28 april 2017

Fortum fikk et driftsoverskudd på 313 (275) millioner euro

Fortum fikk et driftsoverskudd på 313 (275) millioner euro. Det er en framgang på +14% sammenlignet med frøste kvartal i 2016.

January−March 2017
— Operating profit EUR 389 (369) million, of which EUR 76 (94) million
relates to items affecting comparability
— Earnings per share EUR 0.38 (0.37), of which EUR 0.07 (0.08) related to
items affecting comparability
— Cash flow from operating activities totalled EUR 282 (375) million
— City Solutions division divided into City Solutions and Consumer Solutions
to support strategy implementation
— The operating profit target level (EBIT) RUB 18.2 billion for the Russia
segment was reached during the last twelve months

Summary of outlook

— Fortum continues to expect the annual electricity demand to grow in the
Nordic countries by approximately 0.5% on average
— The Generation segment’s Nordic generation hedges: approximately 55% hedged
at EUR 29 per MWh for the rest of 2017 and approximately 45% hedged at EUR
27 per MWh for 2018

Key financial ratios

2016   LTM
Return on capital employed, %   4.0   4.0
Comparable net debt/EBITDA      0.0  -0.3

Key figures

EUR million or as indicated                    I/17    I/16   2016    LTM
Sales                                         1,232     989  3,632  3,875
Comparable EBITDA                               423     357  1,015  1,081
Comparable operating profit                     313     275    644    682
Operating profit                                389     369    633    653
Share of profits of associates and               59      67    131    123
joint ventures
Profit before taxes                             412     390    595    617
Earnings per share, EUR                        0.38    0.37   0.56   0.57
Net cash from operating activities              282     375    621    528
Shareholders’ equity per share, EUR           15.82   15.97  15.15
Interest-bearing net debt (at end of period)   -347  -2,158    -48   -347

Fortum’s President and CEO Pekka Lundmark:

“After a challenging 2016, the market conditions have been slightly more
favourable in the early part of 2017. Wholesale prices have increased, but are
still low and continue to burden the results of all power producers. During the
first quarter of 2017, the Nordic precipitation and inflow were above the
long-term average. This capped the increase in spot prices although the
reservoir levels showed a slight deficit.

In spite of the demanding market conditions, the first quarter results were
quite satisfactory. Our comparable operating profit increased by 14% to EUR 313
million compared to the first quarter 2016.

One of the highlights was, again, the Russia segment with a comparable
operating profit of EUR 132 million, compared to EUR 79 million in the first
quarter 2016. Over the last twelve months, the EBIT for the Russia segment was
EUR 277 million, exceeding the RUB 18.2 billion target. We have previously
communicated that we are expecting to reach the targeted EBIT level during
2017-2018 and thus, our Russia segment has reached the target according to
schedule. In the Generation segment, the results weakened mainly due to lower
hydro volumes. However, Generation’s higher achieved power price partially
offset the decline.

During the first quarter, we developed our organisational structure further. We
divided our City Solutions division into two; one focusing on heating, cooling
and circular economy solutions and one focusing on our retail customers. The
respective business models are so different that separate management focus is
required in order to be successful.

We have also continued to drive forward the implementation of our strategy
along the guidelines presented at Fortum’s Capital Markets Day on 16 November
2016. Yesterday, we were pleased to announce the planned restructuring of our
assets in Norway. Together with the City of Oslo, we have agreed to rearrange
the ownership of Hafslund ASA. According to the agreement, Fortum will sell its
34.1% ownership in Hafslund ASA to the City of Oslo. Further, we will acquire
100% of the electricity sales business of Hafslund, increasing our Nordic
customer base from 1.3 to 2.4 million. In the heat and waste-to-energy
business, Fortum and the City of Oslo will join forces in a co-owned company
combining Hafslund’s heat business and Oslo’s waste-to-energy plant
Klemetsrudanlegget. Finally, Fortum will acquire a 10% share in the production
business of Hafslund. The transactions are subject to approval by the Oslo City
Council (Bystyret) and necessary regulatory approvals. The planned transaction
meets all the key criteria we have defined for investments in the first phase
of our strategy implementation.

In the first quarter results we can already see the positive effects of last
year’s acquisitions of Ekokem and DUON. Our strategy implementation is
improving our results and the restructuring of Hafslund will continue to do so.
We have consolidated businesses that are within our existing core competencies,
we have stayed close to our current home markets, and we have gotten access to
existing cash flows.

Our strategy implementation will continue and we still have significant
financial headroom available for market consolidation.“

Financial results

Sales by segment

EUR million                         I/17  I/16   2016    LTM
Generation                           474   467  1,657  1,664
City Solutions                       290   228    782    844
Consumer Solutions                   242   175    668    735
Russia                               349   249    896    996
Other                                 24    24     92     92
Netting of Nord Pool transactions   -118  -120   -384   -382
Eliminations                         -29   -34    -79    -74
Total                              1,232   989  3,632  3,875

Comparable EBITDA by segment

EUR million         I/17  I/16   2016    LTM
Generation           166   182    527    511
City Solutions        94    70    186    210
Consumer Solutions    14    14     55     55
Russia               168   105    312    375
Other                -20   -13    -64    -71
Total                423   357  1,015  1,081

Comparable operating profit by segment

EUR million         I/17  I/16  2016  LTM
Generation           136   155   417  398
City Solutions        56    44    64   76
Consumer Solutions    12    14    48   46
Russia               132    79   191  244
Other                -24   -16   -77  -85
Total                313   275   644  682

Operating profit by segment

EUR million         I/17  I/16  2016  LTM
Generation           230   211   338  357
City Solutions        59    58    86   87
Consumer Solutions    -9     5    59   45
Russia               132   111   226  247
Other                -23   -15   -77  -85
Total                389   369   633  653

January–March 2017

In January-March 2017, sales were EUR 1,232 (989) million. The increase was due
to the strengthening Russian rouble and the consolidation of Ekokem and DUON.
Comparable EBITDA totalled EUR 423 (357) million. Comparable operating profit
totalled EUR 313 (275) million and reported operating profit totalled EUR 389
(369) million. Fortum’s operating profit for the period was impacted by items
affecting comparability, including sales gains, and the IFRS accounting
treatment (IAS 39) of derivatives mainly used for hedging, as well as nuclear
fund adjustments, amounting to EUR 76 (94) million (Note 4).

The share of profit from associates and joint ventures was EUR 59 (67) million,
of which Hafslund represented EUR 14 (14), TGC-1 EUR 1 (9) and Fortum Värme EUR
44 (44) million. The share of profit from Hafslund and TGC-1 are based on the
companies’ published fourth quarter 2016 interim reports (Note 12).

Net financial expenses were EUR -36 (-47) million and include changes in the
fair value of financial instruments of EUR 1 (2) million.

Profit before taxes was EUR 412 (390) million.

Taxes for the period totalled EUR -72 (-59) million. The effective income tax
rate according to the income statement was 17.4% (15.0%). The comparable
effective income tax rate, excluding the impact of the share of profit from
associated companies and joint ventures as well as non-taxable capital gains,
was 20.4% (18.1%) (Note 8).

The profit for the period was EUR 340 (331) million. Earnings per share were
EUR 0.38 (0.37), of which EUR 0.07 (0.08) per share relates to items affecting

Financial position and cash flow

Cash flow

In January-March 2017, net cash from operating activities decreased by EUR 93
million to EUR 282 (375) million, due to EUR 66 million higher comparable
EBITDA, and EUR 186 million lower realised foreign exchange gains and losses.
The foreign exchange gains and losses of EUR -58 (128) million in January-March
2017 relate to the rollover of foreign exchange contracts hedging loans to
Russian and Swedish subsidiaries.

Capital expenditures increased by EUR 67 million to EUR 180 (113) million. Net
cash used in investing activities decreased to EUR 1 (379) million. The change
was mainly due to the decrease in cash collaterals given as trading collaterals
to commodity exchanges of EUR 182 (-176) million.

Cash flow before financing activities was EUR 280 (-4) million.

Payments of long-term liabilities totalled EUR 292 (3) million, including
repayment of two SEK bonds equivalent to EUR 290 million. The net increase in
liquid funds was EUR 56 (21) million.

Assets and capital employed

Total assets increased by EUR 228 million to EUR 22,192 (21,964 at the end of
2016) million.

Liquid funds at the end of the period were EUR 5,222 (5,155 at the end of 2016)

Capital employed was EUR 19,023 (18,649 at the end of 2016) million, an
increase of EUR 374 million.


Equity attributable to owners of the parent company totalled EUR 14,057 (13,459
at the end of 2016) million.

The increase in equity attributable to owners of the parent company totalled
EUR 598 million and was mainly due to the net profit for the period of EUR 335
million and translation differences of EUR 192 million.


Fortum was net cash positive at the end of the period. Net cash increased by
EUR 299 million to EUR 347 (48 at the end of 2016) million.

At the end of March, the Group’s liquid funds totalled EUR 5,222 (5,155 at the
end of 2016) million. Liquid funds include cash and bank deposits held by OAO
Fortum amounting to EUR 236 (105 at the end of 2016) million. In addition to
liquid funds, Fortum had access to EUR 2.0 billion of undrawn committed credit
facilities (Note 16).

Net financial expenses were EUR -36 (-47) million, of which net interest
expenses were EUR -30 (-39) million.

Fortum’s long-term credit ratings were unchanged. Standard & Poor’s rating is
BBB+ and the short-term rating A-2. The outlook is stable. Fitch Ratings
long-term Issuer Default Rating (IDR) and senior unsecured rating is BBB+ and
the short-term IDR is F2 with a stable outlook.

Key figures

At the end of March, the comparable net debt to EBITDA for the last 12 months
was -0.3 (0.0 at the end of 2016).

Gearing was -2% (0% at the end of 2016) and the equity-to-assets ratio 64% (62%
at the end of 2016). Equity per share was EUR 15.82 (15.15 at the end of 2016).
Return on capital employed for the last 12 months totalled 4.0% (4.0% at the
end of 2016).

Market conditions

Nordic countries

According to preliminary statistics, electricity consumption in the Nordic
countries was 114 (117) terawatt-hours (TWh) during January-March 2017. The
lower consumption was caused by warmer weather in the first quarter compared to
the first quarter of 2016.

At the beginning of 2017, the Nordic water reservoirs were at 75 TWh, which is
8 TWh below the long-term average and 23 TWh lower than a year earlier. By the
end of March, reservoirs were 3 TWh below the long-term average and 10 TWh
lower than a year earlier. The deficit has decreased during the beginning of
the year, due to higher than long-term average precipitation and inflow as well
as lower consumption and high nuclear availability.

In January-March 2017, the average system spot price in Nord Pool was EUR 31.1
(24.0) per MWh. The main drivers for the price increase were the clearly higher
marginal cost of coal condense than a year earlier and hydro reservoirs below
the long-term average. The average area price in Finland was EUR 32.9 (30.4)
per MWh and in Sweden SE3 (Stockholm) EUR 31.8 (24.1) per MWh.

In Germany, the average spot price in January-March 2017 was EUR 41.3 (25.2)
per MWh. The spot price increased due to lower nuclear generation, low hydro
reservoirs, increased fuel prices and cold conditions in the continent during

The market price of CO2 emission allowances (EUA) was EUR 6.5 per tonne at the
beginning of the year and EUR 4.7 per tonne at the end of March 2017.


Fortum operates both in the Tyumen and Khanty-Mansiysk area of Western Siberia,
where industrial production is dominated by the oil and gas industries, and in
the Chelyabinsk area of the Urals, which is dominated by the metal industry.

According to preliminary statistics, Russian electricity consumption was 283
(279) TWh in January-March 2017. The corresponding figure in Fortum’s operating
area in the First price zone (European and Urals part of Russia) was 217 (212)

The average electricity spot price, excluding capacity price, increased by 2.9%
to RUB 1,180 (1,147) per MWh in the First price zone.

More detailed information about the market fundamentals is included in the
tables at the end of the report (page 54-55).

European business environment and carbon market

Revision of the EU ETS at the final stage

The last decisive stages of the revision process of the EU Emissions Trading
(ETS) Directive for the period 2021-2030 are ongoing. The European Parliament
adopted its position and the Council approved a General Approach in February.
The trilogue negotiations between the Commission, Parliament and the Council
started 4 April 2017 and are expected to be finalised during the summer. The
directive could be formally approved during this year.

Strengthening of the Market Stability Reserve (MSR), including a temporary
doubling of the MSR intake rate is the key issue from the market balance and
pricing perspective. More contentious issues between the Parliament and Council
are cancellation of allowances (amount and timing), flexible auction share and
the indirect cost compensation.

Circular economy legislation impacting energy recovery of waste

In January 2017, the Commission released a progress report on its Circular
Economy (CE) package from 2015. In addition, the Commission issued guidance to
member states on converting waste to energy.

The trilogue negotiations on the CE package between the Commission, the
Parliament and the Council will officially start after the Council has adopted
its final position and the goal is to finalize the legislative package during
the summer. The package includes amendments of waste, landfill, packaging waste
and three other waste-related directives. The debated key issues are municipal
waste and the reuse and recycling targets.

The Waste-to-Energy Communication includes non-legislative guidance on energy
recovery of waste in the context of a circular economy. Energy recovery of
waste is seen as a way to stop landfilling and as a needed treatment method for
the rejects from recycling processes.

Key drivers and risks

Fortum’s financial results are exposed to a number of economic, strategic,
political, financial and operational risks.

One of the key factors influencing Fortum’s business performance is the
wholesale price of electricity in the Nordic region. The key drivers behind the
wholesale price development in the Nordic region are the supply-demand balance,
the prices of fuel and CO2 emissions allowances, and the hydrological

The continued uncertainty in the global and European economies has kept the
outlook for economic growth unpredictable. The overall economic uncertainty
impacts commodity and CO2 emissions allowance prices, and this could maintain
downward pressure on the Nordic wholesale price of electricity. In Fortum’s
Russian business, the key drivers are economic growth, the rouble exchange
rate, regulation around the heat business, and the further development of the
electricity and capacity markets. In all regions, fuel prices and power plant
availability also impact profitability. In addition, increased volatility in
exchange rates due to financial turbulence could have both translation and
transaction effects on Fortum’s financials, especially through the Russian
rouble and Swedish krona.

In the Nordic countries, the regulatory and fiscal environment for the energy
and environmental management sectors has also added risks for companies. The
main strategic risk is that the regulatory and market environment develops in a
way that we have not been able to foresee and prepare for. In response to these
uncertainties, Fortum has analysed and assessed a number of future energy
market and regulation scenarios, including the impact of these on different
generation forms and technologies. As a result, Fortum’s strategy was renewed
in 2016 to include broadening the base of revenues and diversification into new
businesses, technologies and markets. The environmental management business is
based on the framework and opportunities created by the environmental
regulation. Being able to respond to the customer needs created by the
tightening regulation is a key success factor.


Nordic market

Despite macroeconomic uncertainty, electricity is expected to continue to gain
a higher share of total energy consumption. Electricity demand in the Nordic
countries is expected to grow by approximately 0.5% on average, while the
growth rate for the next few years will largely be determined by macroeconomic
developments in Europe, and especially in the Nordic countries.

During January-March 2017, the oil price continued to increase, the coal price
stayed fairly stable, and the price of CO2 emission allowances (EUA) declined.
The price of electricity for the upcoming twelve months decreased in the Nordic
area as well as in Germany.

In mid-April 2017, the quotation for coal (ICE Rotterdam) for the remainder of
2017 was around USD 71 per tonne and for CO2 emission allowances for 2017
around EUR 5 per tonne. The Nordic system electricity forward price in Nasdaq
Commodities for the rest of 2017 was around EUR 26 per MWh and for 2018 around
EUR 23 per MWh. In Germany, the electricity forward price for the rest of 2017
was around EUR 33 per MWh and for 2018 around EUR 30 per MWh. Nordic water
reservoirs were about 2 TWh below the long-term average and 8 TWh below the
corresponding level in 2016.


The Generation segment’s achieved Nordic power price typically depends on such
factors as the hedge ratios, hedge prices, spot prices, availability and
utilisation of Fortum’s flexible production portfolio, and currency
fluctuations. Excluding the potential effects from changes in the power
generation mix, a 1 EUR/MWh change in the Generation segment’s Nordic power
sales achieved price will result in an approximately EUR 45 million change in
Fortum’s annual comparable operating profit. In addition, the comparable
operating profit of the Generation segment will be affected by possible thermal
power generation volumes and its profits.

As a result of the nuclear stress tests in the EU, the Swedish Radiation Safety
Authority (SSM) has decided on new regulations for Swedish nuclear reactors.
For the operators, this means safety investments that should be in place no
later than 2020.

The process to review the Swedish nuclear waste fees is done in a three-year
cycle. The Swedish Nuclear Fuel and Waste Management Co (SKB) has updated the
new technical plan for the SSM to review. The final decision on the new nuclear
waste fees will be made by the Swedish government in December 2017. However, as
a result of the decision on early closure of nuclear power plants, SSM
recalculated the waste fees for the Oskarshamn and Ringhals power plants.

In April 2017, the Swedish government announced that during the second quarter
they will submit a proposal to the parliament regarding the calculations of
nuclear waste fees and the investment of the nuclear waste fund. According to
the announcement the operating time for calculating the waste fee would be 50
years, as opposed to the current 40 years. The fund would also be allowed to
invest in other financial instruments than government bonds. The proposed
changes are expected to reduce the nuclear waste fees.

In September 2016, the Swedish government presented the budget proposal for the
coming years. One of the key elements was the proposal that taxation of
different energy production forms should be more equal and the tax burden of
nuclear and hydro should be taken to the level of other production
technologies. The budget states that the nuclear capacity tax will be reduced
to 1,500 SEK/MW per month from 1 July 2017 and abolished on 1 January 2018. In
2017, the tax for Fortum is estimated to decrease by approximately EUR 32
million to EUR 52 million due to the tax decrease and by another EUR 5 million
due to the premature closure of Oskarshamn 1 in the middle of the year. In
2018, there is no capacity tax.

The hydropower real-estate tax will decrease over a four-year period beginning
in 2017, from todays 2.8% to 0.5%. The real-estate tax on hydro will, as stated
in the government’s budget, be reduced in four steps: in January 2017 to 2.2%;
in January 2018 to 1.6%; in January 2019 to 1.0%; and in January 2020 to 0.5%.
In 2017, the tax for Fortum is estimated to decrease by approximately EUR 20
million to approximately EUR 95 million.

In addition to the decrease in the tax rate, the hydropower real-estate tax
values, which are linked to electricity prices, will be updated in 2019. The
real-estate tax values are updated every six years. With the current low
electricity prices, the tax values in 2019 will be clearly lower than today.
The process for renewing existing hydro permits will also be reformed.

In October 2016, the Swedish Energy Agency presented a concrete proposal on how
to increase the production of renewable electricity by 18 TWh in 2020-2030
within the electricity certificate system, as part of the Energy Agreement. In
April 2017, the Swedish government decided that the increase will be carried
out in a linear manner.

In 2015, Swedish OKG AB decided to permanently discontinue electricity
production at Oskarhamn’s nuclear plant unit 1 and 2. The discontinuing of
production and start of decommissioning has been set to 30 June 2017 in unit 1.
Unit 2, which has been out of operation since June 2013, will stay out of
operation. The closing processes for both units are estimated to take several

City Solutions

In City Solutions steady growth, cash flow and earnings are achieved through
investments in new plants and through acquisitions. Fuel cost, availability,
flexibility and efficiency as well as gate fees are key drivers in
profitability, but also power supply/demand balance, electricity price and the
weather affect the profitability.

In May 2016, the Finnish government decided to increase the tax on heating
fuels by EUR 90 million annually from 2017 onwards. The negative impact on
Fortum is estimated to be approximately EUR 5 million per year.

Consumer Solutions

In the Consumer Solutions profitability is achieved by competitive product
offerings, efficient operations, scale benefits in systems and operations as
well as prudent risk management. As the Consumer Solutions segment hedges most
of the market risk exposure it is typically more exposed to short-term
variations in power prices and demand than long-term price trends. Short-term
volatility, often caused by temperature, can have a substantial impact on power
prices as well as power demand. The competitive environment effects the
Consumer Solutions segment both through the sales margins of the products sold
as well as the size of the customer base.


The Russia segment’s new capacity generation built after 2007 under the Russian
Capacity Supply Agreement (CSA) is a key driver for earnings growth in Russia,
as it is expected to bring income from new volumes sold and also to receive
considerably higher capacity payments than the old capacity. Fortum will
receive guaranteed capacity payments for a period of 10 years from the
commissioning of a plant. The received CSA payment will vary depending on the
age, location, size and type of the plants, as well as on seasonality and
availability. CSA payments can vary somewhat annually because they are linked
to Russian Government long-term bonds with 8 to 10 years maturity. In addition,
the regulator will review the earnings from the electricity-only market three
years and six years after the commissioning of a unit and could revise the CSA
payments accordingly.

The long-term Competitive Capacity Selection (CCS) for the years 2017-2019 was
held at the end of 2015, and the long-term CCS for year 2020 was held in
September 2016. The majority of Fortum’s plants were selected. The volume of
Fortum’s installed «old» capacity not selected in the auctions totalled 195 MW
(out of 2,214 MW), for which Fortum has obtained forced mode status, i.e. it
will receive payments for the capacity.

The Russian annual average gas price growth was 3.6% in 2016. Fortum estimates
the Russian annual average gas price growth to be 2.0% in 2017.

Capital expenditure and divestments

Fortum currently expects its capital expenditure, excluding acquisitions, to be
approximately EUR 800 million in 2017. The annual maintenance capital
expenditure is estimated to be below EUR 300 million in 2017, well below the
level of depreciation.


The effective corporate income tax rate for Fortum in 2017 is estimated to be
19-21%, excluding the impact of the share of profits of associated companies
and joint ventures, non-taxable capital gains and non-recurring items.


At the end of March 2017, approximately 55% of Generation’s estimated Nordic
power sales volume was hedged at EUR 29 per MWh for the rest of 2017 and
approximately 45% at EUR 27 per MWh for 2018.

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 electricity derivatives quoted on Nasdaq Commodities.

Change of Fortum Corporation’s trading and issuer codes

As of 25 January 2017, Fortum Corporation changed its trading and issuer codes.
The trading code of Fortum Corporation’s share changed from FUM1V to FORTUM,
and Fortum’s issuer code was changed from FUM to FORTUM.

Dividend payment

The Annual General Meeting 2017 decided to pay a dividend of EUR 1.10 per share
for the financial year that ended 31 December 2016. The record date for the
dividend was 6 April 2017 and the dividend payment date was 13 April 2017.

Espoo, 26 April 2017

Fortum Corporation
Board of Directors

Further information:

Pekka Lundmark, President and CEO, tel. +358 10 452 4112
Markus Rauramo, CFO, tel. +358 10 452 1909

Investor Relations & Financial Communications, Sophie Jolly, tel. +358 10 453
2552, Rauno Tiihonen, tel. +358 10 453 6150, Måns Holmberg, tel. +358 44 518
1518, Pirjo Lifländer +358 40 643 3317, and investors@fortum.com

Media, Corporate Press Officer, Pauliina Vuosio, tel. +358 50 453 2383

The condensed Interim Report has 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.

Financial calendar in 2017

In 2017, Fortum will publish:

— Half-year Financial Report January-June on 20 July 2017, at approximately
9:00 EEST
— Interim Report January-September on 26 October 2017, at approximately 9:00

Nasdaq Helsinki
Key media

More information, including detailed quarterly information, is available on
Fortum’s website at www.fortum.com/investors