2010-10-21 08:00:00

Solid performance continued

Fortum Corporation Interim Report January-September 2010 21 October 2010 at 9:00 Solid performance continued - Comparable operating profit EUR 1,292 (1,318) million, -2.0% - Earnings per share EUR 1.20 (1.02), +17.6% - Power upgrade and modernisation programmes in Swedish associated nuclear generating companies continued - 70% of Power's forecast volume for 2011 hedged at EUR 44 per MWh and 35% for 2012 hedged at EUR 43 per MWh -------------------------------------------------------------------------------- | Key figures | III/10 | III/09 | I-III/1 | I-III/0 | 2009 | LTM | | | | | 0 | 9 | | | -------------------------------------------------------------------------------- | Sales, EUR | 1,152 | 1,046 | 4,394 | 3,872 | 5,435 | 5,957 | | million | | | | | | | -------------------------------------------------------------------------------- | Operating profit, | 312 | 286 | 1,387 | 1,260 | 1,782 | 1,909 | | EUR million | | | | | | | -------------------------------------------------------------------------------- | Comparable | 302 | 316 | 1,292 | 1,318 | 1,888 | 1,862 | | operating profit, | | | | | | | | EUR million | | | | | | | -------------------------------------------------------------------------------- | Profit before | 285 | 242 | 1,330 | 1,131 | 1,636 | 1,835 | | taxes, EUR | | | | | | | | million | | | | | | | -------------------------------------------------------------------------------- | Earnings per | 0.27 | 0.24 | 1.20 | 1.02 | 1.48 | 1.66 | | share, EUR | | | | | | | -------------------------------------------------------------------------------- | Net cash from | 273 | 342 | 1,216 | 1,868 | 2,264 | 1,612 | | operating | | | | | | | | activities, EUR | | | | | | | | million | | | | | | | -------------------------------------------------------------------------------- | Shareholders' | | | 9.27 | 8.89 | 9.04 | | | equity per share, | | | | | | | | EUR | | | | | | | -------------------------------------------------------------------------------- | Interest-bearing | | | 6,608 | 6,041 | 5,969 | | | net debt | | | | | | | | (at end | | | | | | | | of period), EUR | | | | | | | | million | | | | | | | -------------------------------------------------------------------------------- | Average number of | | | 888,367 | 888,230 | 888,230 | 888,367 | | shares, 1,000s | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Key financial ratios | 2009 | LTM | -------------------------------------------------------------------------------- | Return on capital employed, % | 12.1 | 12.9 | -------------------------------------------------------------------------------- | Return on shareholders' equity, % | 16.0 | 17.9 | -------------------------------------------------------------------------------- | Net debt/EBITDA | 2.6 | 2.7 | -------------------------------------------------------------------------------- Fortum's President and CEO Tapio Kuula on the January-September 2010 results: “Fortum has had a stable three quarters in 2010. The Heat and Russia divisions as well as the Distribution business area were able to clearly improve their profits from a year ago. Electricity Sales had a poor first quarter, but achieved better results in the second and third quarters. The Power Division's financial results were clearly below last year's level, mainly due to continued power upgrade and modernisation programmes in Swedish associated nuclear generating companies. This resulted in increased power procurement costs in the Power Division. In the third quarter all divisions, except Power, had better results compared to the same period last year. The overall Nordic and Russian power consumption figures continued to increase in 2010 from last year. Industrial activity has clearly picked up in Fortum's key market areas and the Russian economy has sustained its fast path of recovery. The Russian wholesale power sector reform is progressing. Starting 1 July 2010, 80% of all produced power in Russia was sold on the competitive market. The wholesale power market is expected to be fully liberalised from the beginning of 2011. An agreement on the Russian capacity market rules has been reached and the new regulation is expected to significantly increase payments for new capacity under the Government's Capacity Supply Agreement. Recovering electricity demand and the development of the capacity market has prompted Fortum to slightly adjust the schedule of its Russian investment programme, now to be finalised one year earlier than previously estimated. In August 2010, the Supreme Administrative Court in Finland overruled an appeal by the Finnish Competition Authority concerning Fortum's market position. In its ruling, the Supreme Administrative Court concluded that Fortum cannot be considered to have a dominant position in the power generation and wholesale market, because the relevant geographical market area consists of at least Finland and Sweden. Strategy development and financial targets At our Capital Markets Day in September, we presented Fortum's strategy. The strategy builds on our core competence in CO2-free nuclear and hydro power, resource-efficient combined heat and power production as well as the company's expertise in operating in competitive energy markets. In the coming years, we will continue to leverage our strong position in the Nordic power and heat market while creating solid earnings growth in Russia. An integration of the European energy market and Russian business' increasing weight will gradually decrease the importance of the Nordic power price as the main driver of Fortum's earnings. Further opportunities for future growth stem from the need for CO2-free and energy-efficient solutions, and increasing demand in fast-growing, liberalising energy markets. Fortum's existing electricity distribution and retail sales businesses will continue to have a substantial role in the Nordic market. I would like to underline competitiveness as the key to value creation: I believe that our core competences provide a solid basis for the future value creation for Fortum. We are preparing for growth, which I see as taking place through the right balance of faster returning acquisitions and slower returning greenfield investments. In the long run, positions taken and the solutions applied have to be financially sound on their own merits; basing decisions on a continuous high level of subsidies is not sustainable. At the Capital Markets Day we also announced that we have adjusted our financial targets, net debt to EBITDA target is now ~3; previously the target was between 3 and 3.5. Fortum's dividend policy remained unchanged. Fortum aims to pay a dividend which corresponds to an average payout ratio of 50% to 60%. I would like to reiterate that continuously providing an attractive dividend to investors is an integral part of Fortum's way of thinking - the dividend payment is not a residual." Financial results July-September Group sales were EUR 1,152 (1,046) million. Group operating profit totalled EUR 312 (286) million. Comparable operating profit totalled EUR 302 (316) million. The total of non-recurring items, mark-to-market effects and nuclear fund adjustments in the third quarter of 2010 amounted to EUR 10 (-30) million. Of this total, non-recurring items were EUR 36 (7) million. Sales by division -------------------------------------------------------------------------------- | EUR million | III/10 | III/09 | I-III/ | I-III/0 | 2009 | LTM | | | | | 10 | 9 | | | -------------------------------------------------------------------------------- | Power | 584 | 572 | 1,950 | 1,868 | 2,531 | 2,613 | -------------------------------------------------------------------------------- | Heat | 220 | 177 | 1,172 | 941 | 1,399 | 1,630 | -------------------------------------------------------------------------------- | Distribution* | 196 | 168 | 676 | 573 | 800 | 903 | -------------------------------------------------------------------------------- | Electricity Sales* | 305 | 272 | 1,269 | 1,039 | 1,449 | 1,679 | -------------------------------------------------------------------------------- | Russia | 137 | 111 | 550 | 435 | 632 | 747 | -------------------------------------------------------------------------------- | Other | 23 | 16 | 44 | 54 | 71 | 61 | -------------------------------------------------------------------------------- | Netting of Nord Pool | -264 | -200 | -1,208 | -770 | -1,095 | -1,533 | | transactions | | | | | | | -------------------------------------------------------------------------------- | Eliminations | -49 | -70 | -59 | -268 | -352 | -143 | -------------------------------------------------------------------------------- | Total | 1,152 | 1,046 | 4,394 | 3,872 | 5,435 | 5,957 | -------------------------------------------------------------------------------- * Part of the Electricity Solutions and Distribution Division Comparable operating profit by division -------------------------------------------------------------------------------- | EUR million | III/10 | III/09 | I-III/ | I-III/0 | 2009 | LTM | | | | | 10 | 9 | | | -------------------------------------------------------------------------------- | Power | 267 | 308 | 962 | 1,063 | 1,454 | 1,353 | -------------------------------------------------------------------------------- | Heat | -12 | -13 | 153 | 127 | 231 | 257 | -------------------------------------------------------------------------------- | Distribution* | 61 | 47 | 216 | 182 | 262 | 296 | -------------------------------------------------------------------------------- | Electricity Sales* | 11 | 7 | 8 | 11 | 22 | 19 | -------------------------------------------------------------------------------- | Russia | -16 | -20 | -9 | -28 | -20 | -1 | -------------------------------------------------------------------------------- | Other | -9 | -13 | -38 | -37 | -61 | -62 | -------------------------------------------------------------------------------- | Total | 302 | 316 | 1,292 | 1,318 | 1,888 | 1,862 | -------------------------------------------------------------------------------- * Part of the Electricity Solutions and Distribution Division Operating profit by division -------------------------------------------------------------------------------- | EUR million | III/10 | III/09 | I-III/ | I-III/0 | 2009 | LTM | | | | | 10 | 9 | | | -------------------------------------------------------------------------------- | Power | 256 | 297 | 1,003 | 1,036 | 1,363 | 1,330 | -------------------------------------------------------------------------------- | Heat | -15 | -11 | 179 | 143 | 252 | 288 | -------------------------------------------------------------------------------- | Distribution* | 62 | 47 | 228 | 182 | 263 | 309 | -------------------------------------------------------------------------------- | Electricity Sales* | 12 | -7 | 6 | -8 | 29 | 43 | -------------------------------------------------------------------------------- | Russia | 14 | -19 | 37 | -28 | -20 | 45 | -------------------------------------------------------------------------------- | Other | -17 | -21 | -66 | -65 | -105 | -106 | -------------------------------------------------------------------------------- | Total | 312 | 286 | 1,387 | 1,260 | 1,782 | 1,909 | -------------------------------------------------------------------------------- * Part of the Electricity Solutions and Distribution Division January-September Group sales were EUR 4,394 (3,872) million. Group operating profit totalled EUR 1,387 (1,260) million. Comparable operating profit totalled EUR 1,292 (1,318) million. Non-recurring items, mark-to-market effects and nuclear fund adjustments in the first three quarters of the year amounted to EUR 95 (-58) million. Out of this, the share of non-recurring items was EUR 86 (21) million and consisted of sales gains from the Swedegas and Karlskoga Energi & Miljö shares in Sweden as well as the Kurgan Generating Company, Federal Grid Company and St. Petersburg Sales Company shares in Russia. The average SEK rate was approximately 10% higher in the first nine months of 2010 than in the first nine months of 2009. The positive translation effect caused by the higher average SEK rate was approximately EUR 70 million in the comparable operating profit compared to last year, the bulk of which was in Power Division and in the first quarter of the year. The share of profits/losses of associates and joint ventures was EUR 41 (-1) million. The improvement from last year was mainly due to the improvement in the contribution from Hafslund ASA. The Group's net financial expenses decreased to EUR 98 (128) million. The decrease is attributable to lower interest expenses. The change in fair value of financial instruments was EUR 20 (5) million. Profit before taxes was EUR 1,330 (1,131) million. Taxes for the period totalled EUR 236 (211) million. The tax rate according to the income statement was 17.7% (18.7%). The profit for the period was EUR 1,094 (920) million. Fortum's earnings per share were EUR 1.20 (1.02). Non-controlling (minority) interests amounted to EUR 25 (14) million. These are mainly attributable to Fortum Värme Holding AB, in which the city of Stockholm has a 50% economic interest. The return on capital employed was 12.9% for the last twelve months (12.1% in 2009), and the return on shareholders' equity was 17.9% for the last twelve months (16.0% in 2009). Cash flow from operating activities was affected by the realised foreign exchange gains and losses, which were EUR -394 (356) million during the first three quarters of 2010. The foreign exchange gains and losses mainly relate to the roll over of foreign exchange contracts hedging loans to Fortum's Swedish subsidiaries. Fortum's net debt to EBITDA for the last twelve months was 2.7 (2.6 at the end of 2009). Market conditions Nordic countries During the third quarter, the average system spot price for power in Nord Pool was EUR 45.9 (31.3) per megawatt-hour (MWh). The Finnish and Swedish area prices were above the system price level, at EUR 47.7 (35.6) per MWh in Finland and EUR 46.7 (35.4) per MWh in Sweden. The difference between the system price and the Finnish and Swedish area prices was mainly due to congestion between Sweden and Southern Norway. In January-September 2010, the average system spot price for power in Nord Pool was EUR 50.0 (34.5) per MWh. The Finnish and Swedish area prices were above the system price level, at EUR 53.3 (36.0) per MWh in Finland and EUR 53.5 (36.0) per MWh in Sweden. The difference between the system price and the Finnish and Swedish area prices was mainly related to the two days in the first quarter when transmission capacity between Norway and Sweden was considerably below normal. Year 2010 started with the Nordic water reservoirs at 7 terawatt-hours (TWh) below the long-term average. At the end of the third quarter, the Nordic water reservoirs were 17 TWh below the long-term average and 18 TWh below the corresponding level last year. According to preliminary statistics, the Nordic countries consumed 78 (76) TWh of electricity in the third quarter of 2010, about 3% more than in the previous year. The increase was mainly due to higher industrial consumption. During the first three quarters of 2010, the Nordic countries consumed about 282 (268) TWh. The increase is mainly due to the cold weather in the first quarter and higher industrial consumption. Russia According to preliminary statistics, Russia consumed 223 (212) TWh of electricity in the third quarter of 2010, about 5% more than in the corresponding period of the previous year. During the first three quarters of the year, Russia consumed about 729 (693) TWh. The increase is mainly due to the general recovery of the Russian economy and increased industrial activity. OAO Fortum operates in the Tyumen and Chelyabinsk areas. In the Tyumen area, where industrial production is dominated by the oil and gas industries, electricity demand was approximately at the same level compared to the previous year. The recession did not affect electricity demand in the Tyumen region in the previous year. In the Chelyabinsk area, which is dominated by the metal industry, electricity demand increased by about 8% in the third quarter compared to the previous year. The increase is mainly due to the recovery in industrial consumption. The average electricity spot price, excluding capacity price, in the First price zone (European and Urals part of Russia) increased 36% to RUB 975 (715) per MWh in the third quarter of 2010. More detailed information about the market fundamentals is included in the tables at the end of the report. Fortum's CO2 emissions During the first three quarters of 2010, approximately 67% (69%) of the power generated by Fortum was CO2 free. The corresponding figure for Fortum's generation within the EU was 87% (92%). Fortum's total CO2 emissions during the first three quarters of the year amounted to 17.4 (15.4) million tonnes (Mt), of which 6.7 (5.0) Mt were within the EU's emission trading scheme (ETS). Fortum's target in the EU is to decrease its emissions in power generation to less than 80 grams per kilowatt-hour (g/kWh) by 2020 as a five-year average. After the first three quarters of 2010 the five-year average performance is below the target level at 64 g/kWh. In heat production, Fortum aims at reducing the specific emissions in each EU country by at least 10% from 2006 until 2020. Outside the EU, Fortum is committed to increasing energy efficiency and thereby reducing specific emissions. -------------------------------------------------------------------------------- | Fortum's total CO2 | III/10 | III/09 | I-III/ | I-III/ | 2009 | LTM | | emissions | | | 10 | 09 | | | | (million tonnes) | | | | | | | -------------------------------------------------------------------------------- | Total emissions | 3.8 | 3.9 | 17.4 | 15.4 | 22.0 | 24.0 | -------------------------------------------------------------------------------- | Emissions subject to | 1.0 | 1.2 | 6.7 | 5.0 | 7.7 | 9.4 | | ETS | | | | | | | -------------------------------------------------------------------------------- | Free emissions | - | - | - | - | 5.5 | - | | allocation | | | | | | | -------------------------------------------------------------------------------- | Emissions in Russia | 2.6 | 2.7 | 10.2 | 9.9 | 13.8 | 14.1 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Fortum's specific CO2 | III/10 | III/09 | I-III/ | I-III/ | 2009 | LTM | | emissions from power | | | 10 | 09 | | | | generation (g/kWh) | | | | | | | -------------------------------------------------------------------------------- | Total emissions | 178 | 166 | 178 | 158 | 155 | 173 | -------------------------------------------------------------------------------- | Emissions in the EU | 46 | 29 | 71 | 34 | 41 | 68 | -------------------------------------------------------------------------------- | Emissions in Russia | 606 | 581 | 528 | 530 | 493 | 503 | -------------------------------------------------------------------------------- Division reviews Power The Power Division consists of Fortum's power generation, physical operation and trading, operation, maintenance and development of power plants as well as expert services for power producers. -------------------------------------------------------------------------------- | EUR million | III/10 | III/09 | I-III/ | I-III/ | 2009 | LTM | | | | | 10 | 09 | | | -------------------------------------------------------------------------------- | Sales | 584 | 572 | 1,950 | 1,868 | 2,531 | 2,613 | -------------------------------------------------------------------------------- | - power sales | 556 | 541 | 1,865 | 1,774 | 2,413 | 2,504 | -------------------------------------------------------------------------------- | - other sales | 28 | 31 | 85 | 94 | 118 | 109 | -------------------------------------------------------------------------------- | Operating profit | 256 | 297 | 1,003 | 1,036 | 1,363 | 1,330 | -------------------------------------------------------------------------------- | Comparable operating | 267 | 308 | 962 | 1,063 | 1,454 | 1,353 | | profit | | | | | | | -------------------------------------------------------------------------------- | Net assets (at | | | 5,818 | 5,516 | 5,494 | | | period-end) | | | | | | | -------------------------------------------------------------------------------- | Return on net assets, | | | | | 24.5 | 22.9 | | % | | | | | | | -------------------------------------------------------------------------------- | Comparable return on | | | | | 26.4 | 23.3 | | net assets, % | | | | | | | -------------------------------------------------------------------------------- | Capital expenditure | 32 | 20 | 87 | 120 | 153 | 120 | | and gross investments | | | | | | | | in shares | | | | | | | -------------------------------------------------------------------------------- | Number of employees | | | 1,892 | 1,977 | 1,916 | | -------------------------------------------------------------------------------- The division's power generation during the third quarter of 2010 amounted to 10.5 (9.7) TWh in the Nordic countries. Approximately 95% (96%) of that was CO2-free. In January-September, the division's power generation in the Nordic countries was 34.0 (32.6) TWh and approximately 94% (97%) of the division's power generation was CO2-free. During the third quarter, the division's power generation in the Nordic countries increased by 8% compared to the same period last year. Nuclear generation volumes increased year-on-year although Oskarshamn 3 and Forsmark 2 had operating difficulties and Loviisa had a longer scheduled annual outage. The share of thermal power generation was insignificant. During the first three quarters of 2010, Nordic power generation was 1.4 TWh higher than in the corresponding period last year. Increased thermal generation and improved nuclear generation volumes were partly offset by lower hydro volumes. Oskarshamn 3 is under the annual re-fuelling outage and turbine investigation. Its forecasted start-up is on 8 November 2010. To secure availability during the winter months, the plan is to run the unit at an approximately 1,100-MW power level, which corresponds to the power level before the capacity increase. The commissioning test runs on the increased power level will re-start on 1 March 2011. Forsmark 2 has been running at significantly reduced capacity after the capacity increase modifications. The unit is currently in outage, and the actions to recover the power production are ongoing. Full power is estimated to be reached on 18 November 2010. -------------------------------------------------------------------------------- | Power generation by | III/10 | III/09 | I-III/ | I-III/0 | 2009 | LTM | | source, TWh | | | 10 | 9 | | | -------------------------------------------------------------------------------- | Hydropower, Nordic | 5.5 | 5.3 | 16.0 | 16.2 | 22.1 | 21.9 | -------------------------------------------------------------------------------- | Nuclear power, Nordic | 4.7 | 4.3 | 16.6 | 16.3 | 21.4 | 21.7 | -------------------------------------------------------------------------------- | Thermal power, Nordic | 0.3 | 0.1 | 1.4 | 0.1 | 0.2 | 1.5 | -------------------------------------------------------------------------------- | Total in the Nordic | 10.5 | 9.7 | 34.0 | 32.6 | 43.7 | 45.1 | | countries | | | | | | | -------------------------------------------------------------------------------- | Thermal power in | 0.3 | 0.3 | 0.8 | 0.9 | 1.2 | 1.1 | | other countries | | | | | | | -------------------------------------------------------------------------------- | Total | 10.8 | 10.0 | 34.8 | 33.5 | 44.9 | 46.2 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Nordic sales volume, | 11.7 | 10.9 | 37.8 | 36.4 | 48.8 | 50.2 | | TWh | | | | | | | -------------------------------------------------------------------------------- | of which pass-through | 0.7 | 0.8 | 2.5 | 2.6 | 3.6 | 3.5 | | sales | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Sales price, EUR/MWh | III/1 | III/0 | I-III/1 | I-III/0 | 2009 | LTM | | | 0 | 9 | 0 | 9 | | | -------------------------------------------------------------------------------- | Power's Nordic power | 47.2 | 50.2 | 49.0 | 49.2 | 49.8 | 49.6 | | price* | | | | | | | -------------------------------------------------------------------------------- * For the Power Division in the Nordic countries, excluding pass-through sales. The Power Division's achieved Nordic power price in the third quarter of 2010 amounted to EUR 47.2 per MWh, which was EUR 3.0 per MWh lower than last year. The decrease was due to lower hedge prices during the third quarter. Nord Pool spot prices were higher than in 2009. In January-September 2010, the division's achieved Nordic power price was EUR 49.0 per MWh, which is EUR 0.2 per MWh lower than same period last year. The decrease was due to lower hedge prices. Nord Pool spot prices were higher. In the third quarter of 2010, Power's comparable operating profit was lower than in the corresponding period last year. This was mainly due to the clearly lower achieved power price and the higher costs in associated nuclear generating companies partly offset by higher generation volumes. In the first three quarters of 2010, Power's comparable operating profit was lower than in the corresponding period last year. The decline in the division's profits stemmed from the lower achieved power price and continued power upgrade and modernisation programmes in Swedish associated nuclear generating companies. The costs of associated nuclear generating companies increased due to the ongoing Oskarshamn 3 and Forsmark 2 power upgrade and modernisation programmes. Furthermore, an increase in nuclear-related provisions and Loviisa 3 project-related costs contributed to the profit decrease. Higher generation volumes only partly offset the profit decline. In July, Fortum signed a contract with the Polish Południowy Koncern Energetyczny (PKE), part of Tauron Group, to reduce nitrogen oxides at a Polish power plant. The EUR 55-million contract is the largest of its kind in terms of value in Poland. The project is being implemented in co-operation with Zakłady Remontowe Energetyki Katowice. In the project, Fortum is responsible for the technological solutions and the deliveries of basic equipment. Fortum's 308-MW share of the Meri-Pori power plant's production capacity was reverted to the company's own use on 1 July 2010. Fortum's share has been leased since 1 January 2007. The fixed-period lease on the share of production capacity was one of the conditions set by the Finnish Competition Authority for approval of Fortum's acquisition of E.ON Finland in summer 2006. Heat The Heat Division consists of combined heat and power (CHP) generation, district heating activities and business-to-business heating solutions in the Nordic countries and other parts of the Baltic Rim. -------------------------------------------------------------------------------- | EUR million | III/10 | III/09 | I-III/ | I-III/0 | 2009 | LTM | | | | | 10 | 9 | | | -------------------------------------------------------------------------------- | Sales | 220 | 177 | 1,172 | 941 | 1,399 | 1,630 | -------------------------------------------------------------------------------- | - heat sales | 153 | 132 | 841 | 714 | 1,055 | 1,182 | -------------------------------------------------------------------------------- | - power sales | 39 | 19 | 239 | 140 | 224 | 323 | -------------------------------------------------------------------------------- | - other sales | 28 | 26 | 92 | 87 | 120 | 125 | -------------------------------------------------------------------------------- | Operating profit | -15 | -11 | 179 | 143 | 252 | 288 | -------------------------------------------------------------------------------- | Comparable operating | -12 | -13 | 153 | 127 | 231 | 257 | | profit | | | | | | | -------------------------------------------------------------------------------- | Net assets (at | | | 4,021 | 3,655 | 3,787 | | | period-end) | | | | | | | -------------------------------------------------------------------------------- | Return on net assets, | | | | | 7.9 | 8.3 | | % | | | | | | | -------------------------------------------------------------------------------- | Comparable return on | | | | | 7.3 | 7.6 | | net assets, % | | | | | | | -------------------------------------------------------------------------------- | Capital expenditure | 67 | 91 | 188 | 258 | 359 | 289 | | and gross investments | | | | | | | | in shares | | | | | | | -------------------------------------------------------------------------------- | Number of employees | | | 2,434 | 2,578 | 2,552 | | -------------------------------------------------------------------------------- Heat sales during the third quarter of 2010 amounted to 2.4 (2.0) TWh and were mainly generated in the Nordic countries. During the same period, power sales totalled 0.8 (0.4) TWh. The volume increase was mainly due to new CHP capacity in Finland (Suomenoja) and higher sales to industrial customers. Heat sales during the first three quarters of 2010 amounted to 17.3 (15.1) TWh and were mainly generated in the Nordic countries. During the same period, power sales totalled 4.3 (2.8) TWh. The increased volumes were a result of colder weather during the first quarter, increased industrial sales and new CHP capacity in Finland and Estonia (Tartu). The division's third-quarter comparable operating profit was EUR -12 million, EUR 1 million better than the corresponding period last year. The comparable operating profit for the first three quarters of 2010 for the Heat Division was EUR 153 million, which is EUR 26 million higher than in the corresponding period last year. The increase was mainly due to higher volumes and power prices and stronger SEK and PLN currencies. Fuel costs were higher than last year due to higher market prices and the peak-load impact in the winter. In September, Fortum inaugurated a CHP plant in Poland in the city of Częstochowa. Also Fortum's new bio-fuel CHP plant in Pärnu, Estonia, was synchronised to the grid in September. Commercial operation at both plants will begin during the fourth quarter of 2010. In the fourth quarter of 2010, Fortum will start construction of a new waste-to-energy CHP plant in Klaipeda, Lithuania. In Finland, the Finnish Government is proposing significant changes to fuel taxation as of 2011. Among other measures, the fuel tax for natural gas in the first stage is proposed to be increased by approximately 200%. This is clearly more than the proposed increase for e.g. coal and peat. The increase in the gas tax would lead to increases in Fortum's Finnish district heat prices. The Swedish Competition Authority (SCA) is investigating district heating price setting. The investigation concerns also Fortum Värme, which is jointly owned by the City of Stockholm. -------------------------------------------------------------------------------- | Heat sales by area, | III/10 | III/09 | I-III/ | I-III/0 | 2009 | LTM | | TWh | | | 10 | 9 | | | -------------------------------------------------------------------------------- | Finland | 1.2 | 0.8 | 6.5 | 5.3 | 8.0 | 9.2 | -------------------------------------------------------------------------------- | Sweden | 0.8 | 0.9 | 7.2 | 6.6 | 9.8 | 10.4 | -------------------------------------------------------------------------------- | Poland | 0.3 | 0.1 | 2.6 | 2.3 | 3.7 | 4.0 | -------------------------------------------------------------------------------- | Other countries | 0.1 | 0.2 | 1.0 | 0.9 | 1.4 | 1.5 | -------------------------------------------------------------------------------- | Total | 2.4 | 2.0 | 17.3 | 15.1 | 22.9 | 25.1 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Power sales, TWh | III/10 | III/09 | I-III/ | I-III/0 | 2009 | LTM | | | | | 10 | 9 | | | -------------------------------------------------------------------------------- | Total | 0.8 | 0.4 | 4.3 | 2.8 | 4.4 | 5.9 | -------------------------------------------------------------------------------- Electricity Solutions and Distribution The Electricity Solutions and Distribution Division is responsible for Fortum's electricity sales, solutions and distribution activities. The division consists of two business areas: Distribution and Electricity Sales. Distribution Fortum owns and operates distribution and regional networks and distributes electricity to a total of 1.6 million customers in Sweden, Finland, Norway and Estonia. -------------------------------------------------------------------------------- | EUR million | III/10 | III/09 | I-III/ | I-III/ | 2009 | LTM | | | | | 10 | 09 | | | -------------------------------------------------------------------------------- | Sales | 196 | 168 | 676 | 573 | 800 | 903 | -------------------------------------------------------------------------------- | - distribution network | 163 | 142 | 580 | 493 | 685 | 772 | | transmission* | | | | | | | -------------------------------------------------------------------------------- | - regional network | 21 | 15 | 68 | 54 | 75 | 89 | | transmission* | | | | | | | -------------------------------------------------------------------------------- | - other sales | 12 | 11 | 28 | 26 | 40 | 42 | -------------------------------------------------------------------------------- | Operating profit | 62 | 47 | 228 | 182 | 263 | 309 | -------------------------------------------------------------------------------- | Comparable operating | 61 | 47 | 216 | 182 | 262 | 296 | | profit | | | | | | | -------------------------------------------------------------------------------- | Net assets (at | | | 3,560 | 3,248 | 3,299 | | | period-end) | | | | | | | -------------------------------------------------------------------------------- | Return on net assets, | | | | | 8.7 | 9.5 | | % | | | | | | | -------------------------------------------------------------------------------- | Comparable return on | | | | | 8.6 | 9.1 | | net assets, % | | | | | | | -------------------------------------------------------------------------------- | Capital expenditure | 51 | 51 | 127 | 130 | 193 | 190 | | and gross investments | | | | | | | | in shares | | | | | | | -------------------------------------------------------------------------------- | Number of employees | | | 1,090 | 1,154 | 1,088 | | -------------------------------------------------------------------------------- *) Q1/2010 has been restated. The volume of distribution and regional network transmissions during the third quarter of 2010 totalled 5.0 (4.8) TWh and 3.8 (3.5) TWh, respectively. During the first three quarters of 2010, electricity transmission via the regional distribution network totalled 10.9 (10.0) TWh in Sweden and 2.0 (2.0) TWh in Finland. The Distribution business area's comparable operating profit in the third quarter was EUR 61 million, which is MEUR 14 million better than in the corresponding period last year. The main reason for this was higher sales combined with a stronger SEK during the third quarter. During the first three quarters of the year, the business area's comparable operating profit was EUR 216 million, which is EUR 34 million higher than in January-September 2009. The main reasons for the increase are higher sales due to the colder weather during the first quarter and a stronger SEK. The pilot rollout of smart metering to the network customers in Finland started in October 2010. For customers, smart metering has several benefits including better control and therefore better understanding of electricity consumption. Distribution improves efficiency through automation and focusing on the core business. As a consequence, parts of the field operations are being outsourced. -------------------------------------------------------------------------------- | Volume of distributed | III/10 | III/09 | I-III/ | I-III/ | 2009 | LTM | | electricity in | | | 10 | 09 | | | | distribution network, | | | | | | | | TWh | | | | | | | -------------------------------------------------------------------------------- | Sweden | 2.8 | 2.7 | 10.7 | 10.1 | 14.0 | 14.6 | -------------------------------------------------------------------------------- | Finland | 1.8 | 1.7 | 7.0 | 6.6 | 9.4 | 9.8 | -------------------------------------------------------------------------------- | Norway | 0.4 | 0.4 | 1.8 | 1.6 | 2.3 | 2.5 | -------------------------------------------------------------------------------- | Estonia | 0.0 | 0.0 | 0.1 | 0.1 | 0.2 | 0.2 | -------------------------------------------------------------------------------- | Total | 5.0 | 4.8 | 19.6 | 18.4 | 25.9 | 27.1 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Number of electricity distribution | 30 Sep 2010 | 30 Sep 2009 | | customers by area, thousands | | | -------------------------------------------------------------------------------- | Sweden | 888 | 888 | -------------------------------------------------------------------------------- | Finland | 616 | 609 | -------------------------------------------------------------------------------- | Other countries | 124 | 123 | -------------------------------------------------------------------------------- | Total | 1,628 | 1,620 | -------------------------------------------------------------------------------- Electricity Sales The Electricity Sales business area is responsible for retail sales of electricity to a total of 1.2 million private and business customers as well as to other electricity retailers in Sweden, Finland and Norway. Electricity Sales buys its electricity through Nord Pool. Electricity Sales sells approximately 70% of its volume to business customers and 30% to retail consumers. -------------------------------------------------------------------------------- | EUR million | III/10 | III/09 | I-III/ | I-III/ | 2009 | LTM | | | | | 10 | 09 | | | -------------------------------------------------------------------------------- | Sales | 305 | 272 | 1,269 | 1,039 | 1,449 | 1,679 | -------------------------------------------------------------------------------- | - power sales | 301 | 266 | 1,254 | 1,017 | 1,417 | 1,654 | -------------------------------------------------------------------------------- | - other sales | 4 | 6 | 15 | 22 | 32 | 25 | -------------------------------------------------------------------------------- | Operating profit | 12 | -7 | 6 | -8 | 29 | 43 | -------------------------------------------------------------------------------- | Comparable operating | 11 | 7 | 8 | 11 | 22 | 19 | | profit | | | | | | | -------------------------------------------------------------------------------- | Net assets (at | | | 55 | 46 | 125 | | | period-end) | | | | | | | -------------------------------------------------------------------------------- | Return on net assets, | | | | | 28.9 | 48.0 | | % | | | | | | | -------------------------------------------------------------------------------- | Comparable return on | | | | | 18.6 | 17.9 | | net assets, % | | | | | | | -------------------------------------------------------------------------------- | Capital expenditure | 0 | 0 | 0 | 1 | 1 | 0 | | and gross investments | | | | | | | | in shares | | | | | | | -------------------------------------------------------------------------------- | Number of employees | | | 521 | 638 | 611 | | -------------------------------------------------------------------------------- In the third quarter of 2010, the business area's electricity sales totalled 5.6 (5.7) TWh while electricity sales in January-September 2010 totalled 21.7 (21.7) TWh. The restructuring of the unprofitable Business Market segment started in February 2010 and will affect the sales volume of Electricity Sales business area from the fourth quarter of 2010 onwards. Electricity Sales' comparable operating profit in the third quarter continued to improve as a result of lower fixed costs and better sales margins, especially in Sweden. The price peaks during the first quarter of 2010 had a negative impact on the business area's profitability, leading to a decline in the comparable operating profit for the period January-September. Russia The Russia Division consists of power and heat generation and sales in Russia. It includes OAO Fortum and Fortum's over 25% holding in TGC-1, which is an associated company and is accounted for using the equity method. -------------------------------------------------------------------------------- | EUR million | III/10 | III/09 | I-III/ | I-III/ | 2009 | LTM | | | | | 10 | 09 | | | -------------------------------------------------------------------------------- | Sales | 137 | 111 | 550 | 435 | 632 | 747 | -------------------------------------------------------------------------------- | - power sales | 111 | 87 | 355 | 281 | 390 | 464 | -------------------------------------------------------------------------------- | - heat sales | 24 | 18 | 189 | 143 | 219 | 265 | -------------------------------------------------------------------------------- | - other sales | 2 | 6 | 6 | 11 | 23 | 18 | -------------------------------------------------------------------------------- | EBITDA | 35 | -1 | 100 | 27 | 55 | 128 | -------------------------------------------------------------------------------- | Operating profit | 14 | -19 | 37 | -28 | -20 | 45 | -------------------------------------------------------------------------------- | Comparable operating | -16 | -20 | -9 | -28 | -20 | -1 | | profit | | | | | | | -------------------------------------------------------------------------------- | Net assets (at | | | 2,522 | 2,112 | 2,260 | | | period-end) | | | | | | | -------------------------------------------------------------------------------- | Return on net assets, | | | | | 0.0 | 2.9 | | % | | | | | | | -------------------------------------------------------------------------------- | Comparable return on | | | | | 0.0 | 1.0 | | net assets, % | | | | | | | -------------------------------------------------------------------------------- | Capital expenditure | 84 | 58 | 342 | 120 | 218 | 440 | | and gross investments | | | | | | | | in shares | | | | | | | -------------------------------------------------------------------------------- | Number of employees | | | 4,332 | 5,107 | 4,855 | | -------------------------------------------------------------------------------- OAO Fortum operates in the well-developed industrial regions of the Urals and in oil-producing western Siberia. The Russia Division's power sales during the third quarter of 2010 amounted to 3.8 (4.0) TWh. During the same period, heat sales totalled 2.3 (2.3) TWh. During the first three quarters of 2010, OAO Fortum sold 59% of its power production at the liberalised electricity price. -------------------------------------------------------------------------------- | Key electricity, | III/1 | III/0 | Change | I-III/ | I-III/ | Change | | capacity and gas prices | 0 | 9 | | 10 | 09 | | | for OAO Fortum | | | | | | | -------------------------------------------------------------------------------- | Electricity spot price | 936 | 700 | 34% | 842 | 613 | 37% | | (market price), Urals | | | | | | | | hub, RUB/MWh | | | | | | | -------------------------------------------------------------------------------- | Average regulated | 607 | 529 | 15% | 614 | 533 | 15% | | electricity price for | | | | | | | | OAO Fortum, RUB/MWh | | | | | | | -------------------------------------------------------------------------------- | Average regulated | 169 | 186 | -9% | 169 | 188 | -10% | | capacity price, | | | | | | | | tRUB/MW/month | | | | | | | -------------------------------------------------------------------------------- | Average regulated gas | 2,221 | 1,837 | 21% | 2,221 | 1,731 | 28% | | price in | | | | | | | | Urals region, | | | | | | | | RUB/1000 m3 | | | | | | | -------------------------------------------------------------------------------- The division booked a comparable operating loss of EUR 16 (20) million in the third quarter of 2010. The improvement is mainly attributable to OAO Fortum's efficiency improvement programme. The division's comparable operating loss for January-September 2010, EUR 9 million, was EUR 19 million smaller than in the same period last year due to the efficiency improvement programme. The positive effect of slightly higher electricity and heat margins was partly offset by lower capacity income for existing capacities. OAO Fortum's business is typically very seasonal: Its results are usually strongest during the first and last quarters of the year. The Russian wholesale power sector reform is proceeding. From 1 January 2010 onwards, 60% of all produced power in Russia was sold on the competitive market. The share increased to 80% at the beginning of July 2010. The wholesale power market is expected to be fully liberalised from the beginning of 2011. Currently, approximately one third of Fortum's power sales in Russia come from capacity payments, which the generating company receives based on its available capacity. The general rules for the long-term capacity market starting from 2011 have been approved by the Russian Government. The detailed specifications are still under preparation. The generation capacity built after 2007 under government capacity supply agreements (CSA) will 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. The price parameters for the CSA's were approved in April. Capacity not under CSA will compete in competitive capacity selection (CCS), where price is defined in auctions, but can be limited by price caps. In light of the recovering post-crises demand and development of the Russian capacity market, Fortum has accelerated the schedule of OAO Fortum's committed 2,300 MW-investment programme and plans to commission the new units by the end of 2014. The first three units are now estimated to be in commercial operation during the first half of 2011, approximately 2-3 months later than previously expected. The new capacity is a key driver for solid earnings growth in Russia as it will bring income from new volumes sold and is expected to receive at least a 3-4 times higher price in the capacity market than the old capacity received. The value of the remaining part of the investment programme, calculated at the end of September 2010 exchange rates, is estimated to be EUR 1.7 billion from October 2010 onwards. OAO Fortum's efficiency improvement programme is proceeding according to plans. The annual efficiency improvements are expected to be approximately EUR 100 million in 2011. The Russia Division's comparable operating loss has decreased by EUR 86 million since the first quarter 2009 when the division's first full twelve-month result in Fortum was reported (LTM comparable operating profit in the first quarter of 2009 was EUR -87 million and LTM comparable operating profit in the third quarter of 2010 was EUR -1 million). Capital expenditures, divestments and investments in shares Capital expenditures and investments in shares in January-September 2010 totalled EUR 750 (634) million. Investments, excluding acquisitions, were EUR 723 (571) million. Fortum expects to start the supply of power and heat from new power plants as follows: -------------------------------------------------------------------------------- | | Type | Electricity | Heat | Supply | | | | capacity, MW | capacity, | starts* | | | | | MW | | -------------------------------------------------------------------------------- | Heat | | | | | -------------------------------------------------------------------------------- | Częstochowa, | CHP bio, | 64 | 120 | Q4/2010 | | Poland | coal | | | | -------------------------------------------------------------------------------- | Pärnu, Estonia | CHP bio, | 24 | 50 | Q4/2010 | | | peat | | | | -------------------------------------------------------------------------------- | Power | | | | | -------------------------------------------------------------------------------- | Hydro | Hydropower | 20-30 | | 2010 | | refurbishment | | | | | -------------------------------------------------------------------------------- | Russia | | | | | -------------------------------------------------------------------------------- | Tyumen 1 | CCGT, gas | 231 | | Q1/2011 | -------------------------------------------------------------------------------- | Tobolsk | CCGT, gas | 200 | | Q2/2011 | -------------------------------------------------------------------------------- | Chelyabinsk 3 | CCGT, gas | 226 | | Q2/2011 | -------------------------------------------------------------------------------- *Start of commercial operation, preceded by test runs, licensing, etc. Power In August 2010, Fortum announced that it will acquire a 40% stake in the Blaiken wind power project in Sweden. The remaining 60% is held by the Swedish energy company Skellefteå Kraft. Fortum and Skellefteå Kraft's joint venture, Blaiken Vind AB, is planning to start construction of the wind farm in the Blaiken region in northern Sweden. The wind farm will have a maximum of 100 wind turbines with a total capacity of 250 MW and its estimated annual production is 600-720 gigawatt-hours (GWh). According to the plan, the wind farm will be built in phases, with construction to begin in 2011 and to be completed in 2015. Fortum's share of the total investment during the project will amount to a maximum of EUR 160 million. The Finnish Government gave a negative decision-in-principle on Fortum's application concerning the construction of a new nuclear power plant unit, Loviisa 3. Fortum is also, with an approximately 25% interest, a shareholder in Teollisuuden Voima Oyj (TVO), whose decision-in-principle application for a new nuclear power plant unit, Olkiluoto 4, was approved by the Finnish Government and ratified by the Finnish Parliament. Through its interest in TVO Fortum is participating in the building of Olkiluoto 3, a 1,600-MW nuclear power plant unit in Finland. The AREVA-Siemens Consortium, TVO's turnkey supplier of Olkiluoto 3 announced in June that in light of the current progress most of the works will be completed in 2012 while regular operation of the plant unit is foreseen during 2013. In September 2010, Fortum divested its share in the Finnish wind power producer Hyötytuuli Oy. Heat In January 2010, Fortum acquired the CHP plant in Nokia, Finland. The plant's capacity is around 85 MW heat and 70 MW electricity. In February 2010, Fortum decided to invest in a new waste-fuelled CHP plant in Klaipeda, Lithuania. The value of the investment amounts to approximately EUR 140 million. The power plant is planned to be ready for production by the end of 2013. The fuel will consist of municipal and industrial waste and biomass. The production capacity will be approximately 50 MW heat and 20 MW electricity. The sale of Fortum's shares in the Swedish gas transmission company Swedegas AB was closed in February. The gain from the sales was included in the first-quarter non-recurring items. In September 2010, Fortum inaugurated a CHP plant in Poland in the city of Częstochowa. Commercial operation starts during the fourth quarter. The plant is fuelled by biomass (around 25%) and coal. The total value of the investment was about EUR 135 million. The new Częstochowa CHP plant has an electricity production capacity of 64 MW and a heat production capacity of 120 MW. Also Fortum's new CHP plant in Pärnu, Estonia, was synchronised to the grid in September 2010. Commercial operation starts during the fourth quarter. The total value of the investment was around EUR 80 million. The production capacity of the biomass and peat-fired power plant will be 50 MW heat and 24 MW electricity. In September 2010, Fortum informed that it has made an investment decision to build a new waste-fired unit for its CHP plant in Brista, Sweden. The value of the project is about EUR 200 million, and completion of the new production unit, Brista 2, is planned for 2013. The estimated capacity of the unit is 57 MW heat and 20 MW electricity. In conjunction with the investment decision, Fortum opened up the possibility for future co-ownership of Brista 2 with Sollentuna Energi, the energy company of the nearby Sollentuna municipality. Distribution In early February 2010, Fortum divested its 49% share in Karlskoga Energi & Miljö in Sweden to the Karlskoga municipality for approximately EUR 42 million. The sales gain was included in the first quarter non-recurring items. The EU's third energy market package entered into force in early September 2009. One of the consequences is that Fortum will have to divest its 25% ownership in the Finnish electricity transmission system operator Fingrid Oyj by early 2012. Consequently, Fortum is investigating alternatives for the sale of the Fingrid shares. Russia Fortum sold its shares in Federal Grid Company (Fortum's ownership was 0.119%) and in Kurgan Generating Company (49% of the voting rights) in Russia during the first quarter of 2010. The sales gains were included in the first-quarter non-recurring items. Fortum divested its approximately 31% holding in JOINT STOCK COMPANY "SAINT-PETERSBURG SALE COMPANY" (JSC "SSC") to the Russian INTER RAO UES. The sales gains were included in the third-quarter non-recurring items. Financing Net debt increased during the third quarter by EUR 102 million to EUR 6,608 million (year-end 2009: EUR 5,969 million). The increase in net debt is mainly linked to the SEK strengthening and translation of SEK denominated debt in the Group. Total liquid funds increased by EUR 286 million from EUR 694 million to EUR 980 million (year-end 2009: 890 million). Liquid funds include cash and bank deposits held by OAO Fortum amounting to EUR 452 million (year-end 2009: 632 million). In addition to the liquid funds, Fortum had access to approximately EUR 2.9 billion of undrawn committed credit facilities. The Group's net financial expenses were EUR 98 (128) million. The decrease is mainly attributable to lower average interest rates in 2010 compared to the corresponding period last year. Net financial expenses include changes in the fair value of financial instruments of EUR 20 (5) million. Net debt to EBITDA for the last twelve months was 2.7 (2.6 at year-end 2009). Fortum Corporation's long-term credit rating from Moody's and Standard and Poor's was A2 (stable) and A (stable), respectively. Shares and share capital In January-September 2010, a total of 396.5 (453.0) million Fortum Corporation shares, totalling EUR 7,394 million, were traded on the NASDAQ OMX Helsinki. Fortum's market capitalisation, calculated using the closing quotation of the last trading day of the third quarter 2010, was EUR 17,048 million. The highest quotation of Fortum Corporation shares on the NASDAQ OMX Helsinki during the reporting period was EUR 19.92, the lowest EUR 17.18, and the volume-weighted average EUR 18.65. The closing quotation on the last trading day of the third quarter was EUR 19.19 (17.52). At the end of the reporting period, Fortum Corporation's share capital was EUR 3,046,185,953 and the total number of registered shares was 888,367,045. Fortum Corporation did not own its own shares. The Finnish State's holding in Fortum was 50.8% at the end of the reporting period. The proportion of nominee registrations and direct foreign shareholders was 29.9%. The Board of Directors has no unused authorisations from the Annual General Meeting of Shareholders to issue convertible loans or bonds with warrants or to issue new shares. Group personnel The number of employees at the end of the period was 10,865 (11,613 at the end of 2009). Research and development Swedish Energy Agency and Vinnova approved substantial funding to initiate a pre-study on the Royal Seaport of Stockholm. The aim of the Royal Seaport programme is to build a new residential and commercial area in Stockholm in a sustainable way. Fortum can - by being the grid owner - be an enabler of the new energy system through a smart construction of the grid system. As an outcome of Fortum's long-term nuclear R&D work, an application for higher burn-up of nuclear fuel has been submitted to STUK, the safety authority in Finland. Outlook Key drivers and risks The key factor influencing Fortum's business performance is the wholesale price of electricity. The key drivers behind wholesale price development are the supply-demand balance, fuel and CO2 emissions allowance prices as well as the hydrological situation. The exchange rates of the Swedish krona and Russian rouble also affect Fortum's financials. The balance sheet translation effects from changes in currency exchange rates are booked in Fortum's equity. Fortum's financial results are exposed to a number of strategic, financial and operational risks. For further details on Fortum's risks and risk management, see Fortum's Operating and Financial Review and Financial Statements for 2009. Nordic market Fortum currently expects Nordic power demand to recover back to the 2008 level by 2012-2014. Electricity will continue to gain a higher share of the total energy consumption. In mid-October 2010, the electricity forward price in Nord Pool for the rest of 2010 was around EUR 51 per MWh. The electricity forward price for 2011 was around EUR 45 per MWh and for 2012 around EUR 42 per MWh. At the same time, the future quotations for coal (ICE Rotterdam) for the rest of 2010 were around USD 100 per barrel and the market price for CO2 emissions allowances (EUA) for 2010 was about EUR 16 per tonne. In mid-October 2010, Nordic water reservoirs were about 15 TWh below the long-term average and 16 TWh below the corresponding level of 2009. Russia The Russian wholesale power sector reform is proceeding. The wholesale power market is expected to be fully liberalised from the beginning of 2011. Furthermore, an agreement on the capacity market rules has been reached and the new regulation is expected to significantly increase payments for new capacity under the Government's Capacity Supply Agreement. In light of the recovering post-crises demand and development of the capacity market, Fortum has accelerated the schedule of OAO Fortum's committed 2,300 MW-investment programme and plans to commission the new units by the end of 2014. The first three units are now estimated to be in commercial operation during the first half of 2011, approximately 2-3 months later than previously expected. Completion of the programme is a key driver for solid earnings growth in Russia. The value of the remaining part of the programme, calculated at the end of September 2010 exchange rates, is estimated to be EUR 1.7 billion from October 2010 onwards. The average regulated gas price increased by 24% in the first quarter compared to the average price in 2009. The regulated gas price is expected to remain unchanged for the rest of 2010. The current official plan for 2011 is to increase the regulated gas price by 15%. The regulated electricity price is indexed to the regulated gas price and inflation on an annual basis. Annual efficiency improvements are expected to be approximately EUR 100 million in 2011. Capital expenditure Fortum's capital expenditure in 2010 is estimated to be around EUR 1.4 billion - slightly less than indicated earlier. In 2011, Fortum currently expects capital expenditure of around EUR 1.6 billion, exceeding the earlier forecast range of EUR 0.8-1.2 billion. The annual level of Fortum's capital expenditure in 2012-2013 is estimated to exceed the company's normal guidance of EUR 0.8-1.2 billion. The main reason for higher capital expenditures in 2010-2013 is the acceleration in Fortum's Russian investment programme. Taxation The Swedish Government has made a proposal to increase hydro property tax rates from the beginning of 2011. Fortum estimates that the additional cost from the possible tax rate increase would be around EUR 15 million. The windfall tax was removed from the Government agenda in Finland. Hedging At the end of September 2010, approximately 80% of the Power Division's estimated Nordic electricity sales volume for the rest of 2010 was hedged at approximately EUR 45 per MWh. For the calendar year 2011, approximately 70% of the division's estimated Nordic electricity sales volume was hedged at approximately EUR 44 per MWh. For the calendar year 2012, approximately 35% of the division's estimated Nordic electricity sales volume was hedged at approximately EUR 43 per MWh. 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 or standardised futures, consisting of several types of products and maturities. Profitability The first and last quarters of the year are usually the strongest quarters for the power and heat businesses. Fortum Power Division's achieved 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 Power's achieved Nordic sales price results in an approximately EUR 50 million change in Fortum's annual operating profit. Fortum's results in the first three quarters of the year were solid. The company has a flexible, cost-efficient and climate-benign generation portfolio. Fortum's financial position and liquidity are strong. Espoo, 20 October 2010 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, tel. +358 10 453 6150 / 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. Fortum's Annual General Meeting is planned to take place on 31 March 2011 and the possible dividend-related dates planned for 2011 are: - Ex-dividend date 1 April 2011, - Record date for dividend payment 5 April 2011 and - Dividend payment date 12 April 2011 Fortum's annual report for 2010 will be published on week 10 at the latest. Publication of financial results in 2011: - Financial statements bulletin for the year 2010 will be published on 2 February 2011 at approximately 9.00 EET. - Interim Report January-March on 28 April 2011 at approximately 9.00 EEST, - Interim Report January-June on 19 July 2011 at approximately 9.00 EEST and - Interim Report January-September on 20 October 2011 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. Contents to the interim financial statements Page 19 Condensed consolidated income statement Page 21 Condensed consolidated balance sheet Page 22 Condensed consolidated statement of changes in total equity Page 23 Condensed consolidated cash flow statement Page 24 Change in net debt and key ratios Page 25 Notes to the condensed consolidated interim financial statements Page 38 Definition of key figures Page 40 Market conditions Page 41 Production and sales volumes -------------------------------------------------------------------------------- | Fortum Corporation | -------------------------------------------------------------------------------- | January-September 2010 | -------------------------------------------------------------------------------- | 21 October 2010 at 9:00 | -------------------------------------------------------------------------------- | Interim Financial Statements are unaudited | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Condensed consolidated income statement | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EUR million | Note | Q3 | Q3 | Q1-Q3 | Q1-Q3 | 2009 | Last | | | | 2010 | 2009 | 2010 | 2009 | | twelve | | | | | | | | | months | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Sales | 4 | 1 152 | 1 046 | 4 394 | 3 872 | 5 435 | 5 957 | -------------------------------------------------------------------------------- | Other income | | 30 | 16 | 85 | 55 | 84 | 114 | -------------------------------------------------------------------------------- | Materials | | -475 | -352 | -1 936 | -1 419 | -2 027 | -2 544 | | and services | | | | | | | | -------------------------------------------------------------------------------- | Employee | | -116 | -114 | -374 | -373 | -495 | -496 | | benefit | | | | | | | | | costs | | | | | | | | -------------------------------------------------------------------------------- | Depreciation | 4, 12 | -140 | -128 | -416 | -374 | -510 | -552 | | , | | | | | | | | | amortisation | | | | | | | | | and | | | | | | | | | impairment | | | | | | | | | charges | | | | | | | | -------------------------------------------------------------------------------- | Other | | -149 | -152 | -461 | -443 | -599 | -617 | | expenses | | | | | | | | -------------------------------------------------------------------------------- | Items | | 10 | -30 | 95 | -58 | -106 | 47 | | affecting | | | | | | | | | comparabilit | | | | | | | | | y | | | | | | | | -------------------------------------------------------------------------------- | Operating | | 312 | 286 | 1 387 | 1 260 | 1 782 | 1 909 | | profit | | | | | | | | -------------------------------------------------------------------------------- | Share of | 4, 13 | 10 | 3 | 41 | -1 | 21 | 63 | | profit/loss | | | | | | | | | of | | | | | | | | | associates | | | | | | | | | and joint | | | | | | | | | ventures | | | | | | | | -------------------------------------------------------------------------------- | Interest | | -48 | -56 | -140 | -188 | -241 | -193 | | expense | | | | | | | | -------------------------------------------------------------------------------- | Interest | | 18 | 23 | 53 | 76 | 98 | 75 | | income | | | | | | | | -------------------------------------------------------------------------------- | Fair value gains and | 1 | -8 | 20 | 5 | -1 | 14 | | losses on financial | | | | | | | | instruments | | | | | | | -------------------------------------------------------------------------------- | Other | | -8 | -6 | -31 | -21 | -23 | -33 | | financial | | | | | | | | | expenses - | | | | | | | | | net | | | | | | | | -------------------------------------------------------------------------------- | Finance | | -37 | -47 | -98 | -128 | -167 | -137 | | costs - net | | | | | | | | -------------------------------------------------------------------------------- | Profit | | 285 | 242 | 1 330 | 1 131 | 1 636 | 1 835 | | before | | | | | | | | | income tax | | | | | | | | -------------------------------------------------------------------------------- | Income tax | 9 | -45 | -39 | -236 | -211 | -285 | -310 | | expense | | | | | | | | -------------------------------------------------------------------------------- | Profit for | | 240 | 203 | 1 094 | 920 | 1 351 | 1 525 | | the period | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Attributable | | | | | | | | | to: | | | | | | | | -------------------------------------------------------------------------------- | Owners of | | 247 | 211 | 1 069 | 906 | 1 312 | 1 475 | | the parent | | | | | | | | -------------------------------------------------------------------------------- | Non-controll | | -7 | -8 | 25 | 14 | 39 | 50 | | ing | | | | | | | | | interests | | | | | | | | -------------------------------------------------------------------------------- | | | 240 | 203 | 1 094 | 920 | 1 351 | 1 525 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Earnings per | 10 | | | | | | | | share (in € | | | | | | | | | per share) | | | | | | | | -------------------------------------------------------------------------------- | Basic | | 0.27 | 0.24 | 1.20 | 1.02 | 1.48 | 1.66 | -------------------------------------------------------------------------------- | Diluted | | 0.27 | 0.24 | 1.20 | 1.02 | 1.48 | 1.66 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EUR million | | Q3 | Q3 | Q1-Q3 | Q1-Q3 | 2009 | Last | | | | 2010 | 2009 | 2010 | 2009 | | twelve | | | | | | | | | months | -------------------------------------------------------------------------------- | Comparable | | 302 | 316 | 1 292 | 1 318 | 1 888 | 1 862 | | operating | | | | | | | | | profit | | | | | | | | -------------------------------------------------------------------------------- | Non-recurrin | | 36 | 7 | 86 | 21 | 29 | 94 | | g items | | | | | | | | | (capital | | | | | | | | | gains and | | | | | | | | | losses) | | | | | | | | -------------------------------------------------------------------------------- | Changes in fair | -16 | -32 | 5 | -53 | -76 | -18 | | values of derivatives | | | | | | | | hedging future cash | | | | | | | | flow | | | | | | | -------------------------------------------------------------------------------- | Nuclear fund | | -10 | -5 | 4 | -26 | -59 | -29 | | adjustment | | | | | | | | -------------------------------------------------------------------------------- | Items | | 10 | -30 | 95 | -58 | -106 | 47 | | affecting | | | | | | | | | comparabilit | | | | | | | | | y | | | | | | | | -------------------------------------------------------------------------------- | Operating | | 312 | 286 | 1 387 | 1 260 | 1 782 | 1 909 | | profit | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Condensed consolidated statement of comprehensive income | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EUR million | | Q3 2010 | Q3 2009 | Q1-Q3 | Q1-Q3 | 2009 | 2008 | | | | | | 2010 | 2009 | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Profit for | | 240 | 203 | 1 094 | 920 | 1 351 | 1 596 | | the period | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Other | | | | | | | | | comprehensive | | | | | | | | | income | | | | | | | | -------------------------------------------------------------------------------- | Cash flow | | | | | | | | | hedges | | | | | | | | -------------------------------------------------------------------------------- | Fair value | | 39 | 221 | -119 | 131 | -195 | 453 | | gains/losses | | | | | | | | | in the period | | | | | | | | -------------------------------------------------------------------------------- | Transfers to | | -15 | -71 | -18 | -154 | -218 | 160 | | income | | | | | | | | | statement | | | | | | | | -------------------------------------------------------------------------------- | Transfers to | | 2 | -1 | -6 | -2 | -4 | -4 | | inventory/fix | | | | | | | | | ed assets | | | | | | | | -------------------------------------------------------------------------------- | Tax effect | | -5 | -39 | 34 | 8 | 108 | -168 | -------------------------------------------------------------------------------- | Net | | | | | | | | | investment | | | | | | | | | hedges | | | | | | | | -------------------------------------------------------------------------------- | Fair value | | -20 | -6 | -30 | -8 | -25 | - | | gains/losses | | | | | | | | | in the period | | | | | | | | -------------------------------------------------------------------------------- | Tax effect | | 5 | 2 | 8 | 0 | 6 | - | -------------------------------------------------------------------------------- | Available for | | | | | | | | | sale | | | | | | | | | financial | | | | | | | | | assets | | | | | | | | -------------------------------------------------------------------------------- | Fair value | | -1 | - | -1 | 2 | 0 | -1 | | changes in | | | | | | | | | the period | | | | | | | | -------------------------------------------------------------------------------- | Exchange | -189 | 75 | 255 | -52 | 21 | -621 | | differences on | | | | | | | | translating | | | | | | | | foreign operations | | | | | | | -------------------------------------------------------------------------------- | Share of other | 19 | 40 | -61 | 1 | -37 | -628 | | comprehensive | | | | | | | | income of | | | | | | | | associates 1) | | | | | | | -------------------------------------------------------------------------------- | Other changes | | -1 | 1 | 0 | -6 | 1 | 1 | -------------------------------------------------------------------------------- | Other | -166 | 222 | 62 | -80 | -343 | -808 | | comprehensive | | | | | | | | income for the | | | | | | | | period, net of tax | | | | | | | -------------------------------------------------------------------------------- | Total | | 74 | 425 | 1 156 | 840 | 1 008 | 788 | | comprehensive | | | | | | | | | income for | | | | | | | | | the year | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Total | | | | | | | | | comprehensive | | | | | | | | | income | | | | | | | | | attributable | | | | | | | | | to | | | | | | | | -------------------------------------------------------------------------------- | Owners of the | | 79 | 420 | 1 093 | 832 | 971 | 797 | | parent | | | | | | | | -------------------------------------------------------------------------------- | Non-controlli | | -5 | 5 | 63 | 8 | 37 | -9 | | ng interests | | | | | | | | -------------------------------------------------------------------------------- | | | 74 | 425 | 1 156 | 840 | 1 008 | 788 | -------------------------------------------------------------------------------- | 1) Of which | | | | | | | | | fair value | | | | | | | | | change in | | | | | | | | | Hafslund | | | | | | | | | ASA's | | | | | | | | -------------------------------------------------------------------------------- | shareholding | | 16 | 32 | -69 | 4 | -37 | -667 | | in REC incl. | | | | | | | | | translation | | | | | | | | | differences | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Condensed | | | | | | | | | consolidated | | | | | | | | | balance sheet | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EUR million | Note | | | Sept 30 | Sept | Dec 31 | | | | | | 2010 | 30 | 2009 | | | | | | | 2009 | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | ASSETS | | | | | | | | -------------------------------------------------------------------------------- | Non-current | | | | | | | | | assets | | | | | | | | -------------------------------------------------------------------------------- | Intangible | 12 | | | | 382 | 365 | 391 | | assets | | | | | | | | -------------------------------------------------------------------------------- | Property, | 12 | | | | 14 193 | 12 683 | 12 855 | | plant and | | | | | | | | | equipment | | | | | | | | -------------------------------------------------------------------------------- | Participation | 4, 13 | | | 2 130 | 2 194 | 2 188 | | s in | | | | | | | | associates | | | | | | | | and joint | | | | | | | | ventures | | | | | | | -------------------------------------------------------------------------------- | Share in | 16 | | | | 616 | 588 | 570 | | State Nuclear | | | | | | | | | Waste | | | | | | | | | Management | | | | | | | | | Fund | | | | | | | | -------------------------------------------------------------------------------- | Pension | | | | | 66 | 64 | 59 | | assets | | | | | | | | -------------------------------------------------------------------------------- | Other | | | | | 70 | 61 | 69 | | non-current | | | | | | | | | assets | | | | | | | | -------------------------------------------------------------------------------- | Deferred tax | | | | | 57 | 7 | 47 | | assets | | | | | | | | -------------------------------------------------------------------------------- | Derivative | 6 | | | | 232 | 319 | 195 | | financial | | | | | | | | | instruments | | | | | | | | -------------------------------------------------------------------------------- | Long-term | | | | | 1 109 | 908 | 918 | | interest-bear | | | | | | | | | ing | | | | | | | | | receivables | | | | | | | | -------------------------------------------------------------------------------- | Total | | | | | 18 855 | 17 189 | 17 292 | | non-current | | | | | | | | | assets | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Current | | | | | | | | | assets | | | | | | | | -------------------------------------------------------------------------------- | Inventories | | | | | 455 | 463 | 447 | -------------------------------------------------------------------------------- | Derivative | 6 | | | | 128 | 380 | 182 | | financial | | | | | | | | | instruments | | | | | | | | -------------------------------------------------------------------------------- | Trade and | | | | | 784 | 712 | 1 030 | | other | | | | | | | | | receivables | | | | | | | | -------------------------------------------------------------------------------- | Bank deposits | | | | | 9 | 395 | 397 | -------------------------------------------------------------------------------- | Cash and cash | | | | | 971 | 420 | 493 | | equivalents | | | | | | | | -------------------------------------------------------------------------------- | Liquid funds | 15 | | | | 980 | 815 | 890 | -------------------------------------------------------------------------------- | Total current | | | | | 2 347 | 2 370 | 2 549 | | assets | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Total assets | | | | | 21 202 | 19 559 | 19 841 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EQUITY | | | | | | | | -------------------------------------------------------------------------------- | Equity | | | | | | | | | attributable | | | | | | | | | to owners of | | | | | | | | | the parent | | | | | | | | -------------------------------------------------------------------------------- | Share capital | 14 | | | | 3 046 | 3 046 | 3 046 | -------------------------------------------------------------------------------- | Share premium | | | | | 73 | 73 | 73 | -------------------------------------------------------------------------------- | Retained | | | | | 5 155 | 4 281 | 4 762 | | earnings | | | | | | | | -------------------------------------------------------------------------------- | Other equity | | | | | -35 | 496 | 153 | | components | | | | | | | | -------------------------------------------------------------------------------- | Total | | | | | 8 239 | 7 896 | 8 034 | -------------------------------------------------------------------------------- | Non-controlli | | | | | 497 | 432 | 457 | | ng interests | | | | | | | | -------------------------------------------------------------------------------- | Total equity | | | | | 8 736 | 8 328 | 8 491 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | LIABILITIES | | | | | | | | -------------------------------------------------------------------------------- | Non-current | | | | | | | | | liabilities | | | | | | | | -------------------------------------------------------------------------------- | Interest-bear | 15 | | | | 6 464 | 6 531 | 6 002 | | ing | | | | | | | | | liabilities | | | | | | | | -------------------------------------------------------------------------------- | Derivative | 6 | | | | 157 | 173 | 191 | | financial | | | | | | | | | instruments | | | | | | | | -------------------------------------------------------------------------------- | Deferred tax | | | | | 1 810 | 1 810 | 1 750 | | liabilities | | | | | | | | -------------------------------------------------------------------------------- | Nuclear | 16 | | | | 616 | 588 | 570 | | provisions | | | | | | | | -------------------------------------------------------------------------------- | Other | | | | | 231 | 212 | 209 | | provisions | | | | | | | | -------------------------------------------------------------------------------- | Pension | | | | | 22 | 50 | 23 | | obligations | | | | | | | | -------------------------------------------------------------------------------- | Other | | | | | 468 | 461 | 472 | | non-current | | | | | | | | | liabilities | | | | | | | | -------------------------------------------------------------------------------- | Total | | | | | 9 768 | 9 825 | 9 217 | | non-current | | | | | | | | | liabilities | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Current | | | | | | | | | liabilities | | | | | | | | -------------------------------------------------------------------------------- | Interest-bear | 15 | | | | 1 124 | 325 | 857 | | ing | | | | | | | | | liabilities | | | | | | | | -------------------------------------------------------------------------------- | Derivative | 6 | | | | 619 | 266 | 276 | | financial | | | | | | | | | instruments | | | | | | | | -------------------------------------------------------------------------------- | Trade and | | | | | 955 | 815 | 1 000 | | other | | | | | | | | | payables | | | | | | | | -------------------------------------------------------------------------------- | Total current | | | | | 2 698 | 1 406 | 2 133 | | liabilities | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Total | | | | | 12 466 | 11 231 | 11 350 | | liabilities | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Total equity | | | | | 21 202 | 19 559 | 19 841 | | and | | | | | | | | | liabilities | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Fortum Corporation | -------------------------------------------------------------------------------- | January-September 2010 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Condensed consolidated statement of changes in total equity | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | | Share | Shar | Retained | Other equity | Owner | Non-c | Total | | | capit | e | earnings | components | s of | ontro | equity | | | al | prem | | | the | lling | | | | | ium | | | paren | inter | | | | | | | | t | ests | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EUR | | | Retai | Trans | Cash | Othe | OCI | | | million | | | ned | latio | flow | r | item | | | | | | earni | n of | hedg | OCI | s | | | | | | ngs | forei | es | item | asso | | | | | | and | gn | | s | ciat | | | | | | other | opera | | | ed | | | | | | funds | tions | | | comp | | | | | | | | | | anie | | | | | | | | | | s | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Total | 3 | 73 | 5 | -567 | 21 | 1 | 131 | 8 034 | 457 | 8 491 | | equity | 046 | | 329 | | | | | | | | | 31 | | | | | | | | | | | | Decemb | | | | | | | | | | | | er | | | | | | | | | | | | 2009 | | | | | | | | | | | -------------------------------------------------------------------------------- | Net | | | 1 | | | | | 1 069 | 25 | 1 094 | | profit | | | 069 | | | | | | | | | for | | | | | | | | | | | | the | | | | | | | | | | | | period | | | | | | | | | | | -------------------------------------------------------------------------------- | Transl | | | | 211 | 1 | | 11 | 223 | 44 | 267 | | ation | | | | | | | | | | | | differ | | | | | | | | | | | | ences | | | | | | | | | | | -------------------------------------------------------------------------------- | Other | | | 1 | | -10 | -23 | -72 | -199 | -6 | -205 | | compre | | | | | 5 | | | | | | | hensiv | | | | | | | | | | | | e | | | | | | | | | | | | income | | | | | | | | | | | -------------------------------------------------------------------------------- | Total | | | 1 | 211 | -10 | -23 | -61 | 1 093 | 63 | 1 156 | | compre | | | 070 | | 4 | | | | | | | hensiv | | | | | | | | | | | | e | | | | | | | | | | | | income | | | | | | | | | | | | for | | | | | | | | | | | | the | | | | | | | | | | | | period | | | | | | | | | | | -------------------------------------------------------------------------------- | Cash | | | -888 | | | | | -888 | | -888 | | divide | | | | | | | | | | | | nd | | | | | | | | | | | -------------------------------------------------------------------------------- | Divide | | | | | | | | 0 | -22 | -22 | | nds to | | | | | | | | | | | | non-co | | | | | | | | | | | | ntroll | | | | | | | | | | | | ing | | | | | | | | | | | | intere | | | | | | | | | | | | sts | | | | | | | | | | | -------------------------------------------------------------------------------- | Change | | | | | | | | 0 | -1 | -1 | | s due | | | | | | | | | | | | to | | | | | | | | | | | | busine | | | | | | | | | | | | ss | | | | | | | | | | | | combin | | | | | | | | | | | | ations | | | | | | | | | | | -------------------------------------------------------------------------------- | Total | 3 | 73 | 5 | -356 | -83 | -22 | 70 | 8 239 | 497 | 8 736 | | equity | 046 | | 511 | | | | | | | | | 30 | | | | | | | | | | | | Septem | | | | | | | | | | | | ber | | | | | | | | | | | | 2010 | | | | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Total | 3 | 73 | 4 | -576 | 321 | 36 | 168 | 7 954 | 457 | 8 411 | | equity | 044 | | 888 | | | | | | | | | 31 | | | | | | | | | | | | Decemb | | | | | | | | | | | | er | | | | | | | | | | | | 2008 | | | | | | | | | | | -------------------------------------------------------------------------------- | Net | | | 906 | | | | | 906 | 14 | 920 | | profit | | | | | | | | | | | | for | | | | | | | | | | | | the | | | | | | | | | | | | period | | | | | | | | | | | -------------------------------------------------------------------------------- | Transl | | | | -59 | -5 | | 25 | -39 | 7 | -32 | | ation | | | | | | | | | | | | differ | | | | | | | | | | | | ences | | | | | | | | | | | -------------------------------------------------------------------------------- | Other | | | -2 | | -3 | -6 | -24 | -35 | -13 | -48 | | compre | | | | | | | | | | | | hensiv | | | | | | | | | | | | e | | | | | | | | | | | | income | | | | | | | | | | | -------------------------------------------------------------------------------- | Total | | | 904 | -59 | -8 | -6 | 1 | 832 | 8 | 840 | | compre | | | | | | | | | | | | hensiv | | | | | | | | | | | | e | | | | | | | | | | | | income | | | | | | | | | | | | for | | | | | | | | | | | | the | | | | | | | | | | | | period | | | | | | | | | | | -------------------------------------------------------------------------------- | Cash | | | -888 | | | | | -888 | | -888 | | divide | | | | | | | | | | | | nd | | | | | | | | | | | -------------------------------------------------------------------------------- | Divide | | | | | | | | 0 | -19 | -19 | | nds to | | | | | | | | | | | | non-co | | | | | | | | | | | | ntroll | | | | | | | | | | | | ing | | | | | | | | | | | | intere | | | | | | | | | | | | sts | | | | | | | | | | | -------------------------------------------------------------------------------- | Change | | | -4 | | | | | -4 | -14 | -18 | | s due | | | | | | | | | | | | to | | | | | | | | | | | | busine | | | | | | | | | | | | ss | | | | | | | | | | | | combin | | | | | | | | | | | | ations | | | | | | | | | | | -------------------------------------------------------------------------------- | Stock | 2 | | 16 | | | -16 | | 2 | | 2 | | option | | | | | | | | | | | | s | | | | | | | | | | | | exerci | | | | | | | | | | | | sed 1) | | | | | | | | | | | -------------------------------------------------------------------------------- | Total | 3 | 73 | 4 | -635 | 313 | 14 | 169 | 7 896 | 432 | 8 328 | | equity | 046 | | 916 | | | | | | | | | 30 | | | | | | | | | | | | Septem | | | | | | | | | | | | ber | | | | | | | | | | | | 2009 | | | | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Total | 3 | 73 | 4 | -576 | 321 | 36 | 168 | 7 954 | 457 | 8 411 | | equity | 044 | | 888 | | | | | | | | | 31 | | | | | | | | | | | | Decemb | | | | | | | | | | | | er | | | | | | | | | | | | 2008 | | | | | | | | | | | -------------------------------------------------------------------------------- | Net | | | 1 | | | | | 1 312 | 39 | 1 351 | | profit | | | 312 | | | | | | | | | for | | | | | | | | | | | | the | | | | | | | | | | | | period | | | | | | | | | | | -------------------------------------------------------------------------------- | Transl | | | | 9 | -4 | | 28 | 33 | 12 | 45 | | ation | | | | | | | | | | | | differ | | | | | | | | | | | | ences | | | | | | | | | | | -------------------------------------------------------------------------------- | Other | | | 6 | | -29 | -19 | -65 | -374 | -14 | -388 | | compre | | | | | 6 | | | | | | | hensiv | | | | | | | | | | | | e | | | | | | | | | | | | income | | | | | | | | | | | -------------------------------------------------------------------------------- | Total | | | 1 | 9 | -30 | -19 | -37 | 971 | 37 | 1 008 | | compre | | | 318 | | 0 | | | | | | | hensiv | | | | | | | | | | | | e | | | | | | | | | | | | income | | | | | | | | | | | | for | | | | | | | | | | | | the | | | | | | | | | | | | period | | | | | | | | | | | -------------------------------------------------------------------------------- | Cash | | | -888 | | | | | -888 | | -888 | | divide | | | | | | | | | | | | nd | | | | | | | | | | | -------------------------------------------------------------------------------- | Divide | | | | | | | | 0 | -19 | -19 | | nds to | | | | | | | | | | | | non-co | | | | | | | | | | | | ntroll | | | | | | | | | | | | ing | | | | | | | | | | | | intere | | | | | | | | | | | | sts | | | | | | | | | | | -------------------------------------------------------------------------------- | Change | | | -5 | | | | | -5 | -18 | -23 | | s due | | | | | | | | | | | | to | | | | | | | | | | | | busine | | | | | | | | | | | | ss | | | | | | | | | | | | combin | | | | | | | | | | | | ations | | | | | | | | | | | -------------------------------------------------------------------------------- | Stock | 2 | | 16 | | | -16 | | 2 | | 2 | | option | | | | | | | | | | | | s | | | | | | | | | | | | exerci | | | | | | | | | | | | sed 1) | | | | | | | | | | | -------------------------------------------------------------------------------- | Total | 3 | 73 | 5 | -567 | 21 | 1 | 131 | 8 034 | 457 | 8 491 | | equity | 046 | | 329 | | | | | | | | | 31 | | | | | | | | | | | | Decemb | | | | | | | | | | | | er | | | | | | | | | | | | 2009 | | | | | | | | | | | -------------------------------------------------------------------------------- 1) Accounting effect of the last stock option program (2002B) upon ending of the subscription period on 1 May 2009 Translation differences Translation differences impacted equity attributable to owners of the parent company with EUR 223 million during Q1-Q3 2010 (Q1-Q3 2009: -39) including net effect from SEK, NOK and RUB amounting to EUR 216 million in Q1-Q3 2010 (Q1-Q3 2009: -39). Part of the translation difference is arising from the NOK effect in fair valuation of Hafslund's REC shares, EUR 4 million accumulated until Q1-Q3 2010 (Q1-Q3 2009: 19), which is shown together with the change in fair value in OCI items associated companies. Translation of financial information from subsidiaries in foreign currency is done using average rate for the income statement and end rate for the balance sheet. The exchange rate differences occurring from translation to EUR are booked to equity. For information regarding exchange rates used, see Note 8 Exchange rates. Cash flow hedges The impact on equity attributable to owners of the parent from fair valuation of cash flow hedges, EUR -104 million during Q1-Q3 2010 (Q1-Q3 2009: -8), mainly relates to cash flow hedges hedging electricity price for future transactions. When electricity price is lower/higher than the hedging price, the impact on equity is positive/negative. Cash dividend The dividend for 2009 was decided at the Annual General Meeting on 25 March 2010. The dividend was paid on 8 April 2010. The dividend for 2008 was decided at the Annual General Meeting on 7 April 2009. -------------------------------------------------------------------------------- | Fortum Corporation | -------------------------------------------------------------------------------- | January-September 2010 | -------------------------------------------------------------------------------- | Condensed consolidated cash flow statement | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EUR million | Note | Q3 | Q3 | Q1-Q3 | Q1-Q3 | 2009 | Last | | | | 2010 | 2009 | 2010 | 2009 | | twelve | | | | | | | | | months | -------------------------------------------------------------------------------- | Cash flow from | | | | | | | | | operating | | | | | | | | | activities | | | | | | | | -------------------------------------------------------------------------------- | Operating profit | | 452 | 414 | 1 803 | 1 634 | 2 292 | 2 461 | | before | | | | | | | | | depreciations | | | | | | | | | (EBITDA) | | | | | | | | -------------------------------------------------------------------------------- | Non-cash flow items | | -25 | 31 | -98 | 50 | 46 | -102 | | and divesting | | | | | | | | | activities | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Financial items and | -126 | -51 | -449 | 248 | 146 | -551 | | realised foreign exchange | | | | | | | | gains and losses | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Taxes | | -93 | -74 | -248 | -205 | -239 | -282 | -------------------------------------------------------------------------------- | Funds from | | 208 | 320 | 1 008 | 1 727 | 2 245 | 1 526 | | operations | | | | | | | | -------------------------------------------------------------------------------- | Change in working | | 65 | 22 | 208 | 141 | 19 | 86 | | capital | | | | | | | | -------------------------------------------------------------------------------- | Total net cash from | | 273 | 342 | 1 216 | 1 868 | 2 264 | 1 612 | | operating activities | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Cash flow from | | | | | | | | | investing activities | | | | | | | | -------------------------------------------------------------------------------- | Capital expenditures | 4, | -216 | -228 | -702 | -579 | -845 | -968 | | 1) | 12 | | | | | | | -------------------------------------------------------------------------------- | Acquisition of | 7 | 0 | -3 | -1 | -25 | -27 | -3 | | subsidiaries, net of | | | | | | | | | cash acquired | | | | | | | | -------------------------------------------------------------------------------- | Acquisition of | 13 | -6 | -1 | -6 | -32 | -58 | -32 | | associates 2) | | | | | | | | -------------------------------------------------------------------------------- | Acquisition of other | | -1 | -1 | -1 | -2 | -2 | -1 | | long-term | | | | | | | | | investments | | | | | | | | -------------------------------------------------------------------------------- | Proceeds from sales | | 0 | 27 | 3 | 38 | 48 | 13 | | of fixed assets | | | | | | | | -------------------------------------------------------------------------------- | Proceeds from sales | 7 | 1 | -1 | 1 | 10 | 11 | 2 | | of subsidiaries, net | | | | | | | | | of cash disposed | | | | | | | | -------------------------------------------------------------------------------- | Proceeds from sales | 13 | 11 | 1 | 122 | 1 | 2 | 123 | | of associates | | | | | | | | -------------------------------------------------------------------------------- | Proceeds from sales | | 6 | 0 | 17 | 1 | 1 | 17 | | of other non-current | | | | | | | | | assets | | | | | | | | -------------------------------------------------------------------------------- | Change in | | -7 | -33 | -60 | -65 | -104 | -99 | | interest-bearing | | | | | | | | | receivables | | | | | | | | -------------------------------------------------------------------------------- | Total net cash used | | -212 | -239 | -627 | -653 | -974 | -948 | | in investing | | | | | | | | | activities | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Cash flow before | | 61 | 103 | 589 | 1 215 | 1 290 | 664 | | financing activities | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Cash flow from | | | | | | | | | financing activities | | | | | | | | -------------------------------------------------------------------------------- | Net change in loans | | 277 | -722 | 390 | -757 | -758 | 389 | -------------------------------------------------------------------------------- | Dividends paid to | | 0 | - | -888 | -888 | -888 | -888 | | the Company's equity | | | | | | | | | holders | | | | | | | | -------------------------------------------------------------------------------- | Other financing | | -13 | -4 | -32 | -12 | -25 | -45 | | items | | | | | | | | -------------------------------------------------------------------------------- | Total net cash used | | 264 | -726 | -530 | -1 | -1 | -544 | | in financing | | | | | 657 | 671 | | | activities | | | | | | | | -------------------------------------------------------------------------------- | Total net increase | | 325 | -623 | 59 | -442 | -381 | 120 | | (+)/decrease (-) in | | | | | | | | | liquid funds | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Liquid funds at the | | 694 | 1 440 | 890 | 1 321 | 1 321 | 815 | | beginning of the | | | | | | | | | period | | | | | | | | -------------------------------------------------------------------------------- | Foreign exchange | | -39 | -2 | 31 | -64 | -50 | 45 | | differences in | | | | | | | | | liquid funds | | | | | | | | -------------------------------------------------------------------------------- | Liquid funds at the | | 980 | 815 | 980 | 815 | 890 | 980 | | end of the period | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 1) Capital expenditures in cash flow do not include investments not yet paid. Capitalised borrowing costs are included in interest costs paid. 2) Acquisition of associates includes paid share issues. Non-cash flow items and divesting activities Non-cash flow items and divesting activities mainly consist of adjustments for capital gains. The actual proceeds for divestments, EUR 143 million for Q1-Q3 2010 (Q1-Q3 2009: 50), are shown under cash flow from investing activities -------------------------------------------------------------------------------- | Financial items and | | | | | | | | | realised foreign | | | | | | | | | exchange gains and | | | | | | | | | losses | | | | | | | | -------------------------------------------------------------------------------- | EUR million | | Q3 | Q3 | Q1-Q3 | Q1-Q3 | 2009 | Last | | | | 2010 | 2009 | 2010 | 2009 | | twelve | | | | | | | | | months | -------------------------------------------------------------------------------- | Interest and finance | | -11 | -16 | -108 | -131 | -185 | -162 | | cost paid, net | | | | | | | | -------------------------------------------------------------------------------- | Dividends received | | 2 | 1 | 53 | 23 | 33 | 63 | -------------------------------------------------------------------------------- | Realised foreign | | -117 | -36 | -394 | 356 | 298 | -452 | | exchange gains and | | | | | | | | | losses | | | | | | | | -------------------------------------------------------------------------------- | Total | | -126 | -51 | -449 | 248 | 146 | -551 | -------------------------------------------------------------------------------- Realised foreign exchange gains and losses arise from currency forwards hedging balance sheet exposure, which mainly relates to financing of Swedish subsidiaries in SEK and the fact, that the Group's main external financing currency is EUR. Major part of these forwards are entered into with short maturities i.e. less than twelve months. -------------------------------------------------------------------------------- | Fortum Corporation | -------------------------------------------------------------------------------- | January-September 2010 | -------------------------------------------------------------------------------- | Change in net debt | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EUR million | Q3 | Q3 | Q1-Q3 | Q1-Q3 | 2009 | Last | | | 2010 | 2009 | 2010 | 2009 | | twelv | | | | | | | | e | | | | | | | | month | | | | | | | | s | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Net debt | | 6 506 | 6 004 | 5 969 | 6 179 | 6 179 | 6 041 | | beginning of | | | | | | | | | the period | | | | | | | | -------------------------------------------------------------------------------- | Foreign | | 124 | 107 | 196 | 151 | 144 | 189 | | exchange rate | | | | | | | | | differences | | | | | | | | -------------------------------------------------------------------------------- | EBITDA | | 452 | 414 | 1 803 | 1 634 | 2 292 | 2 461 | -------------------------------------------------------------------------------- | Paid net | | | | | | | | | financial | | | | | | | | | costs, taxes | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | and adjustments for | -244 | -94 | -795 | 93 | -47 | -935 | | non-cash and divestment | | | | | | | | items | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Change in working | | 65 | 22 | 208 | 141 | 19 | 86 | | capital | | | | | | | | -------------------------------------------------------------------------------- | Capital expenditures | | -216 | -228 | -702 | -579 | -845 | -968 | -------------------------------------------------------------------------------- | Acquisitions | | -7 | -5 | -8 | -59 | -87 | -36 | -------------------------------------------------------------------------------- | Divestments | | 18 | 27 | 143 | 50 | 62 | 155 | -------------------------------------------------------------------------------- | Change in | | -7 | -33 | -60 | -65 | -104 | -99 | | interest-bearing | | | | | | | | | receivables | | | | | | | | -------------------------------------------------------------------------------- | Dividends | | - | - | -888 | -888 | -888 | -888 | -------------------------------------------------------------------------------- | Other financing | | -13 | -4 | -32 | -12 | -25 | -45 | | activities | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Net cash flow (- increase | 48 | 99 | -331 | 315 | 377 | -269 | | in net debt) | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Fair value change of | 26 | 29 | 112 | 26 | 23 | 109 | | bonds, amortised cost | | | | | | | | valuation and other | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Net debt end of period | 6 608 | 6 041 | 6 608 | 6 041 | 5 969 | 6 608 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Key ratios | | | | | | | | | -------------------------------------------------------------------------------- | | Sept 30 | June | March | Dec | Sept | June | March | Last | | | 2010 | 30 | 31 | 31 | 30 | 30 | 31 | twel | | | | 2010 | 2010 | 2009 | 2009 | 2009 | 2009 | ve | | | | | | | | | | mont | | | | | | | | | | hs | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EBITDA, | 1 803 | 1 351 | 861 | 2 292 | 1 634 | 1 220 | 721 | 2 461 | | EUR | | | | | | | | | | million | | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Earnings | 1.20 | 0.93 | 0.63 | 1.48 | 1.02 | 0.78 | 0.46 | 1.66 | | per share | | | | | | | | | | (basic), | | | | | | | | | | EUR | | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Capital | 16 324 | 15 | 15 | 15 | 15 | 15 | 17 | N/A | | employed, | | 862 | 642 | 350 | 184 | 347 | 404 | | | EUR | | | | | | | | | | million | | | | | | | | | -------------------------------------------------------------------------------- | Interest- | 6 608 | 6 506 | 5 679 | 5 969 | 6 041 | 6 004 | 5 634 | N/A | | bearing | | | | | | | | | | net debt, | | | | | | | | | | EUR | | | | | | | | | | million | | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Capital | 750 | 513 | 216 | 929 | 634 | 412 | 181 | 1 045 | | expenditu | | | | | | | | | | re and | | | | | | | | | | gross | | | | | | | | | | investmen | | | | | | | | | | ts in | | | | | | | | | | shares, | | | | | | | | | | EUR | | | | | | | | | | million | | | | | | | | | -------------------------------------------------------------------------------- | Capital | 723 | 493 | 196 | 862 | 571 | 352 | 150 | 1 014 | | expenditu | | | | | | | | | | re, EUR | | | | | | | | | | million | | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Return on | 12.2 | 14.3 | 18.7 | 12.1 | 11.4 | 13.1 | 14.5 | 12.9 | | capital | | | | | | | | | | employed, | | | | | | | | | | % 1) | | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Return on | 16.6 | 19.3 | 25.7 | 16.0 | 14.6 | 17.4 | 19.6 | 17.9 | | sharehold | | | | | | | | | | ers' | | | | | | | | | | equity, % | | | | | | | | | | 1) | | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Net debt | 2.8 | 2.5 | 1.7 | 2.6 | 2.8 | 2.5 | 2.0 | 2.7 | | / EBITDA | | | | | | | | | | 1) | | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Interest | 15.9 | 18.7 | 24.2 | 12.4 | 11.3 | 12.3 | 16.0 | 16.1 | | coverage | | | | | | | | | -------------------------------------------------------------------------------- | Interest | 11.4 | 13.7 | 18.7 | 10.3 | 9.5 | 10.5 | 12.9 | 11.8 | | coverage | | | | | | | | | | including | | | | | | | | | | capitalis | | | | | | | | | | ed | | | | | | | | | | borrowing | | | | | | | | | | costs | | | | | | | | | -------------------------------------------------------------------------------- | Funds | 22.3 | 28.8 | 44.9 | 37.6 | 35.7 | 38.9 | 45.1 | 23.1 | | from | | | | | | | | | | operation | | | | | | | | | | s/interes | | | | | | | | | | t-bearing | | | | | | | | | | net debt, | | | | | | | | | | % 1) | | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Gearing, | 76 | 75 | 67 | 70 | 73 | 76 | 65 | N/A | | % | | | | | | | | | -------------------------------------------------------------------------------- | Equity | 9.27 | 9.19 | 8.96 | 9.04 | 8.89 | 8.42 | 9.34 | N/A | | per | | | | | | | | | | share, | | | | | | | | | | EUR | | | | | | | | | -------------------------------------------------------------------------------- | Equity-to | 41 | 42 | 40 | 43 | 43 | 41 | 40 | N/A | | -assets | | | | | | | | | | ratio, % | | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Number of | 10 865 | 11 | 11 | 11 | 12 | 13 | 14 | N/A | | employees | | 406 | 290 | 613 | 054 | 586 | 267 | | -------------------------------------------------------------------------------- | Average | 11 302 | 11 | 11 | 13 | 13 | 14 | 14 | N/A | | number of | | 393 | 435 | 278 | 737 | 310 | 644 | | | employees | | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Average | 888 367 | 888 | 888 | 888 | 888 | 888 | 888 | 888 | | number of | | 367 | 367 | 230 | 230 | 230 | 095 | 367 | | shares, 1 | | | | | | | | | | 000 | | | | | | | | | | shares | | | | | | | | | -------------------------------------------------------------------------------- | Diluted | 888 367 | 888 | 888 | 888 | 888 | 888 | 888 | 888 | | adjusted | | 367 | 367 | 230 | 230 | 230 | 250 | 367 | | average | | | | | | | | | | number of | | | | | | | | | | shares, 1 | | | | | | | | | | 000 | | | | | | | | | | shares | | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Number of | 888 367 | 888 | 888 | 888 | 888 | 888 | 888 | N/A | | registered | | 367 | 367 | 367 | 367 | 367 | 166 | | | shares, 1 | | | | | | | | | | 000 shares | | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | 1) Quarterly figures are annualised. | -------------------------------------------------------------------------------- | For definitions, see Note 24. | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Fortum | Notes to the condensed consolidated interim financial | | Corporation | statements | -------------------------------------------------------------------------------- | January-Septemb | | | er 2010 | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Notes to the condensed consolidated interim financial statements | -------------------------------------------------------------------------------- 1. Basis of preparation 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 condensed interim financial report should be read in conjunction with the annual financial statements for the year ended 31 December 2009. The interim financial statements have not been audited. -------------------------------------------------------------------------------- | 2. Accounting Policies | -------------------------------------------------------------------------------- The same accounting policies and presentation have been followed in these condensed interim financial statements as were applied in the preparation of the consolidated financial statements as at and for the year ended 31 December 2009, except for the effects of the adoption of the standards and presentation changes described below: - IFRS 3 (revised) Business combinations (effective for annual periods beginning on or after 1 July 2009.) The amendment effects the accounting of transaction costs, step acquisitions, goodwill and non-controlling interest and contingent consideration. Fortum applies the revised standard to business combinations taking place on or after 1 January 2010. - IAS 27 (amended) Consolidated and separate financial statements (to be adopted for annual periods beginning on or after 1 July 2009). The amendments to IAS 27 require the effects of all transactions with non-controlling interests to be recorded in equity if there is no change in control. Fortum applies the amended standard prospectively to transactions with non-controlling interests from 1 January 2010. - IAS 17 (amendment) Leases (effective for annual periods beginning on or after 1 January 2010). The amendment is part of the IASB's annual improvements project published in April 2009. The requirements of IAS 17 Leases regarding the classification of leases of land were amended. Prior to amendment, IAS 17 generally required leases of land with an indefinite useful life to be classified as operating leases. Following the amendments, leases of land are classified as either ‘finance' or ‘operating' in accordance with the general principles of IAS 17. Fortum has adopted the amendment as of 1 January 2010. The amendment did not have a material impact on Fortum's financial statements as the classification of major land lease agreements did not change. For changes in accounting practice relating to TGC-1 results, see Note 13 below. Additional line item in the income statement Items affecting comparability are excluded from relevant income statement line items and disclosed separately in Fortum's income statement as they are necessary for understanding the financial performance when comparing results for the current period with previous periods. The following items are included in the line "Items affecting comparability": - non-recurring items, consisting of capital gains and losses; - effects from fair valuations of derivatives hedging future cash flows where hedge accounting is not applied according to IAS 39. The major part of Fortum´s cash flow hedges obtain hedge accounting status and the fair value changes are thus recorded in equity; - 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. In segment disclosures these items have been deducted from operating profit to arrive to comparable operating profit, because that is considered to reflect better the segments' business performance. -------------------------------------------------------------------------------- | 3. Critical accounting | | | | | | | | estimates and judgements | | | | | | | -------------------------------------------------------------------------------- The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of assets and liabilities, income and expense. Annual results may differ from these estimates. In preparing these interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2009. -------------------------------------------------------------------------------- | 4. Segment information | | | | | | | -------------------------------------------------------------------------------- In October 2009 Fortum restructured its organisation into four business divisions and four staff functions in order to increase the organisation's efficiency, performance accountability and simplicity. The new business divisions are Power, Heat, Russia and Electricity Solutions and Distribution. The Electricity Solutions and Distribution (ESD) division consists of business areas Distribution and Electricity Sales (former Markets). The reportable segments under IFRS have been renamed correspondingly. The reorganisation did not lead to a change in Fortum's external financial reporting structure as the reportable segments have remained the same. However there have been some minor changes to the composition of the segments that have taken effect from beginning of January 2010. Changes relate mainly to the transfer of the Power division's Power Solutions business area to Russia and Heat divisions as well as the establishment of the centralised Trading and Industrial Intelligence unit. Please see the attachment to Q1 2010 press release for the new and old segment information. -------------------------------------------------------------------------------- | Sales | Q3 | Q3 2009 | Q1-Q3 | Q1-Q3 | 2009 | Last | | EUR million | 2010 | | 2010 | 2009 | | twelve | | | | | | | | months | -------------------------------------------------------------------------------- | Power sales | 743 | 717 | 2 569 | 2 315 | 3 192 | 3 446 | | excluding | | | | | | | | indirect taxes | | | | | | | -------------------------------------------------------------------------------- | Heating sales | 186 | 160 | 1 059 | 887 | 1 314 | 1 486 | -------------------------------------------------------------------------------- | Network | 184 | 157 | 648 | 547 | 760 | 861 | | transmissions | | | | | | | -------------------------------------------------------------------------------- | Other sales | 39 | 12 | 118 | 123 | 169 | 164 | -------------------------------------------------------------------------------- | Total | 1 152 | 1 046 | 4 394 | 3 872 | 5 435 | 5 957 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Sales by segment | Q3 | Q3 2009 | Q1-Q3 | Q1-Q3 | 2009 | Last | | EUR million | 2010 | | 2010 | 2009 | | twelve | | | | | | | | months | -------------------------------------------------------------------------------- | Power 1) | 584 | 572 | 1 950 | 1 868 | 2 531 | 2 613 | -------------------------------------------------------------------------------- | - of which | -10 | 70 | -144 | 204 | 254 | -94 | | internal | | | | | | | -------------------------------------------------------------------------------- | Heat 1) | 220 | 177 | 1 172 | 941 | 1 399 | 1 630 | -------------------------------------------------------------------------------- | - of which | 1 | 2 | -3 | 15 | 23 | 5 | | internal | | | | | | | -------------------------------------------------------------------------------- | Distribution | 196 | 168 | 676 | 573 | 800 | 903 | -------------------------------------------------------------------------------- | - of which | 3 | 2 | 10 | 6 | 13 | 17 | | internal | | | | | | | -------------------------------------------------------------------------------- | Electricity | 305 | 272 | 1 269 | 1 039 | 1 449 | 1 679 | | Sales 1) | | | | | | | -------------------------------------------------------------------------------- | - of which | 20 | 9 | 100 | 39 | 67 | 128 | | internal | | | | | | | -------------------------------------------------------------------------------- | Russia | 137 | 111 | 550 | 435 | 632 | 747 | -------------------------------------------------------------------------------- | - of which | - | - | - | - | - | - | | internal | | | | | | | -------------------------------------------------------------------------------- | Other 1) | 23 | 16 | 44 | 54 | 71 | 61 | -------------------------------------------------------------------------------- | - of which | 35 | -13 | 96 | 4 | -5 | 87 | | internal | | | | | | | -------------------------------------------------------------------------------- | Netting of Nord | -264 | -200 | -1 208 | -770 | -1 095 | -1 533 | | Pool | | | | | | | | transactions 2) | | | | | | | -------------------------------------------------------------------------------- | Eliminations | -49 | -70 | -59 | -268 | -352 | -143 | -------------------------------------------------------------------------------- | Total | 1 152 | 1 046 | 4 394 | 3 872 | 5 435 | 5 957 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Operating profit | Q3 | Q3 2009 | Q1-Q3 | Q1-Q3 | 2009 | Last | | by segment | 2010 | | 2010 | 2009 | | twelve | | EUR million | | | | | | months | -------------------------------------------------------------------------------- | Power | 256 | 297 | 1 003 | 1 036 | 1 363 | 1 330 | -------------------------------------------------------------------------------- | Heat | -15 | -11 | 179 | 143 | 252 | 288 | -------------------------------------------------------------------------------- | Distribution | 62 | 47 | 228 | 182 | 263 | 309 | -------------------------------------------------------------------------------- | Electricity | 12 | -7 | 6 | -8 | 29 | 43 | | Sales | | | | | | | -------------------------------------------------------------------------------- | Russia | 14 | -19 | 37 | -28 | -20 | 45 | -------------------------------------------------------------------------------- | Other | -17 | -21 | -66 | -65 | -105 | -106 | -------------------------------------------------------------------------------- | Total | 312 | 286 | 1 387 | 1 260 | 1 782 | 1 909 | -------------------------------------------------------------------------------- | Comparable | Q3 | Q3 2009 | Q1-Q3 | Q1-Q3 | 2009 | Last | | operating profit | 2010 | | 2010 | 2009 | | twelve | | by segment | | | | | | months | | EUR million | | | | | | | -------------------------------------------------------------------------------- | Power | 267 | 308 | 962 | 1 063 | 1 454 | 1 353 | -------------------------------------------------------------------------------- | Heat | -12 | -13 | 153 | 127 | 231 | 257 | -------------------------------------------------------------------------------- | Distribution | 61 | 47 | 216 | 182 | 262 | 296 | -------------------------------------------------------------------------------- | Electricity | 11 | 7 | 8 | 11 | 22 | 19 | | Sales | | | | | | | -------------------------------------------------------------------------------- | Russia | -16 | -20 | -9 | -28 | -20 | -1 | -------------------------------------------------------------------------------- | Other | -9 | -13 | -38 | -37 | -61 | -62 | -------------------------------------------------------------------------------- | Comparable | 302 | 316 | 1 292 | 1 318 | 1 888 | 1 862 | | operating profit | | | | | | | -------------------------------------------------------------------------------- | Non-recurring | 36 | 7 | 86 | 21 | 29 | 94 | | items | | | | | | | -------------------------------------------------------------------------------- | Other items | -26 | -37 | 9 | -79 | -135 | -47 | | affecting | | | | | | | | comparability | | | | | | | -------------------------------------------------------------------------------- | Operating profit | 312 | 286 | 1 387 | 1 260 | 1 782 | 1 909 | -------------------------------------------------------------------------------- | Non-recurring | Q3 | Q3 2009 | Q1-Q3 | Q1-Q3 | 2009 | Last | | items by segment | 2010 | | 2010 | 2009 | | twelve | | EUR million | | | | | | months | -------------------------------------------------------------------------------- | Power | 5 | 0 | 6 | 5 | 6 | 7 | -------------------------------------------------------------------------------- | Heat | 0 | 6 | 22 | 15 | 21 | 28 | -------------------------------------------------------------------------------- | Distribution | 1 | 0 | 12 | 0 | 1 | 13 | -------------------------------------------------------------------------------- | Electricity | - | 0 | - | 0 | 0 | 0 | | Sales | | | | | | | -------------------------------------------------------------------------------- | Russia | 30 | 1 | 46 | 0 | 0 | 46 | -------------------------------------------------------------------------------- | Other | 0 | 0 | 0 | 1 | 1 | 0 | -------------------------------------------------------------------------------- | Total | 36 | 7 | 86 | 21 | 29 | 94 | -------------------------------------------------------------------------------- Non-recurring items include capital gains and losses. -------------------------------------------------------------------------------- | Other items | Q3 | Q3 2009 | Q1-Q3 | Q1-Q3 | 2009 | Last | | affecting | 2010 | | 2010 | 2009 | | twelve | | comparability by | | | | | | months | | segment | | | | | | | | EUR million | | | | | | | -------------------------------------------------------------------------------- | Power 1) | -16 | -11 | 35 | -32 | -97 | -30 | -------------------------------------------------------------------------------- | Heat | -3 | -4 | 4 | 1 | 0 | 3 | -------------------------------------------------------------------------------- | Distribution | 0 | 0 | 0 | 0 | 0 | 0 | -------------------------------------------------------------------------------- | Electricity | 1 | -14 | -2 | -19 | 7 | 24 | | Sales | | | | | | | -------------------------------------------------------------------------------- | Russia | - | - | - | - | - | - | -------------------------------------------------------------------------------- | Other | -8 | -8 | -28 | -29 | -45 | -44 | -------------------------------------------------------------------------------- | Total | -26 | -37 | 9 | -79 | -135 | -47 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | 1) Including | -10 | -5 | 4 | -26 | -59 | -29 | | effects from the | | | | | | | | accounting of | | | | | | | | Fortum's part of | | | | | | | | the Finnish | | | | | | | | State Nuclear | | | | | | | | Waste Management | | | | | | | | Fund with (EUR | | | | | | | | million): | | | | | | | | Other items | | | | | | | | affecting | | | | | | | | comparability | | | | | | | | mainly include | | | | | | | | effects from | | | | | | | | financial | | | | | | | | derivatives | | | | | | | | hedging future | | | | | | | | cash-flows where | | | | | | | | hedge accounting | | | | | | | | is not applied | | | | | | | | according to IAS | | | | | | | | 39. In Power | | | | | | | | segment there | | | | | | | | are also effects | | | | | | | | from the | | | | | | | | accounting of | | | | | | | | Fortum's part of | | | | | | | | the Finnish | | | | | | | | State Nuclear | | | | | | | | Waste Management | | | | | | | | Fund where the | | | | | | | | asset in the | | | | | | | | balance sheet | | | | | | | | cannot exceed | | | | | | | | the related | | | | | | | | liabilities | | | | | | | | according to | | | | | | | | IFRIC | | | | | | | | interpretation | | | | | | | | 5. | | | | | | | -------------------------------------------------------------------------------- | Depreciation, | | | | | | Last | | amortisation and | | | | | | | | impairment | | | | | | | | charges by | | | | | | | | segment | | | | | | | -------------------------------------------------------------------------------- | EUR million | Q3 | Q3 2009 | Q1-Q3 | Q1-Q3 | 2009 | twelve | | | 2010 | | 2010 | 2009 | | months | -------------------------------------------------------------------------------- | Power | 26 | 24 | 74 | 69 | 93 | 98 | -------------------------------------------------------------------------------- | Heat | 46 | 41 | 137 | 117 | 162 | 182 | -------------------------------------------------------------------------------- | Distribution | 45 | 42 | 132 | 122 | 164 | 174 | -------------------------------------------------------------------------------- | Electricity | 0 | 1 | 2 | 4 | 6 | 4 | | Sales | | | | | | | -------------------------------------------------------------------------------- | Russia | 21 | 18 | 63 | 55 | 75 | 83 | -------------------------------------------------------------------------------- | Other | 2 | 2 | 8 | 7 | 10 | 11 | -------------------------------------------------------------------------------- | Total | 140 | 128 | 416 | 374 | 510 | 552 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Share of profit/loss in | | | | | Last | | associates and joint | | | | | | | ventures by segment | | | | | | -------------------------------------------------------------------------------- | EUR million | Q3 | Q3 2009 | Q1-Q3 | Q1-Q3 | 2009 | twelve | | | 2010 | | 2010 | 2009 | | months | -------------------------------------------------------------------------------- | Power 1), 2) | -4 | -9 | -27 | -20 | -35 | -42 | -------------------------------------------------------------------------------- | Heat | 3 | 6 | 22 | 18 | 30 | 34 | -------------------------------------------------------------------------------- | Distribution | 2 | -1 | 13 | 8 | 10 | 15 | -------------------------------------------------------------------------------- | Electricity | 0 | 0 | 1 | 1 | 0 | 0 | | Sales | | | | | | | -------------------------------------------------------------------------------- | Russia | 1 | 1 | 10 | 6 | 20 | 24 | -------------------------------------------------------------------------------- | Other | 8 | 6 | 22 | -14 | -4 | 32 | -------------------------------------------------------------------------------- | Total | 10 | 3 | 41 | -1 | 21 | 63 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | 1) Including | 0 | 1 | 0 | -5 | -5 | 0 | | effects from the | | | | | | | | accounting of | | | | | | | | Fortum's | | | | | | | | associates | | | | | | | -------------------------------------------------------------------------------- 2) The main part of the associated companies in Power are power production companies from which Fortum purchases produced electricity at production costs including interest costs, production taxes and income taxes. -------------------------------------------------------------------------------- | Participation in | | | | | associates and joint | | | | | ventures by segment | | | | -------------------------------------------------------------------------------- | EUR million | Sept 30 | Sept 30 | Dec 31 | | | 2010 | 2009 | 2009 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Power | | 898 | 878 | 863 | -------------------------------------------------------------------------------- | Heat | | 159 | 173 | 178 | -------------------------------------------------------------------------------- | Distribution | | 212 | 226 | 230 | -------------------------------------------------------------------------------- | Electricity Sales | | 13 | 12 | 12 | -------------------------------------------------------------------------------- | Russia | | 418 | 404 | 425 | -------------------------------------------------------------------------------- | Other | | 430 | 501 | 480 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Total | | 2 130 | 2 194 | 2 188 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Capital | Q3 2010 | Q1-Q3 | 2009 | Last | | expenditure by | | 2009 | | twelve | | segment | | | | months | | EUR million | | | | | -------------------------------------------------------------------------------- | Power | 27 | 64 | 96 | 94 | -------------------------------------------------------------------------------- | Heat | 66 | 258 | 358 | 287 | -------------------------------------------------------------------------------- | Distribution | 51 | 127 | 188 | 188 | -------------------------------------------------------------------------------- | Electricity Sales | 0 | 1 | 1 | 0 | -------------------------------------------------------------------------------- | Russia | 84 | 117 | 215 | 440 | -------------------------------------------------------------------------------- | Other | 2 | 4 | 4 | 5 | -------------------------------------------------------------------------------- | Total | 230 | 571 | 862 | 1 014 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Of which | 13 | 21 | 30 | 43 | | capitalised | | | | | | borrowing costs | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Gross investments | Q3 2010 | Q1-Q3 | 2009 | Last | | in shares by | | 2009 | | twelve | | segment | | | | months | | EUR million | | | | | -------------------------------------------------------------------------------- | Power | 5 | 56 | 57 | 26 | -------------------------------------------------------------------------------- | Heat | 1 | 0 | 1 | 2 | -------------------------------------------------------------------------------- | Distribution | - | 3 | 5 | 2 | -------------------------------------------------------------------------------- | Electricity Sales | - | - | - | - | -------------------------------------------------------------------------------- | Russia | - | 3 | 3 | 0 | -------------------------------------------------------------------------------- | Other | 1 | 1 | 1 | 1 | -------------------------------------------------------------------------------- | Total | 7 | 63 | 67 | 31 | -------------------------------------------------------------------------------- Gross investments in shares during Q1 2010 in Power segment include additional share capital to be paid to Teollisuuden Voima Oyj. See Note 13. -------------------------------------------------------------------------------- | Net assets by segment | Sept 30 | Sept 30 | Dec 31 | | EUR million | 2010 | 2009 | 2009 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Power | | 5 818 | 5 516 | 5 494 | -------------------------------------------------------------------------------- | Heat | | 4 021 | 3 655 | 3 787 | -------------------------------------------------------------------------------- | Distribution | | 3 560 | 3 248 | 3 299 | -------------------------------------------------------------------------------- | Electricity Sales | | 55 | 46 | 125 | -------------------------------------------------------------------------------- | Russia | | 2 522 | 2 112 | 2 260 | -------------------------------------------------------------------------------- | Other | | 238 | 374 | 382 | -------------------------------------------------------------------------------- | Total | | 16 214 | 14 951 | 15 347 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Return on net assets by segment | Last | Dec 31 | | % | twelve | 2009 | | | months | | -------------------------------------------------------------------------------- | Power | 22.9 | 24.5 | -------------------------------------------------------------------------------- | Heat | 8.3 | 7.9 | -------------------------------------------------------------------------------- | Distribution | 9.5 | 8.7 | -------------------------------------------------------------------------------- | Electricity Sales | 48.0 | 28.9 | -------------------------------------------------------------------------------- | Russia | 2.9 | 0.0 | -------------------------------------------------------------------------------- | Other | -22.8 | -19.4 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Comparable return on net assets by | Last | Dec 31 | | segment | twelve | 2009 | | % | months | | -------------------------------------------------------------------------------- | Power | 23.3 | 26.4 | -------------------------------------------------------------------------------- | Heat | 7.6 | 7.3 | -------------------------------------------------------------------------------- | Distribution | 9.1 | 8.6 | -------------------------------------------------------------------------------- | Electricity Sales | 17.9 | 18.6 | -------------------------------------------------------------------------------- | Russia | 1.0 | 0.0 | -------------------------------------------------------------------------------- | Other | -5.7 | -17.0 | -------------------------------------------------------------------------------- Return on net assets is calculated by dividing the sum of operating profit and share of profit of associated companies and joint ventures with average net assets. Average net assets are calculated using the opening balance and end of each quarter values. -------------------------------------------------------------------------------- | Assets by segments | Sept 30 | Sept 30 | Dec 31 | | EUR million | 2010 | 2009 | 2009 | -------------------------------------------------------------------------------- | Power | 6 820 | 6 191 | 6 260 | -------------------------------------------------------------------------------- | Heat | 4 373 | 4 007 | 4 244 | -------------------------------------------------------------------------------- | Distribution | 4 024 | 3 692 | 3 765 | -------------------------------------------------------------------------------- | Electricity Sales | 323 | 482 | 475 | -------------------------------------------------------------------------------- | Russia | 2 835 | 2 370 | 2 542 | -------------------------------------------------------------------------------- | Other | 599 | 785 | 621 | -------------------------------------------------------------------------------- | Eliminations | -236 | -315 | -293 | -------------------------------------------------------------------------------- | Assets included in | 18 738 | 17 212 | 17 614 | | Net assets | | | | -------------------------------------------------------------------------------- | Interest-bearing | 1 161 | 913 | 943 | | receivables | | | | -------------------------------------------------------------------------------- | Deferred taxes | 57 | 7 | 47 | -------------------------------------------------------------------------------- | Other assets | 266 | 612 | 347 | -------------------------------------------------------------------------------- | Liquid funds | 980 | 815 | 890 | -------------------------------------------------------------------------------- | Total assets | 21 202 | 19 559 | 19 841 | -------------------------------------------------------------------------------- | Liabilities by | Sept 30 | Sept 30 | Dec 31 | | segments | 2010 | 2009 | 2009 | | EUR million | | | | -------------------------------------------------------------------------------- | Power | 1 002 | 675 | 766 | -------------------------------------------------------------------------------- | Heat | 352 | 352 | 456 | -------------------------------------------------------------------------------- | Distribution | 464 | 443 | 466 | -------------------------------------------------------------------------------- | Electricity Sales | 268 | 436 | 350 | -------------------------------------------------------------------------------- | Russia | 313 | 258 | 282 | -------------------------------------------------------------------------------- | Other | 361 | 412 | 240 | -------------------------------------------------------------------------------- | Eliminations | -236 | -315 | -293 | -------------------------------------------------------------------------------- | Liabilities included | 2 524 | 2 261 | 2 267 | | in Net assets | | | | -------------------------------------------------------------------------------- | Deferred tax | 1 810 | 1 810 | 1 750 | | liabilities | | | | -------------------------------------------------------------------------------- | Other liabilities | 544 | 304 | 474 | -------------------------------------------------------------------------------- | Total liabilities | 4 878 | 4 375 | 4 491 | | included in Capital | | | | | employed | | | | -------------------------------------------------------------------------------- | Interest-bearing | 7 588 | 6 856 | 6 859 | | liabilities | | | | -------------------------------------------------------------------------------- | Total equity | 8 736 | 8 328 | 8 491 | -------------------------------------------------------------------------------- | Total equity and | 21 202 | 19 559 | 19 841 | | liabilities | | | | -------------------------------------------------------------------------------- Other assets and Other liabilities not included in segment's Net assets consists mainly of income tax receivables and liabilities, accrued interest expenses, derivative receivables and liabilities qualifying as hedges and receivables and liabilities for interest rate derivatives. -------------------------------------------------------------------------------- | Number of employees | Sept 30 | Sept 30 | Dec 31 | | | 2010 | 2009 | 2009 | -------------------------------------------------------------------------------- | Power | 1 892 | 1 977 | 1 916 | -------------------------------------------------------------------------------- | Heat | 2 434 | 2 578 | 2 552 | -------------------------------------------------------------------------------- | Distribution | 1 090 | 1 154 | 1 088 | -------------------------------------------------------------------------------- | Electricity Sales | 521 | 638 | 611 | -------------------------------------------------------------------------------- | Russia | 4 332 | 5 107 | 4 855 | -------------------------------------------------------------------------------- | Other | 596 | 600 | 591 | -------------------------------------------------------------------------------- | Total | 10 865 | 12 054 | 11 613 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Average number of | Q1-Q3 2010 | Q1-Q3 2009 | 2009 | | employees | | | | -------------------------------------------------------------------------------- | Power | 1 907 | 2 113 | 2 068 | -------------------------------------------------------------------------------- | Heat | 2 504 | 2 678 | 2 652 | -------------------------------------------------------------------------------- | Distribution | 1 126 | 1 188 | 1 166 | -------------------------------------------------------------------------------- | Electricity Sales | 544 | 633 | 629 | -------------------------------------------------------------------------------- | Russia | 4 629 | 6 532 | 6 170 | -------------------------------------------------------------------------------- | Other | 592 | 593 | 593 | -------------------------------------------------------------------------------- | Total | 11 302 | 13 737 | 13 278 | -------------------------------------------------------------------------------- Average number of employees is based on a monthly average for the whole period in question. -------------------------------------------------------------------------------- | Fortum Corporation | Notes to the condensed | | | consolidated interim | | | financial statements | -------------------------------------------------------------------------------- | January-September 2010 | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | 5. Quarterly segment information | -------------------------------------------------------------------------------- Extended quarterly information is available on Fortum's website www.fortum.com (about Fortum/Investors/Interim reports). -------------------------------------------------------------------------------- | Quarterly sales by | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | | segment | 2010 | 2010 | 2010 | 2009 | 2009 | 2009 | 2009 | | EUR million | | | | | | | | -------------------------------------------------------------------------------- | Power | 584 | 597 | 769 | 663 | 572 | 608 | 688 | -------------------------------------------------------------------------------- | - of which internal | -10 | -10 | -124 | 50 | 70 | 64 | 70 | -------------------------------------------------------------------------------- | Heat | 220 | 301 | 651 | 458 | 177 | 250 | 514 | -------------------------------------------------------------------------------- | - of which internal | 1 | 2 | -6 | 8 | 2 | 4 | 9 | -------------------------------------------------------------------------------- | Distribution | 196 | 200 | 280 | 227 | 168 | 176 | 229 | -------------------------------------------------------------------------------- | - of which internal | 3 | 3 | 4 | 7 | 2 | 3 | 1 | -------------------------------------------------------------------------------- | Electricity Sales | 305 | 327 | 637 | 410 | 272 | 298 | 469 | -------------------------------------------------------------------------------- | - of which internal | 20 | 19 | 61 | 28 | 9 | 8 | 22 | -------------------------------------------------------------------------------- | Russia | 137 | 169 | 244 | 197 | 111 | 138 | 186 | -------------------------------------------------------------------------------- | - of which internal | - | - | - | - | - | - | - | -------------------------------------------------------------------------------- | Other | 23 | 16 | 5 | 17 | 16 | 19 | 19 | -------------------------------------------------------------------------------- | - of which internal | 35 | 40 | 21 | -9 | -13 | 4 | 13 | -------------------------------------------------------------------------------- | Netting of Nord | -264 | -261 | -683 | -325 | -200 | -212 | -358 | | Pool transactions | | | | | | | | -------------------------------------------------------------------------------- | Eliminations | -49 | -54 | 44 | -84 | -70 | -83 | -115 | -------------------------------------------------------------------------------- | Total | 1 152 | 1 295 | 1 947 | 1 563 | 1 046 | 1 194 | 1 632 | -------------------------------------------------------------------------------- | Quarterly operating | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | | profit by segments | 2010 | 2010 | 2010 | 2009 | 2009 | 2009 | 2009 | | EUR million | | | | | | | | -------------------------------------------------------------------------------- | Power | 256 | 280 | 467 | 327 | 297 | 307 | 432 | -------------------------------------------------------------------------------- | Heat | -15 | 35 | 159 | 109 | -11 | 39 | 115 | -------------------------------------------------------------------------------- | Distribution | 62 | 53 | 113 | 81 | 47 | 54 | 81 | -------------------------------------------------------------------------------- | Electricity Sales | 12 | 23 | -29 | 37 | -7 | 20 | -21 | -------------------------------------------------------------------------------- | Russia | 14 | -9 | 32 | 8 | -19 | -15 | 6 | -------------------------------------------------------------------------------- | Other | -17 | -31 | -18 | -40 | -21 | -30 | -14 | -------------------------------------------------------------------------------- | Total | 312 | 351 | 724 | 522 | 286 | 375 | 599 | -------------------------------------------------------------------------------- | Quarterly | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | | comparable | 2010 | 2010 | 2010 | 2009 | 2009 | 2009 | 2009 | | operating profit by | | | | | | | | | segments | | | | | | | | | EUR million | | | | | | | | -------------------------------------------------------------------------------- | Power | 267 | 271 | 424 | 391 | 308 | 340 | 415 | -------------------------------------------------------------------------------- | Heat | -12 | 33 | 132 | 104 | -13 | 26 | 114 | -------------------------------------------------------------------------------- | Distribution | 61 | 53 | 102 | 80 | 47 | 54 | 81 | -------------------------------------------------------------------------------- | Electricity Sales | 11 | 10 | -13 | 11 | 7 | 6 | -2 | -------------------------------------------------------------------------------- | Russia | -16 | -9 | 16 | 8 | -20 | -14 | 6 | -------------------------------------------------------------------------------- | Other | -9 | -19 | -10 | -24 | -13 | -12 | -12 | -------------------------------------------------------------------------------- | Total | 302 | 339 | 651 | 570 | 316 | 400 | 602 | -------------------------------------------------------------------------------- | Quarterly | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | | non-recurring items | 2010 | 2010 | 2010 | 2009 | 2009 | 2009 | 2009 | | by segment | | | | | | | | | EUR million | | | | | | | | -------------------------------------------------------------------------------- | Power | 5 | 1 | 0 | 1 | 0 | 1 | 4 | -------------------------------------------------------------------------------- | Heat | 0 | 3 | 19 | 6 | 6 | 9 | 0 | -------------------------------------------------------------------------------- | Distribution | 1 | 0 | 11 | 1 | 0 | 0 | 0 | -------------------------------------------------------------------------------- | Electricity Sales | - | - | - | 0 | 0 | 0 | 0 | -------------------------------------------------------------------------------- | Russia | 30 | 0 | 16 | 0 | 1 | -1 | 0 | -------------------------------------------------------------------------------- | Other | 0 | 0 | 0 | 0 | 0 | 1 | 0 | -------------------------------------------------------------------------------- | Total | 36 | 4 | 46 | 8 | 7 | 10 | 4 | -------------------------------------------------------------------------------- | Quarterly other | Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | | items affecting | 2010 | 2010 | 2010 | 2009 | 2009 | 2009 | 2009 | | comparability | | | | | | | | | EUR million | | | | | | | | -------------------------------------------------------------------------------- | Power 1) | -16 | 8 | 43 | -65 | -11 | -34 | 13 | -------------------------------------------------------------------------------- | Heat | -3 | -1 | 8 | -1 | -4 | 4 | 1 | -------------------------------------------------------------------------------- | Distribution | 0 | 0 | 0 | 0 | 0 | 0 | 0 | -------------------------------------------------------------------------------- | Electricity Sales | 1 | 13 | -16 | 26 | -14 | 14 | -19 | -------------------------------------------------------------------------------- | Russia | - | - | - | - | - | - | - | -------------------------------------------------------------------------------- | Other | -8 | -12 | -8 | -16 | -8 | -19 | -2 | -------------------------------------------------------------------------------- | Total | -26 | 8 | 27 | -56 | -37 | -35 | -7 | -------------------------------------------------------------------------------- | 1) Including | -10 | 23 | -9 | -33 | -5 | -10 | -11 | | effects from the | | | | | | | | | accounting of | | | | | | | | | Fortum's part of | | | | | | | | | the Finnish State | | | | | | | | | Nuclear Waste | | | | | | | | | Management Fund | | | | | | | | | with (EUR million) | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Fortum Corporation | Notes to the condensed consolidated interim | | | financial statements | -------------------------------------------------------------------------------- | January-September 2010 | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | 6. Financial risk management | -------------------------------------------------------------------------------- The Group has not made any significant changes in policies regarding risk management during the period. Aspects of the Group's financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements as at and for the year ended 31 December 2009. The tables below disclose the notional values or volumes and net fair values for the Group's derivatives used in different areas mainly for hedging purposes. -------------------------------------------------------------------------------- | Derivatives | | Sept 30 | | Sept 30 | | Dec 31 | | | | 2010 | | 2009 | | 2009 | -------------------------------------------------------------------------------- | Interest and | Notion | Net fair | Notional | Net fair | Notiona | Net | | currency | al | value | value | value | l value | fair | | derivatives | value | | | | | value | -------------------------------------------------------------------------------- | | MEUR | MEUR | MEUR | MEUR | MEUR | MEUR | -------------------------------------------------------------------------------- | Interest rate | 3 990 | 120 | 3 437 | 41 | 3 995 | 41 | | swaps | | | | | | | -------------------------------------------------------------------------------- | Forward | 7 704 | -362 | 5 621 | -166 | 6 334 | -123 | | foreign | | | | | | | | exchange | | | | | | | | contracts | | | | | | | -------------------------------------------------------------------------------- | Forward rate | - | - | 49 | 0 | - | - | | agreements | | | | | | | -------------------------------------------------------------------------------- | Interest rate | 534 | -17 | 1 452 | 62 | 1 454 | 65 | | and currency | | | | | | | | swaps | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Electricity | Volume | Net fair | Volume | Net fair | Volume | Net | | derivatives | | value | | value | | fair | | | | | | | | value | -------------------------------------------------------------------------------- | | TWh | MEUR | TWh | MEUR | TWh | MEUR | -------------------------------------------------------------------------------- | Sales swaps | 138 | -375 | 165 | 1 554 | 157 | 9 | -------------------------------------------------------------------------------- | Purchase swaps | 80 | 220 | 109 | -1 205 | 102 | -79 | -------------------------------------------------------------------------------- | Purchased | 1 | -1 | 11 | -21 | 1 | -1 | | options | | | | | | | -------------------------------------------------------------------------------- | Written | 4 | 4 | 13 | 4 | 3 | 1 | | options | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Oil | Volume | Net fair | Volume | Net fair | Volume | Net | | derivatives | | value | | value | | fair | | | | | | | | value | -------------------------------------------------------------------------------- | | 1000 | MEUR | 1000 bbl | MEUR | 1000 | MEUR | | | bbl | | | | bbl | | -------------------------------------------------------------------------------- | Sales swaps | 9 998 | -12 | 730 | 2 | 1 555 | -4 | | and futures | | | | | | | -------------------------------------------------------------------------------- | Purchase swaps | 10 028 | -4 | 952 | -3 | 1 450 | 4 | | and futures | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Coal | Volume | Net fair | Volume | Net fair | Volume | Net | | derivatives | | value | | value | | fair | | | | | | | | value | -------------------------------------------------------------------------------- | | kt | MEUR | kt | MEUR | kt | MEUR | -------------------------------------------------------------------------------- | Sold | 5 280 | -16 | 825 | 2 | 1 259 | -3 | -------------------------------------------------------------------------------- | Bought | 6 290 | 19 | 1 329 | -11 | 1 762 | -1 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | CO2 emission | Volume | Net fair | Volume | Net fair | Volume | Net | | allowance | | value | | value | | fair | | derivatives | | | | | | value | -------------------------------------------------------------------------------- | | ktCO2 | MEUR | ktCO2 | MEUR | ktCO2 | MEUR | -------------------------------------------------------------------------------- | Sold | 16 863 | -11 | 2 269 | 5 | 366 | 1 | -------------------------------------------------------------------------------- | Bought | 19 199 | 17 | 2 250 | -5 | 686 | -2 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Share | Notion | Net fair | Notional | Net fair | Notiona | Net | | derivatives | al | value | value | value | l value | fair | | | value | | | | | value | -------------------------------------------------------------------------------- | | MEUR | MEUR | MEUR | MEUR | MEUR | MEUR | -------------------------------------------------------------------------------- | Share forwards | 19 | 17 | 24 | 19 | 24 | 21 | | 1) | | | | | | | -------------------------------------------------------------------------------- 1) Cash-settled share forwards are used as a hedging instrument for Fortum Group's performance share arrangement -------------------------------------------------------------------------------- | 7. Acquisitions and disposals | -------------------------------------------------------------------------------- There were no material investments or disposals of subsidiary shares during the period of Q1-Q3 2010. -------------------------------------------------------------------------------- | Fortum Corporation | Notes to the condensed | | | consolidated interim | | | financial statements | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | January-September 2010 | -------------------------------------------------------------------------------- | 8. Exchange rates | -------------------------------------------------------------------------------- The balance sheet date rate is based on exchange rate published by the European Central Bank for the closing date. The average exchange rate is calculated as an average of each months ending rate from the European Central Bank during the year and ending rate previous year. Key exchange rates for Fortum Group applied in the accounts: -------------------------------------------------------------------------------- | Average | Jan-Se | Jan-Jun | Jan-Mar | Jan-Dec | Jan-Sep | Jan-Jun | Jan-Mar | | rate | pt | e | ch | 2009 | t | e | ch | | | 2010 | 2010 | 2010 | | 2009 | 2009 | 2009 | -------------------------------------------------------------------------------- | Sweden | 9.6665 | 9.8144 | 9.9826 | 10.6092 | 10.6830 | 10.8633 | 10.9679 | | (SEK) | | | | | | | | -------------------------------------------------------------------------------- | Norway | 8.0258 | 8.0464 | 8.1423 | 8.7708 | 8.8817 | 9.0049 | 9.1034 | | (NOK) | | | | | | | | -------------------------------------------------------------------------------- | Poland | 4.0137 | 4.0186 | 3.9970 | 4.3321 | 4.3827 | 4.4764 | 4.5018 | | (PLN) | | | | | | | | -------------------------------------------------------------------------------- | Russia | 40.128 | 40.1535 | 41.4799 | 44.0684 | 44.2745 | 44.1087 | 44.3928 | | (RUB) | 8 | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Balance | Sept | June 31 | March | Dec 31 | Sept 30 | June 30 | March | | sheet | 30 | 2010 | 31 | 2009 | 2009 | 2009 | 31 | | date | 2010 | | 2010 | | | | 2009 | | rate | | | | | | | | -------------------------------------------------------------------------------- | Sweden | 9.1421 | 9.5259 | 9.7135 | 10.2520 | 10.2320 | 10.8125 | 10.9400 | | (SEK) | | | | | | | | -------------------------------------------------------------------------------- | Norway | 7.9680 | 7.9725 | 8.0135 | 8.3000 | 8.4600 | 9.0180 | 8.8900 | | (NOK) | | | | | | | | -------------------------------------------------------------------------------- | Poland | 3.9847 | 4.1470 | 3.8673 | 4.1045 | 4.2295 | 4.4520 | 4.6885 | | (PLN) | | | | | | | | -------------------------------------------------------------------------------- | Russia | 41.692 | 38.2820 | 39.6950 | 43.1540 | 43.9800 | 43.8810 | 45.0320 | | (RUB) | 3 | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | 9. Income tax expense | -------------------------------------------------------------------------------- Tax rate according to the income statement for the period Q1-Q3 2010 was 17.7% (Q1-Q3 2009: 18.7%) The tax rate for the period is lower than in the comparable period mainly due to the tax exempt capital gains. The tax rate for the period Q1-Q3 2010, excluding the impact of share of profits of associated companies and joint ventures, non- taxable capital gains and other one-time items was 19.3% (Q1-Q3 2009: 18.6%). The tax rate used in the income statement is always impacted by the fact that share of profits of associates and joint ventures is recorded based on Fortum's share of profits after tax. The tax rate for the full year 2009, excluding the impact of share of profits of associated companies and joint ventures, non- taxable capital gains and other one-time items was 18.5%. -------------------------------------------------------------------------------- | 10. Earnings per share | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | The calculation of basic and diluted earnings per share is based on the | | following data: | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | | Q1-Q3 | Q1-Q3 | 2009 | | | 2010 | 2009 | | -------------------------------------------------------------------------------- | Earnings (EUR million): | | | | -------------------------------------------------------------------------------- | Profit attributable to the owners of the | 1 069 | 906 | 1 312 | | parent | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Number of shares (thousands): | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | basic earnings per share | 888 367 | 888 230 | 888 230 | -------------------------------------------------------------------------------- | Effect of dilutive share options | | - | - | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | diluted earnings per share | 888 367 | 888 230 | 888 230 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | 11. Dividend per share | -------------------------------------------------------------------------------- A dividend in respect of 2009 of EUR 1.00 per share, amounting to a total dividend of EUR 888 million based on the number of shares registered as of 30 March 2010, was decided at the Annual General Meeting on 25 March 2010. The dividend was paid on 8 April 2010. A dividend in respect of 2008 of EUR 1.00 per share, amounting to EUR 888 million based on the number of shares registered as of 14 April 2009, was decided at the Annual General Meeting on 7 April 2009. The dividend was paid on 21 April 2009. -------------------------------------------------------------------------------- | 12. Changes in intangible assets and property, plant and equipment | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EUR million | Sept 30 | Sept 30 | Dec 31 | | | 2010 | 2009 | 2009 | -------------------------------------------------------------------------------- | Opening balance | 13 246 | 12 533 | 12 533 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Increase through acquisition of | | - | 1 | 2 | | subsidiary companies | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Capital expenditures | 723 | 571 | 862 | -------------------------------------------------------------------------------- | Changes of nuclear asset retirement cost | 16 | 2 | -7 | -------------------------------------------------------------------------------- | Changes of emission rights | -12 | -12 | 0 | -------------------------------------------------------------------------------- | Disposals | -2 | -23 | -26 | -------------------------------------------------------------------------------- | Depreciation, amortisation and impairment | -416 | -374 | -510 | -------------------------------------------------------------------------------- | Sale of subsidiary companies | -6 | -5 | -5 | -------------------------------------------------------------------------------- | Translation differences and other | 1 026 | 355 | 397 | | adjustments | | | | -------------------------------------------------------------------------------- | Closing balance | 14 575 | 13 048 | 13 246 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Goodwill included in closing balance | 295 | 280 | 285 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Change in goodwill during the period due to | 10 | -18 | -13 | | translation differences | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | 13. Changes in participations in associates and joint ventures | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EUR million | Sept 30 | Sept 30 | Dec 31 | | | 2010 | 2009 | 2009 | -------------------------------------------------------------------------------- | Opening balance | 2 188 | 2 112 | 2 112 | -------------------------------------------------------------------------------- | Share of profits of associates and joint | 41 | -1 | 21 | | ventures | | | | -------------------------------------------------------------------------------- | Investments | 6 | 32 | 33 | -------------------------------------------------------------------------------- | Share issues and shareholders' | 20 | 25 | 25 | | contributions | | | | -------------------------------------------------------------------------------- | Reclassifications | - | -6 | -7 | -------------------------------------------------------------------------------- | Divestments | -88 | 0 | -1 | -------------------------------------------------------------------------------- | Dividend income received | -52 | -23 | -32 | -------------------------------------------------------------------------------- | OCI items associated companies | -61 | 1 | -36 | -------------------------------------------------------------------------------- | Translation differences | 76 | 54 | 73 | -------------------------------------------------------------------------------- | Closing balance | 2 130 | 2 194 | 2 188 | -------------------------------------------------------------------------------- Share of profits from associates and joint ventures Share of profits from associates in Q3 2010 was EUR 10 million (Q3 2009: 3) of which Fortum's share of profits in Hafslund ASA was EUR 8 million (Q3 2009: 6). Hafslund sold 26 million shares in REC in May 2010. In accordance with the accounting policy Fortum recognised EUR 2 million in relation to Hafslund's divestment of REC shares as a part of the share of profit from associates and joint ventures in Q2 2010. Fortum's share of profits for the period from January to September 2010 amounted to EUR 41 million (Q1-Q3 2009: -1), of which Hafslund represented EUR 22 million (Q1-Q3 2009: -14) and Gasum EUR 20 million (Q1-Q3 2009: 16). Fortum's share of profits for the full year 2009 amounted to EUR 21 million, of which Hafslund represented EUR -4 million. According to Fortum Group accounting policies the share of profits from Hafslund has been included in Fortum Group figures based on the previous quarter information since updated interim information is not normally available. Hafslund will publish their interim report for Q3 2010 on 28 October 2010. The effect of Hafslund's Q3 is not included in Fortum's Q3 results. In Q2 2010 Fortum changed its accounting practice for recognition of TGC-1 results. Previously Fortum has booked its share of results including any impairment losses and reversals of prior impairments recognised by TGC-1. In the future Fortum is eliminating the impairment losses or reversals of prior impairments from its share of results and assessing the need for impairment separately. The accounting practice change was done prospectively adjusting for previous periods as the impact on the comparative year information is immaterial. TGC-1 has previously published IFRS financial information twice a year. The 2009 IFRS consolidated financial statements were released in June 2010. From 2010 TGC-1 publishes IFRS interim financial statements quarterly. The first quarter 2010 IFRS results were published in the beginning of July 2010 and the second quarter 2010 in the beginning of September 2010. This interim report includes Fortum's share of TGC-1's profits for the second half of 2009 as well as for the first half of 2010. Investments and share issues Teollisuuden Voima Oyj's (TVO) Annual General meeting in March 2010 decided to raise the company's share capital by EUR 79.3 million of which Fortum's share is EUR 19.8 million. The increase in Fortum's participation in TVO has been booked in Q1 2010 and will be paid in 2010 at a date to be decided by TVO's Board of Directors. Divestments In early February 2010 Distribution business area divested Fortum's 49% shareholding in Karlskoga Energi & Miljö AB. In the first quarter of 2010 Heat Division divested Fortum's 20.4% shareholding in Swedegas AB and Russia Division divested OAO Fortum's 49% shareholding in Kurgan Generating Company. In the third quarter Russia Division divested Fortum's approcimately 31% shareholding in St Petersburg Sale Company. OCI items in associated companies OCI items in associated companies mainly represents the fair value change in Hafslund's shareholding in REC. In Q3 2010 the fair value change of the remaining REC shares was 16 million (Q3 2009: 32) and the fair value change since year-end was EUR -64 million (Q1-Q3 2009: 4). The cumulative fair value change in Fortum's equity, based on the remaining number of shares reported by Hafslund, was EUR 21 million at 30 September 2010. -------------------------------------------------------------------------------- | 14. Share capital | | | | | -------------------------------------------------------------------------------- | EUR million | Number of | Share | Number of | Share | | | shares | capital | shares | capital | | | Sept 30 | Sept 30 | Dec 31 | Dec 31 | | | 2010 | 2010 | 2009 | 2009 | -------------------------------------------------------------------------------- | Registered shares at 1 | 888 367 045 | 3 046 | 887 638 080 | 3 044 | | January | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Shares subscribed with | - | - | 728 965 | 2 | | options and registered | | | | | | at the end of the | | | | | | period | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Registered shares at | 888 367 045 | 3 046 | 888 367 045 | 3 046 | | the end of the period | | | | | -------------------------------------------------------------------------------- | Unregistered shares | - | | - | | -------------------------------------------------------------------------------- There were no unexercised stock options remaining on 30 September 2010. -------------------------------------------------------------------------------- | 15. Interest-bearing liabilities | -------------------------------------------------------------------------------- The reported interest-bearing debt increased during the quarter by EUR 388 million from EUR 7,200 million to EUR 7,588 million (year-end 2009: 6,859). Total liquid funds increased by EUR 286 million from EUR 694 million to EUR 980 million (year-end 2009: 890). During the first quarter Fortum increased the amount of re-borrowing from the Finnish nuclear waste fund by EUR 61 million to EUR 835 million. During the second quarter Fortum Oyj raised a 10 year loan from Nordic Investment Bank of EUR 60 million. The loan will partially finance investments in automatic meter reading equipment. During the third quarter Fortum Oyj issued a dual-tranche SEK 3.1 billion fixed rate bond due 2015 and a SEK 3.1 billion Floating Rate Note due 2015 under Fortum's Euro Medium-Term Note Program. The 3 year EUR 2,000 million Term loan facility raised in connection with the acquisition of TGC-10 (renamed as OAO Fortum) in March 2008 was cancelled during the quarter as the remaining outstanding drawn amount of EUR 350 million under the facility was amortized. Fortum Oyj regularly issues short term Commercial Papers (CPs) in the Finnish and Swedish markets. The amount of outstanding CPs decreased by EUR 88 million during the quarter to EUR 244 million (year-end 2009: 250 million). -------------------------------------------------------------------------------- | 16. Nuclear related assets and liabilities | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EUR million | Sept | Sept | Dec 31 | | | 30 | 30 | 2009 | | | 2010 | 2009 | | -------------------------------------------------------------------------------- | Carrying values in the balance sheet | | | | -------------------------------------------------------------------------------- | Nuclear provisions | 616 | 588 | 570 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Share in the State Nuclear Waste | 616 | 588 | 570 | | Management Fund | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Legal liability and actual share of the State | | | | | Nuclear Waste Mangement Fund | | | | -------------------------------------------------------------------------------- | Liability for nuclear waste management according | 913 | 895 | 913 | | to the Nuclear Energy Act | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Funding obligation target | 830 | 767 | 830 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Fortum's share of the State Nuclear Waste | 830 | 767 | 786 | | Management Fund | | | | -------------------------------------------------------------------------------- Nuclear related provisions According to the renewed Nuclear Energy Act Fortum submitted the proposal for the nuclear waste management liability regarding the Loviisa nuclear power plant to the Ministry of Employment and the Economy at the end of June. The liability is based on a technical plan, which is made every third year. The new technical plan and the updated cost estimates were completed in Q2 2010. The future costs are estimated to increase mainly due to updated technical plans related to interim and final storage of spent fuel. The liability will be decided by the Ministry of the Employment and the Economy by the end of year 2010. The legal liability on 30 September 2010, decided by the Ministry of Employment and the Economy in January 2010 is EUR 913 million. The legal liability at the end of 2010, based on the proposal to the Ministry of Employment and the Economy is EUR 944 million. The provision in the balance sheet related to nuclear waste management is based on cash flows for future costs which uses the same basis as the legal liability. The carrying value of the nuclear provision, calculated according to IAS 37, has increased due to new technical plan by EUR 46 million compared to 31 December 2009, totalling EUR 616 million on 30 September 2010. The main reason for the difference between the carrying value of the provision and the legal liability is the fact that the legal liability is not discounted to net present value. Fortum's share in the State Nuclear Waste Management Fund Fortum contributes funds to the State Nuclear Waste Management Fund based on the yearly funding obligation target decided by the governmental authorities in December in connection with the decision of size of the legal liability. The current funding obligation target based on the legal liability decided in January 2010 and approved periodising of the payments to the Fund is EUR 830 million. The Fund is from an IFRS perspective overfunded with EUR 214 million, since Fortum's share of the Fund on 30 September 2010 is EUR 830 million and the carrying value in the balance sheet is EUR 616 million. Effects to comparable operating profit and operating profit Following the updated cost estimates, Fortum had in Q2 2010 a one-time effect to Comparable operating profit of EUR -9 million in Power segment due to higher nuclear waste management costs related to already spent fuel. After the refined cost estimates in Q3 2010 Fortum had a one-time effect to Comparable operating profit of EUR +2 million, resulting to a cumulative effect of EUR -7 million in 2010. Any cost increase or decrease which is related to already spent fuel is always recognised immediately in Comparable operating profit. Operating profit in Power segment is affected by the accounting principle for Fortum's share of the Finnish Nuclear Waste Management Fund, since the carrying value of the Fund in Fortum's balance sheet can in maximum be equal to the amount of the provisions according to IFRS. As long as the Fund is overfunded from an IFRS perspective, the effects to operating profit from this adjustment will be positive if the provisions increase more than the Fund and negative if actual value of the fund increases more than the provisions. This accounting effect is not included in Comparable operating profit in Fortum financial reporting; see Other items affecting comparability in Note 4. Fortum had an effect from this adjustment in Q3 2010 of EUR -10 million, compared to EUR -5 million in Q3 2009. The cumulative effect 2010 was EUR 4 million compared to EUR -26 million in 2009. Associated companies Fortum has minority shareholdings in associated Finnish and Swedish nuclear production companies. Fortum has for these companies accounted for its share of the effects from nuclear related assets and provisions according to Fortum accounting principles. -------------------------------------------------------------------------------- | 17. Pledged assets | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EUR million | Sept 30 | Sept 30 | Dec 31 | | | 2010 | 2009 | 2009 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | On own behalf | | | | | -------------------------------------------------------------------------------- | For debt | | | | | -------------------------------------------------------------------------------- | Pledges | | 292 | 286 | 293 | -------------------------------------------------------------------------------- | Real estate mortgages | | 137 | 137 | 137 | -------------------------------------------------------------------------------- | For other commitments | | | | | -------------------------------------------------------------------------------- | Real estate mortgages | | 181 | 220 | 220 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | On behalf of associated companies and joint | | | | | ventures | | | | -------------------------------------------------------------------------------- | Pledges and real estate mortgages | | 3 | 2 | 2 | -------------------------------------------------------------------------------- Pledged assets for debt Finnish participants in the State Nuclear Waste Management Fund are allowed to borrow from the Fund. During Q1 2010 Fortum increased its borrowing from the Fund (see Note 15) and therefore pledged additional Kemijoki shares as security. The value of the pledged shares amount to EUR 269 million (2009: 263 million) as of 30 September 2010 (and 31 December 2009 respectively). Pledged assets for other commitments Fortum has given real estate mortgages in Naantali and Inkoo power plants in Finland, total value of EUR 181 million (2009: 220 million), as a security to the State Nuclear Waste Management Fund for the uncovered part of the legal liability and unexpected events relating to future costs for decomissioning and disposal of spent fuel in Loviisa nuclear power plant. The size of the securities given was updated in Q2 based on the decisions regarding the legal liabilities and the funding target which takes place around year end every year. Due to the yearly update, the amount of real estate mortgages given as a security decreased by EUR 39 million in Q2 2010 (see also note 16 Nuclear related assets and liablities). -------------------------------------------------------------------------------- | 18. Operating lease commitments | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EUR million | Sept 30 | Sept 30 | Dec 31 | | | 2010 | 2009 | 2009 | -------------------------------------------------------------------------------- | Due within a year | 26 | 22 | 23 | -------------------------------------------------------------------------------- | Due after one year and within five | 46 | 41 | 35 | | years | | | | -------------------------------------------------------------------------------- | Due after five years | 93 | 83 | 93 | -------------------------------------------------------------------------------- | Total | 165 | 146 | 151 | -------------------------------------------------------------------------------- The increase in operating lease commitments from the end of 2009 is mainly due to exchange rate differences. -------------------------------------------------------------------------------- | 19. Capital commitments | | | | -------------------------------------------------------------------------------- | EUR million | Sept 30 | Sept 30 | Dec 31 | | | 2010 | 2009 | 2009 | -------------------------------------------------------------------------------- | Property, plant and equipment | 1 219 | 1 359 | 1 326 | -------------------------------------------------------------------------------- | Intangible assets | 7 | 5 | 5 | -------------------------------------------------------------------------------- | Total | 1 226 | 1 364 | 1 331 | -------------------------------------------------------------------------------- Capital commitments have decreased compared to year end 2009. Commitments have decreased due to acquisition of combined heat and power plant (CHP) in Nokia, Finland and progressing of OAO Fortum's investment program as well as Czestochowa power plant investment. On the other hand a stronger Russian rouble and commitments relating to CHP investment in Klaipeda, Lithuania and CHP investment Brista 2, Sweden have increased commitments. -------------------------------------------------------------------------------- | 20. Contingent liabilities | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EUR million | Sept 30 | Sept 30 | Dec 31 | | | 2010 | 2009 | 2009 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | On own behalf | | | | -------------------------------------------------------------------------------- | Other contingent liabilities | 190 | 319 | 321 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | On behalf of associated companies | | | | | | and joint ventures | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Guarantees | | 349 | 593 | 592 | -------------------------------------------------------------------------------- | Other contingent | | 125 | 125 | 125 | | liabilities | | | | | -------------------------------------------------------------------------------- | On behalf of others | | | | | -------------------------------------------------------------------------------- | Guarantees | | 4 | 10 | 12 | -------------------------------------------------------------------------------- | Other contingent | | 0 | 1 | 1 | | liabilities | | | | | -------------------------------------------------------------------------------- Guarantees on own behalf Other contingent liabilities on own behalf, EUR 190 million, have decreased by EUR 131 million compared to year-end 2009. The decrease is due to cancellation of parent company guarantee related to Fortum's operating and maintenance business in the UK, and progressing of the investments in Russia and Poland. Guarantees on behalf of associated companies According to law, nuclear companies operating in Finland and Sweden shall give securities to the Finnish State Nuclear Waste Management Fund and the Swedish Nuclear Waste Fund respectively, to guarantee that sufficient funds exist to cover future expenses of decommissioning of power plant and disposal of spent fuel. The guarantee given on behalf of Teollisuuden Voima Oyj (TVO) to the Finnish fund amount to EUR 58 million at 30 September 2010 (EUR 67 at year-end 2009). The size of the guarantee was updated in Q2, based on the decisions regarding legal liability and the funding target made in January 2010 (see note 16). In Sweden, Fortum has given guarantees on behalf of Forsmarks Kraftgrupp AB (FKA) and OKG AB (OKG) to the Swedish Nuclear Waste Fund to cover Fortum's part of FKA's and OKG's liability. The guarantees for 2010 and 2011 were decided in December 2009 by the Swedish government and they became effective from June 2010. The total amount of guarantees for FKA and OKG decreased from SEK 5,314 million (EUR 518 million) at year-end 2009 to SEK 2,574 million (EUR 282 million) in June 2010. The decrease is due to a change made by the Swedish government in the calculation method of the guarantees. The guarantees were previously based on nominal values, but from June 2010 onwards they are based on discounted cash flows. -------------------------------------------------------------------------------- | 21. Legal actions and official proceedings | -------------------------------------------------------------------------------- In August 2010 The Supreme Administrative Court in Finland overruled the appeal by the Finnish Competition Authority on the decision of the Market Court on 14 March 2008. The Market Court decided then that Fortum's E.ON Finland acquisition in 2006 did not give Fortum a dominant market position or strengthen the market position. Fortum is, through its interest in TVO, participating in the building of a 1,600 MW nuclear power plant unit (Olkiluoto 3) in Finland. The AREVA-Siemens Consortium, the turnkey supplier of the Olkiluoto 3 nuclear power plant unit to TVO, announced in June that in light of the current progress most of the works will be completed in 2012 while regular operation of the plant unit is foreseen during 2013. No other material changes in legal actions and official proceedings have occurred during Q1-Q3 2010 compared to the year-end 2009. -------------------------------------------------------------------------------- | 22. Related party transactions | -------------------------------------------------------------------------------- Related parties are described in the annual financial statements as of the year ended 31 December 2009. No material changes have occurred during Q1-Q3 2010. The Finnish State owned 50.76% of the shares in Fortum 31 December 2009. There has been no change in the amount of shares during 2010. -------------------------------------------------------------------------------- | Associated company transactions | | | | -------------------------------------------------------------------------------- | EUR million | Q1-Q3 | Q1-Q3 | 2009 | | | 2010 | 2009 | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Sales to associated | 41 | 61 | 86 | | companies | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Interest on associated company | 28 | 27 | 37 | | loan receivables | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Purchases from associated companies | 547 | 397 | 555 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Associated company balances | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EUR million | Sept 30 | Sept 30 | Dec 31 | | | 2010 | 2009 | 2009 | -------------------------------------------------------------------------------- | Long-term interest-bearing loan | 1 025 | 827 | 852 | | receivables | | | | -------------------------------------------------------------------------------- | Trade receivables | 11 | 7 | 14 | -------------------------------------------------------------------------------- | Other receivables | 21 | 15 | 5 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Long-term loan payables | 213 | 199 | 199 | -------------------------------------------------------------------------------- | Trade payables | 19 | 6 | 23 | -------------------------------------------------------------------------------- | Other payables | 25 | 34 | 22 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Transactions and balances with joint ventures | | -------------------------------------------------------------------------------- | Transactions and balances with joint ventures as at and for the period ended | | 30 September 2010 are not material for the group. | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Fortum Corporation | Notes to the condensed consolidated interim | | | financial statements | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | January-September 2010 | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | 23. Events after the balance sheet date | -------------------------------------------------------------------------------- No material events have taken place after the balance sheet date. -------------------------------------------------------------------------------- | 24. Definition of key figures | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | EBITDA | = | Operating profit + Depreciation, amortisation and | | | (Earnings | | impairment charges | | | before | | | | | interest, | | | | | taxes, | | | | | depreciati | | | | | on and | | | | | amortisati | | | | | on) | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Comparable | = | Operating profit - non-recurring items - other items | | | operating | | affecting comparability | | | profit | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Non-recurr | = | Capital gains and | | | | | | | | | ing items | | losses | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Other | = | Includes effects from financial derivatives hedging | | | items | | future cash-flows where hedge accounting | | | affecting | | | | | comparabil | | | | | ity | | | | -------------------------------------------------------------------------------- | | | is not applied according to IAS 39 and effects from the | | | | | accounting of Fortum´s part of the | | -------------------------------------------------------------------------------- | | | Finnish Nuclear Waste Fund where the asset in the | | | | | balance sheet cannot exceed the | | -------------------------------------------------------------------------------- | | | related liabilities according to IFRIC | | | | | | interpretation 5. | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Funds from | = | Net cash from operating activities before change in | | | operations | | working capital | | | (FFO) | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Capital | = | Capitalised investments in property, plant and | | | expenditur | | equipment and intangible assets | | | e | | | | -------------------------------------------------------------------------------- | | | including maintenance, productivity, growth and | | | | | investments required by legislation | | -------------------------------------------------------------------------------- | | | including borrowing costs capitalised during the | | | | | construction period. Maintenance | | -------------------------------------------------------------------------------- | | | investments expand the lifetime of an existing asset, | | | | | maintain useage/availability and/or | | -------------------------------------------------------------------------------- | | | maintains reliability. Productivity investment improves | | | | | productivity in an existing asset. Growth | | -------------------------------------------------------------------------------- | | | investments' purpose is to build new assets and/or to | | | | | increase customer base within | | -------------------------------------------------------------------------------- | | | existing businesses. Legislation investments are done | | | | | at certain point of time due to | | -------------------------------------------------------------------------------- | | | legal | | | | | | | | | | | | requirements. | | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Gross | = | Investments in subsidiary shares, shares in associated | | | investment | | companies and other shares in | | | s in | | | | | shares | | | | -------------------------------------------------------------------------------- | | | available for sale financial assets. Investments in | | | | | subsidiary shares are net of cash and | | -------------------------------------------------------------------------------- | | | grossed with interest-bearing liabilities in the | | | | | acquired company. | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Return on | = | Profit for the | | | | | | | x | | | shareholde | | year | | | | | | | 100 | | | rs' | | | | | | | | | | | | equity, % | | | | | | | | | | | -------------------------------------------------------------------------------- | | | Total equity | | | | | | | | | | | | average | | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Return on | = | Profit before taxes + interest and other | x | | | capital | | financial expenses | 100 | | | employed, | | | | | | % | | | | | -------------------------------------------------------------------------------- | | | Capital employed | | | | | | | | | | | average | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Return on | = | Operating profit + Share of profit (loss) in | x | | | net | | associated companies and joint ventures | 100 | | | assets, % | | | | | -------------------------------------------------------------------------------- | | | Net assets | | | | | | | | | | | | average | | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Comparable | = | Comparable operating profit + Share of profit | x | | | return on | | (loss) in associated companies and joint | 100 | | | net | | ventures (adjusted for IAS 39 effects and | | | | assets, % | | major sales gains or losses) | | | -------------------------------------------------------------------------------- | | | Comparable net assets | | | | | | | | | | average | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Capital | = | Total assets - non-interest bearing liabilities - | | | employed | | deferred tax liabilities - provisions | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Net assets | = | Non-interest bearing assets + interest-bearing assets | | | | | related to the Nuclear Waste Fund - | | -------------------------------------------------------------------------------- | | | non-interest bearing liabilities - provisions | | | | | (non-interest bearing assets and liabilities do not | | -------------------------------------------------------------------------------- | | | include finance related items, tax and deferred tax and | | | | | assets and liabilities from fair | | -------------------------------------------------------------------------------- | | | valuations of derivatives where hedge accounting is | | | | | applied) | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Comparable | = | Net assets adjusted for non-interest bearing assets and | | | net assets | | liabilities arising from financial | | -------------------------------------------------------------------------------- | | | derivatives hedging future cash flows where hedge | | | | | accounting is not applied according | | -------------------------------------------------------------------------------- | | | to | | | | | | | | | | | | | | IAS | | | | | | | | | | | | | | 39 | | | | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Interest-b | = | Interest-bearing liabilities - | | | | | | | earing net | | liquid funds | | | | | | | debt | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Gearing, % | = | Interest-bearing net | | | | | | x | | | | | debt | | | | | | 100 | | -------------------------------------------------------------------------------- | | | Total | | | | | | | | | | | | | equity | | | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Equity-to- | = | Total equity including | | | x | | | assets | | non-controlling interest | | | 100 | | | ratio, % | | | | | | | -------------------------------------------------------------------------------- | | | Total | | | | | | | | | | | | | assets | | | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Net debt / | = | Interest-bearing net | | | | | | | | | EBITDA | | debt | | | | | | | | -------------------------------------------------------------------------------- | | | Operating profit + Depreciation, amortisation and | | | | | impairment charges | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Interest | = | Operating | | | | | | | | | | | coverage | | profit | | | | | | | | | | -------------------------------------------------------------------------------- | | | Net interest | | | | | | | | | | | | expenses | | | | | | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Interest | = | Operating | | | | | | | | | | | coverage | | profit | | | | | | | | | | | including | | | | | | | | | | | | | capitalise | | | | | | | | | | | | | d | | | | | | | | | | | | | borrowing | | | | | | | | | | | | | costs | | | | | | | | | | | | -------------------------------------------------------------------------------- | | | Net interest expenses - capitalised | | | | | | | borrowing costs | | | | -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- | Earnings | = | Profit for the period - | | | | | | per share |

fortum_jan-sep_2010_eng.pdf