliminations of Group internal sales and netting of Nord Pool Spot transactions. Sales and purchases with Nord Pool Spot, EUR 478 million, are netted on Group level on an hourly basis and posted either as revenue or cost depending on if Fortum is a net seller or net buyer during any particular hour.
Impairment losses and restructuring costs 2013
EUR million Power and
Technology
Heat,
Electricity
Sales and
Solutions
Russia Distri‑
bution
Other Total
Recognised impairment losses for trade receivables 0 ‑4 ‑18 ‑2 0 ‑23
Recognised impairment losses for intangible assets and property, plant and equipment ‑24 0 0 0 0 ‑24
Restructuring costs 0 ‑1 0 0 ‑1 ‑2
Impairment losses and restructuring costs are included in comparable operating profit.
Recognised impairment losses for property, plant and equipment in Power and Technology segment includes EUR 20 million impairment loss relating to the decision to discontinue electricity production at Inkoo power plant.
Assets and liabilities 2013
EUR million Power and
Technology
Heat,
Electricity
Sales and
Solutions
Russia Distri‑
bution
Other Elimina‑
tions
Total
Non‑interest‑bearing assets 6,470 2,268 3,687 4,219 99 ‑293 16,449
Participations in associated companies and joint ventures 896 592 463 52 339 0 2,341
Assets included in
Net assets
7,366 2,860 4,150 4,271 437 ‑293 18,791
Interest‑bearing receivables 2,477
Deferred taxes 126
Other assets 1) 704
Liquid funds 1,250
Total assets 23,348
Liabilities included in
Net assets
1,010 565 304 526 142 ‑293 2,254
Deferred tax liabilities 1,338
Other liabilities 573
Total liabilities included in
Capital employed
4,166
Interest‑bearing liabilities 2) 9,058
Total equity 10,124
Total equity and liabilities 23,348
1) Other assets at 31 December 2013 includes cash, EUR 15 million, included in Assets related to Assets held for sale.
2) Interest‑bearing liabilities at 31 December 2013 includes interest‑bearing liabilities, EUR 20 million, included in Liabilities related to Assets held for sale.
Investments/Divestments 2013
EUR million Note Power and
Technology
Heat,
Electricity
Sales and
Solutions
Russia Distri‑
bution
Other Total
Gross investments in shares 8 20 2 11 0 0 2 15
Capital expenditure 18 19 179 123 435 255 12 1,005
of which capitalised borrowing costs 2 2 55 0 0 60
Gross divestments of shares 79 11 0 52 0 142
Comparable return on net assets 2013 3)
Net assets
by segments
EUR million
Return
on net
assets, %
Comparable
return on
net assets, %
Power and Technology 6,355 14.5 13.8
Heat, Electricity Sales and Solutions 2,295 9.7 8.7
Russia 3,846 5.2 5.2
Distribution 3,745 9.3 8.8
Other 295 ‑8.5 ‑6.9
3) Including assets and liabilities relating to Assets held for sale in 2013.
Employees 2013
Power and
Technology
Heat,
Electricity
Sales and
Solutions
Russia Distri‑
bution
Other Total
Number of employees 31 Dec 1,723 1,968 4,162 805 528 9,186
Average number of employees 1,900 2,051 4,245 786 550 9,532
5.7 Group‑wide disclosures
The Group's operating segments operate mainly in the Nordic countries, Russia, Poland and other parts of the Baltic Rim area. Power and Technology as well as Distribution operate mainly in Finland and Sweden, whereas Heat, Electricity Sales and Solutions operates in all of these geographical areas except Russia. Other countries are mainly Latvia, Lithuania and the U.K. The home country is Finland.
The information below is disclosing sales by product area as well as sales by the country in which the customer is located. Assets, capital expenditure and personnel are reported where the assets and personnel are located. Participations in associates and joint ventures are not divided by location since the companies concerned can have business in several geographical areas.
External sales by product area
EUR million 2014 2013
Power sales excluding indirect taxes 3,057 3,284
Heat sales 753 828
Network transmissions 710 1,024
Other sales 230 173
Total 4,751 5,309
Heat sales include sale of delivered heat and transmission of heat.
Due to the large number of customers and the variety of its business activities, there is no individual customer whose business volume is material compared with Fortum's total business volume.
Sales by market area based on customer location
EUR million 2014 2013
Nordic 3,197 3,685
Russia 1,056 1,121
Poland 223 206
Estonia 66 69
Other countries 210 228
Total 4,751 5,309
The Nordic power production is not split by countries since Nordic power production is mainly sold through Nord Pool Spot.
Capital expenditure by location
EUR million 2014 2013
Finland 163 239
Sweden 225 217
Russia 340 435
Poland 16 10
Estonia 8 16
Norway 3 13
Other countries 19 75
Total 774 1,005
Segment assets by location 1)
EUR million 2014 2013
Finland 3,417 4,371
Sweden 7,005 7,427
Russia 2,444 3,687
Poland 342 352
Estonia 199 200
Norway 13 245
Other countries 387 461
Eliminations ‑186 ‑293
Non‑interest bearing assets 13,620 16,449
Participations in associates and joint ventures 2,027 2,341
Total 15,647 18,791
1) Including assets relating to Assets held for sale in 2013.
See also Note 9 Assets held for sale.
Number of employees on 31 December by location
2014 2013
Finland 2,040 2,477
Sweden 1,201 1,239
Russia 4,213 4,162
Poland 603 636
Estonia 206 210
Norway 34 141
Other countries 295 321
Total 8,592 9,186
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