Annual Report 2014 | Suomeksi |

Financial performance and position

The strategic assessment of the electricity distribution business and inaugurations of power plants were in focus.

Key financial figures
EUR million 2014 2013 1) 2012 2) Change
Sales 4,751 5,309 6,159 ‑11%
Operating profit 3,428 1,508 1,874 127%
Operating profit, % of sales 72.2 28.4 30.4 154%
Comparable operating profit 1,351 1,403 1,752 ‑4%
Profit before taxes 3,360 1,398 1,586 140%
Profit for the period attributable to owners of the parent 3,154 1,204 1,416 162%
Earnings per share, EUR 3.55 1.36 1.59 161%
Net cash from operating activities 1,762 1,548 1,382 14%
Shareholders' equity per share, EUR 12.23 11.28 11.30 8%
Capital employed 17,918 19,183 19,420 ‑7%
Interest‑bearing net debt 4,217 7,793 7,814 ‑46%
Interest‑bearing net debt without Värme financing 3,664 6,658 N/A ‑45%
Equity‑to‑assets ratio, % 51 43 43 19%
Average number of shares, 1,000s 888,367 888,367 888,367 0%
1) Comparative period information for 2013 presented in these financial statements has been restated due to the accounting change for Fortum Värme, see Note 1.6.1.
2) The adoption of IFRS 10 and IFRS 11 is not restated in the figures of financial period 2012.
Group financial targets
2014 2013 1) 2012 2) Change
ROCE, % 12 19.5 9.0 10.2 117%
ROE, % 14 30.0 12.0 14.6 150%
Capital structure
Comparable net debt/EBITDA Around 3 2.3 3.9 3.2 ‑41%
Comparable net debt/EBITDA without Värme financing Around 3 2.0 3.4 N/A ‑41%
Net debt/EBITDA 1.1 3.7 3.1 ‑70%
1) Comparative period information for 2013 presented in these financial statements has been restated due to the accounting change for Fortum Värme, see Note 1.6.1.
2) The adoption of IFRS 10 and IFRS 11 is not restated in the figures of financial period 2012.

2014 was a challenging year for Fortum. Power prices and global macro economic performance as well as the rouble weakness – were obviously disappointing. In addition, the decline in commodity prices during the fourth quarter was unforeseen. Though commodity prices declined during the year, power prices declined less, one reason being the positive development of CO2 emission allowances market price.

Fortum’s internal transformation continued to further increase our efficiency and flexibility. Fortum was able to reach a strong result largely due to its successful execution of both the efficiency programme and divestments according to plan. Fortum’s 2014 results were good in a market dominated by negative drivers: low spot prices, a very weak rouble and warm weather. In the Nordic countries, electricity demand declined only somewhat, and demand in Russia was at the same level as in 2013. Comparable operating profit was EUR 1,351 million and cash flow was strong at EUR 1,762 million in 2014.

In Russia, Fortum finalised the third unit of the Nyagan power plant; the most extensive part of the investment programme is now complete. The run-rate operating profit (EBIT) target for the Russia Segment, RUB 18.2 billion, is to be reached during 2015, while the euro-denominated result level will be volatile, mainly due to the translation effect.

In March 2014 we broadened the management team as the

disvestment of the electricity distribution business strategically put the company in a new positio; major disvestment and investment programmes are still ongoing; and the company is reorganising and preparing for the changing European power markett in order to capture growth. This means that we need a wide range of competences recovering strategy, M&A and corporate relations in the management team. In addition, after succesfully finalizing our 2013-2014 efficiency programme, we see that there is internal potential to be reached.

With the restructured management team, we are able to further improve our performance and efficiency, unlock further synergies between various businesses and staff functions, and scrutinise our investment programmes in a way that gives the best returns in line with our strategy.

Preparations for future growth are starting to take shape. The Finnish and Norwegian electricity distribution businesses were divested during 2014, and the divestment of the Swedish electricity distribution business is being prepared and evaluated. Furthermore, we announced in December that we aim to increase our hydro portfolio by 60 % through the restructuring of TGC-1, Territorial Generating Company, in Russia. Provided that we obtain more than 75 % ownership in TGC-1 hydro assets, we would also be ready to participate with a minority stake (max. 15 %) in the Finnish Fennovoima nuclear power project on the same terms and conditions as the other Finnish companies currently participating in the project.

Increasing the share of hydropower is in line with our mission and strategy: We are committed to create energy that improves life for current and future generations. Therefore, we want to take a responsible approach not only short term but also long term. Through sustainable solutions and operations, we aim to deliver excellent value to our

shareholders. This approach gives us a unique opportunity to be even more competitive. We believe that sustainable operations lead to good financial results, and give us a solid platform to increase shareholder value.

Fortum’s strategy is based on CO2-free production: hydro, nuclear and CHP being our core competencies. In order to grow in these areas, we strive to create added value through restructuring and acquisitions.

In addition to CO2-free production, we also consider the retail business important, and are committed to growth also in this area.

In order to continue to build on our strong Nordic core, an integrated European-wide market is a key priority – in hydro, in nuclear and in CHP. Creating a solid earnings base and growth in Russia continues to be equally important.

We also aim to build a platform for future growth. Solar

technology offers a clearly interesting and sustainable, CO2-free production form; we are currently researching and developing our solar technology competencies in India. In addition, we are for example studying and developing pyrolysis in Finland.

Even though the wholesale market prices for electricity have continued to decrease, various taxes, fees and subsidies are increasing end-consumers' energy costs. A predictable electricity market built on consumer participation and the utilisation of all the different energy value components as well as different producers is vital. The setup should be market-driven, commercial, predictable and harmonised in as big geographical area as possible, and it should have enough physical transmission capacity, as well as good cooperation between transmission system operators, grid companies, power exchanges etc. Giving environmental consequences the right price through CO2 would create an energy market that provides security of supply, competitiveness and environmental sustainability.

The key criteria and parameters for the European power market in the future are complex. Instead of promoting any single technology solution or innovation, it is most important to have a well-functioning, competitive market that gives producers and consumers access to competitive energy solutions.

The supply and demand balance is very critical on the power market. It is important to realise that there are different values associated with electricity, values like energy, capacity and how different production types contribute to peak capacity. The supply-demand balance requires the ability to respond; obviously, hydropower is excellent for this. For this reason flexible hydro is very attractive for Fortum.

There are many important market developments ongoing in the EU. A market stability reserve (EU MSR) is under discussion and preparation, but it will take some time before it can be implemented. The capacity remuneration mechanism is also under discussion; if and when that

mechanism were implemented, it is important that it would be a technology-neutral, cross-border mechanism and that it would include both old and new assets. In addition, the CO2 reduction target for 2030 was accepted as 40 %. This is the framework Fortum is actively working for in Europe, Brussels, and with key decision makers.

Another big issue – in addition to the energy market development and the energy market model – is climate change. Unfortunately, it seems that we are clearly headed towards a global warming of more than 2 degrees Celsius. Some indicators show that we are actually heading towards a three to four-degree Celsius increase. The situation is hence extremely serious and will be much more so in ten years. We at Fortum have taken environmental issues and sustainability very seriously for several years. We are committed to climate change mitigation and give it a high priority on the company agenda.

Fortum is already in a very strong competitive position –

whether measured by CO2-free production, competencies, portfolio, asset flexibility, cost structure, sustainability or safety. We have a solid view on how to develop the company – both in terms of the near future and long-term sustainability – in order to achieve value creation, improving earnings per share growth, and, through that, a continued good platform for stable, sustainable and over time increasing dividends.

Sales, EUR million
Operating profit and comparable
operating profit, EUR million
Return on capital employed, %
Return on shareholders' equity, %
Earnings per share, EUR

Comparability of information presented in tables and graphs

Information in the tables and graphs presented for year 2012 or earlier is not restated due to the adoption of IFRS 10 and IFRS 11. Adoption of standards influences treatment of Fortum’s holding in AB Fortum Värme samägt med Stockholms stad in the the consolidated financial statements. For further information, see Note 1.6.1. New IFRS standards adopted from 1 Jan 2014.


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