Annual Report • Mar 3, 2010
Annual Report
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Domicile Espoo, Business ID 1463611-4 Annual Report 2009
Fortum is a leading energy company focusing on the Nordic countries, Russia and the Baltic Rim area. Activities cover the generation, distribution and sale of electricity and heat and the operation and maintenance of power plants. Our vision is to be the benchmark power and heat company excelling in sustainability.
In 2009, Fortum's sales totalled EUR 5.4 billion and operating profit was EUR 1.8 billion. The company employs approximately 11,500 people. Fortum's shares are quoted on NASDAQ OMX Helsinki.
Inner cover: CO2 -free* hydropower is one of the most used sources of energy in the Nordic countries. Cover: A detail from the new CHP plant in Espoo, Finland. The plant was inagurated in December 2009.
Chapter 1: Fortum in 2009 15 Interview with the CEO 16 Strategy 19
| Chapter 2: The world around us | 23 |
|---|---|
| Market development | 24 |
| Chapter 3: Investing in the future | 31 |
| Investments | 32 |
| Trends | 36 |
| Research & development activities | 38 |
| Chapter 4: Sustainability | 41 |
| Environmental responsibility | 42 |
| Social responsibility | 46 |
| Personnel | 48 |
Economic responsibility 50
Fortum in brief 02 Financial summary 04 Competences '09 06
Chapter 5: Divisions 53
Fortum focuses on the Nordic, Russian and Baltic Rim markets where it has developed a good platform for future growth.
Distribution network
Finland Sweden Russia TGC-1
Norway
Estonia
Lithuania Latvia
Poland
Heat sales 0.2 TWh Distribution, customers 99,500 Share of electricity customers 2.7% Employees 143
Russia OAO Fortum
Power generation capacity 5,885 MW Heat sales 9.8 TWh Distribution, customers 894,700 Share of electricity customers 11.4% Employees 2,445
Power generation capacity 5,096 MW Heat sales 8.0 TWh Distribution, customers 610,700 Share of electricity customers 13.4% Employees 2,700
| 2,785 MW |
|---|
| 25.6 TWh |
| 4,853 |
| Heat sales | 1.0 TWh |
|---|---|
| Distribution, customers | 24,100 |
| Employees | 357 |
| Heat sales | 0.1 TWh |
|---|---|
| Employees | 72 |
| Latvia | |
|---|---|
| Heat sales | 0.2 TWh |
| Employees | 98 |
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.
The Heat Division consists of combined heat and power generation, district heating activities and business-tobusiness heating solutions.
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 Markets.
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.
Comparable operating profit plus profit from associated companies divided by comparable net assets.
| 2009 | 2008 | 2007 |
|---|---|---|
| 5,435 | 5,636 | 4,479 |
| 2,292 | 2,478 | 2,298 |
| 1,782 | 1,963 | 1,847 |
| 1,888 | 1,845 | 1,564 |
| 1,312 | 1,542 | 1,552 |
| 15,350 | 15,911 13,544 | |
| 5,969 | 6,179 | 4,466 |
| 2.6 | 2.5 | 2.2 |
| 12.1 | 15.0 | 14.0 |
| 16.0 | 18.7 | 15.8 |
| 862 | 1,108 | 655 |
| 67 | 1,516 | 317 |
| 2,264 | 2,002 | 1,670 |
| Sales | Comparable operating profit | Comparable RONA | % | ||||||
|---|---|---|---|---|---|---|---|---|---|
| EUR million or as indicated | 2009 | 2008 | 2007 | 2009 | 2008 | 2007 | 2009 | 2008 | 2007 |
| Power | 2,596 | 2,892 | 2,350 | 1,469 | 1,528 | 1,095 | 26.6 | 28.0 | 18.9 |
| Heat | 1,394 | 1,466 | 1,356 | 227 | 250 | 290 | 7.2 | 7.3 | 9.2 |
| Distribution | 800 | 789 | 769 | 262 | 248 | 231 | 8.6 | 8.2 | 7.6 |
| Markets | 1,449 | 1,922 | 1,683 | 22 | –33 | –1 | 18.6 | –15.3 | –0.6 |
| Russia | 623 | 489 | - | –26 | –92 | - | –0.3 | –3.8 | 0.0 |
| Other | 74 | 83 | 81 | –66 | –56 | –51 | –18.7 | –1.7 | –2.1 |
| Eliminations | –1,501 | –2,005 | –1,760 | - | - | - | |||
| Total | 5,435 | 5,636 | 4,479 | 1,888 | 1,845 | 1,564 |
Operating profit excluding non-recurring items, fair value changes of derivatives not getting hedge accounting and nuclear fund adjustment.
1) Adjusted for REC and Lenenergo gains in 2007
| EUR or as indicated | 2009 | 2008 | 2007 |
|---|---|---|---|
| Earnings per share | 1.48 | 1.74 | 1.74 |
| Cash flow per share | 2.55 | 2.26 | 1.88 |
| Equity per share | 9.04 | 8.96 | 9.43 |
| Dividend per share | 1.00 (1 | 1.00 | 1.35 |
| Payout ratio, % | 67.6 (1 | 57.5 | 77.6 |
| Dividend yield, % | 5.3 (1 | 6.6 | 4.4 |
Sales, EUR million
Operating profit, EUR million
Return on capital employed, %
Discontinued oil operations Incl. REC and Lenenergo gains
1) Board of Directors' proposal for the Annual General Meeting on 25 March 2010
˭ Key financial figures for the years 1998–2009 are presented in the Financial Statements, see pages 174–175.
˭ Definitions for the key figures are included on pages 179–180 in the Financial Statements.
Discontinued oil operations Incl. REC and Lenenergo gains
Net cash from operating activities, EUR million
Discontinued oil operations
Capital expenditure and gross investments in shares, EUR million
Discontinued oil operations
8,000 6,000 4,000 2,000 0 05 06 07 08 09
16,000 12,000 8,000 4,000 0 05 06 07 08 09
OMX Helsinki Cap
Continuing operations Adjusted with Lenenergo gains Total, incl. discontinued oil operations Interest-bearing net debt, EUR million
6
One of Fortum's key strengths lies in our generation portfolio. Thanks to the versatility and flexibility of our portfolio, we are able to plan our trading and production efficiently, economically and in a climate-benign way. The availability of our power plants is top-class by international standards and we are very proud of the fact that our specific emissions from power generation are among the industry's lowest: in 2009, 91% of Fortum's power production was CO2-free in the EU.
We are internationally recognised for our strong expertise in nuclear power. Our thorough know-how in plant management, nuclear safety and spent nuclear fuel – to name only a few – has ensured the high-level performance of our nuclear power plant in Loviisa, Finland, for already three decades. In addition, the consulting and engineering services provided by our dedicated Nuclear Engineering unit in all fields of nuclear technologies are appreciated by our associated nuclear power companies and clients around the world.
Anni Nurmela, Manager, Nuclear Engineering
8
Making smart moves on the Nordic and Russian power markets is a key component to Fortum's success. That's why we carefully analyse the development of fuel and CO2 allowance prices as well as the global economic development. Our intelligence work forms the basis of our success, all the way from the trading desk to Fortum's strategy development and investment planning.
We believe that an efficient, market-driven energy market increases security of supply and competition that in turn enable competitive energy pricing. It is also a prerequisite for reaching the European climate targets cost-efficiently. To advance this goal, Fortum has actively promoted the market-based development of the Nordic power market for over a decade and participated in building and shaping the Russian power market. In the coming years, we look forward to leveraging the experience we have accumulated also in the integrating European electricity markets.
Johan Linnarsson, Chief Analyst, Trading and Industrial Intelligence
10
As an energy company, it is our responsibility to contribute to the mitigation of climate change. That's why we make it a priority to develop our expertise in energy technology and support the transition to a largely carbon dioxide-free energy system. Our long-term goal is to be fully CO2-free. We strongly believe that mitigating climate change is also a commercial success factor for forerunners.
We are focusing on developing carbon capture and storage (CCS), co-generation of heat and power in a nuclear power plant, as well as researching ways to increase the use of renewable energy sources. We also believe that development of sustainable societies is fundamental in the battle against climate change. This is why smart grids and electric vehicles are an essential part of our research and development activities.
Mikko Iso-Tryykäri, Manager, Business Development
Fortum has been involved in the Russian energy business for over 50 years and has actively participated in shaping the Russian power market model. Already over a decade ago, Fortum acquired a share in TGC-1 in the northwest Russia and in spring 2008, the company I work for, OAO Fortum, in the Urals region.
The power sector liberalisation has proceeded as planned, and we are committed to making our Russian operations a success. Our efficiency improvement programme is well on track to reach the targeted annual efficiency improvements of EUR 100 million in 2011. We have successfully adopted the Fortum way of working and joined forces with our Nordic and Baltic colleagues to improve business. We have especially benefitted from our shared expertise in CHP production and are very proud of the fact that with the acquisition of the Russian assets, Fortum became the world's 4th largest heat producer.
Venera Gatina, Head of Construction and Technical Development, Urals Heat Networks, OAO Fortum
Hydropower accounts for over one third of Fortum's annual power generation and is a clean energy source that does not contaminate the climate, water or soil. The picture is taken at one of Fortum's small-scale hydropower plants on the Mustionjoki river in southern Finland. The plant's capacity is 6.5 MW electricity.
In 2009, Fortum was able to weather the turbulent times and once again deliver good results. The company focused on operational performance and began reorganisation to prepare for future opportunities under the new President and CEO Tapio Kuula.
Going into the new decade, what are Fortum's strengths, President and CEO Tapio Kuula?
In power and heat production, our strengths are in our production portfolio that supports sustainability and utilises renewable and low-carbon energy sources. The diversity of our portfolio and our solid energy market expertise ensure price competitiveness and flexibility in fluctuating market situations. Furthermore, Fortum has longer experience operating in Russia compared to many other Western energy companies, a fact that the OAO Fortum acquisition has accentuated. It has already helped us advance with our goals as planned.
You have been part of the management team building Fortum for already more than a decade. As the President and CEO, how will you make the company even better?
My aim in my new role has been to make our organisation leaner and more efficient. Our new organisation took effect 1 October 2009; it allows us to more effectively confront the changes that take place in our operating environment. The four divisions of the new business structure provide better possibilities for more efficient decision-making and for steering operations, in turn making it possible to operate more flexibly in the markets.
In 2010 we intend to carefully analyse the kinds of opportunities and challenges the energy sector will offer Fortum in the future.
2009 demonstrated that Finland and Europe are not isolated islands unaffected by global economic cycles. The recession resulted in an approximately 5% decrease in electricity consumption in the Nordic market in 2009. In this situation, developing the industry's competitiveness becomes even more essential. Increasing the efficiency of the energy markets and responding to the challenges of climate change require market-driven integration and a coherent energy policy throughout the European Union. Among other things, harmonising the various national support systems would be central, since the energy market is no longer national or regional but increasingly European. A European-wide wholesale market for
electricity benefits everyone because it increases competition, improves security of supply, and enables the achievement of climate goals at the lowest possible cost for society.
We can be satisfied with Fortum's 2009 financial performance. Despite the changes in the operating environment, our profitability remained at a good level. We improved our operational performance from a year ago and Fortum's comparable operating profit increased clearly in the last quarter of the year. Fortum's balance sheet was strong, net debt to EBITDA was 2.6. A strong balance sheet and good profitability are important to Fortum – they help us to ensure that we can implement our strategy flexibly, carry out our investments, and be ready also to seize new opportunities when they arise.
Russia's economy will recover faster than many European economies. For
Fortum, an important factor is oil demand and price development because we operate in Russia in the oil- and gasproducing Tyumen region. Additionally, the global outlook for the heavy metal industry is considerably more positive than it was in autumn 2009, which boosts demand in Chelyabinsk, another produc tion area that is important for us. This creates the confidence that our Russia Division's results will be at a clearly positive level in 2010, as we have stated earlier.
Despite the recession, Russian power sector reform has progressed according to plans. At the turn of the year the share of electricity for wholesale markets was increased by another 10%, so now a total of 60% of the electricity is sold in the deregulated wholesale markets. The Russian authorities have announced that the wholesale market will be fully liberal ised at the beginning of 2011.
The Climate Conference in Copenhagen was widely considered a disappointment. How would you estimate its impacts?
There were no concrete commitments achieved in Copenhagen, but the impor tance of reducing emissions, however, is recognised globally. In addition to the EU, big emitters of greenhouse gases, like China and the United States, are committed to mitigating climate change, so purposeful efforts will continue on a wider front than before. This will change also the energy sector's operating outlook.
One implication is the growing need to improve energy efficiency. The relative share of electricity in total energy consumption will grow significantly when it replaces other energy use. Consequently, total energy consumption and emissions will decrease. In this respect, Fortum is well positioned to respond to future challenges because sustainability is one of our cornerstones, and as much as 91% of our power generation in the EU is CO2-free.
Industry's electricity consumption decreased in the Nordic countries, and some estimates suggest that the change will be permanent. So, will we need more nuclear power?
Additional nuclear power is needed for many reasons. First of all, demand for electricity will continue to grow despite last year's decrease. The recovery in manufacturing will affect short-term growth in electricity consumption. The increase in electricity's relative share of
total energy consumption will accelerate growth in the long term. In addition to renewable energy, other climate-benign electricity production, like nuclear power, are also needed to cover demand.
Another key reason is that a significant share of our nuclear power plants will reach the end of their service life, and their production must be replaced. Because of the harmfulness of greenhouse gases, nuclear power is an extremely attractive and competitive alternative. The realisation of Loviisa 3 as a combined heat and power plant offers an unprecedented opportunity to even further reduce CO2 emissions. I think this is an opportunity that must not go unused.
As the new President and CEO, you have the opportunity to develop the company's strategy and further strengthen Fortum's position. How will you continue your development work?
I am very pleased with the positive development in last year's customer
satisfaction figures. Fortum's reputation has improved and our investments in sustainability have received recognition. Also our number of shareholders increased significantly last year: Fortum currently has almost 90,000 shareholders. In my view, this is an indication of the level of interest in the company, and, in fact, we will do everything we can to ensure that Fortum's share is – and will continue to be – worth buying and owning.
We have initiated goal-oriented development work in conjunction with the new organisation, and we will focus on strategic issues at great length during the year. I would like to thank our employees for their dedication and willingness to make Fortum an even better company in the challenging operating environment. Thanks are also owed to our customers and partners for a successful year. We are in a good position to move forward.
| Target | 2009 | 2008 | |
|---|---|---|---|
| ROCE, % | 12 | 12.1 | 15.0 |
| ROE, % | 14 | 16.0 | 18.7 |
| Capital structure: Net debt / EBITDA | 3.0–3.5 | 2.6 | 2.5 |
Focusing on the power and heat business in the Nordic, Russian and Baltic Rim areas and consistently developing a CO2-free and flexible production portfolio have been the cornerstones of Fortum's strategy for the past decade. As a market-driven player, we have actively promoted the development of open energy markets.
Fortum's vision is to be the benchmark power and heat company excelling in sustainability. Our vision reflects our strong commitment to operational excellence in all our activities as well as in our view that sustainability – where economic, social and environmental responsibilities are in balance – is a success factor for the company. The strategic ambition is directly reflected also in Fortum's core purpose: "Our energy improves life for present and future generations." Our core purpose and values guide all Fortum operations.
Climate change, limited natural resources and long-term increasing energy demand present big challenges also for the entire energy sector. As a responsible player, Fortum is actively pursuing solutions to these challenges. We have consistently developed our production portfolio with a focus on low emissions and flexibility. Consequently, the portfolio mainly consists of CO2-free nuclear and hydropower, and energy-efficient combined heat and power (CHP) production. As a result, our specific emissions from power production are amongst the lowest in the sector in Europe. We believe that the structure of our production portfolio
will be fundamental to our success also in the future. Our ongoing investment programme in the EU is 95% CO2-free. In Russia, where Fortum's production is based mainly on natural gas, we are committed to improving the energy efficiency of our plants and networks and thus reducing electricity and heat production's environmental impacts in the future.
We think that responsibility also involves producing energy and reducing emissions in ways that are the most economical in terms of total costs to society. In Fortum's view, this goal is best supported by competitive internal energy markets and by market-driven support
| Acquisition of | X CO2-free generation X 4,470 MW of Nordic power generation capacity X Birka Energi, E.ON Finland X Growth platforms in Norway, Poland and the Baltic countries X TGC-1 and OAO Fortum in Russia |
EUR 11 billion |
18 TWh increase in CO2-free generation |
|
|---|---|---|---|---|
| Divestment of | X Oil assets X Non-focused power and heat assets X Non-core engineering X Russian distribution |
EUR 7 billion |
70% increase in CO2-free capacity |
mechanisms to achieve the renewable energy targets. Fortum has been actively involved in supporting market-driven development of the Nordic electricity markets for more than a decade, and has participated in developing the Russian electricity markets. We believe that this experience is a success factor for the company in the integrating European energy markets.
Fortum believes that the mitigation of climate change offers opportunities for forerunners. We are carrying out research regarding future emissions-free and renewable production forms, such as wave energy and new biofuels, and possi bilities to reduce emissions in fossil-based production e.g. through carbon capture and storage technologies. Implementing the planned, new Loviisa nuclear power plant unit as a combined heat and power plant would offer an unprecedented opportunity to reduce CO 2 emissions. Loviisa's location in the vicinity of the Helsinki metropolitan area could enable wide utilisation of district heat, and the timing for the completion of the new nuclear power plant unit is well suited in terms of decisions to replace the aging coal- and gas-fired power plants in the 2020s.
The tightening energy-efficiency requirements will increase electricity competitiveness against other energy
Our vi sion reflects our strong commitment to performance excel lence in all areas of operation. It conveys our belief that miti gating climate change is a success factor for forerunners.
defines our mar ket area and the ele ments that will enable Fortum to continue on a profitable growth track also in the future.
the way we work at Fortum as well as how we interact with each other and with our partners and stakeholders.
The Core Purpo s e sum marises the ultimate reason for Fortum's existence.
Our energy improves life for present and future generations
forms and significantly increase electricity's share in total energy consumption. When electricity is used in place of other energy, the total energy demand will decrease and also emissions can be reduced. Examples of this development work are low-energy buildings or the use of electricity in transportation. Fortum's goal is to enable the mainstream adoption of electric vehicles in a fast timetable by offering consumers recharging points and by engaging in broad collaboration with different players in this field.
Striving for efficiency, accountability and continuous improvement of operations
is characteristic for Fortum. We want to achieve benchmark results in all our business and support operations. To meet our goal for operational excellence, we renewed and streamlined our organisational structure in 2009. The new structure helps Fortum to focus on strategic priorities and to prepare for future challenges and growth.
Market cap EUR 2.8 billion
Market capitalisation Neste Oil shares EUR 3.3 billion and cash dividend EUR 5.8 billion
Jan 2000 31 Dec 2009
Total EUR 26 billion
Total dividends EUR 9.1 billion Market cap EUR 16.9 billion
1) Neste Oil spin-off adjusted
Fortum's share has outperformed its European utility peers during last six years. During 2009, Fortum's share price appreciated approximately 23%, while Dow Jones European Utility index decreased 1% and OMX Helsinki Cap index increased 31%.
The annually updated strategic agenda supplementing the Fortum Compass defines the focus areas of operations. This ensures that development throughout the company is moving in the same direction and is in line with the vision and strategy. Each division's business plans, decisions and operations reflect the strategic agenda as relevant for the division.
X finalise new organisation
The City of Stockholm has undertaken several ambitious initiatives and driven developments to reduce its climate impact. Hammarby Sjöstad in Stockholm is a residential area developed by Fortum, Stockholm Water Company and the Stockholm Waste Management to demonstrate a common eco-cycle model. The district has imposed strict environmental requirements on buildings, technical installations and the traffic, from day one.
Global demand and trade volumes started to decline in autumn 2008, which reflected in falling energy prices. The decline stabilised in early spring 2009. In the latter part of the year, some cautious recovery was visible globally and energy prices started to recover. The European Union's internal energy market package was approved in summer 2009 and the Russian electricity liberalisation progressed as planned despite the recession. The international negotiations on climate change mitigation accelerated and culminated in the UN Climate Conference in Copenhagen in December.
~ 500 companies, 14 million customers
Source: Fortum, company data, 2008 figures. Effects of later structural changes taken into account.
The global financial crisis reached its turning point in spring 2009, but the global demand remained weak the full year out. In the latter part of the year, some cautious recovery in industrial production was visible, encouraged by the fiscal stimulus measures.
The recession was a hard blow to European export-driven economies, such as Finland, Sweden and Germany. Norway also suffered from lower export prices of oil and gas. Early in the crisis, the Swedish and Norwegian currencies depreciated against the euro, which slightly improved the competitiveness of these countries in 2009. The power-intensive industry in the Nordic area suffered from poor export demand through the year. This was reflected in low capacity utilisation of production. Especially in Finland, industrial electricity consumption was also heavily affected by the continued structural change of the forest industry.
Electricity consumption in the Nord Pool area fell by 5%, mainly due to the decline in industrial consumption. The largest drop appeared in Finland, where demand fell by 7%. In Sweden the demand decreased by 5% and in Norway by 5%. Danish demand declined by 4%. The yearly average Nord Pool system price was 35 euro per megawatt-hour (MWh) down by 22% from the previous year.
The Russian economy proved to be more cyclical than the Nordic economies during the financial crisis. When commodity prices fell, the Russian total production declined by a tenth in spring 2009. Also the rouble was devaluated by nearly a third in early spring.
World total electricity generation, TWh/a
However, the Russian economy started to recover briskly in autumn 2009 in line with appreciating commodity prices and demand.
Electricity consumption in Russia declined by 5% in 2009 compared to 2008. Over the year, regional differences in electricity demand were considerable. In the Tyumen area, which is dominated by the oil and gas industry, the total electricity consumption remained the same as in 2008, while in the metals industry-dominant Chelyabinsk area, consumption fell by 11% in 2009. In north-western Russia, electricity consumption declined by 3% in 2009. The average electricity spot price, excluding capacity price, in the European
Nordic electricity demand, TWh
00 05 10 15 20 25 30
Source: IMF World Economic Outlook (October 2009) to 2014, and average 2013–2014 growth for period 2015–2020
World primary energy demand, Mtoe/a
Source: IEA WEO 2009. Note: scale is not linear
Source: IEA WEO 2009. Note: scale is not linear
Source: Fortum analysis
0
and Urals part of Russia declined to RUB 666 (708) per MWh in 2009.
The recovery to pre-crisis production levels in Fortum's market area will depend on the speed of global recovery and demand. In 2009, only some large Asian economies such as China and India managed to present good growth figures, which underpins growth in demand in some commodities, such as metals. The developed nations showed cautious signs of recovery in late autumn 2009.
Due to the recession, global primary energy use fell in 2009 for the first time since 1981. The International Energy Agency (IEA) expects energy demand to recover in 2010, and after that to depend on the scale of climate change mitigation regulation being agreed on for the post-Kyoto period. The IEA estimates in its reference scenario that world electricity demand will grow by 2.5% annually to 2030. For climate change to be limited to 2 degrees Celsius, power generation has to move towards low-carbon emitting or carbon-free generation capacity.
International negotiations on global climate change mitigation culminated in the UN Climate Conference in Copenhagen in December 2009. To the disappointment of many, the conference led only to a political declaration, the so-called Copenhagen Accord, in which the world's political leaders acknowledged the need to limit climate change to 2 degrees Celsius, but no binding emissions reduction targets were agreed upon. Countries were requested to announce their emissions reduction targets by the end of January 2010. National commitments were received by 55 countries, which account for 78% of global emissions from energy use. Negotiations will continue in 2010. The continuation of the climate negotiations represents a continuation of the uncertainty about climate policy. In Fortum's view, a global price for carbon and a global emissions trading market should be set. Now the uncertainty on post-Kyoto mechanisms after 2012 will also continue.
For the European Union, forerunnership in climate change mitigation remains a high priority. In the Copenhagen Accord, the EU interpolated its earlier target to reduce emissions by 20% from 1990 levels by 2020. However, the EU has signalled that if other major emitters agree to further emissions cuts, the EU will reconsider its ambition level to a 30% reduction target. The emissions trading sector will be subject to most of the increased burden.
In the EU, the implementation of the Directives of the Climate and Energy Package started in 2009, including the preparations of the auctioning rules of allowances and of the benchmarking rules for free-of-charge allocation in the emissions trading system for the period 2013–2020. Based on the revised emissions trading directive, the trading
system will be harmonised throughout the EU. Most of the power production will be subject to full auctioning of allowances starting in 2013. Heat production will partly receive free allowances based on EU-wide benchmarks until 2027. Some industrial sectors especially vulnerable to carbon leakage may receive free allocation until 2020.
A price on carbon emissions established through Cap-and-Trade Systems (CTS) is considered the most economic way of reducing emissions. The EU has proposed an OECD-wide carbon market through the linking of CTS by 2015 and an extension to the most advanced developing countries by 2020. US legislation on national CTS is likely to be approved in 2010. Proposals for emissions trading exist also, e.g. in Japan and Australia.
In the framework of the emissions trading directive in March 2009, it was agreed that 300 million allowances will be used to finance large-scale carbon capture and storage (CCS) demonstration projects as well as innovative renewables. In October 2009, the Commission proposed seven CCS projects to receive financing from the EU economic recovery funds. The projects for the EU's CCS demonstration programme (European Flagship Programme) are to be selected in 2011. Fortum is aiming at including Meri-Pori's CCS plant within the framework of the programme in cooperation with TVO.
Many actions to tackle climate change were taken also at the Nordic level.
The Swedish government upgraded its climate and energy policy in February 2009. Sweden is reconsidering its position on nuclear and aims to increase emphasis on renewable energy production and energy efficiency. The government abandoned the earlier phase-out plan of nuclear power in Sweden and is considering replacing old nuclear reactors with new ones as they retire. The bill also contained a number of adjustments to energy taxes, scheduled to take place in 2010 or 2011.
In September 2009, Sweden and Norway agreed to establish a common market for green electricity certificates to be operational from January 2012. This new scheme will be technology-neutral and accompanied by "extensive development" of new transmission and distribution networks to cope with the expected increase in renewable electricity generation. Fortum endorses this initiative, as a market-based green certificate system is the most efficient way, apart from Emissions Trading Systems (ETS), to introduce renewable generation with the lowest cost for customers and societies as a whole.
In Finland, the government is instead planning to introduce a feed-in tariff system for wind and biogas power. This approach is likely to be much more expensive for society than the green certificate model. In April 2009, the Finnish Ministry of Employment and Economy proposed a market-based guaranteed feed-in tariff system for wind power and biogas and the tariff would be paid for 12 years by electricity consumers. Also, in March 2009, the Finnish government agreed to start preparing a tax for the so-called windfall profits of energy companies. This could mean that old hydro and nuclear generation would be subject to taxation from 2011.
In Russia, a law on energy efficiency was adopted in October 2009. The law introduces the legal, economic and institutional framework for promoting energy-saving technologies in Russia.
Throughout the year, the power industry strengthened its commitment to be a low-carbon economy and to be a solution provider in the post-2012 world. In March 2009, Fortum signed a Declaration on Climate Change, Electricity Markets and Supply Security together with companies representing 70% of the EU's power production. The declaration acknowledges that the power sector needs to achieve a carbon-neutral power supply by the midpoint of the century. Efficient utilisation of electricity is considered important in the reduction of CO2 emissions also in other sectors, such as transport.
Power market integration between Nord Pool, Central Europe (EPEX) and the Baltic countries continued in 2009. The
importance of power grid investments enabling market coupling was recognised in the EU stimulus package. In 2009, the EU Energy Programme for Recovery granted funds for new links connecting Finland and Estonia (Estlink 2), Sweden and Lithuania (NordBalt), Denmark and the Netherlands (Cobra Cable), and Denmark and Germany (Kriegers Flak).
The Nordic, Baltic and Polish transmission system operators (TSOs) concluded jointly in summer 2009 that more interconnections are needed both within the Baltic countries and between different regions in order to further improve the functioning of the Baltic Sea power market. Estonia aims at becoming
a new Nord Pool price area in 2010, but this still requires some regulatory changes by the Estonian parliament, such as abandoning regulated power prices for large industrial power customers. The Lithuanian TSO Lietuvos Energija and Nord Pool developed a technical solution for the Lithuanian power exchange, which started operations in January 2010. The exchange is based on the Nordic market model and enables future Nordic-Baltic market integration.
Increasing the utilisation rate of the existing network and raising trading liquidity are equally important factors behind the power market integration. Market coupling between Denmark
Crude oil price (ICE Brent), USD/bbl
Source: Nord Pool, future prices as of 30 December 2009
Electricity price (1 in day-ahead market in European part of Russia, EUR/MWh
1) Excl. capacity tariff Source: ATS
Source: ICE, Future prices as of 31 December 2009
(Nord Pool) and Germany (EEX Spot) was re-launched in November 2009, optimising the power flows between the two areas. In autumn 2009, the Nordic and central-western Europe TSOs agreed to develop market coupling based on a so-called price coupling principle within their area of nine countries.
Also the Nordic balancing power market developed during the year as the Nordic countries implemented common balancing principles, and the intraday Elbas market was extended to also cover Norway in March 2009. Today, the Elbas market covers Finland, Sweden, Denmark, Norway and Germany.
In May 2009, the Nordic regulatory
Gas price (ICE NBP), GBp/therm
authorities jointly proposed that the Nordic countries should form a harmonised retail market for electricity by 2015. This proposal was approved by the Nordic energy ministers in October 2009. Fortum fully agrees on the benefits of providing efficiency and more customer choice in a further developed and integrated Nordic retail market for electricity.
Svenska Kraftnät, the Swedish transmission system operator, proposed in November 2009 to divide Sweden into four separate bidding zones in the Nordic physical electricity market in order to manage congestion caused by limited transmission capacity in the country. In Fortum's view this proposal contradicts
the goal to create a common European wholesale market as well as an integrated Nordic retail market.
The Lisbon Treaty was finally approved in November 2009. It introduces a specific article for energy policy. This means that the EU will have a legal basis for energy policy actions, which it has not had in the past. It emphasises the solidarity and interdependency of the EU member states in energy issues, i.e. it supports the aim of the internal energy market. Moreover, the new Commission starting in 2010 will have a dedicated directorate general for energy policy,
07 08 09 10 11
Source: ICE
Coal price (ICE Rotterdam), USD/t
Source: ICE
07 08 09 10 11
Source: Nord Pool, Future prices as of 30 December 2009
further strengthening the EU's role in future energy policy.
In 2009, the Commission allocated considerable appropriations for strategic energy projects through the EU economic recovery package. A total of EUR 3.5 billion is proposed for investments in CCS, off-shore wind projects as well as gas and electricity interconnection projects.
In 2009, there were not many new policy proposals in the union, as the European Parliament elections took place in the summer 2009 and the negotiations of the new Commission lasted most of the autumn. The new Commission was elected in December 2009. Some EU policies were still implemented in 2009. The internal market package by the European Union was approved formally in June 2009. Implementation of the internal market legislation started by establishing the new association for TSOs for electricity (ENTSO-E) and regulators (ACER), which will have a central role in putting the EU package into effect. ENTSO-E started its full operation in July 2009 and replaces the earlier associations of its 42 members representing 34 countries. The internal market package also requires unbundling of transmission and production. Consequently, Fortum and Pohjolan Voima are obliged to withdraw from the Finnish TSO, Fingrid, by early 2012.
A directive on nuclear safety was approved in 2009. It sets the minimum requirements with regard to nuclear
safety that all the member states must put in place. The Commission is planning to propose a directive concerning nuclear waste management in the course of 2010. This is a breakthrough for EU legislation in the nuclear area, where the EU countries have not previously been able to agree on the need for common legislation. This is one example of market integration implications, as common rules are necessary.
The liberalisation of the Russian electricity market has progressed as planned in spite of the deep economic recession. The share of wholesale power sold
at competitive prices has been gradually replacing the tariff-based share since 2007. In the first half of 2009, 30% of the power was sold at competitive prices. This share increased to 50% in July 2009 and further to 60% at the beginning of 2010. As for the regulated part, the electricity tariffs were allowed to grow at rates corresponding to the growth in fuel prices and the inflation. The wholesale power market is planned to be fully liberalised by 2011. Sales to households (and consumers equated to households) will, however, remain regulated even after 2011 with a gradual increase in tariffs to the market-based level.
The rules of the long-term capacity
market, taking place from 2011 onwards, are under preparation and their approval by the Government of the Russian Federation is expected to take place in the beginning of 2010. Meanwhile, the present rules of the transitional capacity market will remain in force until 2011. The capacity market is established to provide long-term system security, increase energy efficiency and form predictable conditions in the power market.
The Russian future power exchange, ARENA, plans to launch trading of financial power derivatives in the first half of 2010. The ancillary services market is also expected to be launched in 2010.
Such services as primary and secondary frequency regulation, reactive power regulation and emergency power grid control will be sold through separate auctions managed by the system operator.
The government made a decision to revise the long-term power plan, the General Scheme, initially adopted in 2007. The document sets targets for power sector development until 2020 with a view to ensure reliable and efficient supply of electricity and heat. The revision was needed due to the notable discrepancy between actual demand development and the original targets. The updated General Scheme is expected to be ready in 2010.
| TWh | 2009 | 2008 | 2007 | 2006 |
|---|---|---|---|---|
| Hydro | 203 | 225 | 215 | 192 |
| Nuclear | 72 | 83 | 87 | 87 |
| Other thermal | 80 | 77 | 85 | 97 |
| Wind | 11 | 10 | 10 | 8 |
| Total | 366 | 395 | 397 | 384 |
| Net import (1 | 8 | -1 | 3 | 11 |
| TWh | 2009 | 2008 | 2007 | 2006 |
|---|---|---|---|---|
| Hydro | 176 | 166 | 179 | 173 |
| Nuclear | 164 | 164 | 160 | 156 |
| Other thermal | 652 | 706 | 676 | 665 |
| Total | 992 | 1,036 | 1,015 | 994 |
Source: 2006–2007 IEA, 2008–2009 from preliminary Russian statistics
1) import-export
Source: ENTSO-E, National statistics, preliminary information for 2009
The heat distribution business in Russia is regulated and tariffs are set on an annual basis using the cost method. Tariff system change is under preparation and a move to the Regulatory Asset Base (RAB) system in 2012 is being discussed. The increased energy efficiency requirements have increased pressures to change the current regulatory framework to include incentives for efficiency improvements. Also cross-subsidies between customer groups are planned to be phased out in the coming years.
Power utilities were in high growth-mode when the financial crisis hit. However,
the global recession and consequent dip in demand forced them to postpone and cancel investments. The recession put pressure on companies to focus on performance and profitability. European players have announced various efficiency measures and programmes to tackle the issue. Many companies have planned to streamline their operations and to divest some of their noncore assets. Some companies also gathered new equity from the market to strengthen their balance sheets.
There will be a huge need for investments in generation across Europe. In the coming decades, a significant amount of power generation capacity will retire.
Electricity demand is also expected to grow after the recession, even if more moderately than earlier anticipated.
Primarily organic growth is still on the agenda of most power utilities as markets are integrating and growing in Europe. While major acquisitions may not take place during the near future as most players are reluctant to make major debt-financed acquisitions, consolidation is expected to continue in the long term.
The strengthening political focus on climate change and low-carbon-intensive generation is gaining momentum towards organic growth. As the EU member states seek to fulfil their renewable targets, a lot of new renewable electricity production needs to be built. Many states are also reconsidering their position towards nuclear power. The IEA confirmed in its annual World Energy Outlook 2009 that nuclear capacity needs to double globally until 2050 to fulfil the 80% CO2 reduction target. Consequently, a number of European countries are now planning to build new nuclear power. These countries include Finland, France, Lithuania, Slovakia, Italy, UK, Bulgaria, Romania, Hungary, Poland, and the Czech Republic. Also the US, China and South Africa, among others, have similar plans. Sweden and Germany have reversed their earlier plans to totally phase out nuclear power.
| TWh | 2009 | 2008 |
|---|---|---|
| NORDIC | 374 | 395 |
| Finland | 81 | 87 |
| Sweden | 136 | 144 |
| Norway | 122 | 128 |
| Denmark | 35 | 36 |
| RUSSIA | 959 | 1,019 |
Source: ENTSO-E, National statistics, preliminary information for 2009
Source: APBE (forecasting agency in charge of updating General Scheme)
The transport sector creates about 14% of global greenhouse gas emissions. Thanks to the much higher energy efficiency of the electric motor, an electric vehicle reduces primary energy demand by 75% in comparison to an average combustion engine vehicle. If a third of all cars globally were hybrids or full electric vehicles by 2030, 1–3.5 gigatonnes of CO2 emissions could be avoided.
Energy companies shoulder great responsibility. They must secure adequate power and heat generation capacity, reliable transmission and high-quality services for industrial clients and households alike. At the same time, they play a key role in mitigating climate change, as the majority of greenhouse gases are generated in the production and consumption of energy. Decisions made today affect generations to come, as the average lifetime of a power plant is 40–60 years.
In 2030, the fundamentals of the energy system have not changed dramatically, although new innovations aiming at increasing energy efficiency and reducing the climate impacts of power production have been taken in use.
For Fortum's investments, the starting point is always an economicly viable balance between increasing demand and emissions reduction targets. Fortum wants to develop and apply new technologies to support the development towards a carbon dioxide-free energy system. All means are needed – it is not just a matter of technology. The most effective way to reduce environmental impacts is to use energy efficiently.
Nuclear power is widely used for both electricity and heat production. Modern nuclear power plants produce CO2-free base load energy for the industry in Europe. Nuclear CHP is used to replace fossil fuels in heat production.
Fossil fuels continue to be a significant energy source for decades to come. Their climate impact can be reduced by capturing the carbon dioxide. If the carbon dioxide is captured also in biofuel power plants, carbon sinks are created.
Hydropower is widely used, particularly in the Nordic countries. Electricity produced with hydropower is totally carbon dioxidefree and has an important role in balancing wind power production.
Biomass is used a lot in the Nordic forested areas where the fuel is cost-efficiently available. Biomass is a carbon-neutral way to produce electricity, heat and traffic fuel.
With improved transmission connections and common European market, electricity consumers can choose their energy supplier.
Distributed energy production is commonplace. Smart grids enable electricity from small-scale local production to be fed into the grid.
A European standard for charging electric vehicles has been adopted. With infrastructure in place and transportation taxed on the basis of emissions, the number of electric vehicles will have grown strongly. Electric car batteries will also be used as energy stores.
Windpower is widely used to produce energy on the western coast of Europe, while solar energy is utilised more and more in the south. Energy is also produced with wave
Smart grid
Electric car
power in coastal areas.
Solar, wind and wave power
Fortum streamlined its investment programme during the financial crisis to be between EUR 0.8-1.2 billion annually. With a strong balance sheet and flexibility in its annual investment programme, Fortum is well positioned for the ongoing market recovery.
In 2009, Fortum's capital expenditures and investments in shares totalled EUR 929 million.
The global financial crisis dampened the overall economic growth throughout 2009, also affecting the demand for electricity. Fortum focused strongly on maintaining its financial flexibility and put considerable efforts into streamlining its cost structure and capital expenditures. Consequently, Fortum is in a strong position as economies have started to recover from the deep recession.
Based on Fortum's current investment plan, the bulk of the company's growth investments will be in the Heat and the Russia Divisions. In the Distribution business area, Fortum will be investing in automatic meter management in Finland, having completed the Swedish automatic meter management project during 2009.
In 2009, Fortum's capital expenditures and investments in shares totalled EUR 929 (2008: 2,624) million. Investments, excluding acquisitions, were EUR 862 (1,108) million.
Maintenance and productivity investments amount to approximately EUR 400–500 million annually. Growth investments in new Russian power generation capacity will be unevenly spread over the years 2010–2015, and are estimated to total approximately EUR 1.8 billion. On average, this is EUR 300 million annually. The rest of the annual capital expenditure will be spent in Nordic and Baltic
Rim growth, mainly in constructing new combined heat and power (CHP) capacity.
In 2009, two new CHP plants were commissioned:
In 2010, Fortum expects to take two new CHP plants into commercial use:
and peat, 20 MW electricity, 45 MW heat)
In addition, the Heat Division plans to significantly reduce the CO2 emissions of its power and heat production over the next decade. In Stockholm, Sweden, this includes increasing the share of renewable energy in the Värtan CHP plant's existing units from the current 45% to 70% by 2015. Värtan is the largest production facility in the city with a capacity of 389 MW electricity, 1,700 MW heat and 125 MW district cooling. Furthermore, Heat is investigating the possibility to invest in several new production units. These include a
| Planned generation capacity (MW) |
|||||
|---|---|---|---|---|---|
| Plant | Fuel type | Heat | Electricity Commissioning | ||
| Tartu, Estonia | Biomass/peat | 50 | 25 | 2009 | |
| Suomenoja, Finland | Gas | 220 | 240 | 2009 | |
| Oskarshamn 3, Sweden | Nuclear | 110* | 2009 | ||
| Częstochowa, Poland | Biofuel/coal | 120 | 65 | 2010 | |
| Pärnu, Estonia | Biofuel/peat | 45 | 20 | 2010 | |
| Forsmark 1 and 2, Sweden | Nuclear | 50(1 | 2009–2011 | ||
| Oskarshamn 2, Sweden | Nuclear | 100(1 | 2011 | ||
| Olkiluoto 3, Finland | Nuclear | 400(1 | 2012 | ||
| Forsmark 3, Sweden(2 | Nuclear | 30(1 | 2013 | ||
| Brista, Sweden(2 | Waste | 20 | 60 | 2013 | |
| Klaipėda, Lithuania | Biofuel/waste | 50 | 20 | 2013 | |
| Nordic hydro refurbisment | Hydro | 100–150 | > 2015 |
1) Fortum's share
2) To be decided
new waste-fired unit in Brista CHP that could be commissioned in 2013. The planned capacity of the new unit is 20 MW electricity and 60 MW heat. Preliminary plans also include a new biofuelfired unit in Värtan CHP that could be commissioned in 2016.
In 2008, Fortum took a major strategic step by acquiring the Russian Territorial Generating Company 10 (TGC-10) that operates in the oil- and gas-producing Urals and Western Siberia regions. The company was renamed OAO Fortum in 2009. At year-end 2009, Fortum's ownership in OAO Fortum was approximately 95%.
Fortum has committed to fulfil OAO Fortum's 2,300-megawatt investment programme by 2015. Once completed, the programme will have increased OAO Fortum's power generation capacity by approximately 80% from the current 2,800 MW to 5,050 MW.
The investment programme covers seven units. Fortum is planning to reschedule three of seven units by 1–3 years. In total, the rescheduled units correspond to a bit more than half of the planned 2,300-MW capacity increase.
The total estimated value of the investment programme at year-end 2009 for the years 2010 to 2015 is EUR 1.8 billion.
During 2010, three units are expected to be commissioned in Russia:
The execution of the investment programme progressed well during 2009. Besides the three units that are expected to be taken into commercial use in 2010, the construction of the new Nyaganskaya power plant in the northern Urals area continued. Once completed, the power plant will have three 400-MW natural gasfired power generation units. At Tyumen CHP-2, planning of the construction of the 5th unit continued. Once completed, the natural gas-fired unit will have a power generation capacity of 450 MW.
In the Power Division, Fortum's nuclear associated companies will build new nuclear capacity in Finland and in Sweden nuclear capacity will be increased through the upgrading of existing reactors in Forsmark and Oskarshamn. The related capital expenditure will show
| Power generation capacity (MW) | ||||
|---|---|---|---|---|
| Plant | Fuel type | Existing | Planned | Total |
| Tyumen CHP-1 | Gas | 472 | 190 | 662 |
| Tobolsk CHP | Gas | 452 | 210 | 662 |
| Chelyabinsk CHP-3 | Gas | 360 | 220 | 580 |
| Tyumen CHP-2 | Gas | 755 | 450 | 1,205 |
| Nyagan GRES | Gas | 3x400 | 1,200 | |
| Argayash CHP | Coal, gas | 195 | 195 | |
| Chelyabinsk CHP-1 | Coal, gas | 149 | 149 | |
| Chelyabinsk CHP-2 | Coal, gas | 320 | 320 | |
| Chelyabinsk GRES | Gas | 82 | 82 | |
| OAO Fortum |
2,785 | 2,270 | 5,055 |
primarily in Fortum's nuclear associated companies, which are not consolidated to Fortum's accounts.
Fortum is participating in the building of the fifth nuclear power plant unit (Olkiluoto 3, 1,600 MW) in Finland. Fortum holds an approximately 25% share in Teollisuuden Voima (TVO), which is constructing the plant. The AREVA-Siemens Consortium, the turnkey supplier of the Olkiluoto 3 nuclear power plant unit to TVO, has announced that the start-up of the plant will be postponed until 2012. TVO has stated that it believes the project may be further
delayed from 2012.
TVO's investment is mainly funded with external loans (approximately 75% of the total investment), share issues and shareholder loans from the owners of TVO. In 2009, TVO's Annual General Meeting decided to raise the company's share capital by EUR 100 million, of which Fortum's share was EUR 25 million. The equity increase was part of Fortum's total equity commitment of EUR 180 million to the Olkiluoto 3 project. The increase in Fortum's participation in TVO was paid in 2009. Furthermore, TVO's shareholders signed a EUR 300 million subordinated shareholder's loan commitment to TVO in 2009. The
facility will be available until the end of 2013. Fortum's share of this commitment is at maximum EUR 75 million.
Growth through new nuclear in Finland In February 2009, Fortum submitted an application to the Finnish Government for a decision-in-principle concerning the construction of a new nuclear power plant unit in Loviisa. The new unit will be built so that it allows for combined heat and power production (CHP-ready). According to plan, the new unit could be operational in early 2020 and its designed service life is at least 60 years. The application presents five different plant alternatives, all of which will fulfil
the stringent Finnish safety standards once completed. Fortum is one of three applicants applying for the decisionin-principle in Finland.
Fortum is also a minority shareholder in TVO, which submitted its decision-inprinciple application in 2008 for a fourth nuclear power plant unit to be built in Olkiluoto.
The Government is expected to make its proposal to the Parliament regarding which of the three applicants will receive a positive decision-in-principle during 2010, and the Parliament is expected to vote on the Government's proposal towards the end of 2010.
Source: Nord Pool CO²
Estimated lifetime average cost in nominal 2014 terms
Large variations in cost of new hydro and wind due to location and conditions
Swedish reactors to be upgraded The nuclear capacity increases at the Forsmark and Oskarshamn power plants in Sweden are planned to be carried out in the near future. Fortum owns approximately 23% of Forsmark's Kraftgrupp AB and approximately 43% of OKG AB (Oskarshamn). As a minority owner, Fortum is participating in these upgrades. Fortum's share of the planned capacity additions is estimated at 290 MW. Some of these projects still require licenses. Fortum's Swedish nuclear associates are mainly funded with shareholder loans, pro rata to each shareholder's ownership.
The upgrading of Oskarshamn 3 took place in 2009 and the 1,152-MW reactor was off-line from the beginning of March to mid-December. The capacity effect at the reactor was upgraded from 1,152 MW to about 1,400 MW. Fortum's share of the increase was approximately 110 MW.
The Swedish nuclear upgrade programme is planned to progress as follows:
In Sweden, the government has announced a new climate and energy agreement, which enables discussions on new nuclear power reactors to be built to replace old reactors at current sites.
The Power Division's investment programme includes refurbishment investments in several hydropower plants to increase capacity, improve safety and maintain good plant availability. These are included in the maintenance/productivity capital expenditure at the group level. On average, the hydro refurbishment programme will increase Fortum's generation capacity by 20–30 MW annually by 2015.
Fortum is investigating several wind power projects in the Nordic countries. Studies include both on- and off-shore wind farm developments in the region.
In Finland, Fortum and Metsähallitus, the national forest agency, have started a joint feasibility project of a wind power park in the Kuolavaara-Keulakkopää area, located in the Kittilä and Sodankylä municipalities in Northern Finland. According to initial estimates, approximately 18 wind power stations of 2–3 MW each can be built in the area, producing between 100 and 120 gigawatt-hours (GWh) of renewable energy annually.
Furthermore, Fortum started negotiations on assessing the environmental impact of building five wind power
stations on the island of Bergö in the municipality of Maalahti in Finland. The total capacity of the wind power stations would be 15–20 MW.
In February 2010, the Swedish energy agency granted Fortum and wavepower supplier Seabased Industry EUR 14 million in investment support to develop and build a full-scale wavepower plant on the west coast of Sweden. Once completed, the power site would be the world's largest of its kind with a power generation capacity of 10 MW, representing an estimated total investment of close to EUR 25 million. A formal investment decision has not yet been made.
Mitigating climate change requires a fundamental shift in how we build our cities and live in them. Tomorrow's modern "eco-cities" are based upon intelligent solutions for the electricity grid, eco-efficient construction, climate-benign transport and sustainable heating solutions.
The global proportion of urban population is likely to rise to 60% by 2030.
The rapid urbanisation of the world's population through the twentieth century and beyond is described in the 2005 Revision of the UN World Urbanization Prospects report. The global proportion of urban population rose dramatically from 13% (220 million) in 1900, to 29% (732 million) in 1950, to 49% (3.2 billion) in 2005. In 2008, the world population became primarily urban for the first time, and according to the United Nations, the share of urban population will continue to increase on all continents. The global proportion of urban population is likely to rise to 60% (4.9 billion) by 2030. Urbanisation has caused sustainability issues in cities, issues such as air and water pollution, traffic congestion as well as housing and social problems.
A sustainable city, or eco-city, is a city designed with consideration of environmental impact, inhabited by people dedicated to the minimisation of required inputs of energy, water and food, and waste outputs of heat and pollution.
A sustainable city can power itself with renewable sources of energy. The point is to create the smallest possible ecological footprint, produce the lowest possible amount of pollution, use land efficiently, compost or recycle waste, or convert waste into energy, thereby reducing the city's overall contribution to climate change.
Fortum has actively taken part in the development of sustainable cities. One large-scale example of a sustainable built environment is Hammarby Sjöstad in Stockholm, Sweden. The area has been developed by Fortum together with Stockholm Water Company and Stockholm Waste Management to demonstrate a common eco-cycle model. The district has imposed strict environmental requirements on buildings, technical installations and the traffic environment, from day one.
Fortum's ambition is to take further steps as a partner to create sustainable cities. One key element in building tomorrow's sustainable cities is a smart grid, which delivers electricity from suppliers to consumers using two-way digital technology to control electrical devices at consumers' homes. The key drivers behind the development towards smarter electricity networks are the need to integrate significantly more renewable energy production into the system and the need to achieve higher energy efficiency. The rapid development of energy technology and ICT development enable new, more intelligent solutions for the grid.
In building the future smart grid, Fortum has especially focused on electricity network development, distributed energy systems (i.e. more small-scale local production), and smart home solutions. An example of Fortum's pioneering work is the flexible, efficient power network that it is developing in the new Stockholm Royal Seaport area in collaboration with ABB.
˭ Read more on page 39.
Future smart home solutions will include extremely energy-efficient buildings with measurements and control for optimum energy use. Energy efficiency management in smart homes starts with smart metering, which puts the power in the consumers' hands by enabling them to control how much energy is being used. Automatic meter management (AMM) provides consumers with a wealth of information about their household's electricity consumption. Smart meters enable solutions and services helping consumers to see how much power is being used and when it is used. Fortum has already installed 844,000 smart meters in Sweden and the installations will begin in 2010 in Finland.
Future sustainable cities will enable completely new business models associated with local, small-scale electricity production, e.g. small wind power plants or solar power on rooftops. Sometimes the consumer might produce more electricity than needed and may want to sell the electricity back to the utility. Thus the consumer will also increasingly become a producer of electricity.
An example of how a sustainable city could work compared to today's system of centralised power production and a one-way flow of power.
An important aspect in developing smart home solutions is also the increased use of electricity to replace fossil fuel use in transportation. In addition to improving energy efficiency, Fortum believes that electric vehicles provide a good opportunity to reduce emissions, since recharging a car with electricity that has been produced from CO2-free energy sources also lowers the car's life-time CO2 emissions to close to zero. In the future, the batteries of electric vehicles will often be charged at home – either through the grid or through local, on-site power production.
Fortum has actively developed combined heat and power (CHP) production, which means that the power plant simultaneously generates both electricity and heat. The efficiency of CHP makes it promising from a community-level energy efficiency point of view, since nearly 90% of the energy contained in the fuel is utilised.
Another example of eco-efficient heating is waste combustion to produce both electricity and district heating or cooling. Using the energy content of waste can reduce greenhouse gas emissions, as the energy produced by combusting waste can replace the energy produced by using other fuels. Fortum's CHP plant Högdalen in Stockholm,
Sweden, has generated energy from waste since 1970; the plant has constantly been developed to make it one of the most modern waste-to-energy power plants in Europe.
Heat can also be extracted from the bedrock, making it possible to heat homes economically and in a climatebenign way. Fortum, YIT and Uponor have developed a bedrock heat solution for an entire residential area, and it will be implemented for the first time in the Nupurinkartano residential area in Espoo, Finland. The area will eventually be home to some 500–600 residents. The homes and the household water will be heated energy efficiently and without any CO2 emissions.
Fortum believes that the future energy system should be based on electricity produced without CO2 emissions and enable high overall energy efficiency. This is also stated in Fortum's research and development (R&D) vision, which aims at enabling a CO2-free and sustainable future.
Expertise in energy technology is essential in the development of efficient, reliable and emissions-free energy production and new sustainable energy solutions. The transition to a largely CO2-free energy system will have to take place in a relatively short time in order to achieve the required mitigation of climate change. Fortum's R&D activities fall within four focus areas that all lead to the company's vision of enabling a CO2-free and sustainable future: performance excellence in current operations, enabling growth, mitigating climate change and contributing to the development of the long-term non-emitting energy system. The R&D approach is based on building
networks and partnerships with leading research organisations, engineering companies, and plant and equipment suppliers.
In 2009, Fortum's R&D activities focused strongly on the development of a nuclear combined heat and power (CHP) plant concept, smart grids and recharging infrastructure of electric vehicles.
Nuclear R&D has always been a strong area in Fortum's R&D portfolio. In 2009, when the application for a decision-inprinciple for Loviisa 3 was submitted, active development work was carried out on concepts to utilise the heat from a nuclear power plant for district heating purposes.
Replacing coal- and natural gas-fired CHP production in the Helsinki metropolitan area with district heat produced at the Loviisa 3 nuclear power plant unit could reduce Finland's CO2 emissions by 4 million tonnes per year. In the Helsinki area, the CO2 emissions could be reduced by 60%. The solution would also entail a very significant overall nuclear plant efficiency improvement from approximately 40% to 55–70%, depending on plant size.
All steam generated in nuclear power plants is normally used for power generation, but in the CHP generation model, part of the steam would be utilised as process heat for industries or for district heating.
Fortum is working with turbine manufacturers to develop concepts for steam extraction in order to achieve an optimal balance between electricity generation and heat utilisation. One of the biggest technical challenges is the construction of the heat transport system. In preliminary plans, the pipes would be placed in a large rock tunnel, which would ensure stable conditions and enable maintenance work.
Fortum has modelled and simulated the heat transport system with the Apros simulation software, which has been developed in long-term collaboration between Fortum and the Technical
Research Center of Finland. The results provide input for the design of safety systems and for the calculations of the structural integrity of the heat transport system. Later on, the heat transport simulation model will be integrated with the nuclear plant model for extensive nuclear safety analyses. This way it can be ensured that nuclear safety is unaffected in a nuclear CHP application.
Smart grids became an important new priority in Fortum's R&D in 2009. A smart grid is an electricity network that can intelligently integrate the actions of all users connected to it – electricity generators and consumers – in order to efficiently deliver sustainable, economic and secure electricity.
Fortum started several concrete development projects in the realm of smart grids during the year. A joint development project to design and install Europe's first large-scale urban smart electricity grid in a new district in the city of Stockholm was initiated in cooperation with ABB. The R&D project will test the concept of a flexible, low-emission power network in the new Stockholm Royal Seaport Area. Fortum and ABB will develop a variety of solutions to ensure that the district's excess power, generated from renewable energy sources, such as rooftop solar panels, can be fed into the power grid. Also electric vehicles can draw or feed electricity from or to the grid. The system
enables the storage of energy, which in turn provides more flexibility in the distribution grid, thereby helping to lower consumption and emissions.
Smart Grids and Energy Markets (SGEM) was the very first 5-year-long programme started by Cleen Oy, the Strategic Centre for Technology and Innovation for energy and the environment, in 2009 in Finland. Fortum contributed actively to the preparation of the programme in 2009 and participates in several of the SGEM programme's Work Packages. Demonstrations of solutions in real environments are an essential part of the programme. One example is the impact of customer behaviour trends on future network development. Another important aspect is to understand the migration phases from the current state of the network towards the vision of the future smart grid. Fortum links are working on several master's theses and a doctoral thesis for the SGEM programme.
Electric cars are an essential part of the picture when talking about future transport. When recharged with electricity from CO2-free sources, driving with an electric vehicle is completely emissionsfree. Fortum supports the introduction of plug-in electric vehicles by developing the infrastructure and creating demand for electric cars.
In 2009, Fortum continued actively with development initiatives related to electricity in transportation. Partners in Finland and Sweden include the cities of Espoo, Stockholm and Karlstad. In addition, Fortum started cooperation with Valmet Automotive, part of Metso Group in Finland, to develop a new, fully-electric concept car to be introduced at the Geneva Motor Show in March 2010. In 2009, Fortum also cooperated with Mitsubishi in the marketing of iMiEV, the first battery-powered electric vehicle designed for the mass market. In addition, Fortum participated in the grassroots level pioneering work by supporting the Finnish Electric Cars
Fortum and TVO, in partnership with Siemens and Maersk, are jointly developing a carbon capture and storage (CCS) solution to their Meri-Pori power plant by 2015. The FINNCAP project aims to become part of the European CCS demonstration programme by capturing and storing more than 1.2 Mt CO2 annually. The project would reduce Finnish national CO2 emissions by some 1.5%. Also sulphur dioxide and particulate emissions would be reduced significantly. The project would have a considerable impact on the local and national economy and could facilitate the creation of a new technology cluster in Finland.
– Now! project. In Sweden, Fortum initiated cooperation to test the recharging infrastructure with Preem oil retail service stations.
The Group's total R&D expenditure in 2009 was EUR 30 million (2008: EUR 27 million). The increase in expenditure is mainly attributable to the increased activity around carbon capture and storage and electricity in transportation. Fortum's R&D expenditure in 2009 was 0.5% of net sales (2008: 0.5%) and 0.9% of total group expenses (2008: 0.8%). ˭ Read more on www.fortum.com/research
A winter view of Hästholmen, Finland, where the Loviisa nuclear power plant is situated. As a carbon dioxide-free form of energy production, nuclear power plays an important role in curbing climate change. In a life-cycle comparison, the carbon dioxide emissions of nuclear power are just as low as those of wind, hydro and solar power.
*The figure is calculated by dividing the total CO2 emissions of Fortum's pro forma energy production in 1990 and 2009 with the corresponding year's aggregated electricity and heat production.
Sustainability is an integral part of Fortum's strategy and vision expressing our firm belief that sustainability is a success factor for the business. High ethics, one of Fortum's shared values, also carries a strong reference to our commitment to sustainability.
Our Sustainability Policy and the related operating principles, which can be found on Fortum's website, outline the focus areas and the means by which Fortum promotes sustainability. The
policy is implemented through the Sustainability Agenda, which specifies the entire Group's shared long- and medium-term goals guiding the annual goal setting and operational planning of the divisions. The results are reported on Fortum's website (www.fortum.com/ sustainability) and in the Annual Report.
Fortum's core purpose "Our energy improves life for present and future generations" is the basis for the company's desired position: We want to be an enabler of a low-carbon society, be known as the responsible energy company and provide sustainable energy for our customers.
Fortum's Code of Conduct establishes the foundation for the company's business conduct everywhere. All Fortum employees are expected to conduct themselves and their business in compliance with the code – without exception. The Code of Conduct is based on Fortum's values and contains principles pertaining to e.g. employee rights, ethical conduct with customers and business partners, social and environmental responsibility as well as safety.
Fortum's Internal Audit function ensures that the company complies with the laws and regulations regarding its operations and with the company's own operating principles and risk management policies.
Fortum is aiming to remain among the lowest greenhouse gas emitting companies in the sector, and climate change mitigation lies at the core of Fortum's strategy.
As the majority of the world's greenhouse gas emissions come from the production and consumption of energy, the energy industry has the responsibility of assuming an active role in the mitigation efforts. For Fortum, climate change is a fundamental business driver and represents both risks and opportunities.
Fortum's ultimate goal is to be a carbon dioxide-free power and heat company. To achieve this, the company has set targets on the CO2 emissions from its electricity and heat production. With these targets, Fortum strives to constantly keep its
CO2 emissions among the lowest in the energy sector. In 2009, 69% of Fortum's power generation was CO2-free. Within the EU countries, the share of CO2-free power production was 91%.
Fortum's specific CO2 emissions in 2009:
Fortum's other environmental performance in 2009:
company-related air travel in 2009 compared to the 2007 level
CO2 emissions of Fortum's energy production in 2009:
At the end of 2009, approximately 99% of Fortum's business operations in the EU were environmentally certified.
| 2009 | 2008 | |
|---|---|---|
| CO2 emissions, 1,000 t | 21,796 | 17,600 |
| SO2 emissions, 1,000 t | 14.3 | 16.8 |
| NOx emissions, 1,000 t | 30.8 | 29.5 |
| CO2 emissions of power generation, g/kWh (own plants and partly-owned plants) | 176 | 134 |
| Share of renewable energy sources in power generation, % | 36 | 38 |
| Share of CO2-free energy sources in power generation, % | 69 | 75 |
| Share of renewable energy sources in heat production, % | 17 | 19 |
Separate targets have been set for carbon dioxide emissions from production in the EU and outside the EU.
˭ Read more on www.fortum.com/sustainability.
Fortum's most important means of mitigating climate change is to increase CO2-free energy production. Renewable energy sources are an integral part of future energy solutions, and their use creates new business opportunities for Fortum. Nuclear power is a significant part of Fortum's carbon dioxidefree energy production portfolio. The company also continuously develops its
hydropower production and strives to increase the use of biomass and wastederived fuels as well as wind power. Additionally, Fortum invests in the development of future renewable energy production technologies, like wave power. ˭ Read more on pages 32–35.
In 2009, renewable energy sources accounted for 48% (2008: 46) of Fortum's electricity generation and 36% (2008: 32) of the heat generation in the EU countries. The total use of biomass was 8.0 terawatt-hours (TWh) (2008: 8.1). Biofuels accounted for 2% of the fuels used by Fortum in electricity generation in 2009 and 11% in heat generation. Fortum also
X Increase the energy efficiency of power plants and reduce specific emissions.
Graphs on pages 42–44: Environmental indicators are unverified and minor changes are possible during a later assurance process. Total emission figures include Meri-Pori and Kirkniemi power plants, although they were leased to another company in 2009.
uses waste as fuel in energy production. In 2009, 1.4 TWh of waste-derived fuels was used (2008: 1.7).
In March 2009, Fortum signed a declaration aiming to achieve a carbonneutral power supply by the middle of this century. In the declaration, signed together with 61 European energy companies representing over 70% of all EU electricity production, the utilisation of electric technologies is considered an important element in reducing the carbon dioxide emissions also of other key sectors.
In addition to reducing CO2 emissions, Fortum complies with the requirements of environmental permits, e.g. in terms of sulphur and nitrogen oxide and particle emissions in the EU operations. Fortum's goal is to reduce these emissions in its Russian operations.
Kyoto mechanisms are an important part of Fortum's climate strategy. The company has actively improved its competence and management related to the mechanisms and thus has been able to improve the cost efficiency of reducing emissions.
In 2009, Fortum continued the preparation of joint implementation projects in Russia. Project design documents (PDD) for a total of four TGC-1 projects
and one OAO Fortum project were finalised during 2009. Fortum estimates that it will receive about 3.5 million tonnes of emission reduction units (ERU) from the joint implementation projects in Russia during the Kyoto period 2008–2012, instead of the previously estimated 6.5 million tonnes.
Fortum's investments in international carbon funds started generating emission reductions in 2009. The World Bank's Prototype Carbon Fund (PCF) has delivered Certified Emission Reduction (CER) units since January 2009. The Testing Ground Facility fund, operating in the Baltic Sea region, started to deliver the emission reductions to its members
in December 2009. Fortum expects to receive a total of a million emission reduction units from the carbon funds.
Comprehensive environmental certification is one way to develop Fortum's operations from an environmental perspective. The company's goal is to certify all operational activities according to ISO 14001.
At the end of 2009, about 99% (2008: 97) of Fortum's business operations in the EU were environmentally certified. Many of the operations also have ISO 9001/9002 and OHSAS 18001 certification.
Share of CO2-free energy sources in heat production, Europe, %
At OAO Fortum in Russia, the goal is to get ISO 14001 certification for the operations by 2012. The environmental, safety and quality certification covering the entire Polish business was completed in late October 2009. The heat business in Poland now has OHSAS 18001 safety certification, ISO 9001 quality certification and ISO 14001 environmental certification.
Hydropower production affects waterways because the range and cycle of their water level as well as flow rates are altered from their natural state. Fortum actively strives to mitigate the environmental effects caused by hydropower production by participating in waterway restoration projects in Finland and Sweden. Fortum is also actively involved in the protection of the Baltic Sea.
In 2009, Fortum adopted a new Biodiversity Guideline supporting the protection of biodiversity. Fortum's direct impacts on biodiversity are mainly linked to the use of land and water areas in the production and transmission of energy.
Fortum strives to systematically identify the environmental risks of its operations. An internal sustainability assessment procedure is applied to all signifi-
In 2009, Fortum recorded 17 (2008:16) cases of non-compliance with environmental regulations. Most of the cases were related to small, temporary exceedances of water level limits in regulated rivers and lakes. Fortum did not incur any consequences as a result of these cases.
Fortum Fortum incl. OAO Fortum
Fortum aims to be a respected corporate citizen. For Fortum, corporate citizenship means responsible business conduct, an active dialogue with key stakeholders as well as support for selected programmes and projects.
a responsible energy company. Fortum wants to develop its operations in cooperation with different stakeholders, such as employees, customers, regulators, shareholders, investors, business partners, nongovernmental organisations and media. ˭ Read more on www.fortum.com/sustainability
Fortum aims to continuously improve occupational safety. The ultimate goal is a workplace with zero accidents. Systematic and persistent efforts have led to a
An active dialogue and development of all operations are of key importance when targeting Fortum's strategic aim of being
significant decrease in the number of injuries in recent years. In 2009, safety was included as part of the company's strategic agenda with the goal of lowering the lost workday injury frequency to less than two. It was nearly achieved as the frequency rate was brought down to 2.4, the best safety performance ever at Fortum. There were no work-related fatalities among Fortum employees. Due to the ongoing integration process, the injury frequency is reported excluding OAO Fortum. The Environmental, Health and Safety (EHS) programme in OAO Fortum aims to develop the Russian operations to meet Fortum standards.
Contractor safety is as important
to Fortum as the safety of the company's own employees. In 2009, development of contractor safety focused on risk assessments, accident investigations and training. Commitment to occupational safety was also introduced as a selection criteria for contractors. In 2009, the injury frequency rate among contractors decreased to 6.5 (2008: 8.4). At OAO Fortum, there were two work-related fatalities of contractor employees in 2009. These, as well as all other accidents at Fortum were thoroughly investigated, resulting in a number of improvements to safety procedures.
The good safety development during 2009 can be attributed to many positive factors, e.g. high management attention, accident investigations and corrective actions, with a high focus on risk observation and assessment as well as internal safety campaigns and audits.
The goal for 2010 is to lower the injury frequency rate to less than one and to completely avoid fatalities in the whole group and with contractors.
Along with financial and quality assessments, sustainability is an integral and natural part of the assessment of suppliers in the procurement process. Since 2008, the target has been to attach Fortum's supplier code of conduct to purchase agreements exceeding EUR 50,000. In 2009, the code of conduct was
Our ultimate goal is a workplace with zero accidents.
| 2009 | 2008 | 2007 | |
|---|---|---|---|
| Lost workday injury frequency(1, own personnel | 2.4 | 4.3 | 2.9 |
| Lost workday injury frequency(1, contractors | 6.5 | 8.2 | 12.5 |
| Total recordable injuries per million working hours | 6.0 | 9.4 | 7.6 |
| Number of safety observation tours | 8,479 | 8,731 | 6,450 |
| Number of improvement proposals and near-miss reports | 4,075 | 4,317 | 2,670 |
1) The number of accidents that have led to an absence of one or more full working day or working shift per million working hours.
| 2009 | 2008 | 2007 | |
|---|---|---|---|
| Lost workday injuries, own personnel | 37 | 63 | 40 |
| Lost workday injuries, contractors | 51 | 47 | 47 |
| Fatalities, own personnel | 0 | 0 | 1 |
| Fatalities, contractors | 2 | 1 | 0 |
The figures do not include OAO Fortum, except the injuries from 2009. attached to 85% of these agreements in
Finland and Sweden. It was also taken into use in Poland and the Baltic countries.
Reliable energy supply is a prerequisite for a well-functioning society and that is why Fortum's goal is to secure an uninterrupted supply of energy to all its electricity distribution and heat customers. The reliability of Fortum's electricity networks was 99.9% in 2009. The reliability of district heating distribution in the Nordic countries, the Baltic countries and Poland was very good and no major disturbances occured.
Another important activity for Fortum is the investments in automatic meter management (AMM). The new automatic electricity meters improve the ability of customers to manage their energy use as the electricity bill is based on actual consumption.
˭ Read more on page 59.
In line with its Code of Conduct, Fortum follows good business practices in all of its operations. Integrity and high ethical standards define the company's activities in all countries of operation. Fortum's Market Conduct Rules ensure that the company's electricity wholesale business is conducted in compliance with the Electricity Market Act and Nord Pool guidelines as well as good business practices. Compliance with the requirements is additionally ensured through physical and technical constraints and with continuous training of personnel.
In line with the EU's internal electricity markets directive, Fortum supports the unbundling of regulated businesses from competed businesses. This means that the electricity distribution business is independent – legally, operationally and in terms of decisionmaking – from the Group's functions not related to distribution. Fortum believes that unbundling increases competition in the electricity markets and ultimately benefits customers. Operating in line with the principles is ensured through personnel training, confidentiality obligations for subcontractors, and by separation of IT systems when technically feasible.
Fortum renewed its sponsorship programme in 2009. The new programme supports Fortum's vision to excel in sustainability and to be the energy supplier for future generations. That is why the sponsorship programme focuses particularly on young people and on the environment and society.
In Sweden, Fortum supports national team-level track and field athletes, who have been trained as ambassadors of sustainable energy use. In Finland, Fortum started the Fortum Tutor programme in partnership with the Football Association of Finland. The goal of the programme is to develop the coaching of junior football players by supporting less-experienced coaches and instructors of junior football. In Russia, OAO Fortum supports the Tractor Hockey School of Olympic Reserve.
In the field of culture, Fortum's Art Foundation continues lending out several of its valuable pieces of art to different art exhibitions. Fortum also owns a Jean Baptiste Vuillaume violin, which is lent out to advanced students at the Sibelius Academy in Finland. In Sweden, Fortum cooperates with Skansen open
air museum to create entertaining and educational activities related to sustainability for students and other visitors.
In addition to sports and culture, Fortum is involved in many social projects. Fortum continued to participate in several projects with students and teachers in primary and secondary schools, high schools, vocational schools and universities. High school and vocational school students can study energy issues in Finland through the Energiakompassi programme (Energy Compass) and in Sweden through the Energisnackis programme. The programmes are designed to spark a dialogue about energy and environmental issues and to promote the sustainable use of energy.
Additionally, Fortum has contributed to the John Nurminen Foundation's Clean Baltic Sea project aiming at reducing phosphorous discharges from municipal sources in Poland.
Fortum works in collaboration with various cities and municipalities in the Nordic countries. One form of collaboration is the effort to improve the safety and comfort of residents by lighting public places, such as parks and tunnels. All illumination projects are implemented as energy efficiently as possible. Local residents have the opportunity to influence the selection of illumination locations through online voting. During 2009, the lighting at the Tapiola bus terminal in Espoo and the Ahdinpuisto area in Joensuu in Finland as well as the Mariatorget area in Stockholm, Sweden, were among the projects finalised.
Fortum personnel's competence and performance development is based on regular feedback, annual performance and development discussions, as well as on the development of tools and processes supporting operations.
The number of Fortum employees decreased in 2009 and was an average of 13,278 (2008: 14,077). A significant share of the reductions took place in the Russian operations, where the discontinuation of the operation and maintenance agreement with the city of Tyumen, for example, led to a reduction of about 750 employees. In the Nordic countries, the biggest measure affecting the number of personnel was the outsourcing of the infrastructure services to Infratek ASA in January 2009. Through this measure, 646 people transferred from the Group's payroll in Sweden, 139 in Norway and 147 in Finland. Altogether Corporate divestments and efficiency boosting
measures reduced the number of personnel by 4,055 (2008: 318) in 2009.
Of Fortum's personnel in 2009, 11,332 (2008: 15,064) held permanent positions. The most predominant type of employment was full-time; 2.1% of employees were employed part-time (2008: 2.2). Parttime employment was, as a rule, based on the individuals' own preferences. Women represented 30.5% of Fortum's workforce and accounted for 32.3% of corporate and division management.
The average age of Fortum employees was 46, and the share of personnel over the age of 50 years was 38%. The number of new recruits was 451. Employees' transitioning to retirement is a challenge for the Group, but provisions have been made through focused investments in employer image, resource planning, transfer of knowledge and know-how, and competence development of the personnel.
The integration of OAO Fortum's personnel with Fortum progressed as planned, and the integration team, made up of Fortum's special experts, completed its work during the first half of 2009. During the past year, a particular focus in the Russian operations was on management and employee development.
Fortum's investments in developing its
Women accounted for 32% of corporate and division management at Fortum.
| 2009 | 2008 | Change % | |
|---|---|---|---|
| Average number of employees | 13,278 | 14,077 | –5.7 |
| Number of employees at 31 Dec. | 11,613 | 15,579 | –25.5 |
| of whom permanently employed | 11,332 | 15,064 | –24.8 |
| Duration of employment, years | 14 | 15 | -6.7 |
| Average age of employees | 46 | 44 | 4.5 |
| Female, % | 31 | 29 | 6.9 |
| Women in management positions, % | 32 | 33 | -3.0 |
| Health care expenditure(1, EUR per person | 484 | 428 | 13.1 |
| Expenditure on recreation and leisure activities (1, % of salaries paid on working time |
0.4 | 0.4 | 0.0 |
1) Finland
employer image have produced good results. In 2009, Fortum improved its ranking significantly in various employer image surveys in Finland and Sweden. Also, Fortum's career web pages were ranked as the best in Europe by Hallvarsson & Halvarsson Employer Branding.
The Fortum Ambassador programme promoting a positive employer image was launched in 2009 in Finland and Sweden. The about 70 active Fortum Ambassadors participate in student events and exhibitions where they discuss career opportunities and working at Fortum.
During 2009 Fortum launched several new online tools to support the HR work of supervisors, to boost resource planning efficiency and to help prepare for the future labour needs early enough.
Furthermore, Fortum's first trainee programme, Fortum Forerunner, was launched in January 2009. There are 13 young trainees from Finland, Sweden,
Poland, Latvia and Russia participating in the 18-month programme. The programme gives the trainees an opportunity to work in various jobs in two different divisions or business areas. The ongoing programme features two main themes: successful business in Russia and the development of personal leadership skills. The programme also complements the existing collaboration channels and projects between Fortum and academia.
Fortum's personnel competence and performance development is based on standardised feedback processes, annual development and performance discussions and the development of supporting tools and processes. Individual or teamspecific targets are set to support the strategy; achieving these targets forms the foundation for the bonuses to be paid. ˭ Read more on pages 74–77.
Job rotation has traditionally and actively been used at Fortum as a way of developing the competence of the organisation and the personnel. In 2009, Fortum had 418 internal vacancies (2008: 573) in Finland and Sweden. In 2009, 81 Fortum employees were on a foreign work assignment. The reorganisation in effect from 1 October offered many Fortum employees an opportunity to develop their professional skills through new jobs and job rotation.
Leadership skills were developed through the long-term programmes Fortum Challenger and Manager. Additionally, a new training programme, Fortum Expert, was launched and is aimed at individuals working in an expert capacity. At the same time, Fortum Expert Profile, a 360-degree feedback process for experts, was introduced. Fortum Leader Profile, the 360-degree feedback process for managers, was also implemented in 2009. Fortum's internal Master courses were used to strengthen
Fortum has a long tradition in personnel surveys, and the renewed Fortum Sound employee survey was carried out in 2009. The survey response rate was 81%. Based on the results, it was concluded that boosting the efficiency of internal communications, particularly in the areas of social responsibility, crossunit cooperation, and giving personnel the credit it deserves, can further develop these sub-areas.
By actively developing the personnel, the HR functions and the organisation, Fortum will tackle the challenges of the next decade as a more uniform, efficient and capable company.
| 2009 | 2008 | Change % | |
|---|---|---|---|
| Power | 3,063 | 3,520 | –13.0 |
| Heat | 2,246 | 2,318 | –3.1 |
| Distribution | 1,088 | 1,336 | –18.6 |
| Markets | 611 | 635 | –3.8 |
| Russia | 4,090 | 7,262 | –43.7 |
| Other operations | 515 | 508 | 1.4 |
| Total | 11,613 | 15,579 | –25.5 |
| 2009 | 2008 | Change % | |
|---|---|---|---|
| Russia | 4,853 | 7,262 | –33.2 |
| Sweden | 2,445 | 3,436 | –28.8 |
| Finland | 2,700 | 3,045 | –11.3 |
| Poland | 756 | 767 | –1.4 |
| Estonia | 357 | 333 | 7.2 |
| Norway | 143 | 292 | –51.0 |
| Other countries | 359 | 444 | –19.1 |
| Total | 11,613 | 15,579 | –25.5 |
For Fortum, economic responsibility means generating economic wellbeing and support for all our regions of operation as well as creating added value for our shareholders, customers, employees, suppliers and other significant stakeholders.
Strong financial performance and longterm business profitability are prerequisites for taking care of our responsibility towards the environment and society. For Fortum, they are also vital in order to actively promote sustainability. On the other hand, Fortum believes that sustainability is a success factor for the business.
Fortum is one of the lowest-emitting energy companies in its operating area. In addition, 95% of Fortum's current investment programme in the EU is targeted to CO2-free production. In Fortum's European operations, where CO2 has a market value, CO2-free energy production is a clear economic benefit for the company. This is one example of how sustainability and business success can go hand in hand.
Fortum is the largest provider of ecolabelled electricity in the Nordic countries. During 2009, the company started providing only CO2-free electricity to its business and private customers in Finland and Sweden. Additionally, consumers buying electricity from other providers in Norway can reduce their carbon dioxide emissions by purchasing CO2-free certificates of origin from Fortum.
The origin of CO2-free electricity is guaranteed with certificates issued by national nature conservation associations or in accordance with the European guarantee of origin system.
For business customers, the Fortum Carbon Free label is used for electricity produced without CO2 emissions, and the Fortum Renewable label is for electricity produced entirely from renewable energy sources.
˭ Read more on page 61.
At the beginning of 2009, Fortum became the first district heating company to offer customers in Sweden's Stockholm
region climate-neutral district heating in which Fortum offsets the CO2 emissions caused by its generation. In Finland, Fortum's district heating operations have received the Fair district heating (Reilu kaukolämpö) quality label issued by the Finnish Energy Industries.
Fortum offers its business customers also energy efficiency services. The Ecotuning® service aims to improve the operational economy of power plants by increasing the output of the customer's power plant and decreasing the emissions. The service includes optimisation of power plant processes and training for personnel. In 2009, Ecotuning® projects were implemented together with, e.g. Göteborg Energi. Additionally, Fortum offered its customers energy efficiency analyses and services to improve plant availability. Fortum also strives to continuously improve the energy efficiency of its own plants and to minimise energy losses in electricity distribution.
Fortum supports the energy saving efforts of its consumer customers and its personnel through active communications and by offering advice on ways to improve energy efficiency both at home and at work.
Fortum's R&D vision is to enable a carbon dioxide-free future in line with the company's sustainability goals. Hence, technologies curbing the climate change are prominently represented in Fortum's R&D activities. Fortum's R&D programmes focus on carbon capture and storage (CCS), new bioenergy technologies and sustainable energy systems. Nuclear energy research and development is also strongly represented in the overall R&D portfolio. In addition, Fortum is involved in the development of electric transportation. Fortum's role is to study and create the prerequisites for the wide-scale adoption of electric vehicles.
˭ Read more on page 38–39.
Fortum received several significant external recognitions for its sustainability performance in 2009. For the seventh year in a row, the company secured its place on the Dow Jones Sustainability World Index. For the second consecutive year, Fortum is also included in the Dow Jones STOXX Sustainability Index.
Furthermore, Fortum was included for the third time in the Climate Disclosure Leadership Index (CDLI), a prestigious honour for global corporations which are able to best address the challenges of climate change. Fortum improved its ranking in the index compared to last year. In the Carbon Disclosure Project's study, Fortum ranked as the best of the Nordic electricity producers as well as the best of the Finnish companies.
Fortum is also included on Store-
brand's global "Best in Class" list as the most responsible energy company. Additionally, Fortum was ranked the number-one Nordic company in mitigating climate change in the report published by Ethix SRI Advisors and Insight Investment.
OAO Fortum operates in the Tyumen and Chelyabinsk areas which are located in the Urals. OAO Fortum is the main heat supplier in the region with total sales of 25.6 TWh/a. Heat is produced in combined heat and power (CHP) plants.
Fortum reorganised its business structure around four business divisions and four staff functions in order to increase the organisation's efficiency, performance accountability and simplicity. The change took effect on 1 October 2009.
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.
The Heat Division consists of combined heat and power generation, district heating activities and businessto-business heating solutions.
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 Markets.
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.
Fortum's total electricity procurement by type, TWh
Purchases Import to the Nordic market Own power plants in Russia Partly-owned power plants in Europe Own power plants in Europe
| MW | Finland | Sweden | Russia | Other | Total |
|---|---|---|---|---|---|
| Hydropower | 1,505 | 3,161 | 4,666 | ||
| Nuclear power | 1,433 | 1,779 | 3,212 | ||
| Combined heat and power | 776 | 536 | 2,785 | 174 | 4,271 |
| Condensing power | 1,376 | 297 | 1,673 | ||
| Other | 6 | 112 | 118 | ||
| Total | 5,096 | 5,885 | 2,785 | 174 | 13,940 |
| MW | Finland | Sweden | Russia | Other | Total |
|---|---|---|---|---|---|
| Heat | 3,540 | 4,667 | 13,796 | 2,327 | 24,330 |
| TWh | 2009 | 2008 |
|---|---|---|
| Hydro | 22.1 | 22.9 |
| Nuclear | 21.4 | 23.7 |
| Thermal | 5.8 | 6.0 |
| Total in EU and Norway | 49.3 | 52.6 |
| Thermal in Russia | 16.0 | 11.6 |
| Total | 65.3 | 64.2 |
1) Power, Heat and Markets sell electricity to Nord Pool or external customers and purchase electricity from Nord Pool or other external sources. Fortum's Nord Pool transactions are calculated as a net amount of hourly sales and purchases at the Group level. The Russia Division sells electricity to the Russian wholesale market.
Other countries Russia Sweden Finland
The Power Division is responsible for Fortum's power production and physical trading in the Nord Pool market, developing new power capacity and providing operation, maintenance and expert services for power producers.
The Power Division operates in the Nordic countries and selectively in other markets where the division's strengths can be utilised. Power also participates actively in shaping the open European energy markets. The division's goal is to be the best operator in the industry – now and in the future.
The Power Division's financial result remained on a good level although the division's comparable operating profit was lower than last year. This was mainly due to the lower hydropower and nuclear generation volumes. The division's achieved Nordic power price was EUR
49.8 per megawatt-hour (MWh) (2008: 49.3), i.e. approximately the same level as the previous year, mainly thanks to hedging. The related sales volume was 45.2 TWh (2008: 48.4).
At year-end, the division's power generating capacity totalled 9,709 megawatts (MW) (2008: 9,575), of which 9,569 MW (2008: 9,435) was in the Nordic countries and 140 MW (2008: 140) in the UK.
Power has a strong focus on nuclear, hydro and new energy solutions. It runs approximately 300 power plants in Finland and Sweden that generated 43.7 terawatt-hours (TWh) (2008: 46.9) of power in 2009 for the Nordic market. Over the year, approximately 97% of the division's production was carbon dioxidefree and 49% was based on renewable energy sources.
Compared to the previous year, hydropower generation decreased due to the lower precipitation and inflows into Nordic water reservoirs. 2008 was an exceptionally good hydro year. Thermal production decreased due to low spotprice levels as well as high fuel and CO2 prices. The decrease in Nordic nuclear power generation was mainly due to the extensive power increase and safety modernisation outage in the partly-
| EUR million | 2009 | 2008 | Change % |
|---|---|---|---|
| Sales | 2,596 | 2,892 | –10.2 |
| power sales | 2,414 | 2,566 | –5.9 |
| other sales | 182 | 326 | –44.2 |
| Operating profit | 1,335 | 1,599 | –16.5 |
| Comparable operating profit | 1,469 | 1,528 | –3.9 |
| Net assets (at end of period) | 5,512 | 5,331 | 3.4 |
| Return on net assets, % | 23.9 | 29.6 | –19.3 |
| Comparable return on net assets, % | 26.6 | 28.0 | –5.0 |
| Gross investments | 154 | 134 | 14.9 |
Number of employees, 31 Dec 3,063 3,520 –13.0
| TWh | 2009 | 2008 |
|---|---|---|
| Hydro | 22.1 | 22.9 |
| Nuclear | 21.4 | 23.7 |
| Thermal | 0.2 | 0.3 |
| Total in the Nordic | 43.7 | 46.9 |
| Thermal in other countries | 1.2 | 1.0 |
| Total | 44.9 | 47.9 |
| TWh | 2009 | 2008 |
|---|---|---|
| Sales | 48.8 | 52.1 |
| of which pass-through sales | 3.6 | 3.7 |
| EUR/MWh | 2009 | 2008 |
|---|---|---|
| Division's power price (1 | 49.8 | 49.3 |
1) For the Power Division in the Nordic area, excluding pass-through sales.
owned Swedish Oskarshamn 3 nuclear power plant unit. Normal planned annual outages were carried out in all reactors. Especially Loviisa's nuclear power plant availability remained at a record-high level.
Power's investments aim at improving safety, upgrading the existing plant fleet and expanding production as well as adding capacity by focusing on CO2-free power generation.
˭ Read more about the Power Division's investments on page 33–34.
Fortum signed another long-term operation and maintenance contract with Trianel Power Kohlekraftwerk Lünen GmbH & Co. KG covering the new 750-MW coal-fired power plant in Lünen. The power plant will be commissioned in autumn 2012 and represents a new ultra-supercritical technology that enables a 30% reduction in CO2 emissions compared to existing old plants. The technology developed in Japan is to be applied in Europe for the first time. O&M mobilisation is proceeding according to plans and the first recruitments of the overall staff of 60 persons have been made.
(O&M) services as well as versatile expert services to power and heat companies and to industrial companies that have their own power production. The division aims to offer these services in Fortum's home market as well as selected international markets.
Fortum's highly specialised turbine overhaul services are well-known in the market. In 2009, Fortum won several significant major turbine overhaul and modernisation contracts. In Finland its customers include Rautaruukki, UPM-Kymmene and Stora Enso and in Germany Kraftwerk Burghausen GmbH. The projects will be executed in 2010 and 2011. In Austria, Fortum executed
an overhaul for Linz Strom GmbH in summer 2009.
Fortum supported also external customers in many other significant projects during 2009. Fortum was responsible for the combustion technology modification in the Krakow power plant in Poland and performed power plant audits in the Lukoil-owned TGC-8 in Russia. In addition, Fortum has worked collaboratively to improve the operational efficiency of Göteborg Energi's power and heating plants under the new Fortum Ecotuning® product.
The Power Division accounts for the most of Fortum's R&D expenditure. The work is aimed at securing the continuous and very efficient operation of power plants and developing sustainable solutions for new power generation. The main focus of this work has been to develop and enhance the availability of existing power plants and follow-up new production technologies. Within nuclear power, R&D work has focused on nuclear safety and waste management. New R&D areas include developing a nuclear power plant utilising CHP technology, preparations for a full-scale demo plant using carbon capture and storage technology and participation in wave power initiatives. ˭ Read more on pages 38–39.
Heat completed three combined heat and power (CHP) plant projects in 2009 and the new plants are operating at full speed.
Heat concentrates on CHP, district heating and business-to-business heating solutions. It owns and operates 22 (2008: 20) CHP plants and several hundred heat plants in the Nordic and Baltic countries as well as in Poland. Heat is also a competence centre for waste-toenergy production and district cooling. Its customers are industrial companies, municipalities and district heating endusers.
The division's goal is to become the benchmark in the heating industry. When counting the Heat and Russia divisions together, Fortum is the fourth biggest heat producer in the world today.
The division's heat sales totalled 22.9 terawatt-hours (TWh) (2008: 24.9), of which Finland and Sweden accounted for 8.0 TWh (2008: 10.8) and 9.8 TWh (2008: 9.1), respectively, and other countries for 5.1 TWh (2008: 5.0). Some divestments and weaker demand in the industrial customer segment in Finland reduced sales volumes. In the Nordic countries, industrial steam accounted for 2.6 TWh (2008: 4.4) and district heating for 15.3 TWh (2008: 15.6). Power generation at CHP plants was 4.4 TWh (2008: 4.7).
The comparable operating profit for the division was 227 million euros (2008: 250). The decrease was mainly due to weaker currencies in Sweden and Poland, especially in the first half of the year.
Heat believes that climate-benign CHP is a competitive future solution for producing energy. It delivers a number of environmental and economic benefits. In combined heat and power production, nearly 90% of the energy contained in the fuel is utilised. CHP has a central role in reducing the environmental load and fulfilling the objectives set for the reduction of greenhouse gas emissions. Accordingly, the division has a long-term invest-
| EUR million | 2009 | 2008 | Change % |
|---|---|---|---|
| Sales | 1,394 | 1,466 | –4.9 |
| heat sales | 1,054 | 1,120 | –5.9 |
| power sales | 224 | 228 | –1.8 |
| other sales | 116 | 118 | –1.7 |
| Operating profit | 248 | 307 | –19.2 |
| Comparable operating profit | 227 | 250 | –9.2 |
| Net assets (at end of period) | 3,786 | 3,468 | 9.2 |
| Return on net assets, % | 7.8 | 8.9 | –12.4 |
| Comparable return on net assets, % | 7.2 | 7.3 | –1.4 |
| Gross investments | 359 | 431 | –16.7 |
| Number of employees, 31 Dec | 2,246 | 2,318 | –3.1 |
Other countries Sweden Finland
ment programme concentrating on new CHP to replace old heat-only production and to increase electricity generation.
During 2009, Fortum took into operation three new CHP plants. A new gasfired CHP unit adjacent to the existing power plant in Espoo, Finland, was taken into commercial use in December 2009. The capacity of the new power plant is 234 megawatts (MW) heat and 214 MW electricity. Thanks to the investment, the specific CO2 emissions of the site are reduced by 10%. The plant will increase the division's annual electricity generation by around 1 TWh. In parallel to the power plant investment, Fortum also invested into a new, 13-kilometre-long district heating pipeline in Espoo.
A new peat and biomass-fired CHP plant in Tartu, Estonia, was taken into use in March. The capacity of the power plant is 50 MW heat and 25 MW electricity. Also a gas-engine-fired CHP plant in Jelgava, Latvia, started commercial operation in June. The capacity of the power plant is 5 MW heat and 4 MW electricity. These two new plants contribute to the division's annual electricity generation with about 0.1 TWh.
The division is building new CHP plants in Częstochowa, Poland, and Pärnu, Estonia, as well as planning new investments in Sweden.
˭ Read more on pages 32–33.
Heat has taken systematic steps to create and maintain optimal heat operations and asset base. Actions taken in Finland already in 2008 included divestment of the production facilities in Jyväskylä, the gas turbine in Hyvinkää and the heat operation in Tornio.
The programme continued during 2009 with the divestment of some remaining non-core assets. In May, the peat bogs in Jyväskylä were sold to Vapo Oy, and, in August, the CHP plant in Kokkola, Finland, was sold to the city of Kokkola.
Sustainable energy production and safe operations are key to competitive business. The long-term target of the division is to reduce the specific CO2 emissions in heat production by 10% compared to the 2006 level by 2020. The division contributes to climate change mitigation by promoting CHP production and district heating and by enhancing renewable fuels in its energy production.
The environmental, safety and quality certification covering the entire Polish business was completed in late October. The heat business in Poland now has OHSAS 18001 safety certification, ISO 9001 quality certification and ISO 14001 environmental certification. Today, Heat has fully certified businesses in Finland, Poland and Latvia.
heat
In the coming years, Heat will focus on ensuring profitable growth, sustainable operations, satisfied customers in its key areas and successful completion of its long-term CHP investment programme. New growth opportunities will be actively explored.
Heat
In November 2009, Fortum announced its participation in the joint bio-oil development project with Finnish partners. Within the project, a new integrated bio-oil business concept will be developed. The integration of bio-oil production to the combined heat and power production and the use of bio-oil as carbon-dioxide-neutral fuel is a promising option in the range of methods to reduce CO2 emissions within heat production.
Remote disconnectors and new smart meters are two concrete measures towards a more automated, flexible and reliable grid – features of a future "smart grid". Electricity network development planning is based on customer needs and is aligned with long-term sustainable urban development.
The Distribution business area owns, operates and develops local and regional distribution networks as well as supplies safe electricity with 99.9% reliability to a total of 1.6 million customers in Sweden, Finland, Norway and Estonia. Fortum's networks have a combined length of 156,100 km, corresponding to 3.5 times around the globe.
During 2009, the total volume of local and regional network transmissions was 25.9 terawatt-hours (TWh) (2008: 25.8) and 16.4 TWh (2008: 17.7), respectively. The electricity transmitted in the regional distribution network totalled 13.6 TWh in Sweden (2008: 14.8) and 2.8 TWh in Finland (2008: 2.9).
Based on volume transmitted in the <20 kilo-volt (kV) local network, the market share of electricity distribution was 20% in Finland (2008: 19), 15% in Sweden (2008: 14), 3% in Norway (2008: 3) and 3% in Estonia (2008: 3). In the Finnish electricity market, one single player is allowed a maximum market share of 25% of the electricity distributed in the 0.4 kV network across the country. Fortum's share at the end of 2009 was 20%.
The comparable operating profit for the business area increased and was 262 million euros (2008: 248). Colder weather
Distribution aims for long-term efficiency and profitability improvements by developing its operations. An efficiency programme launched in 2008 was finalised in 2009. The focus was to improve customer service, increase efficiency in internal processes and secure the longterm competitiveness of the business. As part of the programme, centralisation of the workforce to the headquarters in Finland and to Stockholm and Karlstad in Sweden continued. The positive effects of the programme have started to pay off.
In Sweden, the second phase of outsourcing the field construction services was implemented during the year, according to plan. A contract with Eltel Networks was signed in August 2009, affecting 65 employees. By completing the outsourcing, Fortum is contributing to the creation of a wellfunctioning external market for construction services.
Reliable distribution of electricity to customers is Distribution's numberone priority. To maintain and further improve reliability and quality, the company continuously invests in its
| EUR million | 2009 | 2008 | Change % |
|---|---|---|---|
| Sales | 800 | 789 | 1.4 |
| distribution network transmission | 685 | 669 | 2.4 |
| regional network transmission | 75 | 77 | –2.6 |
| other sales | 40 | 43 | –7.0 |
| Operating profit | 263 | 248 | 6.0 |
| Comparable operating profit | 262 | 248 | 5.6 |
| Net assets (at end of period) | 3,299 | 3,032 | 8.8 |
| Return on net assets, % | 8.7 | 8.1 | 7.4 |
| Comparable return on net assets, % | 8.6 | 8.2 | 4.9 |
| Gross investments | 193 | 296 | –34.8 |
| Number of employees, 31 Dec | 1,088 | 1,336 | –18.6 |
| thousands | 2009 | 2008 |
|---|---|---|
| Sweden | 895 | 877 |
| Finland | 611 | 606 |
| Norway | 99 | 99 |
| Estonia | 24 | 24 |
| Total | 1,629 | 1,606 |
Volume of distributed electricity in distribution networks
| TWh | 2009 | 2008 |
|---|---|---|
| Sweden | 14.0 | 14.0 |
| Finland | 9.4 | 9.3 |
| Norway | 2.3 | 2.3 |
| Estonia | 0.2 | 0.2 |
| Total | 25.9 | 25.8 |
electricity networks.
Network development planning is based on customer needs and is aligned with long-term sustainable urban development. In 2009, 900 km of middle voltage lines were secured by cabling and other measures, such as by installing remote-controlled disconnectors. Disconnectors allow the operations centre to quickly identify and isolate a fault and thereby reduce the number of affected customers and average outage times. New, smart electricity meters with two-way communication also provide the operations centre with more detailed information about faults at a household level. Remote disconnectors and new smart meters are two concrete measures towards a more automated, flexible and reliable grid – features of a future "smart grid".
In 2009, the rollout of AMM in Sweden was finalised. Altogether 844,000 network customers in Sweden now have the new self-reporting electricity meter – smart meter – installed and receive invoices based on actual consumption. For the customer, this means better control and understanding of electricity usage. It also helps to improve the energy efficiency and thus benefits the customer and the environment. The new Swedish legislation on monthly meter reading came into effect on 1 July 2009.
The AMM installations in Finland will start in mid-2010. At the end of August 2009, Fortum signed a contract with the AMM service provider Telvent. The total value of the investment, including the procurement of the smart meters, installing, operating and developing the system as well as related services is approximately EUR 170 million over a period of nine years. New smart meters will be installed for 550,000 network customers. The new Finnish legislation stipulating hourly meter readings will be effective as of 1 January 2014.
Planning for the introduction of AMM in Norway continues. The preliminary legal deadline is set for 2016.
The distribution business is regulated and supervised by national authorities. Fortum's goal is to secure a consistent development of the future regulatory framework.
In 2009, a step towards a more harmonised framework in the Nordic region was taken. The Swedish Parliament made a formal decision regarding the Ex-Ante Regulation in Sweden starting from 2012, in which net pricing will be determined in advance. The Swedish Energy Market Inspectorate (EI) delivered an investigation regarding the handling of capital costs and basic principles of the new regulation model. The investigation was presented to the Government and a decision is expected
during the first half of 2010. EI also launched a report with principles for the intermediate period 2008-2011. The aim is for a seamless transition period from present ex-post regulation to future ex-ante. Fortum expects the new regulation to give more stable and predictable prerequisites for the Swedish distribution business in the coming years.
In Finland, the present income regulation methodology is continuously being developed and the parameters fine-tuned. The Finnish Energy Market Inspectorate (EMV) initiated "Road map 2020", a project to review the integrity of the present income regulation model and parameters. The present regulation
In 2008, Distribution initiated a corporate wide project to study the introduction of electric vehicles in Finland and Sweden. It continued in 2009 by testing technologies and recharging solutions for electric vehicles.
In 2009, Fortum cooperated with Mitsubishi in the marketing of iMiEV, the first batterypowered electric vehicle designed for the mass market. Fortum is also developing a new electric concept car in collaboration with the Finnish Valmet Automotive.
About 100 recharging points were installed during 2009 in Stockholm in cooperation with Stockholm City, Stockholm Parking, Skanska and Preem's service stations, among others.
period ends in 2011.
In Norway, the Parliament changed the Energy Act and opened up investigations for development of the electricity market. The Parliament also initiated an investigation of the present regulation to analyse if the regulation fits the political goals. Detailed regulation is expected from the Norwegian Energy Market Inspectorate (NVE) regarding the minimum sourcing of the business.
Customers benefit from Fortum's extensive knowledge of the Nordic consumer markets and from its ability to develop products and services spanning national boundaries.
Fortum is one of the leading electricity retail companies in the Nordic electricity markets. A total of about 1.2 million (2008: 1.3) private and business customers in Finland, Sweden and Norway use the company's climatebenign products and services.
Markets buys all its physical electricity through the Nord Pool power exchange. Additionally, Markets acquires environmental values from Nordic producers of eco-labelled electricity and is the leading seller of eco-labelled and CO2-free electricity in the Nordic countries.
In 2009, Markets' electricity sales totalled 30.0 terawatt-hours (TWh) (2008: 36.6). The continued, tight competition in the Nordic retail markets and the lower industrial consumption contributed to the decrease in sales. Of the total electricity volumes, 70% was sold to business customers and 30% to private customers. Additionally, Markets' customers include Finnish and Swedish electricity retailers.
The frequency at which consumers switch electricity suppliers is clearly on the rise in all Nordic electricity markets; in Finland, for example, some 200,000 customers switched suppliers during
Also the recession had an impact on Markets' electricity sales. Sales volumes, particularly to business customers, decreased during the year as a result of the considerably lower electricity consumption by industry and the expiration of the electricity contracts of a few large customers.
Markets' financial result improved considerably and the comparable operating profit amounted to EUR 22
Fortum has defined climate change mitigation as one of its most important future goals. The company's efforts to get customers to start using the internet to take care of business with Fortum and thus reduce paper consumption also support this goal.
In 2009, Markets introduced Consumer e-billing, which aims to reduce the number of electricity bills sent on paper and thus conserve nature. It has been estimated that the stack of paper previously used in Markets' customer communications and billing during one year would reach two kilometres high.
Key figures
million in 2009 (2008: –33). Measures initiated through the extensive efficiency programme launched in 2008 were successful and turned Markets' result to clearly positive. Renewed products, restructured pricing and tight cost controls were most instrumental in turning the result around.
In early 2009, as a consequence of the product renewal, Markets tightened the link in Finland between the currentprice Kesto contracts for households and the price development of wholesale electricity. The contract prices are now updated every three months and pricing is thus more transparent than before. Transparency is also increased by giving customers advance notice of the timing of each procurement and price period. Customers can use Fortum's online service to track the formation of the price for the next price period.
Also the fixed-term Takuu contracts and the Tarkka power exchange product are tightly and logically linked to fluctuations in the wholesale price of electricity. Changing the pricing clearly improved the profitability of the Kesto contracts.
In addition to price, electricity production method became a new competitive factor during the year. An increasing number of household and business customers expect electricity retailers to provide information about the origin of the electricity they sell. The customers' increased interest was also reflected in the product development work of electricity retailers; in this work, the origin of electricity has become a key product attribute.
In 2009, Markets began selling only electricity that is produced without CO2 emissions to its consumer customers. In Finland, the electricity sold to all customers is produced entirely by hydropower and customers also have the option of purchasing electricity generated by wind power for a small, additional cost. All customers in Sweden also automatically receive electricity that is produced without CO2 emissions. For an additional fee, customers can choose electricity produced by hydropower or wind power.
In Norway, electricity purchased from Fortum automatically comes with a guarantee of origin. Additionally, Norwegians purchasing electricity from other retailers can decrease their carbon footprint by buying CO2-free guarantees of origin from Fortum.
The product offering to business customers was also renewed in 2009 and now all electricity sold by Fortum to business customers is CO2-free. The most environmentally-conscious businesses can opt for electricity produced with renewable energy sources.
To achieve and nurture a high level of customer satisfaction, listening to customers and engaging in an open
dialogue about all issues related to the company's services is of utmost importance to Markets. For several years, Fortum has held consumer councils specifically for this purpose in different municipalities in Finland. The meetings address current issues related to electricity use, issues like electricity pricing, price trends and product renewals. Additionally, direct feedback about Fortum's operations is collected from those attending the meetings.
During 2009, council attendees provided valuable input also for several of Fortum's development projects. One of the most interesting was the renewal of the pricing model for the Kesto contract.
Customer opinions are monitored also with several country-specific surveys and with the EPSI/SKI customer satisfaction survey conducted annually in Finland and Sweden by an independent agency. In this survey, the development of customer satisfaction in the entire electricity sector is tracked and the results of the main players are compared against those of the entire sector's.
Automatic meter management (AMM), smart grids, the small-scale local production of electricity, common Nordic consumer markets and e-billing are examples of the development projects that will change electricity markets in the upcoming years and will give electricity retailers an opportunity to offer customers completely new kinds of services. For example, hourly-based, realtime electricity consumption metering makes it possible for electricity retailers to develop electricity contracts based on completely new pricing models.
OAO Fortum's efficiency improvement programme is proceeding according to plan. Technical measures, the introduction of the portfolio management and trading function, and savings in purchasing processes, among other things, have kept OAO Fortum well on track to reach the targeted annual efficiency improvements of EUR 100 million in 2011.
The Russia Division comprises power and heat generation and sales in Russia. The division includes OAO Fortum (formerly TGC-10) and Fortum's approximately 25% holding in TGC-1. At year-end 2009, Fortum's ownership in OAO Fortum was 94.5% including shares owned by OAO Fortum's fully-owned subsidiary. OAO Fortum is fully consolidated from 1 April 2008.
The total installed capacity of OAO Fortum and its affiliates is approximately 2,800* megawatts (MW) electricity and approximately 15,800 MW heat with annual production of 16.0 terawatt-hours (TWh) electricity and 25.6 TWh heat. Heat is produced mainly in combined
heat and power (CHP) plants and additionally with heat boilers. The company owns and operates trunk heat networks in several cities of Russia.
TGC-1 is a territorial generating company operating in north-western Russia from St. Petersburg to the Kola Peninsula. The production capacity of TGC-1 is over 6,200 MW electricity and about 17,200 MW heat. In line with its ongoing investment programme, TGC-1's power generation capacity will be increased by 1,600 MW. Fortum is the company's second largest owner.
In 2009, the Russia Division's comparable operating profit, EUR –26 million, was an improvement of EUR 66 million over the previous year. The increase is mainly a result from OAO Fortum's efficiency improvement programme and a higher electricity sales margin.
OAO Fortum operates in the Tyumen and Chelyabinsk areas of the Urals and Western Siberia, where power demand growth has stemmed from rapid industry and construction development. However, after the recession hit Russia in late 2008, electricity consumption in the region plummeted. In the Tyumen area, where industrial production is dominated by oil and gas industries, electricity demand in 2009 was at the same level as in 2008.
1) In January 2009, around 1,100 persons working in Russia Division were transferred internally to Power Division.
* Excluding OJSC Kurgan Generating Company in Kurgan, Russia, in which Fortum has agreed to sell its shareholding. Fortum expects the transaction to close and the ownership to be transferred during the first half of 2010.
Fortum and the Chelyabinsk Region Administration have agreed on extensive cooperation in the area of energy efficiency. The largest operation in the programme is the automation and upgrade of the Chelyabinsk district heating system, which will reduce energy losses in the area by over 30% as well as significantly decrease fuel consumption and emissions. A project this size is unique in Russia and will be partly funded by raising the district heating tariffs controlled by the region's administration. Once completed, consumers will be provided with uninterrupted and more affordable supply of district heat.
Demand in the Chelyabinsk area, which is dominated by the metals industry, is showing signs of picking up. The year-onyear increase in the fourth quarter 2009 was approximately 6%, while demand decreased by approximately 12% in the third quarter.
Heat pricing is regulated, set by local authorities within the limits approved at the federal level. Due to the social impact of the economic crisis, local heat tariffs in OAO Fortum's regions of operation were kept at an unsustainably low level.
Under these conditions, OAO Fortum had to take serious measures in order to reduce costs and raise efficiency. In the framework of restructuring operations to align with Fortum's strategy, OAO Fortum discontinued its unprofitable contract with the city of Tyumen regarding the operation of municipal heat networks as of 1 July 2009. Altogether 750 employees were transferred to a new operator in Tyumen. The number of employees in all branches and subsidiaries of OAO Fortum was reduced in total by 2,000 people. This was reached through the centralisation of several functions as well as through optimisation and streamlining of processes.
OAO Fortum's ongoing investment programme will increase its power capacity from the current 2,800 MW to 5,050 MW. Three projects of the programme will be finished in 2010. The value for the remaining part of the programme, calculated at year-end 2009 exchange rates, is estimated to be EUR 1.8 billion from January 2010 onwards.
The Russian Government is currently reviewing the investment programmes of the generating companies in light of the decreased power demand. Fortum has confirmed its commitment to fulfil OAO Fortum's investment programme. However, the potential postponement of some projects by 1-3 years is currently under review with a favourable outlook. ˭ Read more on page 33.
OAO Fortum is targeting to raise its Environmental, Health and Safety (EHS) performance closer to the level of Fortum's European plants. In 2009, a new EHS organisation was created in OAO Fortum. Its task is for OAO Fortum to become ISO 14001 certified by 2012.
In the area of technical development, the efficiency improvements in district heating have been highly prioritised due to the enormous potential for energy savings and decreased emissions. The actions to reduce the employees' exposure to asbestos have been started and there is a plan to remove or encapsulate all asbestos by the end of 2015 in order to stop all exposure to asbestos dust. Another focus area is the reduction of flue gas emissions, particles and sulphur dioxide.
In 2009, an ambitious occupational
health and safety programme was launched at OAO Fortum covering all plants and personnel. The target of the programme is to adopt the Fortum way of working regarding safety by 2012. Over the year, all OAO Fortum employees were provided with the necessary protective equipment and new work clothes fulfilling Fortum's safety standards. Development of regular EHS reporting based on the Fortum model was started. Furthermore, an extensive training programme was developed and will cover all employees.
One of the key assumptions in the OAO Fortum acquisition was the continuation of the Russian power sector reform. As originally announced, the share of power sold at a competitive price was increased from 30% to 50% on 1 July 2009 and from 50% to 60% at the beginning of 2010. The share is to be increased from 60% to 80% at the beginning of July 2010 and the wholesale power market is expected to be fully liberalised by 2011.
The rules for the long-term capacity market are currently under consideration by the Russian government and a decision is expected before the end of the year 2010.
In Russia, Fortum will continue to concentrate its efforts on the development of OAO Fortum and bringing the level of the local production facilities closer to the level of Fortum's Nordic assets. Fortum is confident that its expertise will help to increase the energy and environmental efficiency of the Russian power plants and district heating.
The acquisition of OAO Fortum established a platform for growth in the fourth largest energy market in the world. Fortum confirms its commitment for the long-term operations in Russia as an industrial strategic investor.
Well-defined and transparent corporate governance provides a structure for responsible, value-oriented performance and supervisory functions of the company. It is an imperative that works for the benefit of Fortum's shareholders, financial markets, business partners, employees and the public. Corporate governance aims to protect shareholder rights, enhance disclosure and transparency, facilitate effective functioning of the Board and provide an efficient legal and regulatory enforcement framework.
The Board of Directors' as well as the President and CEO's responsibility for the administration and management of the company is regulated in the Finnish Companies Act, which is supplemented by the Finnish Corporate Governance Code. In the following, you will find Fortum's Corporate Governance Statement, as recommended in the Corporate Governance Code, as well as information on management remuneration, followed by the biographical presentations.
˭ Insider administration at Fortum is presented on the web at www.fortum. com/insider_administration
Corporate governance at Fortum is based on the laws of Finland, the company's Articles of Association and the Finnish Corporate Governance Code which was published in 2008. This Corporate Governance Statement has been prepared pursuant to Recommendation 51 of the Code and Chapter 2, Section 6 of the Securities Markets Act. The Corporate Governance Statement is issued separately from the company's operating and financial review.
Fortum complies with the rules of NASDAQ OMX Helsinki Ltd, where it is listed, and the rules and regulations of the Finnish Financial Supervisory Authority. Fortum's headquarters is located in Espoo, Finland.
The company complies with the Finnish Corporate Governance Code with the exceptions that Ilona Ervasti-Vaintola, a member of the Audit and Risk Committee, has become non-independent from the company during the autumn 2009 (interlocking control relationship) and Fortum's Board of Directors' Nomination and Remuneration Committee is not involved in the nomination process of members to the Board of Directors.
For this, the Annual General Meeting has established a Shareholders' Nomination Committee.
˭ The Corporate Governance Code is available on the website of the Securities Markets Association (www.cgfinland.fi).
Fortum prepares consolidated financial statements and interim reports in accordance with the International Financial Reporting Standards (IFRS), as adopted by the EU, the Securities Markets Act as well as the appropriate Financial Supervision Authority's standards and NASDAQ OMX Helsinki Ltd's rules. The company's operating and financial review report and parent company financial statements are prepared in accordance with the Finnish
Accounting Act and the opinions and guidelines of the Finnish Accounting Board. The auditor's report covers the operating and financial review report, consolidated financial statements and the parent company financial statements.
The decision-making bodies managing and overseeing the group's administration and operations are the Annual General Meeting of Shareholders, the Supervisory Board, the Board of Directors with its two Committees and the President and Chief Executive Officer (CEO) assisted by the Fortum Management Team. The Board of Directors super-
Fortum's financial reporting stucture
vises the performance of the company, its management and organisation. The Supervisory Board, the Board of Directors and the Fortum Management Team are separate bodies, and no person serves as a member of more than one of them.
Day-to-day operational responsibility at the group level rests with the President and CEO assisted by the Fortum Management Team, and at division level with each division head assisted by a management team.
The right of shareholders to make decisions over company matters is exercised at an appropriately convened General Meeting of Shareholders by those shareholders present, or by their authorised representatives. In accordance with the Articles of Association and Finnish Corporate Governance Code, a notice to convene the General Meeting of Shareholders is issued by the Board of Directors. The notice is delivered no more than two months and no less than 21 days before the General Meeting of Shareholders by publishing the notice in two newspapers chosen by the Board of Directors.
The Annual General Meeting is held once a year, at the latest in June. An Extraordinary General Meeting of Shareholders shall be held whenever the Board of Directors or Supervisory Board finds cause for such a meeting or when provisions of the law rule that such a meeting must be held.
By decision of Fortum's Annual General Meeting 2009, a Shareholders' Nomination Committee was appointed to prepare proposals concerning Board members and their remuneration for the following Annual General Meeting. The Committee consists of the representatives of the three largest shareholders and, in addition, two expert members: the Chairman of the Board of Directors and one other representative, who is elected by the Board of Directors among its members and who is independent of the significant shareholders. The three shareholders, whose share of the total votes of all shares in the company were the largest as of 2 November 2009 were entitled to appoint the members representing the shareholders on the Committee. Should a shareholder not have wished to use its right to nominate, this right would have been passed on to the next biggest shareholder. The largest shareholders were determined on the basis of the ownership information registered in the book-entry system.
In November 2009, the following persons were appointed to Fortum's Shareholders' Nomination Committee: Pekka Timonen, Director General, Prime Minister's Office, Ownership Steering Department, Harri Sailas, CEO, Ilmarinen Mutual Pension Insurance Company and Jorma Huuhtanen, Director General, Social Insurance Institution. Matti Lehti, the Chairman of Fortum's Board of Directors, served as the Committee's expert member. In addition, Sari Baldauf, Deputy Chairman of Fortum's Board of Directors, has been nominated by the Board as an expert member to the Committee.
In its meeting on 1 February 2010, the Shareholders' Nomination Committee decided to propose to the Annual General Meeting, which is scheduled to be held 25 March 2010, that the following persons be elected to the Board of Directors: Matti Lehti as chairman, Sari Baldauf as deputy chairman, and as members Esko Aho, Ilona Ervasti-Vaintola, Birgitta Johansson-Hedberg, Christian Ramm-Schmidt and Joshua Larson.
The Supervisory Board is responsible for overseeing that the shareholders' interests are safeguarded.
The members of the Supervisory Board, its Chairman and Deputy Chairman are elected at the Annual General Meeting for a one-year term of office. A person who has reached the age of 68 years may not be elected as a member of the Supervisory Board. The Supervisory Board comprises a minimum of six and a maximum of 12 members; in February 2010 there were 11 members. The Supervisory Board meetings are also attended by three employee representatives who are not members of the Supervisory Board. More than half of the Supervisory Board's members must be present to constitute a quorum. In 2009, the
Supervisory Board met 5 times. Average attendance at these meetings was 83.5%.
The employee representatives on Fortum's Supervisory Board were Jouni Koskinen, Tapio Lamminen (replaced by Kari Ylikauppila as of 1 September 2009) and Sebastian Elg. The current employee representatives' term continues until the end of 2010.
The Board of Directors is responsible for the administration of the Group and for ensuring that the business complies with the relevant laws and regulations, including the Finnish Companies Act, Fortum's Articles of Association, the
instructions given by the General Meeting of Shareholders and the guidelines issued by the Supervisory Board. The responsibilities of the Board of Directors are outlined in the Board of Director's working order. The Board of Directors comprises five to eight members who are elected at the Annual General Meeting for a one-year term of office, which expires at the end of the first Annual General Meeting following the election. More than half of the members must be present to constitute a quorum. A person who has reached the age of 68 cannot be elected to the Board of Directors.
In 2009, the Board of Directors met 11 times, of which 2 were teleconferences. Average Director attendance at all Board meetings was 95.4%. In addition to steering and supervising the company's operational and financial development, the main items during the year were Fortum's strategy, financial position as well as risks and financial reporting. Main items also included the appointment of the new President and CEO, the new operational organisation, the Loviisa 3 application and other nuclear power matters, OAO Fortum integration in Russia and investments in new power and heat business as well as divestment matters. Over the year, the Board closely followed the development of the electricity market in the Nordic countries, Europe and
Russia as well as the implementation of the new operational organisation for Fortum group. The Board also continued to address issues relating to sustainable business development and management performance and remuneration.
The members of the Board of Directors are all, with the exception of Ilona Ervasti-Vaintola (dependent on the company), independent of the company and its significant shareholders. The President and CEO, the Chief Financial Officer and the General Counsel (being the secretary to the Board) attend Board meetings. Other Fortum Management Team members attend as required to provide information to the Board or
| Name | Born | Education | Occupation |
|---|---|---|---|
| Chairman Markku Laukkanen |
1950 | MSc (Soc. Sc.) | Member of Parliament |
| Deputy Chairman Sanna Perkiö |
1962 | PhD (Tech.) | Member of Parliament |
| Martti Alakoski | 1953 | Union Chairman | |
| Tarja Filatov | 1963 | Member of Parliament | |
| Sampsa Kataja | 1972 | LL. M | Member of Parliament |
| Kimmo Kiljunen | 1951 | PhD (Pol.Sc) | Member of Parliament |
| Katri Komi | 1968 | MSc (Agriculture and Forestry) |
Member of Parliament |
| Panu Laturi | 1972 | MSc (Pol.Sc) | Secretary General, Green League of Finland |
| Juha Mieto | 1949 | Member of Parliament | |
| Jukka Mäkelä | 1960 | MSc (Eng) | Member of Parliament |
| Helena Pesola | 1947 | MSc (Soc.Sc) | Director, KELA |
| Name | Born | Education | Occupation |
|---|---|---|---|
| Chairman Matti Lehti | 1947 | PhD (Econ.) | Non-executive director |
| Deputy Chairman Sari Baldauf 1955 | MSc (Econ.) | Non-executive director | |
| Esko Aho | 1954 | MSc (Pol. Sc.) | Executive Vice President, Corporate Relations and Responsibility, Nokia Corporation |
| Ilona Ervasti-Vaintola | 1951 | LL. M, Trained on the bench |
Group Chief Counsel, Principal Attorney, Secretary of the Board of Directors of Sampo Plc, Member of the Group Executive Committee |
| Birgitta Johansson-Hedberg | 1947 | Bachelor of Art, Master of Psychology |
Non-executive director |
| Christian Ramm-Schmidt | 1946 | B. Sc (Econ.) | Senior Partner of Merasco Capital Ltd. |
X Annual self-assessment.
upon invitation by the Board.
The Chairman of the Board, together with the President and CEO, prepares the items for discussion and to be decided upon at the Board of Directors' meetings.
The Board of Directors has approved a working order to govern its work. The main contents of the working order are presented in the table to the left.
The Board of Directors conducts an annual self-assessment in order to further develop the work of the Board. The assessment process analyses the efficiency of the work, the size and composition of the Board, the preparation of the agenda, and the level and openness of discussions, as well as the members' ability to contribute to an independent judgement.
The Board of Directors has appointed an Audit and Risk Committee as well as a Nomination and Remuneration Committee, both with three members. The members of these committees are all members of the Board of Directors. Members are appointed for a one-year term of office, which expires at the end of the first Annual General Meeting following the election. All the members of the Board of Directors have the right to participate in the committee meetings. The secretary to the Board of Directors acts as the secretary to the committees. The Board has approved written charters for the committees. The main contents of these rules are outlined on the next page.
The Audit and Risk Committee assists the Board of Directors in fulfilling its supervisory responsibilities in accordance with the tasks specified for audit committees in the Finnish Corporate Governance Code.
The Audit and Risk Committee annually reviews its charter, approves the internal audit charter and the internal audit plan and carries out a self-assessment of its work. Furthermore, the Committee meets the external auditors regularly to discuss the audit plan, audit reports and audit findings.
The Audit and Risk Committee reports on its work to the Board of Directors regularly after each meeting.
After the Annual General Meeting in April 2009, the Board elected among itself Birgitta Johansson-Hedberg as the chairman and as members Ilona Ervasti-Vaintola and Christian Ramm-Schmidt to the Audit and Risk Committee.
The Committee met 5 times in 2009. Average Director attendance at all meetings was 93.3%. Also regularly participating in the Committee's meetings were external auditors, Chief Financial Officer (CFO), Head of Internal Audit, Corpo-
X Being in contact with the auditor and reviewing the reports that the auditor prepares for the Committee.
rate Controller and General Counsel as the Secretary to the Committee as well as other parties invited by the Committee.
The main items during the year included reviewing the interim reports, the financial statements, internal audit and risk management reports and policies as well as the corporate governance statement, monitoring of certain important projects, such as the integration of OAO Fortum in Russia, preparing a recommendation for the election of the external auditor, as well as regulatory compliance and development of internal controls.
After the Annual General Meeting in April 2009, the board elected among itself Matti Lehti as the chairman and as members Esko Aho and Sari Baldauf to the Nomination and Remuneration Committee. The Committee met 6 times during 2009. Director attendance at all meetings was 94.4%. Other regular participants at the Committee meetings were the President and CEO, Senior Vice President, Corporate Human Resources, and General Counsel as the secretary to the Committee.
The Nomination and Remuneration Committee reports on its work to the Board of Directors regularly after each meeting.
The main items during the year included the appointment of the President and CEO, new operational organisation for Fortum group as well as top management performance evaluations and compensation issues, including performance target-setting for the Fortum Management Team.
The role of the President and CEO is to manage the Group's business and administration in accordance with the Finnish Companies Act and related legislation and the instructions from the Board of Directors. MSc (Eng), MSc (Econ) Tapio Kuula, (born 1957) has acted as the President and CEO since May 2009.
The President and CEO is supported by the Fortum Management Team. The performance of the President and CEO is evaluated annually by the Board of Directors. The evaluation is based on objective criteria that include the performance of the company and the achievement of goals previously set for the President and CEO by the Board's Nomination and Remuneration Committee.
The Fortum Management Team currently consists of nine members, including the President and CEO to whom the members of the Management Team report. The General Counsel acts as the Secretary to the Management Team. The Management Team meets regularly on a monthly basis. In addition, there are meetings dealing
with strategy and business planning, as well as performance reviews and people issues such as management reviews.
The Fortum Management Team sets the strategic targets, prepares the Group's annual business plans, follows up on the results, plans and decides on investments, mergers, acquisitions and divestments within authorisation. Each member of the Management Team is responsible for the key day-to-day operations and the implementation of operational decisions in their respective organisations.
Fortum reorganised its business structure around four divisions and four staff functions in order to increase the organisation's efficiency, performance accountability and simplicity. The change entered into force on 1 October 2009.
The new divisions are Power, Heat, Russia, and Electricity Solutions and Distribution. 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. Heat Division consists of combined heat and power generation, district heating activities and business to business heating solutions. 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 Markets. 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. The staff functions are Finance, Corporate Relations and Sustainability, Corporate Human Resources, Corporate
Strategy and R&D.
Fortum's Corporate Internal Audit is responsible for assessing and assuring the adequacy and effectiveness of internal controls in the company. Furthermore, it evaluates the effectiveness and efficiency of various business processes, the adequacy of risk management, and e.g. compliance with laws, regulations and internal instructions.
The Standards for the Professional Practice of Internal Audit form the basis for its work.
Corporate Internal Audit is independent of the divisions and other units at Fortum. It reports to the Audit and Risk Committee of the Board of Directors and administratively to the CFO. The purpose, authority and responsibility of Corporate Internal Audit is formally defined in its charter. The charter and the annual audit plan are approved by the Audit and Risk Committee.
The company has one auditor, which shall be an audit firm certified by the Central Chamber of Commerce. The auditor is elected by the Annual General Meeting for a term of office that expires at the end of the first Annual General
Meeting following the election. Fortum Corporation's Annual General Meeting on 7 April 2009 elected Author-
ised Public Accountant Deloitte & Touche Oy as auditor, with Authorised Public Accountant Mikael Paul having the principal responsibility.
System of risk management and internal controls
Fortum's Board of Directors approves the Corporate Risk Policy, which sets the objective, principles and division of responsibilities for risk management activities within the Group as well as defines the Fortum risk management process.
The Fortum risk management process is also embedded in the internal control framework, and the process level internal control structure has been created by using a risk-based approach. The same approach is also used for the financial reporting process. Fortum's internal control framework includes main elements from the framework introduced by the Committee of Sponsoring Organisations of the Treadway Commission (COSO).
˭ Read more about Fortum's risk management process and largest risks on pages 98–102 and 126- 134.
Fortum has an internal control framework supporting the execution of the strategy and ensuring regulatory compliance. The values and Code of Conduct set the foundation for the internal control framework. The framework consists of group-level structures, corporate-level processes as well as business and support process-level controls. The Audit and Risk Committee, appointed by the Board of Directors, has oversight over risk management within the Group. Corporate Risk Management, an independent function headed by the Chief Risk Officer, in CFO's Office is responsible for reporting risk exposures on weekly and monthly basis to the CFO and the President and CEO and regularly to the Audit and Risk Committee and maintaining the company's risk management framework. In the financial reporting process, the ownership of the overall control structure is in the Corporate Accounting and Control unit headed by the Corporate Controller as part of the CFO's office.
As part of the Fortum risk management process, also risks related to financial reporting are identified and analysed annually. Additionally, all new risks are analysed and repaired as they have been identified. The control risk assessment has been the basis for creating the process-level internal control framework and the same applies to the control points to prevent errors in the financial reporting process. The results of the control risk assessment and the processlevel controls have been reported to the Audit and Risk Committee. The control framework has not been changed during 2009 but the implementation responsibilities are looked as part of the reorganisation.
Fortum's organisation is still decentralised and a substantial degree of authority and responsibility has been delegated to the divisions in form of control responsibilities even though some areas like commodity market risk control has been more centralised in the new organisation. Each division has its own staff and other resources. Control activities are applied in the business processes and, from a financial reporting perspective, they ensure that potential errors or deviations are prevented, discovered and corrected. The Fortum policy structure ensures that governance around all activities exists.
In financial reporting, the Controller's manual sets the standards. The Corporate Accounting and Control unit defines the design of the control points, and internal controls cover the end-toend financial reporting process. However, the part of the organisation responsible for performing the controls is also responsible for the effectiveness of the controls. There are transaction processlevel controls and periodic controls. These periodic controls are linked to the monthly and annual reporting process and include reconciliations and analytical reviews to ensure the correctness of financial reporting.
Information and communication The Controller's manual including Accounting manuals, Investment manual and reporting instructions as well as policies are stored on intranet sites accessible by all people involved in the financial reporting process. Additionally, Corporate Accounting and Control and Risk Management functions regularly arrange meetings in which information around the processes and practices is shared to ensure uniform application of the processes. Investor Relations and Corporate Communications together with Corporate Control maintain the instructions for releasing financial information.
Financial results are followed up in the monthly reporting. In addition to that, the quarterly Performance Review meetings with Group and division management are embedded in the Fortum Performance Management process to review the financial performance and ultimately reviewed by the Audit and Risk Committee and Board of Directors.
The Performance Reviews have a monitoring role also in ensuring that the internal controls are functioning. As part of the Fortum internal control framework, all divisions are accountable for assessing the effectiveness of the controls they are responsible for. For the financial reporting process, division- and corporate-level controller teams are responsible for this assessment. In addition, Internal Audit performs audits of the financial reporting process.
The actual control maturities are followed up in form of self-assessment process and for some areas a cross-testing of controls have been introduced during 2009.
The Finnish Corporate Governance Code 2008 requires that Fortum Corporation issues a salary and remuneration report of the company. Furthermore, in September 2009, the Cabinet Committee on Economic Policy, representing the State owner, issued guidelines on management remuneration and pension benefits in companies with State ownership. Fortum takes into account both the Code and the guidelines in its remuneration.
Remuneration at Fortum is determined according to Fortum Group's Remuneration Policy and Fortum's Global Compensation and Benefit Policy. Remuneration is aligned with the company's financial performance and external market data, observing remuneration levels for similar positions among peer companies and approved by the Board of Directors. Compensation for the members of the Supervisory Board and the Board of Directors is decided by the Annual General Meeting of Fortum Corporation.
Fortum offers a competitive compensation package for senior executives and other management, in order to attract and retain key resources in all Fortum
countries. The package offers employees competitive base salaries, purposeful benefits and challenging short-term incentives (STI) and long-term incentive (LTI) programs.
Fortum's short-term incentive system is an annual bonus system that exists to support the Group's values, the achievement of financial targets and structural changes, and to secure an alignment between the performance targets of the individual employee and the targets of the Group and division. All Fortum employees are covered by the annual bonus system except for some employee groups in
Poland and Russia. The STI criteria for senior management (the President and CEO and other members of Fortum's Management Team) are decided annually by the Board of Directors on the recommendation of the Board's Nomination and Remuneration Committee. The size of each senior executive's annual bonus is dependent on the Group's financial performance, as well as on their own success in reaching personal goals. The maximum STI level for the senior management is 40% of the person's annual salary including fringe benefits.
For executives with division responsibilities, the scheme reflects the performance of their division together with the Group's financial performance. The criteria for evaluating an executive's personal performance are mutually agreed between the executive and his/ her superior in an annual performance discussion at the beginning of each year. The performance of the President and CEO is evaluated by the Board of Directors.
In 2009, the STIs paid to the Fortum Management Team (FMT), including the current as well as the former President and CEO, amounted to EUR 951,599, which is 0.27% of the total salaries and remuneration paid in the Fortum Group.
The remuneration as well as the principle terms and conditions of President
| EUR thousands | The President and CEO May 1 – Dec 31 |
The President and CEO Full year 2009 |
Other FMT members Oct 1 – Dec 31 |
Other FMT members Jan 1 – Sep 30 |
|---|---|---|---|---|
| Salaries and fringe benefits | 604 | 745 | 805 | 1,114 |
| Performance bonuses *) | - | 134 | - | 605 |
| Total | 604 | 879 | 805 | 1,719 |
Additionally, the President and CEO had a calculatory gross income of EUR 275,163 based on February 2009 share delivery from the LTI plan 2003-2008. The corre- sponding aggregated figure for the other members of the Fortum Management Team in office at the time of payment (excluding the current and the former CEOs) was EUR 929,114. These shares were granted in spring 2006 after the earning period with the value not exceeding participants' one year salary and were delivered after the three-year lock-up period.
*) Performance bonuses for 2008 were paid in spring 2009.
and CEO Tapio Kuula's employment are presented in the table below.
The former President and CEO Mikael Lilius has been paid his base salary until his retirement on 31.12.2009. In 2009, Fortum paid Mikael Lilius EUR 864,783 salaries and fringe benefits and EUR 346,729 performance bonus relating to the year 2008. Additionally, he had a calculatory gross income of EUR 725,504 based on February 2009 share delivery from the LTI plan 2003–2008.
Mikael Lilius is entitled to the annual bonus (STI) from the year 2009. The bonus is based solely on the financial performance of the company. In accordance with the terms and conditions of Fortum's LTI arrangement, the value of the earned LTI bonus and granted share participations is limited to the amount of the former President and CEO's December 2009 monthly remuneration multiplied by twelve.
Both STI and LTI bonus payments will be done during first quarter 2010.
Fortum's Management Performance Share (LTI) Arrangement is a performance-based, long-term incentive arrangement. It was launched in 2003 to support the achievement of the Group's long-term goals by attracting and retaining key personnel.
The purpose of an LTI arrangement is to function as share-related incentive schemes for the top management of the company as well as to offer the participants with the opportunity to share in the company's future success. The company expects that it will benefit from the interest which the participants will have in the company's success through equity participation.
Fortum's LTI arrangement is continuing incentive schemes, divided into annual performance share plans, within which the participants have the opportunity to earn shares of the company
as a long-term incentive. A new plan commences annually upon decision by the Board.
In Fortum's LTI Arrangement, each plan begins with a three calendar year period, during which the participants may earn rights for the shares subject to achieving the earnings criteria set by the Board. After the earning period and after deduction for applicable tax and other employment related expenses from the gross value of the earned rights for shares, the participants are delivered the net balance of the earned rights in the form of so-called performance shares. The earning period is followed by a subsequent lock-up period during which
| Salary and fringe benefits | Base salary EUR 70,000/month. Additionally, free car benefit and mobile phone benefit as fringe benefits. |
|---|---|
| Short-term incentive (annual bonus) | The annual bonus can be earned according to the criteria approved by the Board of Directors. Maximum level 40% of annual salary + fringe benefits. Annual salary = 12 x salary of December of the year in question. |
| Long-term incentive | According to Fortum's current Management Performance Share Arrangement (LTI). The maximum value of shares delivered (before taxation) cannot exceed annual salary. |
| Pension | Retirement age 63. The President and CEO has a defined contribution pension plan. Its annual contribution is 25% of the annual salary. The annual salary consists of a base salary, fringe benefits and short-term incentives (annual bonus). In case the assignment is terminated before retirement age, the person is entitled to retain the benefits accrued in the Pension Plan for his benefit. |
| Termination of Assignment | Notice period on both parties 6 months. Severance pay (if the com- pany terminates the agreement) = 6 months' notice period compensa- tion + severance pay corresponding to the last monthly salary x 18 |
| Plan | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 03–08 | 1 | 2 | 3 | 4 | 5 | 6 | |||||||
| 04–09 | 1 | 2 | 3 | 4 | 5 | 6 | |||||||
| 05–10 | 1 | 2 | 3 | 4 | 5 | 6 | |||||||
| 06–11 | 1 | 2 | 3 | 4 | 5 | 6 | |||||||
| 07–12 | 1 | 2 | 3 | 4 | 5 | 6 | |||||||
| 08–12 | 1 | 2 | 3 | 4 | 5 | ||||||||
| 09–13 | 1 | 2 | 3 | 4 | 5 | ||||||||
| 10–15 | 1 | 2 | 3 | 4 | 5 | 6 | |||||||
the participants shall not be entitled to transfer or dispose of the performance shares. The decrease or increase in the value of the performance shares during the lock-up period is at the risk or for the benefit of the participants. Following the Cabinet Committee's Economic Policy for State-owned corporations, issued in September 2009, the maximum value of shares (before taxation) to be delivered to a participant after the earning period cannot exceed the participant's one-year salary.
Following the Cabinet Committee's Economic Policy for State-owned corporations the length of the lock-up period for newly issued plans will be extended
in 2010 from two to three years, and the aggregate duration of each individual plan from five to six years.
The members of Fortum's top management, who are entitled to participate in LTI Arrangement, are selected by the Board of Directors at its sole discretion. Participants are eligible to participate in such individual plans, in which there has been an earning period ongoing during his/her participation. The Board shall, however, be entitled to exclude individual participants from LTI Arrangement and from any future plans despite the
| Name | Year 2009 (1 | Year 2010 (1 | Year 2011 (2 |
|---|---|---|---|
| Tapio Kuula | 8,682 | 8,422 | 5,661 |
| Mikael Frisk | 6,292 | 6,041 | 3,759 |
| Timo Karttinen | 5,174 | 5,166 | 3,272 |
| Juha Laaksonen | 7,227 | 7,014 | 5,170 |
| Maria Paatero-Kaarnakari | 2,643 | 2,539 | 1,745 |
| Anne Brunila (from 1 October 2009) | - | - | - |
| Alexander Chuvaev (from 1 October 2009) | - | - | - |
| Per Langer (from 1 October 2009) | 2,688 | 2,989 | 2,518 |
| Matti Ruotsala (from 1 October 2009) | - | - | - |
| Mikael Lilius (until 30 April 2009) | 22,423 | - | - |
| Christian Lundberg (until 30 September 2009) | 6,667 | - | - |
| Maria Romantschuk (until 30 September 2009) | - | - | - |
1) Actual numbers of shares delivered
2) Calculative number of share rights, assumed tax deduction based on previous years
fact that the excluded participants may already have participated in the arrangement and in individual plans.
To be eligible for participation in a plan, an individual participant may not simultaneously be a member of the Fortum Personnel Fund.
Fortum's current LTI Arrangement fulfils the recommendations of State-owned companies and the Corporate Governance Code 2008.
Fortum does not have any on-going stock option programs. The subscription periods for the last stock option scheme (2002B) began in October 2006 and ended in May 2009. The members of current Fortum Management Team did not have any remaining stock options in 2009. ˭ For more information about the incentive schemes, please refer to pages 157–160 in the Consolidated financial statements.
Fortum's Finnish executives participate in the Finnish TyEL pension system, which provides for a retirement benefit based on years of service and earnings according to the prescribed statutory system. Under the Finnish pension system, base pay, incentives and taxable fringe benefits are included in the definition of earnings, although gains realised from stock options and from the LTI Arrangement are not. Finnish
pension legislation offers a flexible retirement from age 63 to age 68 without full pension limits. For the President and CEO the retirement age is 63 and for the other members of the Fortum Management Team, the retirement age is 60 or 63 and the pension paid can be a maximum of 66% or 60% of the remuneration. In the first case, the pensions are insured and paid by Fortum's pension fund, and in the latter, pensions are insured by an insurance company.
Fortum has one pension fund in Finland, the Fortum Pension Fund for employees in Finland only, which was closed in 1991. The fund offers certain supplementary pension benefits to people within the sphere of its operations. The most important of these are the overall guaranteed pension of 66% and the reduced retirement age of 60 for women and some men. At the end of 2009, the number of employees covered by the fund was 820 (1,020).
In addition to the persons covered by the pension fund, there are some two hundred other Fortum employees who have various additional pension benefits based on the systems of their previous employers. These benefits are insured by insurance companies. The clear majority of these persons are employees of the former E.ON Finland.
In Sweden, the majority of Fortum's employees are covered by statutory retirement pension benefits and an additional collective agreement-based supplementary pension scheme, ITP (Industrins Tilläggspension) for white-collar workers and SAF/LO (Svenskt Näringsliv/ Landsorganisationen) for blue-collar workers. In addition, approximately 240 key persons have opted out a portion of the ITP plan and are members of Birkaplanen, an alternative ITP-based pension scheme. Birkaplanen guarantees a defined pension of the final pensionable salary at the time of retirement and was closed to new entrants in 2003. In 2006, Fortum therefore launched a new, alternative ITP-based pension scheme, ÖVER 10, for key persons earning more than 10 income base amounts. The scheme is contribution-based and offered both to existing and new employees. A limited number of employees in Sweden are also covered by separate pension schemes, due to earlier agreements with former employers.
The Fortum Personnel Fund (for employees in Finland only) has been in operation since 2000. The Board of Directors determines the criteria for the fund's annual profit-sharing bonus. Persons included in the LTI Arrangement are not eligible to be members of this fund. Members of the personnel fund are the permanent
and fixed-term employees of the Group. The membership of employees joining the company starts at the beginning of the next month after the employment relationship has been ongoing for six months. Fund membership terminates when the member has received his/her share of the fund in full.
The profit-sharing received by the fund is distributed equally between the members. Each employee's share is divided into a tied amount and an amount available for withdrawal. It is possible to transfer a maximum of 15% of capital from the tied amount to the amount available for withdrawal each year, once the employee has been a member for five years. The fund's latest financial year ended at 30 April 2009 and the fund then had a total of 3,155 members. At the end of April 2009 Fortum contributed EUR 4.7 million to the personnel fund as an annual profitsharing bonus based on the financial results of 2008. The combined amount of members' shares in the fund was EUR 20.9 million. The amount available for withdrawal is decided each year and it is paid to members who want to exercise their withdrawal rights.
Each Supervisory Board member receives a fixed monthly fee and a meeting fee. The employee representatives receive only a meeting fee. All members are
entitled to travel expense compensation in accordance with the company's travel policy. Members of the Supervisory Board are not offered any LTI Arrangement, or participation in other incentive schemes, nor do they have a pension plan at Fortum.
The Annual General Meeting has confirmed the following remuneration for Supervisory Board service:
| EUR/month | 2009 | 2008 |
|---|---|---|
| Chairman | 1,000 | 1,000 |
| Deputy Chairman | 600 | 600 |
| Members | 500 | 500 |
| Meeting fee | 200 | 200 |
| EUR, total compensation | 2009 | 2008 |
|---|---|---|
| Chairman | 13,000 | 14,000 |
| Deputy Chairman | 8,200 | 8,000 |
| Other members | 59,425 | 54,423 |
Each Board member receives a fixed monthly fee and a meeting fee. The meeting fee is also paid for committee meetings and is paid in double to a member who lives outside Finland in Europe. The members are entitled to travel expense compensation in accordance with the company's travel policy.
Board members are not offered any LTI Arrangement, or participation in other incentive schemes, nor do they
have a pension plan at Fortum.
The Annual General Meeting has confirmed the following compensation for Board service:
| EUR | 2009 | 2008 |
|---|---|---|
| Chairman | 66,000 | 66,000 |
| Deputy Chairman | 49,200 | 49,200 |
| Members | 35,400 | 35,400 |
| Meeting fee | 600 | 600 |
| EUR | 2009 | 2008 |
|---|---|---|
| Chairman | 75,275 | 70,250 |
| Deputy Chairman | 58,200 | 54,259 |
| Other members of the Board | 195,588 | 220,850 |
• Non-executive Director
Independent member of Fortum's Board of Directors since 2005.
Fortum shareholding on 31 Dec. 2009: 2,000 (31 Dec. 2008: 0)
• Non-executive Director
• Nokia Corporation, several senior executive positions. Member of the Group Executive Board.
Independent member of Fortum's Board of Directors since 2009.
Fortum shareholding on 31 Dec. 2009: 2,300
• Executive Vice President, Corporate Relations and Responsibility, Nokia Corporation. Member of the Group Executive Board.
Independent member of Fortum's Board of Directors since 2006.
Fortum shareholding on 31 Dec. 2009: 0 (31 Dec. 2008: 0)
• Group Chief Counsel, Principal Attorney, Secretary of the Board of Directors of Sampo plc. Member of the Group Executive Committee.
Non-independent from the company (interlocking control relationship) and independent of signifant shareholders. Member of Fortum's Board of Directors since 2008.
Fortum shareholding on 31 Dec. 2009: 4,000 (31 Dec. 2008: 4,000)
Independent member of Fortum's Board of Directors since 2004.
Fortum shareholding on 31 Dec. 2009: 900 (31 Dec. 2008: 900)
• Senior Partner of Merasco Capital Ltd.
• Member of the Board of Suomen Lähikauppa Oy and Boardman Oy
Independent member of Fortum's Board of Directors since 2006.
Fortum shareholding on 31 Dec. 2009: 3,500 (31 Dec. 2008: 3,500)
Fortum shareholding on 31 Dec. 2009: 73,147 (31 Dec. 2008: 64,465)
Finnish Delegation of International Chamber of Commerce, Member
Executive Vice President, Russia Division; General Director of OAO Fortum; Country responsible for Russia since 2009
Fortum shareholding on 31 Dec. 2009: 0
Fortum shareholding on 31 Dec. 2009: 31,642 (31 Dec. 2008: 25,350)
Fortum shareholding on 31 Dec. 2009: 43,796 (31 Dec. 2008: 38,622)
Tapio Kuula Anne Brunila Alexander Chuvaev Mikael Frisk Timo Karttinen
Key positions of trust:
Fortum shareholding on 31 Dec. 2009: 27,227 (31 Dec. 2008: 20,000)
Fortum shareholding on 31 Dec. 2009: 5,489
Fortum shareholding on 31 Dec. 2009: 4,044 (31 Dec. 2008: 5,751)
Fortum shareholding on 31 Dec. 2009: 0
The Krångede hydropower plant on the Indalsälven river in Sweden has a production of nearly 1,700 GWh, making it Fortum's largest hydropower plant in terms of production. Some 200 out of Fortum's around 300 hydropower plants are located in Sweden. The picture is of a stator part.
| Operating and financial review | 84 |
|---|---|
| Financial performance | 84 |
| Risk management | 98 |
| The Fortum share and shareholders | 103 |
| Consolidated Financial statements | 108 |
| Consolidated income statement | 108 |
| Consolidated statement of comprehensive income | 109 |
| Consolidated balance sheet | 110 |
| Consolidated statement of changes in total equity | 111 |
| Consolidated cash flow statement | 112 |
| Notes to the consolidated financial statements | 113 |
| Key Figures | 174 |
| Financial key figures | 174 |
| Share key figures | 176 |
| Operational key figures, volumes | 177 |
| Operational key figures, segments | 178 |
| Definitions of key figures | 179 |
| Parent company financial statements, Finnish GAAP (FAS) |
181 |
| Income statement | 181 |
| Balance sheet | 181 |
| Cash flow statement | 182 |
| Parent company notes to the financial statements | 182 |
| Proposal for the distribution of earnings | 187 |
| Auditor's report | 188 |
| Statement by the Supervisory Board | 189 |
| QUARTERLY FINAN CIAL INFORMATION |
190 |
| FINAN CIAL INFORMATION in 2010 |
191 |
| investor information online | 192 |
The year 2009 was a year of big swings in power and commodity prices. In the first half of the year, commodity prices and wholesale power prices decreased and were at low levels. During the second half of the year, commodity prices and also power prices in the Nordic region started to increase slowly from low levels.
| EUR million | 2009 | 2008 | 2007 |
|---|---|---|---|
| Sales | 5,435 | 5,636 | 4,479 |
| Operating profit | 1,782 | 1,963 | 1,847 |
| Operating profit, % of sales | 32.8 | 34.8 | 41.2 |
| Comparable operating profit | 1,888 | 1,845 | 1,564 |
| Profit before taxes | 1,636 | 1,850 | 1,934 |
| Profit for the period attributable to owners of the parent | 1,312 | 1,542 | 1,552 |
| Earnings per share, EUR | 1.48 | 1.74 | 1.74 |
| Net cash from operating activities | 2,264 | 2,002 | 1,670 |
| Shareholders' equity per share, EUR | 9.04 | 8.96 | 9.43 |
| Capital employed | 15,350 | 15,911 | 13,544 |
| Interest-bearing net debt | 5,969 | 6,179 | 4,466 |
| Equity to assets ratio, % | 43 | 41 | 49 |
| Average number of shares, 1,000s | 888,230 | 887,256 | 889,997 |
Group financial targets
| 2007 | |||||
|---|---|---|---|---|---|
| Target | 2009 | 2008 | Adjusted 1) | 2007 | |
| ROCE, % | 12 | 12.1 | 15.0 | 14.0 | 16.5 |
| ROE, % | 14 | 16.0 | 18.7 | 15.8 | 19.1 |
| Capital structure: Net debt / EBITDA | 3.0–3.5 | 2.6 | 2.5 | 2.2 | 1.9 |
1) Adjusted for REC and Lenenergo gains
Fortum's comparable operating profit for the year 2009 was EUR 1,888 million (2008: 1,845). Operating performance improved from 2008 despite the clearly lower Nordic wholesale power price and the clearly lower power consumption in the Nordic area. In 2009, Distribution, Russia and Markets improved their performance, while results in Power and Heat fell short of the previous year.
Nordic power consumption was about 5% lower in 2009 compared to the previous year. The colder than usual weather and the pick-up in industrial activity improved the power demand outlook towards the year-end. Fortum currently expects Nordic power demand to recover back to the 2008 level by 2012–2014.
The Nord Pool average system price of electricity was EUR 35.0 per megawatt-hour (MWh) (2008: 44.7). In the same period, the Power division's achieved power price was EUR 49.8 per MWh (2008: 49.3), i.e. approximately the same level as last year, mainly thanks to hedging.
Sales, EUR million
Operating profi t, EUR million
Discontinued oil operations
Return on capital employed, %
Discontinued oil operations Incl. REC and Lenenergo gains
Return on shareholders' equity, %
Discontinued oil operations Incl. REC and Lenenergo gains Fortum's nuclear power generation was 2.3 terawatt-hours (TWh) below the nuclear generation in 2008. The ongoing modernisation and capacity upgrade projects of Swedish nuclear reactors will improve availability and safety and substantially increase nuclear capacity, but the projects caused longer than anticipated outages during 2009. In total, Fortum lost approximately 4 TWh of nuclear volume in Sweden during 2009 due to unplanned outages. This had a significant negative impact on Power's earnings during the year.
The performance improvement programme of OAO Fortum (former TGC-10) proceeded according to plan. Fortum is well on track to reach the targeted annual efficiency improvements of approximately EUR 100 million by 2011.
The power sector reform in Russia has progressed as planned. The share of produced wholesale power sold on the competitive market in Russia increased from 30% to 50% at the beginning of July 2009 and further from 50% to 60% at the beginning of January 2010.
Fortum's net debt to EBITDA for 2009 was 2.6 (2.5 at year-end 2008).
According to preliminary statistics, during 2009, the Nordic countries consumed about 372 TWh (2008: 393). The decrease is mainly due to the drop in industrial consumption as a result of the recession. According to Fortum's estimate, Nordic industrial consumption decreased by close to 15% compared to 2008.
The average market price of coal (ICE Rotterdam) during the year 2009 was USD 70 (2008: 146) per tonne. The market price for CO2 emission allowances for 2009 was EUR 13.4 per tonne CO2.
Year 2009 started with the Nordic water reservoirs 5 TWh below the long-term average. At the end of 2009, the Nordic water reservoirs were 7 TWh below the long-term average and 2 TWh below the corresponding level last year.
In 2009, the average system spot price for power in Nord Pool was EUR 35.0 per MWh (2008: 44.7). The average Finnish area price was EUR 37.0 (2008: 51.0), and the Swedish area price was EUR 37.0 per MWh (2008: 51.1).
In Germany, the average spot price for the year 2009 was EUR 38.9 per MWh (2008: 65.8). Market coupling between Denmark and Germany was relaunched on 9 November 2009.
According to preliminary statistics, electricity demand in Russia during 2009 decreased by approximately 5.0% compared to 2008.
OAO Fortum operates in the Tyumen and Chelyabinsk areas, which belong to the Urals price zone. Electricity consumption in 2009 in the Urals region decreased by about 6% compared to the previous year. In the Tyumen area, where industrial production is dominated by oil and gas industries, electricity demand in 2009 was at the same level as in 2008. Electricity demand in the Chelyabinsk area, which is dominated by the metals industry, is showing signs of picking up.
The average electricity spot price, excluding capacity price, in the European and Urals part of Russia in 2009 was 666 RUB per MWh (2008: 708). The regulated electricity prices increased from a year ago. The capacity prices are still mainly regulated and were, on average, higher than a year ago.
The power sector reform in Russia has progressed as planned. The share of produced wholesale power sold on the competitive market in Russia was increased from 30% to 50% at the beginning of July 2009 and further from 50% to 60% at the beginning of January 2010.
Fortum's total power generation during 2009 was 65.3 TWh (2008: 64.2), of which 48.1 TWh (2008: 51.6) was in the Nordic countries, representing 13% (2008: 13%) of the total Nordic electricity consumption. Fortum's total heat production during 2009 was 48.8 TWh (2008: 40.3), of which 19.0 TWh (2008: 20.8) was in the Nordic countries.
The increase in the total power and heat generation volumes is due to the inclusion of OAO Fortum, which has been consolidated from the beginning of April 2008.
The decrease in Nordic hydropower generation was mainly due to lower precipitation and inflows into Nordic water reservoirs during the first half of 2009. Year 2008 was an exceptionally good hydro year. The decrease in Nordic nuclear power generation is mainly due to the long upgrade outage in Oskarshamn 3.
At year-end, Fortum's total power generating capacity was 13,940 megawatts (MW) (2008: 13,573), of which 10,981 MW (2008: 10,643) was in the Nordic countries. At year-end, Fortum's total heat production capacity was 24,330 MW (2008: 24,263), of which 8,414 MW (2008: 8,448) was in the Nordic countries.
| TWh | 2009 | 2008 | 2007 |
|---|---|---|---|
| Power generation | 49.3 | 52.6 | 52.2 |
| Heat generation | 23.2 | 25.0 | 26.1 |
| TWh | 2009 | 2008 | 2007 |
|---|---|---|---|
| Power generation | 16.0 | 11.6 | - |
| Heat generation | 25.6 | 15.3 | - |
| TWh | 2009 | 2008 | 2007 |
|---|---|---|---|
| Hydropower | 22.1 | 22.9 | 20.0 |
| Nuclear power | 21.4 | 23.7 | 24.9 |
| Thermal power | 4.6 | 5.0 | 6.2 |
| Total | 48.1 | 51.6 | 51.1 |
| % | 2009 | 2008 | 2007 |
|---|---|---|---|
| Hydropower | 46 | 44 | 39 |
| Nuclear power | 44 | 46 | 49 |
| Thermal power | 10 | 10 | 12 |
| Total | 100 | 100 | 100 |
Fortum's total power sales were 75.7 TWh (2008: 75.0), of which 54.9 TWh (2008: 59.1) were in the Nordic countries. This represents approximately 15% (2008: 15%) of the estimated Nordic electricity consumption during 2009. Fortum's total heat sales were 50.6 TWh (2008: 42.2), of which 18.0 TWh (2008: 20.0) were in the Nordic countries.
| EUR million | 2009 | 2008 | 2007 |
|---|---|---|---|
| Electricity sales | 2,802 | 2,959 | 2,370 |
| Heat sales | 1,095 | 1,157 | 1,096 |
| EUR million | 2009 | 2008 | 2007 |
|---|---|---|---|
| Electricity sales | 390 | 332 | - |
| Heat sales | 219 | 141 | - |
| TWh | 2009 | 2008 | 2007 |
|---|---|---|---|
| Finland | 26.1 | 28.7 | 29.0 |
| Sweden | 26.9 | 28.5 | 27.6 |
| Russia | 19.5 | 14.8 | - |
| Other countries | 3.2 | 3.0 | 3.1 |
| Total | 75.7 | 75.0 | 59.7 |
| TWh | 2009 | 2008 | 2007 |
|---|---|---|---|
| Russia | 25.6 | 15.3 | - |
| Finland | 8.0 | 10.8 | 11.1 |
| Sweden | 9.8 | 9.1 | 9.2 |
| Poland | 3.7 | 3.6 | 3.5 |
| Other countries 2) | 3.5 | 3.4 | 3.3 |
| Total | 50.6 | 42.2 | 27.1 |
1) Nord Pool transactions are calculated as a net amount of hourly sales and purchases at Group level. 2) Including the UK, which is reported in the Power segment, other sales.
In 2009, approximately 91% (2008: 92%) of the power generated by Fortum within the EU countries was CO2-free.
Fortum's total CO2 emissions subject to the EU's emission trading scheme (ETS) amounted to 7.7 million tonnes (2008: 7.2) of CO2.
Fortum's total annual CO2 allowance allocation for its power and heat plants is approximately 5.5 million tonnes per year during 2009–2012.
Fortum's target in the EU countries is to decrease its emissions in power generation to less than 80 g/kWh by 2020 as a five-year average. In heat production, Fortum aims at reducing the specific emissions in each country by at least 10% from 2006 until 2020. Outside the EU, Fortum is committed to increasing the energy efficiency, thus reducing specific emissions.
the respective figures by division are presented in the division reviews.
| Million tonnes | 2009 | 2008 | 2007 | 2006 |
|---|---|---|---|---|
| Total emissions | 22.0 | 17.6 | 10.4 | 11.0 |
| Emissions subject to ETS | 7.7 | 7.2 | 9.8 | 10.5 |
| Free emission allocation | 5.5 | 5.9 | 8.1 | 8.1 |
| Emissions in Russia | 13.8 | 9.8 | - | - |
| g/kWh | 2009 | 2008 | 2007 | 2006 |
|---|---|---|---|---|
| Specific emissions within ETS | 41 | 41 | 64 | 107 |
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 change took effect operationally on 1 October 2009.
The new business divisions are Power, Heat, Russia, and Electricity Solutions and Distribution. The reportable segments under IFRS have been renamed accordingly and the Electricity Solutions and Distribution Division is for transparency divided into two reporting segments, i.e. Distribution and Markets.
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.
The Heat Division consists of combined heat and power production, district heating activities and business-to-business heating solutions.
The Electricity Solutions and Distribution Division is responsible for Fortum's electricity sales, solutions and distribution activities in regional and distribution networks.
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.
The staff functions are Finance, Corporate Relations and Sustainability, Corporate Human Resources, and Corporate Strategy and R&D.
| EUR million | 2009 | 2008 | 2007 |
|---|---|---|---|
| Power | 2,596 | 2,892 | 2,350 |
| Heat | 1,394 | 1,466 | 1,356 |
| Distribution | 800 | 789 | 769 |
| Markets | 1,449 | 1,922 | 1,683 |
| Russia | 623 | 489 | - |
| Other | 74 | 83 | 81 |
| Netting of Nord Pool transactions 1) | –1,095 | –1,736 | –1,163 |
| Eliminations | –406 | –269 | –597 |
| Total | 5,435 | 5,636 | 4,479 |
1) Sales and purchases with Nord Pool are netted on Group level on an hourly basis and posted either as revenue or cost depending on if Fortum is a net seller or net buyer during any particular hour.
| EUR million | 2009 | 2008 | 2007 |
|---|---|---|---|
| Power | 1,469 | 1,528 | 1,095 |
| Heat | 227 | 250 | 290 |
| Distribution | 262 | 248 | 231 |
| Markets | 22 | –33 | –1 |
| Russia | –26 | –92 | - |
| Other | –66 | –56 | –51 |
| Total | 1,888 | 1,845 | 1,564 |
| EUR million | 2009 | 2008 | 2007 |
|---|---|---|---|
| Power | 1,335 | 1,599 | 1,115 |
| Heat | 248 | 307 | 294 |
| Distribution | 263 | 248 | 233 |
| Markets | 22 | –35 | 12 |
| Russia | –26 | –91 | 244 |
| Other | –60 | –65 | –51 |
| Total | 1,782 | 1,963 | 1,847 |
Group sales were EUR 5,435 million (2008: 5,636). Group operating profit totalled EUR 1,782 million (2008: 1,963). Comparable operating profit totalled EUR 1,888 million (2008: 1,845).
The difference in non-recurring items, mark-to-market effects and nuclear fund adjustments between 2009 and 2008 was EUR –224 million, explaining the decline in the reported operating profit.
The average SEK rate in 2009 decreased by approximately 9% compared to 2008. The translation effect caused by the lower average SEK rate was approximately EUR –96 million in Fortum's 2009 comparable operating profit compared to last year.
The share of profits of associates and joint ventures was EUR 21 million, EUR 105 million lower than in the previous year. This was mainly due to the lower contribution from Hafslund ASA. Hafslund's effect was EUR 52 million of the decrease.
Fortum's liquidity remained strong. Liquid funds at the end of the year 2009 amounted to EUR 890 million and undrawn committed credit facilities were approximately EUR 2.9 billion.
The Group's net financial expenses decreased to EUR 167 million (2008: 239). The decrease is attributable to lower interest expenses. The change in fair value of financial instruments was EUR –1 million (2008: –11).
Profit before taxes was EUR 1,636 million (2008: 1,850).
Taxes for the period totalled EUR 285 million (2008: 254). The tax rate according to the income statement was 17.4% (2008: 13.7%).
The profit for the period was EUR 1,351 million (2008: 1,596). Fortum's earnings per share were EUR 1.48 (2008: 1.74). As reported a year ago, the 2008 net earnings included EUR 184 million from one-time tax effects and non-recurring sales gains, mostly booked into the fourth-quarter results in 2008.
Non-controlling (minority) interests accounted for EUR 39 million (2008: 54). These are mainly attributable to Fortum Värme Holding AB, in which the city of Stockholm has a 50% economic interest.
Return on capital employed was 12.1% for the year (2008: 15.0%), and return on shareholders' equity was 16.0% (2008: 18.7%).
Fortum's net debt to EBITDA for 2009 stood at 2.6 (2008: 2.5).
Comparable operating profi t, EUR million
Profi t before tax, EUR million
2,000 1,500 1,000 500 0 05 06 07 08 09
Discontinued oil operations
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 | 2009 | 2008 | 2007 |
|---|---|---|---|
| Sales | 2,596 | 2,892 | 2,350 |
| - power sales | 2,414 | 2,566 | 2,019 |
| - other sales | 182 | 326 | 331 |
| Operating profit | 1,335 | 1,599 | 1,115 |
| Comparable operating profit | 1,469 | 1,528 | 1,095 |
| Net assets (at period-end) | 5,512 | 5,331 | 5,599 |
| Return on net assets, % | 23.9 | 29.6 | 19.2 |
| Comparable return on net assets, % | 26.6 | 28.0 | 18.9 |
| Gross investments | 154 | 134 | 145 |
| Number of employees | 3,063 | 3,520 | 3,511 |
In 2009, the division's power generation in the Nordic countries was 43.7 TWh (2008: 46.9). Approximately 97% (2008: 97%) of that was CO2 -free.
The decrease in Nordic hydropower generation was mainly due to lower precipitation and inflows into Nordic water reservoirs during the first half of 2009.
The decrease in Nordic nuclear power generation is mainly due to the extensive power increase and safety modernisation outage in Oskarshamn 3, which started at the beginning of March 2009 and ended in mid-December 2009. Oskarshamn 3's capacity has increased by ~250 MW, of which Fortum's share is approximately 110 MW. Currently, the increased capacity is only partly available due to the ongoing testing period.
| TWh | 2009 | 2008 | 2007 |
|---|---|---|---|
| Hydropower | 22.1 | 22.9 | 20.0 |
| Nuclear power | 21.4 | 23.7 | 24.9 |
| Thermal power | 0.2 | 0.3 | 1.2 |
| Total in the Nordic countries | 43.7 | 46.9 | 46.1 |
| Thermal in other countries | 1.2 | 1.0 | 1.1 |
| Total | 44.9 | 47.9 | 47.2 |
| TWh | 2009 | 2008 | 2007 |
|---|---|---|---|
| Total | 48.8 | 52.1 | 51.8 |
| of which pass-through sales | 3.6 | 3.7 | 5.2 |
| EUR/MWh | 2009 | 2008 | 2007 |
|---|---|---|---|
| Power's Nordic power price 1) | 49.8 | 49.3 | 39.7 |
1) For the Power Division in the Nordic area, excluding pass-through sale.
During 2009, the average system spot price in Nord Pool was EUR 35.0 per MWh, while the Finnish and Swedish area prices were EUR 37.0 per MWh. Power's achieved Nordic power price was EUR 49.8 per MWh, approximately the same level as last year.
In 2009, Power's comparable operating profit was lower than in the corresponding period last year. This was mainly due to the lower hydro and nuclear generation volumes. The translation effect from the weaker SEK was approximately EUR –70 million in the division's 2009 comparable operating profit.
In February 2009, Fortum submitted an application to the Government of Finland for a decision-in-principle concerning the construction of a new nuclear power plant unit in Loviisa. Fortum is one of three applicants applying for the decision-in-principle. The Government is expected to make its proposal to the Parliament during 2010.
Fortum is a shareholder in Teollisuuden Voima Oyj (TVO), a nuclear generation company operating two nuclear power units in Olkiluoto, Finland. TVO is in the process of building a third unit, Olkiluoto 3. Based on the latest progress report submitted by the plant supplier, AREVA-Siemens, TVO has estimated that the start-up of the plant may be postponed beyond June 2012, which was the schedule confirmed by the supplier.
In late March, TVO's shareholders committed to providing a EUR 300 million subordinated shareholder's loan to TVO. Fortum's share of this commitment is at maximum EUR 75 million.
Annual average spot price and Fortum's achieved Nordic power price, EUR/MWh
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 | 2009 | 2008 | 2007 |
|---|---|---|---|
| Sales | 1,394 | 1,466 | 1,356 |
| - heat sales | 1,054 | 1,120 | 1,053 |
| - power sales | 224 | 228 | 202 |
| - other sales | 116 | 118 | 101 |
| Operating profit | 248 | 307 | 294 |
| Comparable operating profit | 227 | 250 | 290 |
| Net assets (at period-end) | 3,786 | 3,468 | 3,507 |
| Return on net assets, % | 7.8 | 8.9 | 9.3 |
| Comparable return on net assets, % | 7.2 | 7.3 | 9.2 |
| Gross investments | 359 | 431 | 327 |
| Number of employees | 2,246 | 2,318 | 2,279 |
The division's heat sales during 2009 amounted to 22.9 TWh (2008: 24.9), most of which was generated in the Nordic countries. During the same period, power sales from CHP production totalled 4.4 TWh (2008: 4.7).
The decrease in the sales volume is mainly due to the sale of a CHP company in Jyväskylä, Finland, at the end of 2008 and lower demand from industrial customers.
In 2009, the division's comparable operating profit was EUR 227 million, EUR 23 million lower than the year before.
The decrease was mainly due to the EUR –17 million translation effect from a weaker SEK and PLN, mainly in the first half of the year.
Fortum started the commercial operation of the new CHP unit in Espoo, Finland, during the fourth quarter. The construction of the CHP plants in Częstochowa, Poland, and Pärnu, Estonia, proceeded.
| TWh | 2009 | 2008 | 2007 |
|---|---|---|---|
| Finland | 8.0 | 10.8 | 11.1 |
| Sweden | 9.8 | 9.1 | 9.2 |
| Poland | 3.7 | 3.6 | 3.5 |
| Other countries | 1.4 | 1.4 | 1.3 |
| Total | 22.9 | 24.9 | 25.1 |
Steam Heat
| TWh | 2009 | 2008 | 2007 |
|---|---|---|---|
| Total | 4.4 | 4.7 | 5.0 |
Other countries Sweden Finland
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 | 2009 | 2008 | 2007 |
|---|---|---|---|
| Sales | 800 | 789 | 769 |
| - distribution network transmission | 685 | 669 | 648 |
| - regional network transmission | 75 | 77 | 81 |
| - other sales | 40 | 43 | 40 |
| Operating profit | 263 | 248 | 233 |
| Comparable operating profit | 262 | 248 | 231 |
| Net assets (at period-end) | 3,299 | 3,032 | 3,239 |
| Return on net assets, % | 8.7 | 8.1 | 7.7 |
| Comparable return on net assets, % | 8.6 | 8.2 | 7.6 |
| Gross investments | 193 | 296 | 237 |
| Number of employees | 1,088 | 1,336 | 1,063 |
In 2009, the volume of distribution and regional network transmission totalled 25.9 TWh (2008: 25.8) and 16.4 TWh (2008: 17.7), respectively.
Electricity transmission via the regional distribution network totalled 13.6 TWh (2008: 14.8) in Sweden and 2.8 TWh (2008: 2.9) in Finland.
The comparable operating profit of the Distribution business area was EUR 262 million in 2009, EUR 14 million higher than the previous year, though the 2009 results were somewhat affected by a negative translation effect from the weaker SEK. The result in 2008 was burdened by AMM implementation-related costs in the Swedish operations.
The new Swedish legislation on monthly meter reading came into effect on 1 July 2009. In order to meet the new requirements, Fortum has replaced 844,000 electricity meters with new smart meters.
In August 2009, a contract for the automatic meter management in Finland was signed with the service provider Telvent. The total value of the investment is approximately EUR 170 million over a period of nine years. The investment includes the purchase of the smart meters, installation, operation and development of the system as well as the related services. The new Finnish legislation on meter reading requirements will be effective as of 1 January 2014.
In October 2009, the Swedish Energy Market Inspectorate (EI) delivered an investigation regarding the handling of capital costs and basic principles of the new Ex-Ante regulation model, and launched principles for the intermediate regulation for the period 2008–2011. The formal decision regarding the Ex-Ante regulation in Sweden starting from 2012 was made by the Swedish Parliament in June 2009. In the new regulation, network pricing will be determined in advance.
| TWh | 2009 | 2008 | 2007 |
|---|---|---|---|
| Sweden | 14.0 | 14.0 | 14.3 |
| Finland | 9.4 | 9.3 | 9.2 |
| Norway | 2.3 | 2.3 | 2.3 |
| Estonia | 0.2 | 0.2 | 0.2 |
| Total | 25.9 | 25.8 | 26.0 |
| Thousands | 2009 | 2008 | 2007 |
|---|---|---|---|
| Sweden | 895 | 877 | 871 |
| Finland | 611 | 606 | 591 |
| Norway | 99 | 99 | 98 |
| Estonia | 24 | 24 | 24 |
| Total | 1,629 | 1,606 | 1,584 |
Finland 611
Markets 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. Markets buys its electricity through Nord Pool. Markets sells approximately 70% of its volumes to business customers and 30% to retail consumers.
| EUR million | 2009 | 2008 | 2007 |
|---|---|---|---|
| Sales | 1,449 | 1,922 | 1,683 |
| - power sales | 1,417 | 1,865 | 1,582 |
| - other sales | 32 | 57 | 101 |
| Operating profit | 22 | –35 | 12 |
| Comparable operating profit | 22 | –33 | –1 |
| Net assets (at period-end) | 147 | 188 | 247 |
| Return on net assets, % | 16.8 | –14.0 | 6.9 |
| Comparable return on net assets, % | 18.6 | –15.3 | –0.6 |
| Gross investments | 1 | 3 | 3 |
| Number of employees | 611 | 635 | 935 |
The decrease in the sales volume continued mainly due to the lower consumption by business customers and discontinued contracts with some large business customers. The customer churn in the consumer market segment increased clearly during 2009.
The improvement in Markets' performance in 2009 was based on Markets' successful turnaround programme, including the launch of the new pricing model in the Consumer Market segment, renegotiated sales agreements in the Business Customer segment, renewed hedging operations and tighter cost controls.
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. OAO Fortum is accounted for as a subsidiary and fully consolidated from 1 April 2008. TGC-1 is an associated company and accounted for using the equity method.
| EUR million | 2009 | 2008 | 2007 |
|---|---|---|---|
| Sales | 623 | 489 | - |
| - power sales | 390 | 332 | - |
| - heat sales | 219 | 141 | - |
| - other sales | 14 | 16 | - |
| EBITDA | 49 | –24 | - |
| Operating profit | –26 | –91 | 244 |
| Comparable operating profit | –26 | –92 | - |
| Net assets (at period-end) | 2,248 | 2,205 | 456 |
| Return on net assets, % | –0.3 | –3.7 | 66.3 |
| Comparable return on net assets, % | –0.3 | –3.8 | 0.0 |
| Gross investments | 218 | 1,748 | 245 |
| Number of employees 1) | 4,090 | 7,262 | - |
1) In January 2009, around 1,100 persons working at OAO Fortum were transferred internally from the Russia Division to the Power Division.
OAO Fortum operates in the well-developed industrial regions of the Urals and in oil-producing western Siberia.
In 2009, the power sales were 19.5 TWh (14.8 TWh in Q2–Q4/2008) and the heat sales 25.6 TWh (15.3 TWh in Q2–Q4/2008). The division sold approximately 2/3 of its power in Tyumen and other oil- and gas-producing areas in the OAO Fortum region. The remaining 1/3 of its volumes were sold in the Chelyabinsk region, where the metals industry dominates wholesale electricity demand.
For the full year 2009, the share of electricity sold at the liberalised price was 34%.
| 2009 | 2008 | |
|---|---|---|
| Electricity spot prices (market prices), Urals hub, RUB/MWh | 633 | 672 |
| Average regulated electricity price for OAO Fortum, RUB/MWh | 533 | 475 |
| Average regulated capacity price, RUB/MW/month | 187.3 | 167.8 |
| Average limit gas price in Urals region, RUB/1,000 m3 | 1,782 | 1,560 |
In 2009, the Russia Division's comparable operating profit, EUR –26 million, was an improvement of EUR 66 million compared to the previous year. The increase mainly stems from OAO Fortum's efficiency improvement programme and a higher electricity sales margin.
OAO Fortum figures have been consolidated from the beginning of April 2008.
OAO Fortum's business is typically very seasonal, the results usually being strongest during the first and last quarters of the year.
The Russian power sector reform is proceeding. Starting 1 January 2009, 30% of all produced power in Russia was sold on the competitive market. The share increased to 50% at the beginning of July 2009 and further to 60% at the beginning of January 2010. The wholesale power market is expected to be fully liberalised in the beginning of 2011. The rules for the long-term capacity market are currently under consideration by the Russian government and a decision is expected before the end of 2010.
OAO Fortum's efficiency improvement programme is proceeding according to plan. The annual efficiency improvements are expected to be approximately EUR 100 million in 2011.
| EUR million | 2009 | 2008 | 2007 |
|---|---|---|---|
| Capital expenditure | |||
| Intangible assets | 20 | 24 | 11 |
| Property, plant and equipment | 842 | 1,084 | 644 |
| Total | 862 | 1,108 | 655 |
| Gross investments in shares | |||
| Subsidiaries | 8 | 1,506 | 18 |
| Associated companies | 58 | 8 | 295 |
| Available for sale financial assets | 1 | 2 | 4 |
| Total | 67 | 1,516 | 317 |
Capital expenditure and investments in shares in 2009 totalled EUR 929 million (2008: 2,624). Investments, excluding acquisitions, were EUR 862 million (2008: 1,108).
In 2010, Fortum expects to commission new power/heat capacity as follows:
| Capacity electricity |
Capacity heat |
||
|---|---|---|---|
| Type | MW | MW | Available |
| 120 Q3/2010 | |||
| CHP bio, peat | 20 | 45 end 2010 | |
| Hydropower | 20–30 | 2010 | |
| CHP/Condensing, gas | 190 | Q3/2010 | |
| Condensing, gas | 210 | Q3/2010 | |
| CHP/Condensing, gas | 220 | Q4/2010 | |
| CHP bio, coal | 65 |
Fortum and the Norwegian Hafslund Infratek ASA combined their businesses of construction and operating of infrastructure in Sweden, Finland and Norway as of 15 January 2009.
Heat continued its development programme to ensure future competitiveness and an optimal asset portfolio.
A new CHP plant in Tartu, Estonia, was taken into commercial use in late March 2009 and a new CHP plant in Espoo was taken into use in December 2009. The construction of the new CHP plants in Częstochowa, Poland and in Pärnu, Estonia, proceeded.
In August Fortum sold its CHP plant in Kokkola, Finland, to the city of Kokkola. The transaction price was around EUR 24 million.
In December, Fortum agreed to sell its shares in the Swedish gas transmission company Swedegas AB. The transaction will take place in early 2010.
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. Currently Fortum expects the sales process of Fingrid shares to take place during 2010.
OAO Fortum's ongoing investment programme will increase its power capacity with 2,300 MW. The value for the remaining part of the programme, calculated at year-end 2009 exchange rates, is estimated to be EUR 1.8 billion from January 2010 onwards.
The Russian Government is currently reviewing the investment programmes of the generating companies in light of the decreased power demand. Fortum has confirmed its commitment to fulfill OAO Fortum's investment programme. However, the potential postponement of some projects by 1–3 years is currently under review with a favourable outlook.
| EUR million | 2009 | 2008 | 2007 |
|---|---|---|---|
| Interest expense | –241 | –351 | –220 |
| Interest income | 98 | 143 | 76 |
| Fair value gains and losses | –1 | –11 | 7 |
| Other financial expenses | –23 | –20 | –17 |
| Finance costs - net | –167 | –239 | –154 |
| Interest-bearing liabilities | 6,859 | 7,500 | 4,893 |
| Liquid funds | 890 | 1,321 | 427 |
| Interest-bearing net debt | 5,969 | 6,179 | 4,466 |
At year-end, the interest-bearing net debt stood at EUR 5,969 million (2008: 6,179), resulting in a total decrease in net debt during the year of EUR 210 million.
Cash flow during the year was strong with net cash from operating activities amounting to EUR 2,264 million (2008: 2,002). Cash generated was primarily used for investing activities and dividend payments. Net cash used for investment activities in 2009 was EUR 974 million (2008: 2,282), and dividend payments amounted to EUR 888 million (2008: 1,198).
Net debt to EBITDA for 2009 was 2.6 (2008: 2.5).
The Group's net financial expenses in 2009 were EUR 167 million (2008: 239). The decrease in financial expenses is mainly attributable to lower average interest rates in 2009 compared to 2008. Net financial expenses include a fair value loss on financial instruments of EUR 1 million (2008: fair value loss 11).
The average interest rate on Fortum's interest-bearing debt (including derivatives) for 2009 was 3.7% (2008: 5.3%).
Group liquidity remained strong. Year-end liquid funds totalled EUR 890 million (2008: 1,321), of which EUR 632 million (2008: 1,020) was cash held by OAO Fortum and earmarked for the company's investment programme. In addition, the Group had a total of approximately EUR 2.9 billion (2008: 2.3) available for drawing under committed credit facilities.
During the year Fortum raised new long-term financing in excess of EUR 2 billion, through the approximately EUR 1.6 billion bond issuance under Fortum's Euro Medium Term Note Programme, and bilateral long-term loans in excess of EUR 0.5 billion. The proceeds of these new financings were used to refinance maturing debt in 2009 as well as to partially repay loan facilities maturing in 2011 and approximately RUB 8 billion (EUR 180 million) of bonds due in 2010 and 2013. Short-term financing (mainly the issuance of commercial papers) decreased to EUR 308 million (2008: 520) at year-end.
During the year Fortum Corporation's long-term credit rating from Standard and Poor's was increased from "A–" to "A" (stable), following a change in their rating methodology of "Government-related entities". The long-term credit rating from Moody's was at year end "A2" (stable).
The number of employees at the end of the period was 11,613 (2008: 15,579), of which 11,332 (2008: 15,264) were permanent employees.
The outsourcing of certain infrastructure service functions to Infratek ASA in January 2009 reduced the number of people in Power and Distribution.
In the first quarter of 2009, around 1,100 persons working at OAO Fortum were transferred internally from the Russia division to the Power division.
OAO Fortum discontinued its operation and maintenance contract with the city of Tyumen for the operation of municipal heat networks as of 1 July 2009. This reduced the number of OAO Fortum employees by approximately 750.
The number of employees in the parent company, Fortum Corporation, at year end totalled 409 (2008: 434).
| 2009 | 2008 | 2007 | |
|---|---|---|---|
| Number of employees, 31 Dec | 11,613 | 15,579 | 8,303 |
| Average number of employees | 13,278 | 14,077 | 8,304 |
| Total amount of employee costs, EUR million | 491 | 587 | 495 |
˭ For further details of group personnel see Note 12 Employee cost and management remuneration on page 143 of the Consolidated Financial Statements. See also page 48 of the Annual Report.
0
3.0 2.5 2.0 1.5 1.0 0.5
On April 7 2009, Tapio Kuula, member of Fortum Corporation Management Team, was appointed Fortum Corporation's President and CEO as of 1 May 2009. Tapio Kuula has worked at Fortum since 1996 and has been a member of the Management Team since 1997.
In August 2009 the following Management Team was appointed, taking effect on 1 October 2009:
Matti Ruotsala, Per Langer, Alexander Chuvaev and Anne Brunila are new Management Team members.
In January 2010, Fortum acquired the combined heat and power plant in the town of Nokia, Finland.
The share of produced wholesale power sold on the competitive market in Russia was increased from 50% to 60% from the beginning of January 2010.
The key factor influencing Fortum's business performance is the wholesale price of electricity. 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 potential 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 the Risk management section of the Operating and Financial Review on page 98 and Note 3 Financial risk management on page 126 in the Consolidated Financial Statements.
The recession has impacted the markets in which Fortum operates. This may increase Fortum's counterparty risk. The electricity consumption in the Nordic countries and Russia may continue to be depressed.
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 Russia, one of the key assumptions in the OAO Fortum acquisition is the continuation of the Russian power sector reform. As planned, the share of power sold at a competitive price was increased from 30% to 50% on 1 July 2009 and from 50% to 60% at the beginning of January 2010. The share is planned to be increased from 60% to 80% at the beginning of July 2010. The wholesale power market is expected to be fully liberalised by 2011.
The rules for the long-term capacity market are currently under consideration by the Russian government and a decision is expected before the end of the year 2010.
The average limit gas price (regulated gas price) for the first quarter of 2010 will increase by 15%. The planned increase for the full year 2010 is 24%. The regulated electricity price is indexed to the regulated gas price and inflation on an annual basis.
OAO Fortum is committed and contractually obligated to a significant investment programme, amounting to approximately EUR 1.8 billion for 2010 and onwards. The Russian Government is currently reviewing the investment programmes of the generating companies in light of the decreased power demand stemming from the current recession. Fortum has confirmed its commitment to fulfil OAO Fortum's investment programme. However, the potential postponement of some projects by 1–3 years is currently under review with a favourable outlook.
Annual efficiency improvements are expected to be approximately EUR 100 million in 2011.
Fortum expects its annual capital expenditure in the next 4–5 years to be within a range of EUR 0.8–1.2 billion.
In late January 2010, the electricity forward price in Nord Pool for the rest of 2010 was around EUR 44 per MWh. The electricity forward price for 2011 was around EUR 42 per MWh and for 2012 around EUR 41 per MWh. At the same time, the future quotations for coal (ICE Rotterdam) for the rest of 2010 were around USD 84 per tonne and the market price for CO2 emissions allowances (EUA) for 2010 was about EUR 13 per tonne.
In late January 2010, Nordic water reservoirs were about 14 TWh below the long-term average, and 6 TWh below the corresponding level of 2009.
Fortum Power's achieved Nordic power price typically depends on 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 power price results in an approximately EUR 50 million change in Fortum's annual operating profit.
At the end of December 2009, Fortum had hedged approximately 70% of the Power division's estimated Nordic electricity sales volume for the year 2010 at approximately EUR 44 per MWh. For the calendar year 2011, approximately 40% of the division's estimated Nordic electricity sales volume was hedged at approximately EUR 42 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.
The first and last quarters of the year are usually the strongest quarters for the power and heat businesses.
Fortum's results in 2009 were good, despite the challenging economic environment. The company has a flexible, cost-efficient and climate-benign generation portfolio. Fortum's financial position and liquidity are strong.
R&D activities are geared towards Fortum's long-term goal to be a carbon dioxide-free company. Activities are based on building networks and partnerships with leading research organisations, engineering companies, and equipment and plant suppliers. Fortum also conducts in-house research and development in strategically significant key areas.
In 2009, Fortum's R&D activities focused strongly on the development of a nuclear combined heat and power (CHP) plant concept, smart grids and electric vehicles. Important steps were taken also in carbon capture and storage activities.
Replacing coal- and natural gas-fired CHP-production in the Helsinki metropolitan area with district heat produced at the Loviisa 3 nuclear power plant unit could reduce Finland's CO2 emissions by 4 million tonnes per year. Fortum worked to develop concepts for steam extraction from the turbines together with turbine manufacturers, studied options for heat transport, modelled the district heat transport system and with the Apros simulation software, analysed safety issues associated with the system.
Smart grids became an important new priority in Fortum's R&D in 2009. A smart grid is an electricity network that can intelligently integrate the actions of all users connected to it – electricity generators, consumers and those that do both – in order to efficiently deliver sustainable, economic and secure electricity. Fortum started several concrete development projects in the realm of smart grids and electricity in transportation during the year.
Fortum and TVO announced cooperation with Siemens Energy and with Maersk Oil and Maersk Tankers in the field of carbon capture and storage. Siemens Energy has been selected as the capture technology partner for the FINNCAP - Meri-Pori Carbon Capture and Storage (CCS) project. The partners wish to combine carbon capture at the Meri-Pori power plant with CO2 transportation by Maersk Tankers' vessels and Maersk Oil's geological storage.
The group's total R&D expenditure in 2009 was EUR 30 million (2008: 27).
Fortum's R&D expenditure amounts to 0.5% of sales (2008: 0.5%) and 0.9% (2008: 0.8%) of total expenses.
| 2009 | 2008 | 2007 | |
|---|---|---|---|
| R&D expenditure, EUR million | 30 | 27 | 21 |
| R&D expenditure, % of sales | 0.5 | 0.5 | 0.5 |
| R&D expenditure, % of total expenses | 0.9 | 0.8 | 0.8 |
˭ For further details on research and development, see page 38 of the Annual Report.
Fortum's vision statement "to be the benchmark power and heat company excelling in sustainability" expresses the company's firm belief that sustainability is a success factor for its business.
Fortum's Sustainability Agenda specifies the entire Group's shared long- and medium term sustainability goals that guide the annual goal setting and operational planning of the divisions. The agenda has three important elements: the desired future position for Fortum, our goals for 2020 and the actions to reach those goals.
The desired position defines our strategic ambitions. We want to:
Mitigating climate change is one of Fortum's most important strategic goals. In the long-term, Fortum's vision is to be a CO2-free power and heat company. In March 2009, Fortum signed a declaration aiming to achieve a carbon-neutral power supply by the middle of this century together with 61 European energy companies representing over 70% of all EU electricity production.
Between 1990–2009, Fortum has reduced the specific emissions of its energy production in the EU by 50%. In 2009, 91% of the power generated by Fortum within the EU countries was CO2-free. The corresponding figure including the Russian production was 69%. The specific CO2 emissions from our total production were 176 g/kWh (2008: 134) and in the EU countries 41 g/kWh (2008: 41), which continues to be among the lowest of the major European power companies. Fortum's target in the EU countries is to decrease its emissions in power generation to less than 80 g/kWh by 2020 as a five-year average. In heat production, Fortum aims at reducing the specific emis sions in each country by at least 10% from 2006 until 2020. Outside the EU, Fortum is committed to increasing the energy efficiency of power plants and thus reducing specific emissions.
In 2009 Fortum's total emissions were 22.0 million (2008: 17.6) tonnes of CO 2. Carbon dioxide emissions from Fortum's own power plants in Russia were 13.8 mil lion (2008: 9.8) tonnes. The total CO 2 emissions subject to the EU's emissions trading scheme (ETS) amounted to 7.7 million (2008: 7.2) tonnes of CO 2.
Kyoto mechanisms are an important part of Fortum's climate strategy. In 2009, Fortum's investments in international carbon funds started generating emission re ductions. Fortum expects to receive a total of one million emission reduction units from the carbon funds, including the World Bank's Prototype Carbon Fund and The Testing Ground Facility Fund. In 2009, Fortum also continued the preparation of joint implementation projects in Russia. About 3.5 million emission reduction units are expected from these projects by 2012.
In 2009, there were a total of 37 (of which 8 in Russia) occupational accidents (2008: 63) leading to an absence of more than one working day. The frequency excluding Russia was 2.4 injuries (2008: 4.3) per one million working hours, nearly achieving Fortum's target value of 2 for 2009. There were two fatalities for subcontractors in Russia. In order to meet the new very ambitious target of less than 1 injury per million working hours in 2010, Fortum will step up its safety efforts further.
In 2009, a new EHS (Environmental, health and safety) organisation was created in OAO Fortum. Its task is to become ISO 14001 certified by 2012. The implementation of the EHS Action Plan continued with focus on the efficiency improvements in dis trict heating where there is an enormous potential for energy savings and decreased emissions. During the year an ambitious occupational health and safety program was launched at OAO Fortum covering all plants, personnel and contractors. The target of the program is to achieve the Fortum way of working regarding safety also in Russia by 2012.
Along with the financial and quality assessment, sustainability is an integral and natural part of the assessment of suppliers at the procurement function. In 2009, operating guidelines for subcontractors have been attached to 85% of subcontractor agreements exceeding EUR 50,000 in Finland and Sweden. In 2009, the guidelines were also applied in Poland and the Baltic countries.
˭ For further details on Sustainability see page 41 in the Annual Report.
Risk management is an integrated part of business planning and performance management. Its purpose is to enable the execution of the company's strategy and to support the business in achieving financial targets.
Involvement in the power and heat business exposes Fortum to several types of financial, operational and strategic risks. Electricity prices, which in turn are affected by the weather in the Nordic region and the development of the global commodity markets, are the main sources of financial risk. The Russian business is exposed to fuel and electricity prices in form of margin exposure.
Fortum is continuously developing its risk management capabilities to cope with prevailing market conditions, developing operations and an ever-changing business environment. In the Risk Management development work the focus has been on further enhancing the framework for operational risk management especially within the concept of internal controls and compliance risk management. At the same time market and credit risk modelling has been continuously developed.
Fortum's Board of Directors approves the Corporate Risk Policy which sets the objective, principles and division of responsibilities for risk management activities within the Group as well as defines the overall risk management process.
Corporate guidelines are issued for those risks which are managed on Group level. Corporate Treasury is responsible for managing the Group's currency, interest rate, and liquidity and refinancing risks as well as for insurance management. Corporate Credit Control is responsible for assessing and consolidating the Group's exposure to counterpart risk, monitoring the creditworthiness of counterparts and for approving counterpart credit limits. Corporate IT is responsible for managing IT information and security risks. There are also corporate functions dealing with risks related to human resources, laws and regulation, and sustainability.
The Audit and Risk Committee is responsible for risk oversight within the Group. Corporate Risk Management is an independent function headed by the Chief Risk Officer (CRO), who reports to the CFO and is responsible for assessing and reporting the Group's consolidated risk exposure to the Board of Directors and Group Management. Corporate Risk Management also monitors and reports risk in relation to mandates approved by the CEO. The main principle is that risks are managed at source if not agreed otherwise and in order to maintain a strict segregation of duties, risk control functions in Divisions and Group functions like Treasury and Trading and Industrial Intelligence (TII) are responsible for reporting risks to Corporate Risk Management.
The risk management process consists of event identification, risk assessment, risk response and risk control. Risks are primarily identified and assessed by divisions and staff functions in accordance with corporate guidelines and models that are approved by Corporate Risk Management. Every unit is also responsible for responding to risks by taking appropriate actions. Risk responses can be one of, or a combination of, mitigating, transferring or absorbing the risk.
Risk control, monitoring and reporting is carried out by the divisional risk control functions. The frequency of reporting is dependent upon the scope of the business. For example, trading activities and limit breaches are reported daily whereas strategic and operational risks are reported as part of the annual business planning process. Corporate Risk Management assesses and reports the Group's consolidated exposure to financial risks to Group Management and the Board of Directors on a monthly basis and main commodity exposures to the Group management on weekly basis.
Fortum seeks growth both by leveraging organic growth opportunities and actively participating in further Nordic consolidation. Fortum's aim is to grow profitably in chosen market areas: the Nordic countries, Russia, Poland and the Baltic countries. The growth possibilities are in part subject to regulatory supervision and political decisions.
Nordic/EU Policy harmonisation, infrastructure development and integration of the Nordic electricity market towards continental Europe depend partly on the actions of authorities. Changes in the market environment and regulation could endanger the implementation of the market-driven development of the electricity market. Fortum promotes market-driven development by maintaining an active dialogue with all stakeholders.
Fortum's growth strategy includes expanding operations, particularly in Poland and Russia. In the first quarter of 2008, Fortum acquired a controlling stake in the Russian territorial generating company TGC-10. The integration of OAO Fortum (former TGC-10) has proceeded well but integration of any other such business may be difficult for a variety of reasons, including differing business environment, culture or management styles. As a result any potential future acquisition poses risks to existing operations, including:
• the need to attract and retain sufficient numbers of qualified management and other personnel.
Development of the political and regulatory environment has a major impact on the energy industry and on the conditions of its business operations. Fortum is thus exposed to regulatory risks in various countries. Regulatory bodies and competition authorities regularly perform analysis, investigations and inquiries, which might lead to changes in business conditions. To manage these risks and proactively participate in the development of the political and regulatory framework, including energy taxation, Fortum maintains an active and on-going dialogue with the bodies involved in the development of laws and regulations. On-going discussions around windfall taxation and permits to build new nuclear capacity in Finland can both have an effect on Fortum's operations especially in the long-run.
Fortum now owns and operates heat and power generation assets in Russia under operations of OAO Fortum. These businesses are currently largely subject to regulation, but the power market in particular is undergoing a process of deregulation and, as a result, the prices for electricity in Russia are expected to increase. The main fuel source for heat and power generation in Russia is gas. Gas prices are partially regulated, and there is a dependency on a limited number of suppliers. Changes in the regulation regarding gas prices and suppliers can affect the supply and price of gas. Furthermore, if deregulation of the gas and electricity markets is not aligned, the impact of price changes in either electricity or gas could be significant. Emerging markets countries are subject to greater political, economic and social uncertainties than countries with more developed institutional structures, and the risk of loss resulting from changes in law, economic and social upheaval and other factors may be substantial.
Fortum's operations are subject to rules and regulations set forth by the relevant authorities, exchanges, and other regulatory bodies in all markets which it operates on. 25% of the controls in the Fortum internal control framework mitigate compliance risks.
Inadequacies in the legal systems and law enforcement mechanisms in Russia and certain other of the emerging markets expose Fortum to risk of loss as a result of criminal or abusive practices by competitors, suppliers, or contracting parties. Fortum's ability to operate in Russia may also be adversely affected by difficulties in protecting and enforcing its rights in disputes with its contractual partners or other parties, and also by future changes to local laws and regulations.
Fortum maintains strict internal market conduct rules and has procedures in place to prevent, for example, the use of proprietary information before it is published. Segregation of duties and internal controls are enforced to minimise the possibilities of unauthorised activities. Fortum has also MiFID Licence relating to its Customer Portfolio Services.
Compliance with the competition legislation is an important area for Fortum and it is managed through Fortum's Competition Compliance Programme. Fortum has also enhanced Compliance risk management by establishing a process to systematically identify and mitigate compliance risks linked to the operational risk framework.
Financial risk refers to the potential negative effects of market price movements, volume changes, liquidity events or counterpart events. A number of different methods, such as Value-at-Risk and Profit-at-Risk, are used throughout the Group to quantify financial risks. In particular, the potential impact of price and volume risks of electricity, weather, CO2 and the main fuels are assessed taking into account their interdependencies. Stress-testing is carried out in order to assess the effects of extreme price movements on Fortum's earnings.
Risk taking is limited by risk mandates. Risk mandates include minimum EBITDA level for the Group that are set by the Board of Directors and exposure level mandates set by CEO like Volumetric limits, Value-at-Risk limits, Stop Loss limits and counterpart exposure limits.
˭ For further information on hedge ratios, exposures, sensitivities and outstanding derivatives contracts, see Note 3 Financial risk management on page 126.
Fortum is exposed to electricity market price movements mainly through its power generation and customer sales businesses. The short-term factors affecting electricity prices on the Nordic market include hydrological conditions, temperature, CO2 allowance prices, fuel prices, and the import/export situation. Fortum manages exposure to electricity price risk through the use of hedging strategies that are executed by the centralised Trading and Industrial Intelligence unit within set mandates. Hedges for electricity price risks consist of electricity derivatives contracts.
Fortum risk map
Power and heat generation, customer sales, and electricity distribution volumes are subject to changes in, for example, hydrological conditions and temperature. Although volume risks in power and heat generation are partly mitigated through generation flexibility, changes in volumes are closely monitored so that hedges can be adjusted accordingly.
The European Union has established an emissions trading scheme to limit the amount of CO2 emissions. Part of Fortum's power and heat generation is subject to requirements of the trading scheme. Fortum manages its exposure to CO2 allowance prices through the use of CO2 forwards and by ensuring that the costs of allowances are taken into account during production planning.
Heat and power generation requires the use of fuels that are purchased from global or local markets. The main fuels used by the Group are uranium, coal, natural gas, peat, oil, and various bio-fuels such as wood pellets. Exposure to fuel prices is to some extent limited because of Fortum's flexible generation possibilities, which allow for switching between different fuels according to prevailing market conditions, and in some cases, the fuel price risk can be transferred to the customer. The remaining exposure to fuel price risk is mitigated through fixed price purchases that cover forecasted
consumption levels. Fixed price purchases can be either for physical deliveries or in the form of financial hedges.
Fortum engages in a certain level of trading for profit based on a high level of market knowledge. Fortum's proprietary trading activities are limited to standardised electricity, coal and CO2 allowance contracts mainly traded through established markets such as Nord Pool, EEX and ICE.
Risks associated with trading activities are limited through strict management controls. Stop Loss mandates are set to limit the cumulative maximum loss during the year, and Value-at-Risk mandates limit the maximum risk taking during one day. All trading risks are monitored and reported on a daily basis.
Fortum's business is capital intensive and the Group has a regular need to raise financing. Financing needs may also arise as a result of Fortums growth strategy, such as the acquisition of OAO Fortum. This acquisition included a committed investment program which was partially prefunded with approximately EUR 1 billion of bank deposits earmarked for investments. Fortum has a diversified loan portfolio mainly consisting of long-term bond financing but also a variety of other long- and shortterm financing facilities.
The global financial crisis during 2008 has emphasised the need for prudent management of liquidity and refinancing risk. Fortum manages these risks through a combination of cash positions and committed credit facility agreements with its core banks. The Group shall at all times have access to cash/marketable securities and unused committed credit facilities including overdrafts, to cover all loans maturing within the next twelve-month period. As of 31 December 2009, Fortum had EUR 890 million of liquid funds as well as access to EUR 2.9 billion of undrawn committed credit facilities. Debt maturities for 2010 amounted to EUR 857 million.
Fortum's debt portfolio consists of interest-bearing assets and liabilities on fixed and floating rate bases with differing maturity profiles. Fortum manages the duration of the debt portfolio by entering into different types of financing contracts and interest rate derivative contracts such as interest rate swaps and forward rate agreements (FRAs).
Fortum has cash flows, assets and liabilities in currencies other than in euro. Changes in exchange rates can therefore have an effect on Fortum's earnings and balance sheet. The main currency exposures for Fortum are EUR/SEK, arising from the Group's extensive operations in Sweden and EUR/RUB from translation exposure of OAO Fortum in Russia.
The Group's currency exposures are divided into transaction exposures (foreign exchange exposures relating to contracted cash flows, and balance sheet items where changes in exchange rates will have an impact on earnings and cash flows) and translation exposure (foreign exchange exposure that arises when profits and balance sheets in foreign entities are consolidated in on Group level). Fortum Treasury policy states the principles and limits for managing currency exposures. For transaction risk the main principle is that all material exposures are hedged while translation exposures are not hedged or hedged selectively.
Fortum is exposed to counterpart risk whenever there is a contractual obligation with an external counterpart. In order to minimise counterpart risk, Fortum has well established routines and processes to identify, assess and control counterpart exposure. The Group Credit Guidelines regulates that no contractual obligation should be entered into without a proper, reasonable and viable credit check.
Corporate Credit Control is responsible for assuring stringent controls for all larger individual counterpart exposures. Creditworthiness is continuously monitored through the use of external sources to ensure that actions can be taken immediately when changes occur, and annual credit reviews are performed manually for all larger approved limits. Each Division is responsible for ensuring that exposures remain within approved limits. Mitigation of counterpart risk includes, for example, the use of collateral, managing payment terms and contract length, as well as pursuing netting agreements. Corporate Credit Control continuously monitors and reports counterpart exposures against the approved limits.
Fortum's counterpart portfolio is well-diversified over a wide-range of industries, private customers, small businesses and geographical regions. Although the Nordic countries account for most of the counterpart exposure, the exposure to Russia has increased as a result of OAO Fortum. Most of the exposures in Russia are related to deposits and guarantees from Russian banks which are earmarked for the ongoing investment program.
Operational risks are defined as the negative effects resulting from inadequate or failed internal processes, people and systems or equipment, or from external events. The main objective of operational risk management is to reduce the risk of unwanted operational events by clearly documenting and automating processes and by ensuring a strict segregation of duties between decision-making and controlling functions. Quality and environmental management systems are a tool for achieving this objective, and Fortum has several certifications including ISO 9001 and ISO 14001. Equipment and system risks are primarily managed within maintenance investment planning, and there are contingency plans in place to ensure business continuity.
The Group Insurance Policy governs the management of insurable operational risks. The objective of insurance management is to optimise loss prevention activities, self retentions and insurance coverage in a long-term cost-efficient manner. Fortum has established Group-wide insurance programmes for risks related to property damages, business interruption and liability exposures.
Operational events at power and heat generation or electricity distribution facili ties can lead to physical damages, business interruptions, and third-party liabilities. In Sweden, third-party liabilities from dam failures are strictly the plant owner's responsibility. Together with other hydropower producers, Fortum has a shared dam liability insurance program in place that covers Swedish dam failure liabilities up to SEK 8,000 million. Operational risks in production facilities are mitigated by continu ous maintenance, condition monitoring, and other operational improvements.
Storms and other unexpected events can result in electricity outages that create costs in the form of repairs and compensations. Although outages are typically short, it is not possible to completely prevent long outages in exceptional circumstances. There is an extensive procedure in place to minimise the length and consequences of outages.
Fortum owns the Loviisa nuclear power plant, and has minority interests in one Finnish and two Swedish companies with nuclear plants. In the Loviisa power plant, assessment and improvement of nuclear safety is a continuous process which is performed under the supervision of the Radiation and Nuclear Safety Authority of Finland (STUK). In Finland and Sweden, third-party liability relating to nuclear accidents is strictly the plant operator's responsibility and must be covered by insurance. As the operator of the Loviisa power plant, Fortum has a statutory insurance policy of SDR (Special Drawing Rights) 175 million +20%, which means approximately EUR 230 million per nuclear incident. Similar insurance policies are in place for the operators where For tum has a minority interest.
Operating power and heat generation and electricity distribution facilities involves the use, storage and transportation of fuels and materials that can have adverse effects on the environment. The risks involved with these activities and their supply chain are receiving increased attention due to the growing public awareness of sustainable development and the expectations on companies' responsible conduct. Operation and maintenance of the facilities exposes the personnel to potential safety risks. Environ mental, health and safety (EHS) risks are regularly evaluated through internal and ex ternal audits and risk assessments, and corrective and preventive actions are launched when necessary. EHS related risks arising in investments are systematically evaluated in accordance with Fortum's Investment Evaluation and Approval Procedure.
Information security risks are managed centrally by the corporate security and IT functions. Business-specific risks are managed within the divisions and staff func tions. Corporate policies define guidelines and set procedures for reducing risks and managing IT and other information security incidents. The main objective is to ensure high availability and fast recovery of IT systems.
Fortum Corporation's shares have been listed on NASDAQ OMX Helsinki since 18 December 1998. The trading code is FUM1V. Fortum Corporation's shares are in the Finnish book entry system maintained by Euroclear Finland Ltd which also maintains the official share register of Fortum Corporation.
| EUR | 2009 | 2008 | 2007 |
|---|---|---|---|
| Earnings per share | 1.48 | 1.74 | 1.74 |
| Cash flow per share | 2.55 | 2.26 | 1.88 |
| Equity per share | 9.04 | 8.96 | 9.43 |
| Dividend per share | 1.001) | 1.00 | 1.35 |
| Payout ratio, % | 67.61) | 57.5 | 77.6 |
| Dividend yield, % | 5.31) | 6.6 | 4.4 |
1) Board of Directors' proposal for the Annual General Meeting 25 March 2010.
˭ For full set of share key figures 1998–2009, see page 176.
Fortum's share has outperformed its European utility peers during the last five years. Fortum's share price has appreciated approximately 77% during last five years, while Dow Jones European Utility Index has increased 25% and OMX Helsinki Cap index has increased 14%.
During 2009 Fortum's share price appreciated approximately 23%, while Dow Jones European Utility index decreased 1% and OMX Helsinki Cap index increased 31%.
During 2009, a total of 580.9 million (2008: 628.2) Fortum Corporation shares, totalling EUR 9,244 million were traded. Fortum's market capitalisation, calculated using the closing quotation of the last trading day of the year, was EUR 16,852 million. The highest quotation of Fortum Corporation shares on NASDAQ OMX Helsinki in 2009 was EUR 19.20, the lowest EUR 12.60, and the volume weighted average quotation EUR 15.95. The closing quotation on the last trading day of the year was EUR 18.97 (2008: 15.23).
In addition to NASDAQ OMX Helsinki, Fortum shares were traded on several alternative market places, primarily at Chi-X Europe and Turquoise. In 2009, a total of 49.1 million Fortum Corporation shares were traded at Chi-X Europe and 17.8 million Fortum Corporation shares were traded at Turquoise.
OMX Helsinki Cap
Share price, EUR (monthly average)
Number of traded shares/day (monthly average)
Fortum has continuously carried out structural and operational development according to its strategy. Since the year 2000 Fortum has made acquisitions totalling EUR 11 billion and divestments totalling EUR 7 billion. Since 2000 the share price has increased by approximately 420%.
Fortum (Neste Oil spin-off adjusted)
DJ European Utilities
OMX Helsinki Cap
Fortum has one class of shares. By the end of 2009, a total of 888,367,045 shares had been issued. The nominal value of the share is EUR 3.40 and each share entitles the holder to one vote at the Annual General Meeting. All shares entitle holders to an equal dividend. At the end of 2009 Fortum Corporation's share capital, paid in its entirety and entered in the trade register, was EUR 3,046,185,953.00.
The share capital of Fortum Corporation increased by a total of EUR 2,478,481.00 (2008: 3,247,074.80). A total of 728,965 shares (2008: 955,022) subscribed on the basis of stock option schemes were entered into the trade register in 2009. No remaining unexercised options under the stock option schemes exist at year-end (2008: 728,965 shares).
The registered share capital exceeds the aggregate nominal value of the issued shares due to the cancellations of the company's own shares in 2006 and 2007 (in total 7,570,000) without decreasing the share capital.
| Number of shares Share capital, EUR | ||
|---|---|---|
| Fortum established on 7 February 1998 | 500,000 | 1,681,879 |
| Rights issue in 1998 | 782,282,635 | 2,631,409,886 |
| Employee issue in 1998 | 2,000,000 | 6,727,517 |
| 31 December 1998 | 784,782,635 | 2,639,819,282 |
| 31 December 1999 | 784,782,635 | 2,639,819,282 |
| Script issue in 2000 | - | 28,441,677 |
| Rights issue in 2000 | 60,825,940 | 206,808,196 |
| 31 December 2000 | 845,608,575 | 2,875,069,155 |
| 31 December 2001 | 845,608,575 | 2,875,069,155 |
| Subscriptions with options in 2002 | ||
| - 1999 bond loan with warrants | 148,380 | 504,492 |
| - 1999 management share option scheme | 3,000 | 10,200 |
| 31 December 2002 | 845,759,955 | 2,875,583,847 |
| Subscriptions with options in 2003 | ||
| - 1999 bond loan with warrants | 159,520 | 542,368 |
| - 1999 management share option scheme | 2,913,000 | 9,904,200 |
| 31 December 2003 | 848,832,475 | 2,886,030,415 |
| Subscriptions with options in 2004 | ||
| - 1999 bond loan with warrants | 4,560,730 | 15,506,482 |
| - 1999 management share option scheme | 7,154,000 | 24,323,600 |
| - 2002 A share options scheme for key employees | 6,536,700 | 22,224,780 |
| 31 December 2004 | 867,083,905 | 2,948,085,277 |
| Number of shares Share capital, EUR | ||
|---|---|---|
| Subscriptions with options in 2005 | ||
| - 1999 bond loan with warrants | 1,284,370 | 4,366,858 |
| - 1999 management share option scheme | 1,698,000 | 5,773,200 |
| - 2001 A share options scheme | 1,636,350 | 5,563,590 |
| - 2002 A share options scheme | 3,591,400 | 12,210,760 |
| 31 December 2005 | 875,294,025 | 2,975,999,685 |
| Subscriptions with options in 2006 | ||
| - 2001 A share options scheme | 3,026,200 | 10,289,080 |
| - 2001 B share options scheme | 5,360,133 | 18,224,452 |
| - 2002 A share options scheme | 516,800 | 1,757,120 |
| - 2002 B share options scheme | 4,856,488 | 16,512,059 |
| Cancellation of own shares | –1,660,000 | - |
| 31 December 2006 | 887,393,646 | 3,022,782,396 |
| Subscriptions with options in 2007 | ||
| - 2001 A share options scheme | 274,920 | 934,728 |
| - 2001 B share options scheme | 1,339,867 | 4,555,548 |
| - 2002 A share options scheme | 122,100 | 415,140 |
| - 2002 B share options scheme | 3,462,525 | 11,772,585 |
| Cancellation of own shares | –5,910,000 | - |
| 31 December 2007 | 886,683,058 | 3,040,460,397 |
| Subscriptions with options in 2008 | ||
| - 2002 B share options scheme | 955,022 | 3,247,075 |
| 31 December 2008 | 887,638,080 | 3,043,707,472 |
| Subscriptions with options in 2009 | ||
| - 2002 B share options scheme | 728,965 | 2,478,481 |
| 31 December 2009 | 888,367,045 | 3,046,185,953 |
At the beginning of 2009, the Finnish State owned 50.80% of the company's shares. After the changes in amount of shares during 2009, increase in amount of shares due to the share subscriptions under the stock option schemes for employees, the Finnish State owned 50.76% of the Company's shares at the end of the year. The Finnish Parliament has authorised the Government to reduce the Finnish State's holding in Fortum Corporation to no less than 50.1% of the share capital and voting rights.
The proportion of nominee registrations and direct foreign shareholders decreased to 31.0% (2008: 35.2%).
| Shareholder | No. of shares | Holding, % |
|---|---|---|
| Finnish State | 450,932,988 | 50.76 |
| Ilmarinen Mutual Pension Insurance Company | 16,830,664 | 1.89 |
| The Social Insurance Institution of Finland, KELA | 7,195,896 | 0.81 |
| Varma Mutual Pension Insurance Company | 6,250,445 | 0.70 |
| The City of Kurikka | 6,203,500 | 0.70 |
| The State Pension Fund Finland | 5,478,500 | 0.62 |
| OP-Delta Fund | 3,428,605 | 0.38 |
| Mandatum Life Insurance Company Limited | 1,930,235 | 0.22 |
| The State Pension Fund Norway | 1,860,571 | 0.21 |
| Svenska Handelsbanken, Finland | 1,760,988 | 0.20 |
| Nominee registrations | 268,551,000 | 30.23 |
| Other shareholders in total | 117,943,653 | 13.28 |
| Total number of shares | 888,367,045 | 100.00 |
| By shareholder category % of total amount of shares |
|
|---|---|
| Finnish shareholders | |
| Corporations | 1.40 |
| Financial and insurance institutions | 2.70 |
| General government | 56.80 |
| Non-profit organisations | 1.40 |
| Households | 6.70 |
| Non-Finnish shareholders | 31.00 |
| Total | 100.0 |
| % of total | ||||
|---|---|---|---|---|
| No. of | % of | amount of | ||
| By number of shares owned | shareholders | shareholders | No. of shares | shares |
| 1–100 | 19,460 | 22.45 | 1,207,382 | 0.14 |
| 101–500 | 36,060 | 41.60 | 9,650,676 | 1.09 |
| 501–1,000 | 16,669 | 19.23 | 11,835,574 | 1.33 |
| 1,001–10,000 | 13,630 | 15.72 | 34,332,796 | 3.86 |
| 10,001–100,000 | 751 | 0.87 | 18,705,415 | 2.11 |
| 100,001–1,000,000 | 94 | 0.11 | 30,235,280 | 3.40 |
| 1,000,001–10,000,000 | 17 | 0.02 | 46,007,534 | 5.18 |
| over 10,000,000 | 2 | 0.00 467,763,652 | 52.65 | |
| 86,683 | 100.00 619,738,309 | 69.76 | ||
| Unregistered/uncleared transactions | ||||
| on 31 December | 77,736 | 0.01 | ||
| Nominee registrations | 268,551,000 | 30.23 | ||
| Total | 888,367,045 | 100.00 |
At the end of 2009, the President and CEO and other members of the Fortum Management Team owned 185,345 shares (2008: 354,238), representing approximately 0.02% of the total shares in the company.
˭ A full description of Fortum's equity incentive schemes is shown in Note 29 Employee bonus system, personnel fund and incentive schemes together with details on the President and CEO and other members of the Fortum Management Team's shareholdings and interests in equity incentive schemes on page 157.
Currently, the Board of Directors has no unused authorisations from the Annual General Meeting of Shareholders to issue convertible loans or bonds with warrants, to issue new shares or to buy Fortum Corporation's own shares.
Fortum Corporation's dividend policy states that the company aims to pay a dividend which corresponds to an average payout ratio of 50% to 60%.
The parent company's distributable equity as of 31 December 2009 amounted to EUR 4,052 million. After the end of the financial period there have been no material changes in the financial position of the Company.
The Board of Directors proposes to the Annual General Meeting that Fortum Corporation pay a cash dividend of EUR 1.00 per share for 2009, totalling EUR 888 million based on the number of registered shares as of 2 February 2010. The Annual General Meeting will be held on 25 March 2010 at 1:00 pm at Finlandia Hall in Helsinki.
Dividend per share, EUR
Discontinued oil operations
1) Board of Directors' proposal for the Annual General Meeting in March 2010.
Fortum's Investor Relations (IR) activities cover equity and fixed-income markets to ensure full and fair valuation of the Company's shares, access to funding sources and stable bond pricing. Investors and analysts primarily in Europe and North America are met on a regular basis.
In 2009 Fortum conducted approximately 200 individual and group meetings with professional equity investors, whilst maintaining regular contact with equity research analysts at investment banks and brokerage firms. In addition, site visits were arranged for members of the investment community. During the year, IR and senior management gave approximately 15 presentations at investor conferences in Scandinavia, the United Kingdom and North America.
| EUR million | Note | 2009 | 2008 |
|---|---|---|---|
| Sales | 5 | 5,435 | 5,636 |
| Other income | 9 | 34 | 230 |
| Materials and services | 10 | –2,027 | –2,117 |
| Employee benefit costs | 12 | –491 | –587 |
| Depreciation, amortisation and impairment charges | 5, 13 | –510 | –515 |
| Other expenses | 11 | –659 | –684 |
| Operating profit | 5 | 1,782 | 1,963 |
| Share of profit of associates and joint ventures | 5, 22 | 21 | 126 |
| Interest expense | 14 | –241 | –351 |
| Interest income | 14 | 98 | 143 |
| Fair value gains and losses on financial instruments | 6, 14 | –1 | –11 |
| Other financial expenses - net | 14 | –23 | –20 |
| Finance costs - net | 14 | –167 | –239 |
| Profit before income tax | 1,636 | 1,850 | |
| Income tax expense | 15 | –285 | –254 |
| Profit for the period | 1,351 | 1,596 |
| EUR million | 2009 | 2008 |
|---|---|---|
| Comparable operating profit | 1,888 | 1,845 |
| Non-recurring items (sales gains) | 29 | 85 |
| Changes in fair values of derivatives hedging future cash flow | –76 | 52 |
| Nuclear fund adjustment | –59 | –19 |
| Other items effecting comparability | –135 | 33 |
| Operating profit | 1,782 | 1,963 |
Lower contribution from Hafslund ASA, EUR 52 million of the decrease.
Decrease mainly due to lower average interest rates 3.7% (2008: 5.3%) for debt including derivatives.
Higher tax rate according to income statement in 2009 due to one-time effect caused by decreased tax rates in Sweden and Russia amounting to EUR 113 million in 2008.
Sales by country, %
| Owners of the parent | 1,312 | 1,542 | |
|---|---|---|---|
| Non-controlling interests | 39 | 54 | |
| 1,351 | 1,596 | ||
| Earnings per share (in EUR per share) |
16 | ||
| Basic | 1.48 | 1.74 | |
| Diluted | 1.48 | 1.74 | |
| EUR million | 2009 | 2008 |
|---|---|---|
| Profit for the period | 1,351 | 1,596 |
| –195 | 453 |
|---|---|
| 160 | |
| –4 | |
| –168 | |
| - | |
| - | |
| –1 | |
| –621 | |
| –628 | |
| 1 | |
| –808 | |
| 1,008 | 788 |
| 797 | |
| –9 | |
| 1,008 | 788 |
| –218 –4 108 –25 6 0 21 –37 1 –343 971 37 |
Components of Other comprehensive income (OCI) are items of income and expense that are recognised in equity and not recognised in the Consolidated income statement. They include unrealised items, such as fair value gains and losses on financial instruments hedging future cash flows. These items will be realised in the Consolidated income statement when the underlying hedged item is recognised. OCI also includes gains and losses on fair valuation on available for sale financial assets, items in comprehensive income in associated companies and translation differences.
Fair valuation of cash flow hedges mainly relates to hedging electricity price in future cash flows. When electricity price is higher than the hedging price, the impact on equity is negative and vice versa.
Mainly fair value change in Hafslund ASA's shareholding in REC incl. translation differences, EUR –37 million (2008: –667). Translation differences from translation of foreign entities, mainly in SEK, NOK and RUB.
| EUR million | Note 31 Dec 2009 | 31 Dec 2008 | |
|---|---|---|---|
| ASSETS | |||
| Non-current assets | |||
| Intangible assets | 20 | 391 | 395 |
| Property, plant and equipment | 21 | 12,855 | 12,138 |
| Participations in associates and joint ventures | 22 | 2,188 | 2,112 |
| Share in State Nuclear Waste Management Fund | 33 | 570 | 566 |
| Pension assets | 35 | 59 | 59 |
| Other non-current assets | 23 | 69 | 58 |
| Deferred tax assets | 32 | 47 | 2 |
| Derivative financial instruments | 3 | 195 | 445 |
| Long-term interest-bearing receivables | 24 | 918 | 742 |
| Total non-current assets | 17,292 | 16,517 | |
| Current assets | |||
| Inventories | 25 | 447 | 444 |
| Derivative financial instruments | 3 | 182 | 761 |
| Trade and other receivables | 26 | 1,030 | 1,235 |
| Bank deposits | 397 | 588 | |
| Cash and cash equivalents | 493 | 733 | |
| Liquid funds | 27 | 890 | 1,321 |
| Total current assets | 2,549 | 3,761 | |
| Total assets | 19,841 | 20,278 |
| EUR million | Note 31 Dec 2009 31 Dec 2008 | ||
|---|---|---|---|
| EQUITY | |||
| Equity attributable to owners of the parent | |||
| Share capital | 28 | 3,046 | 3,044 |
| Share premium | 73 | 73 | |
| Retained earnings | 4,762 | 4,312 | |
| Other equity components | 153 | 525 | |
| Total | 8,034 | 7,954 | |
| Non-controlling interests | 30 | 457 | 457 |
| Total equity | 8,491 | 8,411 | |
| LIABILITIE S |
|||
| Non-current liabilities | |||
| Interest-bearing liabilities | 31 | 6,002 | 6,520 |
| Derivative financial instruments | 3 | 191 | 120 |
| Deferred tax liabilities | 32 | 1,750 | 1,851 |
| Nuclear provisions | 33 | 570 | 566 |
| Other provisions | 34 | 209 | 199 |
| Pension obligations | 35 | 23 | 51 |
| Other non-current liabilities | 36 | 472 | 470 |
| Total non-current liabilities | 9,217 | 9,777 | |
| Current liabilities | |||
| Interest-bearing liabilities | 31 | 857 | 980 |
| Derivative financial instruments | 3 | 276 | 126 |
| Trade and other payables | 37 | 1,000 | 984 |
| Total current liabilities | 2,133 | 2,090 | |
| Total liabilities | 11,350 | 11,867 | |
| Total equity and liabilities | 19,841 | 20,278 |
| Share | Share | Owners of | Non controlling |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| capital | premium | Retained earnings | Other equity components | the parent | interests | Total equity | |||||
| EUR million | Note | Retained earnings and other funds |
Translation of foreign operations |
Cash flow hedges |
Other OCI items |
OCI items associated companies |
|||||
| Total equity 31 December 2008 | 3,044 | 73 | 4,888 | –576 | 321 | 36 | 168 | 7,954 | 457 | 8,411 | |
| Profit for the period | 1,312 | 1,312 | 39 | 1,351 | |||||||
| Translation differences | 9 | –4 | 28 | 33 | 12 | 45 | |||||
| Other comprehensive income | 6 | –296 | –19 | –65 | –374 | –14 | –388 | ||||
| Total comprehensive income for the period | 1,318 | 9 | –300 | –19 | –37 | 971 | 37 | 1,008 | |||
| Cash dividend | 17 | –888 | –888 | –888 | |||||||
| Dividends to non-controlling interests | 0 | –19 | –19 | ||||||||
| Changes due to business combinations | 7 | –5 | –5 | –18 | –23 | ||||||
| Stock options exercised | 28 | 2 | 16 | –16 | 2 | 2 | |||||
| Total equity 31 December 2009 | 3,046 | 73 | 5,329 | –567 | 21 | 1 | 131 | 8,034 | 457 | 8,491 | |
| Total equity 31 December 2007 | 3,040 | 73 | 4,552 | –21 | –120 | 35 | 800 | 8,359 | 292 | 8,651 | |
| Profit for the period | 1,542 | 1,542 | 54 | 1,596 | |||||||
| Translation differences | –555 | –148 | –703 | –66 | –769 | ||||||
| Other comprehensive income | 441 | 1 | –484 | –42 | 3 | –39 | |||||
| Total comprehensive income | 1,542 | –555 | 441 | 1 | –632 | 797 | –9 | 788 | |||
| Cash dividend | 17 | –1,198 | –1,198 | –1,198 | |||||||
| Dividends to non-controlling interests | 0 | –18 | –18 | ||||||||
| Changes due to business combinations | 7 | –8 | –8 | 192 | 184 | ||||||
| Stock options exercised | 28 | 4 | 4 | 4 | |||||||
| Total equity 31 December 2008 | 3,044 | 73 | 4,888 | –576 | 321 | 36 | 168 | 7,954 | 457 | 8,411 |
Translation differences impacted equity attributable to owners of the parent with EUR 33 million during 2009 (2008: –703) including net effect from SEK, NOK and RUB amounting to EUR 27 million in 2009 (2008: –680). Part of the translation differences is arising from the NOK effect in fair valuation of Hafslund's REC shares, EUR 22 million (2008: –148), which is shown together with the change in fair value in OCI items associated companies.
The impact on equity attributable to owners of the parent from fair valuation of cash flow hedges, EUR –296 million (2008: 441), mainly relates to cash flow hedges hedging electricity price. When electricity price is higher than the hedging price, the impact on equity is negative.
Other comprehensive income from associated companies EUR –65 million (2008: –484), mainly relates to the change in share price of Hafslund's REC shares during 2009 (2008) excluding exchange rate differences.
˭ See also Note 22 Participations in associated companies and joint ventures on page 152.
The main changes to non-controlling interests in equity are translation differences EUR 12 million (2008: –66), arising from RUB and SEK, changes due to dividend distributions to non-controlling interests EUR –19 million (2008: –18) and also changes through business combinations which relate to the non-controlling interests in OAO Fortum.
1) 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 on page 141.
| EUR million | Note | 2009 | 2008 |
|---|---|---|---|
| Cash flow from operating activities | |||
| Net profit for the period | 1,351 | 1,596 | |
| Adjustments: | |||
| Income tax expenses | 285 | 254 | |
| Finance costs-net | 167 | 239 | |
| Share of profit of associates and joint ventures | –21 | –126 | |
| Depreciation, amortisation and impairment charges | 510 | 515 | |
| Operating profit before depreciations (EBITDA) | 2,292 | 2,478 | |
| Non-cash flow items and divesting activities 1) | 46 | –275 | |
| Interest received | 106 | 135 | |
| Interest paid | –291 | –352 | |
| Dividends received | 33 | 51 | |
| Other financial items and realised foreign exchange gains and losses 2) |
298 | 399 | |
| Taxes | –239 | –332 | |
| Funds from operations | 2,245 | 2,104 | |
| Increase in interest-free receivables | 79 | –48 | |
| Increase/decrease in inventories | 1 | –132 | |
| Increase in interest-free liabilities | –61 | 78 | |
| Change in working capital | 19 | –102 | |
| Total net cash from operating activities | 2,264 | 2,002 |
| Capital expenditures 3) | 5,20,21 | –845 | –1,018 |
|---|---|---|---|
| Acquisition of subsidiaries, net of cash acquired | 7 | –27 | –1,210 |
| Acquisition of associates 4) | 22 | –58 | –32 |
| Acquisition of other long-term investments | –2 | –1 | |
| Proceeds from sales of fixed assets | 48 | 37 | |
| Proceeds from sales of subsidiaries, net of cash disposed | 7 | 11 | 44 |
| Proceeds from sales of associates | 22 | 2 | 34 |
| Proceeds from sales of other non-current assets | 1 | 0 | |
| Change in interest-bearing receivables | –104 | –136 | |
| Total net cash used in investing activities | –974 | –2,282 | |
| EUR million | Note | 2009 | 2008 |
|---|---|---|---|
| Cash flow from financing activities | |||
| Proceeds from long-term liabilities | 2,168 | 5,550 | |
| Payments of long-term liabilities | –2,711 | –3,479 | |
| Change in short-term liabilities | –215 | 551 | |
| Proceeds from stock options exercised | 28 | 2 | 4 |
| Dividends paid to the owners of the parent | 17 | –888 | –1,198 |
| Other financing items | –27 | –108 | |
| Total net cash used in financing activities | –1,671 | 1,320 | |
| Total net increase (+)/decrease (–) in liquid funds | –381 | 1,040 | |
| Liquid funds at the beginning of the year | 1,321 | 427 | |
| Foreign exchange differences in liquid funds | –50 | –146 | |
| Liquid funds at the end of the year | 27 | 890 | 1,321 |
1) Non-cash flow items includes mainly adjustments for fair value gains and losses on derivatives not qualifying for hedge accounting, nuclear related items and changes in provision. Divesting activities includes reversals of sales gains and losses included in EBITDA.
2) Includes realised foreign exchange gains amounting to EUR 298 million (2008: 405), which mainly relates to financing of Fortum's Swedish subsidiaries and the fact that the Group's main financing currency is EUR.
3) Capital expenditures in cash flow do not include not yet paid investments. Capitalised borrowing costs are included in interest costs paid.
4) Acquisition of associates includes share issues and other capital contributions.
| EUR million | 2009 | 2008 |
|---|---|---|
| Net debt 1 January | 6,179 | 4,466 |
| Foreign exchange rate differences | 144 | –203 |
| EBITDA | 2,292 | 2,478 |
| Paid net financial costs, taxes and adjustments for non-cash and divestment items |
–47 | –374 |
| Change in working capital | 19 | –102 |
| Capital expenditures | –845 | –1,018 |
| Acquisitions | –87 | –1,243 |
| Divestments | 62 | 115 |
| Change in interest-bearing receivables | –104 | –136 |
| Dividends | –888 | –1,198 |
| Other financing activities | –25 | –103 |
| Net cash flow (– increase in net debt) | 377 | –1,581 |
| Loans in acquired companies | - | 272 |
| Fair value change of bonds and amortised cost valuation | 23 | 63 |
| Net debt 31 December | 5,969 | 6,179 |
| Page | ||
|---|---|---|
| 1 | Accounting policies | 113 |
| 2 | Critical accounting estimates and judgements | 125 |
| 3 | Financial risk management | 126 |
| 4 | Capital risk management | 134 |
| 5 | Segment reporting | 134 |
| 6 | Fair value changes of derivatives and underlying items in income statement | 138 |
| 7 | Acquisitions and disposals | 139 |
| 8 | Exchange rates | 141 |
| 9 | Other income | 142 |
| 10 | Materials and services | 142 |
| 11 | Other expenses | 142 |
| 12 | Employee costs and management remuneration | 143 |
| 13 | Depreciation, amortisation and impairment charges | 145 |
| 14 | Finance costs – net | 145 |
| 15 | Income tax expense | 146 |
| 16 | Earnings per share | 147 |
| 17 | Dividend per share | 147 |
| 18 | Financial assets and liabilities by categories | 148 |
| 19 | Financial assets and liabilities by fair value hierarchy | 149 |
| 20 | Intangible assets | 150 |
| 21 | Property, plant and equipment | 150 |
| 22 | Participations in associated companies and joint ventures | 152 |
| 23 | Other non-current assets | 155 |
| 24 | Long-term and short-term interest-bearing receivables | 155 |
| 25 | Inventories | 156 |
| 26 | Trade and other receivables | 156 |
| 27 | Liquid funds | 156 |
| 28 | Share capital | 157 |
| 29 | Employee bonus system, personnel fund and incentive schemes | 157 |
| 30 | Non-controlling interests | 160 |
| 31 | Interest-bearing liabilities | 161 |
| 32 | Deferred income taxes | 162 |
| 33 | Nuclear related assets and liabilities | 163 |
| 34 | Other provisions | 165 |
| 35 | Pension obligations | 165 |
| 36 | Other non-current liabilities | 168 |
| 37 | Trade and other payables | 168 |
| 38 | Pledged assets | 168 |
| 39 | Operating leases | 169 |
| 40 | Capital commitments | 169 |
| 41 | Contingent liabilities | 169 |
| Page | ||
|---|---|---|
| 42 | Legal actions and offical proceedings | 170 |
| 43 | Related party transactions | 170 |
| 44 | Events after the balance sheet date | 171 |
| 45 | Subsidiaries by segment on 31 December 2009 | 172 |
Fortum Corporation (the Company) is a Finnish public limited liability company with domicile in Espoo, Finland. The Company is listed on NASDAQ OMX Helsinki.
Fortum Corporation and its subsidiaries (together the Fortum Group) is a leading energy company focusing on the Nordic countries, Russia and the Baltic Rim area. Fortum's activities cover generation, distribution and sale of electricity and heat, operation and maintenance of power plants as well as energy-related services.
These financial statements were approved by the Board of Directors on 2 February 2010.
The consolidated financial statements of Fortum Group have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRIC Interpretations as adopted by the European Union. The financial statements also comply with Finnish accounting principles and corporate legislation.
The consolidated financial statements have been prepared under the historical cost convention except for available-for-sale financial assets, financial assets and financial liabilities (including derivative instruments) at fair value through profit and loss and items hedged at fair value.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group's accounting principles. The areas involving higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 2 Critical accounting estimates and judgements on page 125.
1.2.2 New Standards and amendments and interpretations to existing standards Fortum has adopted the following new or amended standards and interpretations to existing standards on 1 January 2009:
have a material impact on Fortum's reported result or financial position.
Fortum will apply following new or amended standards and interpretations to existing standards on 1 January 2010 or later and has not early adopted these changes:
entities. The revised standard is not going to have any impact on Fortum's disclosures. The amendment is still subject to endorsement by the EU.
An asset or a liability is classified as current when it is expected to be realised in the normal operating cycle or within twelve months after the balance sheet date or it is classified as financial assets or liabilities held at fair value through profit or loss. Liquid funds are classified as current assets.
All other assets and liabilities are classified as non-current assets and liabilities.
The consolidated financial statements include the parent company Fortum Corporation and all those companies in which Fortum Corporation has the power to govern the financial and operating policies and generally holds, directly or indirectly, more than 50% of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the group controls another entity.
˭ The Fortum Group subsidiaries are disclosed in Note 45 Subsidiaries by segment on 31 December 2009 on page 172.
The Fortum Group was formed in 1998 by using the pooling-of-interests method for consolidating Fortum Power and Heat Oy and Fortum Oil and Gas Oy (the latter demerged to Fortum Oil Oy and Fortum Heat and Gas Oy 1 May 2004). In 2005 Fortum Oil Oy was separated from Fortum by distributing 85% of its shares to Fortum's shareholders and by selling the remaining 15%. This means that the acquisition cost of Fortum Power and Heat Oy and Fortum Heat and Gas Oy has been eliminated against the share capital of the companies. The difference has been entered as a decrease in shareholders' equity.
The acquisition method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the aggregate of fair value of the assets given and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases.
Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Where necessary, subsidiaries' accounting policies have been changed to ensure consistency with the policies the Group has adopted.
Associated companies are entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Joint ventures are entities over which the Group has contractually agreed to share the power to govern the financial and operating policies of that entity with another venturer or venturers. The Group's interests in associated companies and jointly controlled entities are accounted for using the equity method of accounting. Assets acquired and liabilities assumed in the investment in associates or joint ventures are measured initially at their fair values at the acquisition date. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the associate or joint venture acquired, the difference is recognised directly in the income statement.
The Group's share of its associates or joint ventures post-acquisition profits or losses after tax and the expenses related to the adjustments to the fair values of the assets and liabilities assumed are recognised in the income statement. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. The Group's share of post-acquisition adjustments to associates or joint ventures equity that have not been recognised in the associates or joint ventures income statement, is recognised directly in Group's shareholder's equity and against the carrying amount of the investment.
When the Group's share of losses in an associate or a joint venture equals or exceeds its interest in the associate or joint venture, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate or joint venture.
Unrealised gains on transactions between the Group and its associates or joint ventures are eliminated to the extent of the Group's interest in the associate or joint venture. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates or joint ventures have been changed where necessary to ensure consistency with the policies adopted by the Group.
Fortum owns shareholdings in associated electricity production companies (mainly nuclear and hydro), from which the owners purchase electricity at production cost, including interest costs, income taxes and production taxes. The share of profit of these companies is mainly IFRS adjustments and depreciations on fair value adjustments from historical acquisitions since the companies are not profit making under local accounting principles.
˭ For further information regarding the shareholdings in these elctricity production companies, see Note 22 Participations in associated companies and joint ventures on page 152 and Note 43 Related party disclosures on page 170.
If the information is not available, the share of the profit of certain associated or joint venture companies is included in the consolidated accounts based on the latest available information.
Fortum owns shareholdings in listed associated companies such as Hafslund ASA. The share of profit of these companies is accounted for based on previous quarter information.
Hafslund ASA owns shares in a listed company Renewable Energy Corporation (REC). Hafslund has classified the shareholding as financial assets at fair value through profit and loss until 19 November 2008 when Hafslund changed the accounting treatment to available for sale financial assets with fair value changes entered directly through equity. When accounting for share of profits in Hafslund, Fortum has since 2006 reclassified Hafslund's accounting treatment to available for sale financial assets with fair value changes entered directly through equity. If Hafslund divests or impairs its shareholding in REC, Fortum will adjust any occurring sales gains or losses and impairment charges due to different historical accounting treatment. Since REC is listed in the Oslo stock exchange, Fortum is accounting for the fair value changes in REC based on the share price in Oslo stock and the number of shares owned by Hafslund at each closing date. If Hafslund publicly announces a divestment of shares in REC, Fortum accounts for any gains or losses of this transaction as soon as information is available.
Regarding Fortum's share of profits in TGC-1, the share of profit is accounted for based on latest available IFRS interim financial statement.
˭ Regarding accounting for Fortum's shareholding in Hafslund ASA and TGC-1, see Note 22 Participations in associated companies and joint ventures on page 152.
Non-controlling interests in subsidiaries are identified separately from the equity of the owners of the parent company. The interests of non-controlling is initially measured at the non-controlling interests' proportionate share of the fair value of the acquiree's identifiable net assets. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests' share of subsequent changes in equity.
Fortum discloses segment information in a manner consistent with internal reporting to Fortum's Board of Directors and to Fortum Management Team led by the President and CEO. Fortum mainly has segments based on type of business operations, combined with one segment based on geographical area.
The Group's businesses are divided into the following reporting segments:
˭ For further information about the reporting segments, see Note 5 Segment reporting on page 134.
Discontinued operations represent a separate major line of business that either have been disposed of or are classified as held for sale. Assets and liabilities attributable to the discontinued operations must be clearly distinguishable from the other consolidated entities in terms of their operations and cash flows. In addition, the reporting entity must not have any significant continuing involvement in the operations classified as a discontinued operation.
Non-current assets (or disposal groups) classified as held for sale are valued at the lower of their carrying amount and fair value less costs to sell if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. These classification criteria do not include non-current assets to be abandoned or those that have been temporarily taken out of use. An impairment loss (or subsequent gain) reduces (or increases) the carrying amount of the non-current assets or disposal groups. The assets are not depreciated or amortised. Interest or other expenses related to these assets are recognised as before the classification as held for sale.
Neste Oil was included in Fortum Group up until 31 March 2005, when the Annual General Meeting took the final decision to separate the oil operations by distributing approximately 85% of Neste Oil Corporation shares as dividend. The remaining approximately 15% of shares were sold to investors in April 2005.
˭ Oil operations have been presented as discontinued operations for 2004 and 2005, see Financial key figures on page 174.
Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates ('the functional currency'). The consolidated financial statements are presented in euros, which is the Company's functional and presentation currency.
Transactions denominated in foreign currencies are translated using the exchange rate at the date of the transaction. Receivables and liabilities denominated in foreign currencies outstanding on the closing date are translated using the exchange rate quoted on the closing date. Exchange rate differences have been entered in the income statement. Net conversion differences relating to financing are entered under financial income or expenses, except when deferred in equity as qualifying cash flow hedges. Translation differences on available-for-sale financial assets are included in the Other equity components
The income statements of subsidiaries, whose measurement and reporting currencies are not euros, are translated into the Group reporting currency using the average exchange rates for the year based on the month-end exchange rates, whereas the balance sheets of such subsidiaries are translated using the exchange rates on the balance sheet date. On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of borrowings and other currency
instruments designated as hedges of such investments, are taken to equity. When a foreign operation is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. The Group deems all cumulative translation differences for all foreign operations to be zero at the date of transition to IFRS, i.e. 1 January 2004.
˭ Exchange rates used to translate reporting currencies into euros in the Consolidated Financial Statements are disclosed in Note 8 Exchange rates on page 141.
The Group's interests in associated companies and jointly controlled entities are accounted for by the equity method. Associates and joint ventures, whose measurement and reporting currencies are not euro, are translated into the Group reporting currency using the same principles as for subsidiaries, see 1.6.3 Group companies.
Revenue comprises the fair value consideration received or receivable at the time of delivery of products and/or upon fulfillment of services. Revenue is shown, net of rebates, discounts, value-added tax and selective taxes such as electricity tax. Revenue is recognised as follows:
Sale of electricity, heat, cooling and distribution of electricity is recognised at the time of delivery. The sale to industrial and commercial customers and to end-customers is recognised based on the value of the volume supplied, including an estimated value of the volume supplied to customers between the date of their last meter reading and year-end.
Physical energy sales and purchase contracts are accounted for on accrual basis as they are contracted with the Group's expected purchase, sale or usage requirements.
Electricity tax is levied on electricity delivered to retail customers by domestic utilities in Sweden. The tax is calculated on the basis of a fixed tax rate per kWh. The rate varies between different classes of customers. Sale of electricity in the income statement is shown net of electricity tax.
Physical electricity sales and purchases are done through Nord Pool. The sales and purchases with Nord Pool are netted on Group level on an hourly basis and posted either as revenue or cost, according to whether Fortum is a net seller or a net buyer during any particular hour.
The prices charged of customers for the sale of distribution of electricity are regulated. The regulatory mechanism differs from country to country. Any over or under income decided by the regulatory body is regarded as regulatory assets or liabilities that do not qualify for balance sheet recognition due to the fact that no contract defining the regulatory aspect has been entered into with a specific customer and thus the receivable is contingent on future delivery. The over or under income is normally credited or charged over a number of years in the future to the customer using the electricity connection at that time. No retroactive credit or charge can be made.
Fees paid by the customer when connected to the electricity, gas, heat or cooling network are recognised as income to the extent that the fee does not cover future commitments. If the connection fee is linked to the contractual agreement with the customer, the income is recognised over the period of the agreement with the customer.
Connection fees paid by customers when connected to the electricity network before 2003 are refundable in Finland if the customer would ever disconnect the initial connection. Also fees paid by the customer when connected to district heating network in Finland are refundable. These connection fees have not been recognised in the income statement and are included in other liabilities in the balance sheet.
Contract revenue is recognised under the percentage of completion method to determine the appropriate amount to recognise as revenue and expenses in a given period. The stage of completion is measured by reference to the contract costs incurred up to the closing date as a percentage of total estimated costs for each contract. Costs incurred in the year in connection with future activity on a contract are excluded from contract costs in determining the stage of completion. They are presented as inventories, prepayments or other assets, depending on their nature.
The Group presents as an asset the amount due from customers for contract work for all contracts in progress for which costs incurred plus recognised profits (less recognised losses) exceed progress billings. Progress billings not yet paid by customers and retention are included within 'trade and other receivables'. The Group presents as a liability the amount due to customers for contract work for all contracts in progress for which progress billings exceed costs incurred plus recognised profits (less recognised losses).
Revenue from activities outside normal operations is reported in Other income. This includes recurring items such as rental income and non-recurring items such as gains from sales of shares, property, plant and equipment, emission rights etc. Other income also includes the changes in the fair value of any derivative instruments that do not qualify for hedge accounting which are recognised immediately in the income statement.
Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions. Government grants relating to costs are deferred and recognised in the income statement over the period necessary to match them with the costs that they are intended to compensate. Government grants relating to the purchase of property, plant and equipment are deducted from the acquisition cost of the asset and are recognised as income by reducing the depreciation charge of the asset they relate to.
The Group accounts for emission allowances based on currently valid IFRS standards where purchased emission allowances are accounted for as intangible assets at cost, whether received free of charge or acquired from a third party. A provision is recognised to cover the obligation to return emission allowances. To the extent that Group already holds allowances to meet the obligation the provision is measured at the carrying amount of those allowances. Any shortfall of allowances held over the obligation is valued at the current market value of allowances. The cost of the provision is recognised in the income statement within materials and services. Gains from sales of emission rights are reported in Other income.
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Qualifying assets are assets that necessarily take a substantial period of time to get ready for their intended use or sale.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
Research and development costs are recognised as expense as incurred and included in other expenses in the income statement. If development costs will generate future income, they are capitalised as intangible assets and depreciated over the period of the income streams.
Property, plant and equipment comprise mainly power and heat producing buildings and machinery, transmission lines, tunnels, waterfall rights and district heating network. Property, plant and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses as applicable in the consolidated balance sheet. Historical cost includes expenditure that is directly attributable to the acquisition of an item and borrowing costs capitalised in accordance with the Groups accounting policy. Cost may also include transfers from equity of any gains or losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Acquired assets on the acquisition of a new subsidiary are stated at their fair values at the date of acquisition.
Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.
Additionally the cost of an item of property, plant and equipment includes the estimated cost of its dismantlement, removal or restoration.
˭ See also section 1.24.2 Asset retirement obligations on page 123.
Land, water areas, waterfall rights and tunnels are not depreciated since they have indefinite useful lives. Depreciation on other assets is calculated using the straightline method to allocate their cost to their residual values over their estimated useful lives, as follows:
| Hydro power plant buildings, structures and machinery | 40–50 years |
|---|---|
| Thermal power plant buildings, structures and machinery | 25 years |
| Nuclear power plant buildings, structures and machinery | 25 years |
| CHP power plant buildings, structures and machinery | 15–25 years |
| (each CHP plant has an individual depreciation period) | |
| Substation buildings, structures and machinery | 30–40 years |
| Distribution network | 15–40 years |
| District heating network | 30–40 years |
| Other buildings and structures | 20–40 years |
| Other tangible assets | 20–40 years |
| Other machinery and equipment | 3–20 years |
| Other non-current investments | 5–10 years |
The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each closing date. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.
Fortum owns, through its subsidiary Fortum Power and Heat Oy, the coal condensing power plant Meri-Pori in Finland. Teollisuuden Voima Oyj (TVO) has the contractual right to participate in the plant with 45.55%. The capacity and production can be divided between Fortum and TVO. Each owner can decide when and how much capacity to produce. Both Fortum and TVO purchase fuel and CO2 rights independently. Since both Fortum and TVO have control, including related risks and rewards, of their share of the power plant, Meri-Pori is accounted for as a jointly controlled asset.
Fortum is accounting for the part of the investment that corresponds to the investment Fortum has made, i.e. 55.55%. At present Fortum leases out its part of the Meri-Pori power plant. The lease agreement has been classified as an operating lease.
Fortum is also entitled to part of the electricity TVO produces in Meri-Pori through the shareholding of 26.58% of TVO C-series shares.
˭ For further information regarding Fortum's shareholding in TVO, see Note 22 Participations in associated companies and joint ventures on page 152.
Intangible assets, except goodwill, are stated at the historical cost less accumulated amortisation and impairment losses if applicable and amortised on a straight-line method over their expected useful lives.
Acquired computer software licences are capitalised on the basis of the costs incurred to the acquirer and bring to use the specific software. These costs are amortised over their estimated useful lives (three to five years). Costs associated with developing or maintaining computer software are recognised as an expense as incurred. Costs that are directly associated with the production of identifiable and unique software products controlled by the Group, and that will generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include the software development employee costs and an appropriate portion of relevant overheads. Computer software development costs recognised as assets are amortised over their estimated useful lives.
Trademarks and licences are shown at historical cost less accumulated amortisation and impairment losses, as applicable. Amortisation is calculated using the straightline method to allocate the cost of trademarks and licences over their estimated useful lives (15–20 years).
Contractual customer relationships acquired in a business combination are recognised at fair value on acquisition date. The contractual customer relations have a finite useful life and are carried at costs less accumulated amortisation. Amortisation is calculated using the straight-line method over the expected life of the customer relationship.
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisition of associates is included in investments in associates and is tested for impairment as part of the overall balance. Separately recognised goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on disposal of an entity include the carrying amount of goodwill relating to the entity sold.
The individual assets' carrying values are reviewed at each closing date to determine whether there is any indication of impairment. Asset's carrying amount is written down immediately to its recoverable amount if it is greater than the estimated recoverable amount.
1
When considering the need for impairment the Group assesses if events or changes in circumstances indicate that the carrying amount may not be recoverable. This assessment is documented once a year in connection with the Business Plan process. Indications for impairment are analysed separately by each division as they are different for each business and include risks such as changes in electricity and fuel prices, regulatory/political changes relating to energy taxes and price regulations etc. Impairment testing needs to be performed if any of the impairment indications exists. Assets that have an indefinite useful life, such as goodwill are not subject to amortisation and are tested annually for impairment.
An impairment loss is recognised in the income statement for the amount by which the assets' carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose.
Value in use is determined by discounting the future cash flows expected to be derived from an asset or cash-generating unit. Cash flow projections are based on the most recent Business Plan that has been approved by management. Cash flows arising from future investments such as new plants are excluded unless projects have been started. The cash outflow needed to complete the assets is included.
The period covered by cash flows is related to the useful lives of the assets reviewed for impairment. Normally projections should cover a maximum period of five years but as the useful lives of power plants and other major assets are over 20 years, the projection period is naturally longer. Cash flow projections beyond the period covered by the most recent Business Plan are estimated by extrapolating the projections using a steady or declining growth rate for subsequent years.
Non-financial assets other than goodwill that suffered an impairment charge are reviewed for possible reversal of the impairment at each reporting date.
The Group classifies its investments in the following categories: financial assets at fair value through profit or loss, loans and receivables and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its financial assets at initial recognition and re-evaluates this designation at every reporting date.
A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if they are either held for trading or are expected to be realised within 12 months of the closing date.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor. They are included in non-current assets, except for maturities under 12 months after the closing date. These are classified as current assets.
Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless there is an intention to dispose of the investment within 12 months of the closing date.
Purchases and sales of investments are recognised on the trade-date – the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership.
Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans are carried at amortised cost using the effective interest method. Gains and losses arising from changes in the fair value of the "financial assets at fair value through profit or loss" category are included in the income statement in the period in which they arise. Gains and losses arising from changes in the fair value of securities classified as available-for-sale are recognised in equity. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments are included in the income statement.
The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm's length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the issuer's specific circumstances.
The Group assesses at each closing date whether there is objective evidence that a financial asset or a group of financial assets is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in the income statement.
Trade receivables are recorded at their fair value. A provision for impairment of trade receivables is established when there is evidence that the Group will not be able to collect all amounts due according to the original terms of the receivable. Significant financial difficulties of the debtor, probability that the debtor will enter into bankruptcy or financial reorganisation, and default or delinquency in payments are considered as indicators that the receivable is impaired. The amount of the impairment charge is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows.
Trade receivables include revenue based on an estimate of electricity, heat, cooling and distribution of electricity already delivered but not yet measured and not yet invoiced.
Liquid funds include cash in hand, deposits held at call with banks and other shortterm, highly liquid investments with original maturities of three months or less. Bank overdrafts are shown within borrowings in current liabilities in the balance sheet.
Where any group company purchases the Company's shares (treasury shares), the consideration paid, including any directly attributable incremental costs (net of income taxes), is deducted from equity attributable to the Company's equity holders until cancelled or reissued. When such shares are subsequently sold or reissued, any consideration received is included in equity.
Borrowings are recognised initially at fair value less transaction costs incurred. In subsequent periods, they are stated at amortised cost; any difference between proceeds (net of transaction costs) and the redemption value is recognised as interest cost over the period of the borrowing using the effective interest method. Borrowings or portion of borrowings being hedged with a fair value hedge is recognised at fair value.
Leases of property, plant and equipment, where the Group has substantially all the risks and rewards of ownership, are classified as finance leases. Finance leases are capitalised at the commencement of the lease term at the lower of the fair value of the leased property and the present value of the minimum lease payments determined at the inception of the lease. Each lease payment is allocated between the reduction of the outstanding liability and the finance charges. The corresponding rental obligations, net of finance charges, are included in the long-term or short-term interest-bearing liabilities according to their maturities. The interest element of the finance cost is charged to the income statement over the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset or the lease term.
Sale and leaseback transactions resulting in a finance lease agreement are recognised according to the principles described above. The difference between the selling price and the carrying amount of the asset sold is deferred and amortised over the lease period.
The property, plant and equipment leased out under a finance lease are presented as interest-bearing receivables at an amount equal to the net investment in the lease. Each lease payment receivable is allocated between the repayment of the principal and the finance income. Finance income is recognised in the income statement over the lease term so as to produce a constant periodic rate of return on the remaining balance of the receivable for each period.
Leases of property, plant and equipment, where the Group does not have substantially all of the risks and rewards of ownership are classified as operating leases. Payments made under operating leases are recognised in the income statement as costs on a straight-line basis over the lease term.
Payments received under operating leases where the Group leases out fixed assets are recognised as other income in the income statement. Fortum has leased out its share of the coal condensing power plant Meri-Pori in Finland until June 2010. (See also Jointly controlled assets above.) The lease agreement has been classified as an operating lease.
Inventories in Fortum mainly consist of fuels consumed in the production process or in the rendering of services. Inventories are stated at the lower of cost and net realisable value being the estimated selling price for the end product, less applicable variable selling expenses and other production costs. Cost is determined using the first-in, first-out (FIFO) method.
Inventories which are acquired primarily for the purpose of trading are stated at fair value less selling expenses.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated income statement because of items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the closing date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred tax assets are set off against deferred tax liabilities if they relate to income taxes levied by the same taxation authority.
Deferred tax is provided on temporary differences arising from investments in subsidiaries, associates and joint ventures, except where the timing of the reversal of the temporary difference is controlled by the Group, and it is probable that the temporary difference will not reverse in the foreseeable future.
The Group companies have various pension schemes in accordance with the local conditions and practises in the countries in which they operate. The schemes are generally funded through payments to insurance companies or Group's pension fund as determined by periodic actuarial calculations. The Group has both defined benefit and defined contribution plans.
The Group's contributions to defined contribution plans are charged to the income statement in the period to which the contributions relate.
For defined benefit plans, pension costs are assessed using the projected unit credit method. The cost of providing pensions is charged to the income statement as to spread the service cost over the service lives of employees. The defined benefit obligation is measured as the present value of the estimated future cash flows using interest rates of high-quality corporate bonds that have terms to maturity approximating to the terms of the related pension liability. In countries where there is no deep market in such bonds, market yields on government bonds are used instead. The liability recognised in the balance sheet is the defined benefit obligation at the closing date less the fair value of plan assets with adjustments for unrecognized actuarial gains or losses or past service costs. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.
Actuarial gains and losses exceeding 10% of total of the present value of defined benefit obligations or the fair value of plan assets (whichever is higher) are recorded in the income statement over the employees' expected average remaining working lives. These limits are calculated and applied separately for each defined benefit plan. Past-service costs are recognised immediately in income statement or amortised on a straight-line basis over the vesting period.
The Group operates long-term management performance share arrangements. The potential reward of the performance share arrangement is based on the performance of the Group, its divisions and the individual participant as well as appreciation of the Fortum share. The potential reward of the performance share arrangement is treated as cash settled arrangement which is recognised as an expense during the vesting period with a corresponding increase in the liabilities. The fair value of the potential reward of outstanding share rights is measured based on the market value of the Fortum share initially when the share participation is defined and at each closing
date after that. Estimated departures are taken into account when determining the fair value of the potential reward. The changes of the fair value of the potential reward are accrued over the remaining vesting period. A provision is recorded on the social charges related to the arrangement payable by the employer.
In order to hedge the Group against the changes in the fair values of the potential rewards the Group has entered into share forward transactions which are settled in cash. The forward transactions do not qualify for hedge accounting and therefore the periodic changes to their fair values are recorded in the income statement.
Stock options are measured at fair value at the time they were granted and they are expensed on a straight-line basis in the income statement over the period from the date they were granted to commencement of the right to exercise them. The expense determined at the moment of granting the options is based on an estimate of the number of options that will vest at the time of commencement of the right to exercise them. The fair value of the options is determined on the basis of the Black-Scholes or Binomial pricing model. Estimates of the final amount of options are updated on each closing date if applicable and the effects of changes in estimates are recorded in the income statement. Social charges related to the options payable by the employer are entered as an expense to the income statement and as a provision in the balance sheet in the accounting period during which the options are granted. This provision is measured based on the fair value of the options, and the amount of the provision is adjusted to reflect the changes in the Fortum share price. When stock options are exercised, the cash payments received on the basis of the share subscriptions (adjusted for any transaction expenses) are recognised in equity.
Provisions for environmental restorations, asset retirement obligations, restructuring costs and legal claims are recognised when the Group has a present legal or constructive obligation as a result of past events to a third party, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as interest expense.
Regarding provisions for decommissioning and provision for disposal of spent fuel for nuclear production, see 1.25 below.
Environmental provisions are recognised, based on current interpretation of environmental laws and regulations, when it is probable that a present obligation has arisen and the amount of such liability can be reliably estimated. Environmental expenditures resulting from the remediation of an existing condition caused by past operations, and which do contribute to current or future revenues, are expensed as incurred.
Asset retirement obligation is recognised either when there is a contractual obligation towards a third party or a legal obligation and the obligation amount can be estimated reliably. Obligating event is e.g. when a plant is built on a leased land with an obligation to dismantle and remove the asset in the future or when a legal obligation towards Fortum changes. The asset retirement obligation is recognised as part of the cost of an item of property and plant when the asset is put in service or when contamination occurs. The costs will be depreciated over the remainder of the asset's useful life.
A restructuring provision is recognised when the Group has developed a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement the plan or announcing its main features to those affected by it. The measurement of a restructuring provision includes only the direct expenditures arising from the restructuring, which are those amounts that are both necessarily entailed by the restructuring and not associated with the ongoing activities of the entity. Restructuring provisions comprise mainly of employee termination payments and lease termination costs.
Fortum owns Loviisa nuclear power plant in Finland. Fortum's part of the State Nuclear Waste Management Fund and the related nuclear provisions are both presented separately in the balance sheet. Fortum's share in the State Nuclear Waste Management Fund is accounted for according to IFRIC 5, 'Rights to interests arising from decommissioning, restoration and environmental rehabilitation funds', which states that the fund assets are measured at the lower of fair value or the value of the related liabilities since Fortum does not have control or joint control over the State Nuclear Waste Management Fund. The related provisions are the provision for decommissioning and the provision for disposal of spent fuel.
The fair values of the provisions are calculated by discounting the separate future cash flows, which are based on estimated future costs and actions already taken. The initial net present value of the provision for decommissioning (at the time of commissioning the nuclear power plant) has been included in the investment cost and is depreciated over the estimated operating time of the nuclear power plant. Changes in the technical plans etc, which have an impact on the future cash flow of the estimated costs for decommissioning, are accounted for by discounting the additional costs to the current point in time. The increased asset retirement cost due to the increased provision is added to property, plant and equipment and depreciated over the remaining estimated operating time of the nuclear power plant.
The provision for spent fuel covers the future disposal costs for fuel used until the end of the accounting period. Costs for disposal of spent fuel are expensed during the operating time based on fuel usage. The impact of the possible changes in the estimated future cash flow for related costs is recognised immediately in the income statement based on the accumulated amount of fuel used until the end of the accounting period. The related interest costs due to unwinding of the provision, for the period during which the spent fuel provision has been accumulated and present point in time, are also recognised immediately in the income statement.
The timing factor is taken into account by recognising the interest expense related to discounting the nuclear provisions. The interest on the State Nuclear Waste Management Fund assets is presented as financial income.
Fortum's actual share of the State Nuclear Waste Management Fund, related to Loviisa nuclear power plant, is higher than the carrying value of the Fund in the balance sheet. The legal nuclear liability should, according to the Finnish Nuclear Energy Act, be fully covered by payments and guarantees to the State Nuclear Waste Management Fund. The legal liability is not discounted while the provisions are, and since the future cash flow is spread over 100 years, the difference between the legal liability and the provisions are material.
The annual fee to the Fund is based on changes in the legal liability, the interest income generated in the State Nuclear Waste Management Fund and incurred costs of taken actions.
Fortum also has minority shareholdings in the associated nuclear power production companies Teollisuuden Voima Oyj (TVO) in Finland and directly and indirectly in OKG AB and Forsmarks Kraftgrupp AB in Sweden. The Group's interests in associated companies are accounted for by the equity method. Accounting policies of the associates regarding nuclear assets and liabilities have been changed where necessary to ensure consistency with the policies adopted by the Group.
˭ For more information regarding nuclear related assets and liabilities, see Note 33 Nuclear related assets and liabilities on page 163.
A contingent liability is disclosed when there is a possible obligation that arises from events and whose existence is only confirmed by one or more doubtful future events or when there is an obligation that is not recognised as a liability or provision because it is not probable that on outflow of resources will be required or the amount of the obligation cannot be reliably estimated.
Basic earnings per share is calculated by dividing the net profit attributable to the owners of the parent company by the weighted average number of ordinary shares in issue during the year, excluding ordinary shares purchased by the Group and held as treasury shares.
Diluted earnings per share is calculated adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. For the warrants and stock options a calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Fortum share) based on the monetary value of the subscription rights attached to outstanding stock options.
The number of shares calculated as above is deducted from the number of shares that would have been issued assuming the exercise of the stock options. The incremental shares obtained through the assumed exercise of the options and warrants are added to the weighted average number of shares outstanding.
Options and warrants have a dilutive effect only when the average market price of ordinary shares during the period exceeds the exercise price of the options or warrants. Previously reported earnings per share are not retroactively adjusted to reflect changes in price of ordinary shares.
Dividends proposed by the Board of Directors are not recognised in the financial statements until they have been approved by the Company's shareholders at the Annual General Meeting.
Within the ordinary course of business the Group routinely enters into sale and purchase transactions for commodities. The majority of these transactions take the form of contracts that were entered into and continue to be held for the purpose of receipt or delivery of the commodity in accordance with the Group's expected sale, purchase or usage requirements. Such contracts are not within the scope of IAS 39. All other net-settled commodity contracts are measured at fair value with gains and losses taken to the income statement.
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either: (1) hedges of highly probable forecast transactions (cash flow hedges); (2) hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); or (3) hedges of net investments in foreign operations. The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. Derivatives are divided into noncurrent and current based on maturity. Only for those electricity derivatives, which have cash flows in different years, the fair values are split between non-current and current assets or liabilities.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement. Amounts accumulated in equity are recycled in the income statement in the periods when the hedged item will affect profit or loss (for instance when the forecast sale that is hedged takes place). However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory) or a liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability. When a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity is recognised in the income statement when the forecast transaction is ultimately also recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately recognised in the income statement.
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.
If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to profit or loss for the period to maturity.
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in equity; the gain or loss relating to the ineffective portion is recognised immediately in the income statement. Gains and losses accumulated in equity are included in the income statement when the foreign operation is disposed of.
Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in other income in the income statement.
Fair value measurements are classified using a fair value hierarchy i.e. Level 1, Level 2 and Level 3 that reflects the significance of the inputs used in making the measurements. Financial instruments that are measured in the balance sheet at fair value are presented according to fair value measurement hierarchy in the Note 19 Financial assets and liabilities by fair value hierarchy on page 149.
The fair value of some commodity derivatives traded in active markets (such as publicly traded electricity options, coal and oil forwards) are market quotes at the closing date.
The fair value of financial instruments including electricity derivatives traded in active markets (such as publicly traded derivatives, and trading and available-for-sale securities) is based on quoted market prices at the closing date. Known calculation techniques, such as estimated discounted cash flows, are used to determine fair value of interest rate and currency financial instruments. The fair value of interest-rate swaps is calculated as the present value of the estimated future cash flows. The fair value of forward foreign exchange contracts is determined using forward exchange market rates at the closing date. Fair values of options are determined by using option valuation models. The fair value of financial liabilities is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. In fair valuation, credit spread has not been adjusted, as quoted market prices of instrument used are believed to be consistent with the objective of a fair value measurement.
The Group bases the calculation on existing market conditions at each closing date. Financial instruments used in Fortum are standardised products that are either cleared via exchanges or widely traded in the market. Commodity derivatives are generally cleared through exchanges such as for example Nord Pool and financial derivatives done with creditworthy financial institutions with investment grade ratings.
Fair valuation of electricity derivatives maturing over six years and are not standard Nord Pool products are based on prices collected from reliable market participants.
The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values.
The preparation of consolidated financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results and timing may differ from these estimates. Below are areas where management's accounting estimates and judgements are most critical to reported results and financial position.
In an acquisition acquired intangible and tangible assets are fair valued and their remaining useful lives are determined. Management believes that the assigned values and useful lives, as well as the underlying assumptions, are reasonable, though different assumptions and assigned lives could have a significant impact on the reported amounts.
The Group has significant carrying values in property, plant and equipment as well as goodwill which are tested for impairment according to the accounting policy stated in Note 1 Accounting policies. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations are based on estimated future cash flows. Preparation of these estimates requires management to make assumptions relating to future expectations. Key assumptions used in goodwill impairment testing are discussed in Note 20 Intangible assets on page 150.
The Group has not recognised any impairment losses in 2009 based on impairment testing done in late 2009. Impairment losses recognised during 2009 relating to specific items in property, plant and equipment are presented in Note 5 Segment information on page 134 and in Note 21 Property, plant and equipment on page 150.
The Group has considered the sensitivity of the testing to changes in key assumptions. When doing this any consequential effect of the change on the other variables has also been considered. The calculations are most sensitive to changes in estimated future operating profit levels and discount rate. If the revised estimated operating profit before depreciation on 31 December 2009 was 10% lower than management's estimates or pre-tax discount rate applied to the discounted cash flows was 10% higher than management's estimates, the Group would not have recognised impairment losses for property plant and equipment or goodwill.
Fortum has deferred tax assets and liabilities which are expected to be realised through the income statement over the extended periods of time in the future. In calculating the deferred tax items, Fortum is required to make certain assumptions and estimates regarding the future tax consequences attributable to differences between the carrying amounts of assets and liabilities as recorded in the financial statements and their tax basis.
Assumptions made include the expectation that future operating performance for subsidiaries will be consistent with historical levels of operating results, recoverability periods for tax loss carry-forwards will not change and that existing tax laws and rates will remain unchanged into foreseeable future. Fortum believes that it has prudent assumptions in developing its deferred tax balances.
The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.
1
If the actual final outcome (regarding tax audits) would differ negatively from management's estimates with 10%, the Group would need to increase the income tax liability by EUR 1 million.
The provision for future obligations for nuclear waste management including decommissioning of Fortum's nuclear power plant and related spent fuel is based on long-term cash flow forecasts of estimated future costs. The main assumptions are technical plans, timing, cost estimates and discount rate. The technical plans, timing and cost estimates are approved by governmental authorities.
Any changes in the assumed discount rate would affect the provision. If the discount rate used would be lowered, the provision would increase. Fortum has contributed cash to the State Nuclear Waste Management Fund based on a non-discounted legal liability, which leads to that the increase in provision would be offset by an increase in the recorded share of Fortum's part of the State Nuclear Waste Management Fund in the balance sheet. The total effect on the income statement would be positive since the decommissioning part of the provision is treated as an asset retirement obligation. This situation will prevail as long as the legal obligation to contribute cash to the State Nuclear Waste Management Fund is based on a non-discounted liability and IFRS is limiting the carrying value of the assets to the amount of the provision since Fortum does not have control or joint control over the fund.
˭ See Note 33 Nuclear related assets and liabilities on page 163.
The present value of the pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. Any changes in these assumptions will impact the carrying amount of pension obligations.
˭ Assumptions used and sensitivity analysis for changes in major assumptions are presented in Note 35 Pension obligations on page 165.
Risk management objectives, principles, and framework including governance, organisation and processes as well as description of risks i.e. strategic, financial and operational risks are described in Operating and Financial Review (OFR). ˭ See Risk management on page 98.
Fortum defines financial risk as the negative effects of market price movements, volume changes, liquidity events or counterpart events. A number of different methods, such as Value-at-Risk and Profit-at-Risk, are used throughout Fortum to quantify financial risks. In particular, the potential impact of price and volume risks of electricity, weather, CO2 and main fuels are assessed taking into account their interdependencies. Stress-testing is carried out in order to assess the effects of extreme electricity price movements on Fortum's earnings.
Financial risk taking in business units aims to capture potential upside by optimising hedging or by trading in the markets. Risk taking is limited by risk mandates. During 2009 risk mandates include minimum EBIT levels for the business units that were set by the President and CEO and from 1 January 2010 the Group minimum EBITDA mandate is approved by the Board of Directors. Volumetric limits, Value-at-Risk limits, Stop-Loss limits and counterpart exposure limits are also in place.
Strategies for hedging the electricity price are developed and executed by the business units within set mandates approved by the Fortum Management Team. In the Nordic markets, the hedging strategies are executed by entering into electricity derivatives contracts. In Russia, there is currently no existing financial market for electricity as the majority of electricity sales are regulated. Hedging strategies for Russia will be developed in line with the deregulation of the electricity market. Risk in the hedging strategies and their execution are continuously evaluated in accordance with models approved by the CRO and mandates approved by CEO.
Fortum's sensitivity to electricity market price is dependent on the hedge level for a given time period. The hedge ratio on 31 December 2009 was approximately 70% for the year 2010 and 40% for 2011. Assuming no changes in generation volumes, hedge ratios or cost structure a 1 EUR/MWh change in the market price of electricity would affect Fortum's 2010 profit before income tax by approximately EUR 15 million and 2011 EUR 30 million. Volume used in this sensitivity analysis is 50 TWh which includes the electricity generation sold to the spot market in Sweden and Finland in Power and Heat segments without minority owner's shares of electricity or other pass-through sales. This volume is heavily dependent on price level, hydrological situation, the length of annual maintenance periods and availability of power plants. Sensitivity is calculated only for market price movement as hydrological conditions, temperature, CO2 allowance prices, fuel prices and the import/export situation all affect electricity price on short-term basis and effects of these factors cannot be separated as individual sensitivity analysis. The sensitivity to electricity prices in Russia is not calculated as this price is to a large extent regulated, and the business is mainly exposed to margin risk between electricity and gas prices, which is the main fuel cost component and the prices are following each other.
Sensitivity analysis shows the sensitivity arising from financial electricity derivatives as defined in IFRS 7. These derivatives are used in hedging and proprietary trading purposes in various business units within Fortum. Sensitivities are calculated based on 31 December 2009 (31 December 2008) position. Positions are actively managed in the day-to-day business operations and therefore the sensitivities vary from time to time. Sensitivity analysis includes only the market risks arising from derivatives i.e. the underlying physical electricity sales and purchase are not included. Sensitivity is calculated with the assumption that electricity forward quotations in Nord Pool and in EEX would change 1 EUR/MWh for the period Fortum has derivatives.
| +/– 1 EUR/MWh change in electricity forward quotations, EUR million | Effect | 2009 | 2008 |
|---|---|---|---|
| Effect on Profit before income tax | –/+ | 1 | 1 |
| Effect on Equity | –/+ | 53 | 40 |
The tables below disclose the Group's electricity derivatives used mainly for hedging electricity price risk. The fair values represent the values disclosed in the balance sheet.
˭ See also Note 1 Accounting policies for accounting principles and bases for fair value estimations on page 113 and Note 6 Fair value changes of derivatives and underlying items in income statement on page 138 for the effects in the income statement regarding electricity derivatives not getting hedge accounting status.
| Gross | Volume, TWh | Fair value, EUR million | |||||
|---|---|---|---|---|---|---|---|
| Under | 1–5 | Over 5 | |||||
| 1 year | years | years | Total | Positive Negative | Net | ||
| Sales swaps | 97 | 59 | 1 | 157 | 559 | 550 | 9 |
| Purchase swaps | 71 | 31 | 0 | 102 | 347 | 426 | –79 |
| Purchased options | - | 1 | - | 1 | 1 | 2 | –1 |
| Written options | 2 | 1 | - | 3 | 2 | 1 | 1 |
| Total | 170 | 92 | 1 | 263 | 909 | 979 | –70 |
| Netting against electricity exchanges 2) | –779 | –779 | 0 | ||||
| Net total | 130 | 200 | –70 |
| Gross | Volume, TWh | Fair value, EUR million | |||||
|---|---|---|---|---|---|---|---|
| Under 1 year |
1–5 years |
Over 5 years |
Total | Positive Negative | Net | ||
| Derivatives with hedge accounting status | 98 | 60 | 0 | 158 | 582 | 628 | –46 |
| Derivatives with non-hedge accounting status 1) |
72 | 32 | 1 | 105 | 327 | 351 | –24 |
| Total | 170 | 92 | 1 | 263 | 909 | 979 | –70 |
| Netting against electricity exchanges 2) | |||||||
| Derivatives with hedge accounting status | –523 | –523 | 0 | ||||
| Derivatives with non-hedge accounting status 1) |
–256 | –256 | 0 | ||||
| Total | –779 | –779 | 0 | ||||
| Net total | 130 | 200 | –70 | ||||
| Of which long-term | 54 | 101 | –47 | ||||
| Short-term | 76 | 99 | –23 |
| Gross | Volume, TWh | Fair value, EUR million | |||||
|---|---|---|---|---|---|---|---|
| Under | 1–5 | Over 5 | |||||
| 1 year | years | years | Total | Positive Negative | Net | ||
| Sales swaps | 108 | 56 | 1 | 165 | 2,168 | 66 | 2,102 |
| Purchase swaps | 89 | 34 | - | 123 | 54 | 1,746 –1,692 | |
| Purchased options | 2 | - | - | 2 | 0 | 0 | 0 |
| Written options | 4 | - | - | 4 | 2 | 16 | –14 |
| Total | 203 | 90 | 1 | 294 | 2,224 | 1,828 | 396 |
| Netting against electricity exchanges 2) | –1,717 –1,717 | 0 | |||||
| Net total | 507 | 111 | 396 | ||||
1) Derivatives with non-hedge accounting status consist of trading derivatives and cash flow hedges without hedge accounting status.
2)Receivables and liabilities against electricity exchanges arising from standard derivative contracts with same delivery period are netted.
| Gross | Volume, TWh | Fair value, EUR million | |||||
|---|---|---|---|---|---|---|---|
| Under | 1–5 | Over 5 | |||||
| 1 year | years | years | Total | Positive Negative | Net | ||
| Derivatives with hedge accounting status | 95 | 66 | 0 | 161 | 1,349 | 942 | 407 |
| Derivatives with non-hedge accounting | |||||||
| status 1) | 107 | 25 | 1 | 133 | 875 | 886 | –11 |
| Total | 202 | 91 | 1 | 294 | 2,224 | 1,828 | 396 |
| Netting against electricity exchanges 2) | |||||||
| Derivatives with hedge accounting status | –931 | –931 | 0 | ||||
| Derivatives with non-hedge accounting | |||||||
| status 1) | –786 | –786 | 0 | ||||
| Total | –1,717 –1,717 | 0 | |||||
| Net total | 507 | 111 | 396 | ||||
| Of which long-term | 219 | 45 | 174 | ||||
| Short-term | 288 | 66 | 222 |
1) Derivatives with non-hedge accounting status consist of trading derivatives and cash flow hedges without hedge accounting status.
2)Receivables and liabilities against electricity exchanges arising from standard derivative contracts with same delivery period are netted.
Amounts disclosed below are non-discounted cash flows for electricity derivatives.
| 31 December 2009 | 31 December 2008 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Under | 1–5 | Over 5 | Under | 1–5 | Over 5 | ||||
| EUR million | 1 year | years | years | Total | 1 year | years | years | Total | |
| Electricity derivatives liabilities | –677 | –300 | –2 | –979 –1,461 | –657 | –4 –2,122 | |||
| Electricity derivatives assets | 652 | 255 | 2 | 909 | 1,565 | 713 | 3 | 2,281 |
Power and heat generation, customer sales, and electricity distribution volumes have significant variations that depend on the nature of the business. These volumes are subject to changes in, for example, hydrological conditions, economic situation and temperature.
Changes in volumes are closely monitored so that hedges can be adjusted accordingly. In addition, volume risks in power and heat generation are partly mitigated through generation flexibility.
Fortum uses financial derivatives such as oil and coal derivatives to mitigate its fuel price risk and in addition to this Fortum has a proprietary trading book. At 31 December 2009 Fortum had oil sales swaps and futures amounting to 1,555 thousand bbl (2008: 1,047) and oil purchase swaps and futures amounting to 1,450 thousand bbl (2008: 1,230). The respective net fair values were EUR –4 million (2008: –14) and EUR 4 million (2008: 11). Volumes of sold and bought coal derivatives were 1,259 kt (2008: 276) and 1,762 kt (2008: 641) respectively and the net fair values were EUR –3 million (2008: 7) and EUR –1 million (2008: –16).
Fortum manages its exposure to CO2 allowance prices related to own production through the use of CO2 forwards and by ensuring that the costs of allowances are taken into account during production planning. These CO2 allowances are own use contracts valued at cost.
In addition to own production Fortum has proprietary trading book. These allowances are treated as derivatives in the accounts. At 31 December 2009 the trading volumes of sold and bought CO2 emission allowances were 366 ktCO2 (2008: 592) and 686 ktCO2 (2008: 592). The respective net fair values were EUR 1 million (2008: 4) and EUR –2 million (2008: –4).
On 20 February 2008, Fortum, the Russian Territorial Generating Company No. 1 (TGC-1) and ECF Project Ltd signed an agreement according to which Fortum will purchase approximately 5 million tonnes of emission reduction units (ERU) from TGC-1. The ERUs will come from Joint Implementation projects conducted at TGC-1's production facilities during the Kyoto Period (2008–2012) of the European Emissions Trading Scheme. The agreement has been classified as an own use contract and valued at cost.
Fortum is trading electricity forwards, futures and options mainly on the Nord Pool and EEX markets, CO2 allowances on the European market and financial coal and oil derivatives on the ICE and OTC markets.
Proprietary trading risks are monitored and reported daily, and have stringent controls in place. Overall trading mandates for Fortum are set by the Fortum Management Team, and these mandates are further cascaded down to individual portfolios. Stop-loss mandates are set to limit the cumulative maximum loss during the year, and "red-flag" thresholds for losses are established at predefined levels to signal the need for management involvement before reaching the stop-loss limit. Value-at-Risk mandates are set to limit the maximum level of risk at any given time.
Fortum's business is capital intensive and the Group has a regular need to raise financing. Fortum has a diversified loan portfolio mainly consisting of long-term financing denominated in EUR. Long-term financing is primarily raised by issuing bonds under Fortum's Euro Medium Term Note programme as well as through bilateral and syndicated loan facilities from a variety of different financial institutions. Seasonal variations in working capital are generally financed by issuing short-term commercial papers under the Group's Swedish (SEK) and Finnish (EUR) Commercial Paper programmes.
Financing is primarily raised on parent company level and distributed internally through various internal financing arrangements. On 31 December 2009, 92% (2008: 92%) of the Group's total external financing was raised by the parent company Fortum Oyj.
On 31 December 2009, the total interest-bearing debt was EUR 6,859 million (2008: 7,500) and the interest-bearing net debt was EUR 5,969 million (2008: 6,179).
Fortum manages liquidity and refinancing risks through a combination of cash positions and committed credit facility agreements with its core banks. The Group shall at all times have access to cash, marketable securities and unused committed credit facilities including overdrafts, to cover all loans maturing within the next twelvemonth period. However, cash/marketable securities and unused committed credit facilities shall always amount to at least EUR 500 million.
On 31 December 2009, loan maturities for the coming twelve-month period amounted to EUR 857 million (2008: 980). Liquid funds amounted to EUR 890 million (2008: 1,321) including OAO Fortum's bank deposits amounting to EUR 626 million (2008: 1,014) and the total amount of committed credit facilities amounted to EUR 2,911 million (2008: 2,906) of which EUR 2,911 million was undrawn (2008: 2,306).
| EUR million | 2009 |
|---|---|
| 2010 | 857 |
| 2011 | 626 |
| 2012 | 499 |
| 2013 | 558 |
| 2014 | 1,146 |
| 2015 and later | 3,173 |
| Total | 6,859 |
| Total | Drawn | Available | |
|---|---|---|---|
| EUR million | facility | amount | amount |
| Liquid funds | |||
| Cash and cash equivalents | 493 | ||
| Bank deposits over 3 months | 397 | ||
| Total | 890 | ||
| of which Russia (OAO Fortum) |
632 | ||
| Committed credit lines | |||
| EUR 1,200 million syndicated credit facility | 1,200 | - | 1,200 |
| EUR 1,500 million syndicated credit facility | 1,500 | - | 1,500 |
| Bilateral overdraft facilities | 211 | - | 211 |
| Total | 2,911 | - | 2,911 |
| Debt programmes (uncommitted) | |||
| Fortum Corporation, CP programmes EUR 500 million | 500 | 78 | 422 |
| Fortum Corporation, CP programmes SEK 5,000 million | 488 | 172 | 316 |
| Fortum Corporation, EMTN programmes EUR 5,000 million | 5,000 | 4,166 | 834 |
| Total | 5,988 | 4,416 | 1,572 |
Liquid funds amounted to EUR 890 million (2008: 1,321), including OAO Fortum's bank deposits amounting to EUR 626 million (2008: 1,014) earmarked for capacity increase investments in Russia. Of these deposits at year-end 2009 EUR 587 million (2008: 504) were in euros and EUR 39 million (2008: 510) in Russian roubles.
| Total | Drawn | Available | |
|---|---|---|---|
| EUR million | facility | amount | amount |
| Liquid funds | |||
| Cash and cash equivalents | 733 | ||
| Bank deposits over 3 months | 588 | ||
| Total | 1,321 | ||
| of which Russia (OAO Fortum) |
1,020 | ||
| Committed credit lines | |||
| EUR 1,200 million syndicated credit facility | 1,200 | - | 1,200 |
| EUR 1,500 million syndicated credit facility | 1,500 | 600 | 900 |
| Bilateral overdraft facilities | 206 | - | 206 |
| Total | 2,906 | 600 | 2,306 |
| Debt programmes (uncommitted) | |||
| Fortum Corporation, CP programmes EUR 500 million | 500 | 172 | 328 |
| Fortum Corporation, CP programmes SEK 5,000 million | 460 | 285 | 175 |
| Fortum Corporation, EMTN programmes EUR 5,000 million | 5,000 | 2,918 | 2,082 |
| Total | 5,960 | 3,375 | 2,585 |
Amounts disclosed below are non-discounted cash flows of interest-bearing liabilities and interest rate and currency derivatives, and the expected cash flows arising (future interest payments and amortisations) from these items.
| 31 December 2009 | 31 December 2008 | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| EUR million | Under 1 year |
1–5 years |
Over 5 years |
Total | Under 1 year |
1–5 years |
Over 5 years |
Total | |
| Interest-bearing liabilities | 1,106 | 3,697 | 3,752 | 8,555 | 1,271 | 5,016 | 2,524 | 8,811 | |
| Interest rate and currency derivatives liabilities |
6,347 | 1,795 | 265 | 8,407 | 5,046 | 1,858 | 60 | 6,964 | |
| Interest rate and currency derivatives receivables |
–6,310 –1,832 | –256 –8,398 –5,490 –2,027 | –59 | –7,576 | |||||
| Total | 1,143 | 3,660 | 3,761 | 8,564 | 827 | 4,847 | 2,525 | 8,199 |
Interest-bearing liabilities include loans from the State Nuclear Waste Management Fund and Teollisuuden Voima Oyj with EUR 774 million (2008: 708). These loans are renewed yearly and connected interest payments are calculated for ten years in the table above.
˭ For further information regarding loans from the State Nuclear Waste Management Fund and Teollisuuden Voima Oyj, see Note 33 Nuclear related assets and liabilities on page 163.
The Treasury risk policy stipulates that the average duration of the debt portfolio shall always be kept within a range of 12 and 24 months, and that the flow risk i.e. changes in interest rates shall not affect the net interest payments of the Group by more than EUR 60 million for the next rolling 12-month period. Within these mandates, strategies are evaluated and developed in order to find an optimal balance between risk and financing cost.
On 31 December 2009, the average duration of the debt portfolio (including derivatives) was 1.8 years (2008: 1.6). Approximately 62% (2008: 64%) of the debt portfolio was on a floating rate basis or fixed rate loans maturing within the next 12 month period. The effect of one percentage point change in interest rates on the present value of the debt portfolio was EUR 120 million on 31 December 2009 (2008: 88). The flow risk, measured as the difference between the base case net interest cost estimate and the worst case scenario estimate for Fortum's debt portfolio for the coming 12 months, was EUR 23 million (2008:19).
The average interest rate on loans and derivatives on 31 December 2009 was 3.4% (2008: 4.7%). Average cumulative interest rate on loans and derivatives for 2009 was 3.7% (2008: 5.3%).
Fortum's policy is to hedge major transaction exposures to avoid exchange differences in the profit and loss statement. These exposures are mainly hedged by forward contracts. Translation exposures arising when consolidating income statements and balance sheet statements of entities in Fortum Group whose base currency is not euros, (in Fortum this means mainly entities operating in Sweden, Russia, Norway and Poland) are generally not hedged as the majority of these assets are considered to be long-term strategic holdings of the Fortum Group.
The currency risk relating to transaction exposures are measured using Valueat-Risk (VaR) for a one-day period at 95% confidence level. Translation exposures relating to net investments in foreign entities are measured using a five day period at 95% confidence level. The limit for transaction exposure is VaR EUR 5 million. On 31 December 2009, the open transaction and translation exposures were EUR 42 million (2008: 38) and EUR 3,880 million (2008: 4,060). The VaR for the transaction exposure was EUR 0 million (2008: 0) and VaR for the translation exposure calculated without the fair value change of Renewable Energy Corporation (REC) in Hafslund was EUR 53 million (2008: 75).
˭ For further information about the accounting of Fortum's shareholding in Hafslund, see Note 22 Participations in associated companies and joint ventures on page 152.
| 31 December 2009 | 31 December 2008 | |||||
|---|---|---|---|---|---|---|
| EUR million | Net position | Hedge | Open Net position | Hedge | Open | |
| SEK | 6,051 | –6,051 | 0 | 5,402 | –5,402 | 0 |
| USD | –163 | 163 | 0 | –115 | 115 | 0 |
| NOK | 227 | –226 | 1 | 312 | –312 | 0 |
| Other | 154 | –197 | –43 | 216 | –254 | –38 |
| Total | 6,269 | –6,311 | –42 | 5,815 | –5,853 | –38 |
In addition OAO Fortum is hedging its euro investments with euro deposits EUR 587 million (2008: 504), which qualifies as a cash flow hedge in Fortum group accounts.
Transaction exposure is defined as already contracted or forecasted foreign exchange dependent items and cash flows. Transaction exposure is divided into balance sheet exposure and cash flow exposure. Balance sheet exposure reflects currency denominated assets and liabilities for example loans, deposits and accounts payable/ receivable in currencies other than the company's home currency. Cash flow exposure reflects future forecasted or contracted currency flows in foreign currency deriving from business activities such as sales, purchases or investments. Net conversion differences from transaction exposure are entered under financial income or expense when related to financial items or when related to accounts receivable/payable entered under items included in operating profit. Conversion differences related to qualifying cash flow hedges are deferred to equity.
Fortum's policy is to hedge balance sheet exposures in order to avoid exchange rate differences in the income statement. The Group's balance sheet exposure mainly relates to financing of Swedish subsidiaries and the fact that the Group's main external financing currency is EUR. For derivatives hedging this balance exposure Fortum does not apply hedge accounting, because they have a natural hedge in the income statement.
Contracted cash flow exposures shall be hedged to reduce volatility in future cash flows. These hedges normally consist of currency derivative contracts, which are matched against the underlying future cash flow according to maturity. Fortum has currency cash flow hedges both with and without hedge accounting treatment under IFRS. Those currency cash flow hedges, which do not qualify for hedge accounting are mainly hedging electricity derivatives. Unrealised hedges create volatility in the operating profit.
| 31 December 2009 | 31 December 2008 | |||||
|---|---|---|---|---|---|---|
| EUR million | Investment | Hedge | Open | Investment | Hedge | Open |
| RUB | 2,614 | - | 2,614 | 2,634 | - | 2,634 |
| SEK | 690 | –85 | 605 | 803 | - | 803 |
| NOK | 443 | - | 443 | 435 | - | 435 |
| PLN | 118 | - | 118 | 114 | - | 114 |
| Other | 174 | –74 | 100 | 140 | –66 | 74 |
| Total | 4,039 | –159 | 3,880 | 4,126 | –66 | 4,060 |
Translation exposure position includes net investments in foreign subsidiaries and associated companies. On consolidation, exchange differences arising from the translation of the net investment in foreign entities are taken to equity. The net effect on equity attributable to equity holders from SEK, NOK and RUB was EUR 27 million in 2009 (2008: –680). NOK amount includes the fair value change of Renewable Energy Corporation (REC) shareholding in Hafslund EUR 89 million (2008: 126).
| Notional amount Remaining lifetimes |
Fair value | |||||||
|---|---|---|---|---|---|---|---|---|
| Under | 1–5 | Over 5 | ||||||
| EUR million | 1 year | years | years | Total | Positive Negative | Net | ||
| Forward foreign exchange contracts | 4,663 | 1,671 | - | 6,334 | 43 | 166 | –123 | |
| Interest rate swaps | 1,536 | 1,012 | 1,447 | 3,995 | 99 | 58 | 41 | |
| Interest rate and currency swaps | 911 | 543 | - | 1,454 | 95 | 30 | 65 | |
| Forward rate agreements | - | - | - | - | - | - | - | |
| Total | 7,110 | 3,226 | 1,447 11,783 | 237 | 254 | –17 | ||
| Of which long-term | 139 | 85 | 54 | |||||
| Short-term | 98 | 169 | –71 |
| Notional amount Remaining lifetimes |
Fair value | ||||||
|---|---|---|---|---|---|---|---|
| EUR million | Under 1 year |
1–5 years |
Over 5 years |
Total | Positive Negative | Net | |
| Net investment hedging foreign exchange derivatives |
159 | - | - | 159 | - | 3 | -3 |
| Cash flow hedging foreign exchange derivatives |
167 | 102 | - | 269 | 6 | 4 | 2 |
| Non-hedging foreign exchange derivatives 1) |
4,337 | 1,569 | - | 5,906 | 37 | 159 | –122 |
| Total forward foreign exchange contracts |
4,663 | 1,671 | - | 6,334 | 43 | 166 | –123 |
| Fair value hedging interest rate derivatives |
- | 450 | 1,050 | 1,500 | 59 | - | 59 |
| Cash flow hedging interest rate derivatives |
65 | 146 | 97 | 308 | - | 12 | –12 |
| Non-hedging interest rate derivatives 1) | 1,471 | 416 | 300 | 2,187 | 40 | 46 | –6 |
| Total interest rate derivatives | 1,536 | 1,012 | 1,447 | 3,995 | 99 | 58 | 41 |
| Non-hedging interest rate and currency swaps 1) |
911 | 543 | - | 1,454 | 95 | 30 | 65 |
| Total interest rate and currency swaps | 911 | 543 | - | 1,454 | 95 | 30 | 65 |
| Total | 7,110 | 3,226 | 1,447 11,783 | 237 | 254 | -17 |
1)Consists of deals without hedge-accounting status.
| Notional amount Remaining lifetimes |
Fair value | ||||||
|---|---|---|---|---|---|---|---|
| EUR million | Under 1 year |
1–5 years |
Over 5 years |
Total | Positive Negative | Net | |
| Forward foreign exchange contracts | 4,200 | 321 | - | 4,521 | 400 | 30 | 370 |
| Interest rate swaps | 1,130 | 1,171 | 692 | 2,993 | 43 | 55 | –12 |
| Interest rate and currency swaps | 769 | 1,471 | - | 2,240 | 233 | 15 | 218 |
| Forward rate agreements | 184 | 46 | - | 230 | 1 | 1 | 0 |
| Total | 6,283 | 3,009 | 692 | 9,984 | 677 | 101 | 576 |
| Of which long-term | 223 | 69 | 154 | ||||
| Short-term | 454 | 32 | 422 |
| Notional amount Remaining lifetimes |
Fair value | ||||||
|---|---|---|---|---|---|---|---|
| Under | 1–5 | Over 5 | |||||
| EUR million Net investment hedging foreign exchange derivatives |
1 year 73 |
years - |
years - |
Total 73 |
0 | Positive Negative 0 |
Net 0 |
| Cash flow hedging foreign exchange derivatives |
287 | 70 | - | 357 | 16 | 4 | 12 |
| Non-hedging foreign exchange derivatives 1) |
3,840 | 251 | - | 4,091 | 384 | 26 | 358 |
| Total forward foreign exchange contracts |
4,200 | 321 | - | 4,521 | 400 | 30 | 370 |
| Fair value hedging interest rate derivatives |
- | - | 300 | 300 | 16 | - | 16 |
| Cash flow hedging interest rate derivatives |
1,043 | 62 | 92 | 1,197 | 0 | 16 | -16 |
| Non-hedging interest rate derivatives 1) | 271 | 1,155 | 300 | 1,726 | 28 | 40 | -12 |
| Total interest rate derivatives | 1,314 | 1,217 | 692 | 3,223 | 44 | 56 | -12 |
| Non-hedging interest rate and currency swaps 1) |
769 | 1,471 | - | 2,240 | 233 | 15 | 218 |
| Total interest rate and currency swaps | 769 | 1,471 | - | 2,240 | 233 | 15 | 218 |
| Total | 6,283 | 3,009 | 692 | 9,984 | 677 | 101 | 576 |
1)Consists of deals without hedge-accounting status.
Cash-settled share forwards are used as a hedging instrument for the Fortum share price risk regarding the Fortum Group's long-term incentive schemes. The amounts disclosed are non-discounted cash flows for the share derivatives. The maturity of the share forwards is 1–3 years.
˭ See Note 29 Employee bonus, personnel fund and incentive schemes for more information about the Group's long-term incentive schemes on page 157.
| 31 December 2009 | 31 December 2008 | ||||
|---|---|---|---|---|---|
| EUR million | Notional value | Net fair value Notional value | Net fair value | ||
| Share forwards | 24 | 21 | 37 | 24 |
Fortum is exposed to credit risk whenever there is a contractual obligation with an external counterpart. Fortum has procedures in place to ensure that credit risks are kept at an acceptable level. All larger exposures are monitored centrally against limits which are approved according to authority levels defined in the Corporate Credit Guidelines. Counterpart creditworthiness is continuously monitored and reported.
Counterparty risk exposures relating to derivative instruments are often volatile due to rapidly changing market prices and are therefore monitored closely. Currency and interest rate derivative counterparts are limited to investment grade banks and financial institutions. Master agreements, such as ISDA, which include netting clauses, are in place with all of these counterparts. The majority of the Group's commodity derivatives are cleared through an exchange such as Nord Pool, but derivative transactions are also executed on the OTC market directly with external counterparties. These counterparts are limited to those considered of high creditworthiness. Master agreements, such as ISDA, FEMA and EFET, which include netting clauses, are in place with the majority of the counterparts. Furthermore, collaterals are used if dealing with counterparts without approved limits or when exposures arising from engagements are considered too high in relation to the counterpart creditworthiness. Parent company guarantees are requested when dealing with subsidiaries not considered creditworthy on a stand-alone basis.
Credit risk relating to banks is monitored closely as the creditworthiness of financial institutions can deteriorate quickly, which has become apparent during the financial crisis in 2008 and 2009. The creditworthiness of Russian financial institutions can also be affected negatively as liquidity and financing can quickly dry up as foreign investors pull out of emerging markets. Fortum, like any capital intensive business, is exposed to the financial sector, and as a result of the acquisition of OAO Fortum also to Russia. Where possible, exposures have been concentrated to key relationship banks considered to be of high credit quality and importance to the financial stability of their respective countries. In Russia, bank guarantees are used to cover exposures related to the investment programme of OAO Fortum. In case a contractor defaults or does not fulfill its obligations, there are guarantees covering any prepayments as well as performance guarantees in place. Issuers of these guarantees are banks with a strong local presence and understanding of the contractor. The creditworthiness of these banks as well as exposures arising from issued guarantees is monitored closely.
Credit risk in the retail and wholesale business is well diversified over a large number of private individuals and businesses and across several geographic regions and industry sectors.
Amounts disclosed below are presented by counterparties for interest-bearing receivables including finance lease receivables, bank deposits and derivative financial instruments recognised as assets.
| 2009 | ||||
|---|---|---|---|---|
| EUR million | Carrying amount |
of which past due |
Carrying amount |
of which past due |
| Investment grade receivables | 986 | - | 1,873 | - |
| Electricity exchanges | 10 | - | 273 | - |
| Associated companies | 868 | - | 704 | - |
| Other | 193 | - | 395 | - |
| Total | 2,057 | - | 3,245 | - |
Investment grade receivables consist of bank deposits EUR 736 million (2008: 1,183), fair values of interest rate and currency derivatives EUR 237 million (2008: 677) and fair values of electricity, coal and oil derivatives EUR 13 million (2008: 13). Electricity exchange receivable is the fair value of derivatives on Nord Pool. Associated companies receivables consist of loan receivables EUR 852 million (2008: 659) and fair values of electricity derivatives EUR 16 million (2008: 45). Other receivables consist of loan and other interest bearing receivables EUR 15 million (2008: 59), bank deposits EUR 0 million (2008: 61), finance lease receivables EUR 77 million (2008: 81) and fair values of electricity, coal and oil derivatives EUR 101 million (2008: 194).
The following tables indicate how bank deposits and fair values of derivatives are distributed by rating class.
| EUR million | 2009 | 2008 |
|---|---|---|
| Counterparties with external credit rating from Standard & Poor's and / or Moody's |
||
| Investment grade ratings | ||
| AAA | - | - |
| AA+/AA/AA– | 218 | 354 |
| A+/A/A– | 80 | 100 |
| BBB+/BBB/BBB– | 438 | 729 |
| Total investment grade ratings | 736 | 1,183 |
| Non-investment grade ratings | 0 | - |
| Counterparties without external credit rating from Standard & Poor's | ||
| and / or Moody's | - | 61 |
| Total | 736 | 1,244 |
In addition to the above bank deposits, cash in bank accounts totalled EUR 154 million on 31 December 2009 (2008: 77).
| 2009 | 2008 | ||||
|---|---|---|---|---|---|
| EUR million | Receivables Netted amount | Receivables Netted amount | |||
| Counterparties with external credit rating from Standard & Poor's and / or Moody's |
|||||
| Investment grade ratings | |||||
| AAA | - | - | - | - | |
| AA+/AA/AA– | 98 | 28 | 329 | 266 | |
| A+/A/A– | 139 | 76 | 348 | 326 | |
| BBB+/BBB/BBB– | 0 | 0 | - | - | |
| Total investment grade ratings | 237 | 104 | 677 | 592 | |
| Non-investment grade ratings | 0 | 0 | 0 | 0 | |
| Total | 237 | 104 | 677 | 592 |
| 2009 | 2008 | ||||
|---|---|---|---|---|---|
| EUR million | Receivables Netted amount | Receivables Netted amount | |||
| Counterparties with external credit rating from Standard & Poor's and / or Moody's |
|||||
| Investment grade ratings | |||||
| AAA | - | - | - | - | |
| AA+/AA/AA– | 0 | 0 | 1 | 1 | |
| A+/A/A– | 13 | 6 | 6 | 0 | |
| BBB+/BBB/BBB– | - | - | 6 | 5 | |
| Total investment grade ratings | 13 | 6 | 13 | 6 | |
| Non-investment grade ratings | |||||
| BB+/BB/BB– | 2 | 2 | 4 | 4 | |
| B+/B/B– | - | - | - | - | |
| Below B– | - | - | - | - | |
| Total non-investment grade ratings | 2 | 2 | 4 | 4 | |
| Total associated companies | 16 | 1 | 45 | 36 | |
| Counterparties without external credit rating from Standard & Poor's or Moody's |
|||||
| Government or municipality | 11 | 7 | 6 | 3 | |
| Fortum Rating 5 - Lowest risk | 76 | 50 | 131 | 93 | |
| Fortum Rating 4 - Low risk | 7 | 2 | 40 | 35 | |
| Fortum Rating 3 - Normal risk | - | - | - | - | |
| Fortum Rating 2 - High risk | - | - | - | - | |
| Fortum Rating 1 - Highest risk | - | - | - | - | |
| No rating | 5 | 2 | 13 | 13 | |
| Total non-rated counterparts | 99 | 61 | 190 | 144 | |
| Total electricity, coal and oil derivatives | 130 | 70 | 252 | 190 |
For derivatives, the receivable is the sum of the positive fair values. Netted amount include negative fair values where a valid netting agreement is in place with the counterpart or netting is otherwise allowed in accordance with local laws. When the netted amount is less than zero, it is not included. In cases where a parent company guarantee is in place, the exposure is shown on the issuer of the guarantee.
All counterparties for currency and interest rate derivatives and the majority of counterparts for bank deposits have an external rating from Standard & Poor's and Moody's credit agencies. The above rating scale is for Standard & Poor's rating categories. For those counterparts only rated by Moody's, the rating has been translated to the equivalent Standard and Poor's rating category.
In the electricity, coal and oil derivatives market, there are a number of counterparts not rated by Standard & Poor's or Moody's. For these counterparts, Fortum assigns an internal rating. The internal rating is based on external credit ratings from other credit agencies. The risk class from Asiakastieto is used for Finnish counterparties, the rating from Creditinform is used for Norwegian counterparties, the risk indicator
from UC (Upplysningscentralen) is used for Swedish counterparties and for other counterparties the rating from Dun & Bradstreet is used. Governments and municipal companies are typically not rated, and are shown separately. This rating category does not include companies owned by governments or municipalities. Counterparts that have not been assigned a rating by the above listed credit agencies are in the "No rating" category.
Fortum wants to have a prudent and efficient capital structure which at the same time allows the implementation of its strategy. The Group monitors the capital structure based on Net debt/EBITDA ratio. Net debt is calculated as interest-bearing liabilities less liquid funds. EBITDA is calculated by adding back depreciation, amortisation and impairment charges to operating profit. During 2009 and 2008 target capital structure has been defined as Net debt/EBITDA between 3.0–3.5.
Capital expenditure, acquisitions, dividend distributions, repurchases of own shares and capital returns to shareholders are ways to move towards the target capital structure.
Fortum's dividend policy states that the company aims to pay a dividend which corresponds to an average payout ratio of 50 to 60%.
Fortum Corporation's long-term credit rating from Moody's and Standard and Poor's was A2 (stable) and A (stable), respectively.
| EUR million | Note | 2009 | 2008 |
|---|---|---|---|
| Interest-bearing liabilities | 31 | 6,859 | 7,500 |
| Less: Liquid funds | 27 | 890 | 1,321 |
| Net debt | 5,969 | 6,179 | |
| Operating profit | 1,782 | 1,963 | |
| Add: Depreciation, amortisation and impairment charges | 510 | 515 | |
| EBITDA | 2,292 | 2,478 | |
| Net debt / EBITDA | 2.6 | 2.5 |
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 reportable segments under IFRS have been renamed correspondingly. The Electricity Solution and Distribution division is for transparency divided into two reporting segments, i.e. Distribution and Markets.
Fortum's business operations are organised in four divisions and four staff functions. The staff functions are Finance, Corporate Relations and Sustainability, Corporate Human Resources and Corporate Strategy and R&D. The staff functions have service level agreements with the divisions for services provided.
The Group is reported in the following segments:
Power consists of Fortum's power generation, exclusive Russia, physical operation and trading, operation, maintenance and development of power plants, as well as expert services for power producers in the Nordic market and selected international markets. Power sells its power mainly to the Nordic power exchange Nord Pool.
Heat provides district heating and cooling, industrial steam and energy produced in waste-to-energy production to industrial companies, municipalities and end-users in the Nordic countries, the Baltic countries and Poland. The Heat segment also sells electricity from its combined heat and power production (CHP) to the Nordic power exchange Nord Pool.
Distribution is responsible for a reliable and secure electricity supply to its customers in the Nordic countries and Estonia. 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. Electricity distribution is considered and accepted as a regulated business, and is therefore supervised by national energy authorities. Models and principles for supervision and considerations of reasonable tariffs differ from country to country.
Markets is responsible for offering energy solutions to its 1.2 million customers in Finland, Sweden and Norway. The segment buys its electricity from Nord Pool and sells it further to household and business customers as well as other retailers in the Nordic countries. In addition to the actual sale of electricity, Markets provides comprehensive risk and portfolio management solutions to its business customers. Electricity supply in the Nordic countries is a deregulated business since 1995 which means that customers can freely change electricity supplier.
Russia segment is based on the geographical area, Russia, and includes power and heat generation and sales in Russia. It includes mainly the Russian subsidiary OAO Fortum, which is consolidated from 31 March 2008, and the shareholding in the associated company TGC-1.
Other includes mainly the shareholding in the associated company Hafslund ASA and corporate center including the Fortum Group staff functions. The staff functions charge the divisions according to service level agreements.
Financial target setting, follow up and allocation of resources in the group's performance management process is mainly based on the business units' comparable operating profit including share of profit from associated companies and return on comparable net assets. Fortum discloses in the segment information operating profit and comparable operating profit as well as return on net assets and comparable return on net assets.
Consolidation by segment is based on the same principles as for the Group as a whole. Comparable operating profit is reported to give a better view of each segment's performance. The following items in operating profit have been adjusted for in comparable operating profit:
Segment's net assets consist primarily of non-interest-bearing assets and liabilities such as property, plant and equipment, intangible assets, participations in associated companies, inventories, operative related accruals and trade and other receivables and liabilities. Net assets also include Fortum's share of the State Nuclear Waste Management Fund, nuclear related provisions, pension and other provisions as well as assets and liabilities from fair valuations of derivatives hedging future cash flows which do not obtain hedge accounting status according to IAS 39. 24.7% Heat
Interest-bearing receivables and liabilities and related accruals, current and deferred tax items, as well as assets and liabilities from fair valuations of derivatives hedging future cash flows which obtain hedge accounting status according to IAS 39 are not allocated to the segments' net assets.
In comparable net assets, segment's net assets are adjusted for assets and liabilities from fair valuations of derivatives hedging future cash flows which do not obtain hedge accounting status according to IAS 39 to be in line with comparable operating profit.
Gross investments in shares include investments in subsidiary shares, shares in associated companies and other shares in available for sale financial assets. Investments in subsidiary shares are net of cash and grossed with interest-bearing liabilities in the acquired company.
˭ See also Key figures on page 174.
˭ Quarterly segment information for 2009 and 2008 is available on Fortum's website www.fortum.com/investors/financial information.
Power segment sells its production to Nord Pool and Markets buys its electricity from Nord Pool. Eliminations of sales include eliminations of sales and purchases with Nord Pool that are netted on group level on an hourly basis and posted either as revenue or cost depending on if Fortum is a net seller or net buyer during any particular hour.
Inter-segment sales, expenses and results for the different business segments are affected by intra-group deliveries, which are eliminated on consolidation. Inter-segment transactions are based on commercial terms.
Net assets, %
| Distri | transac | Elimina | ||||||
|---|---|---|---|---|---|---|---|---|
| Power | Heat | Russia | Other | tions 1) | tions | Total | ||
| 2,596 | 1,394 | 800 | 1,449 | 623 | –406 | 5,435 | ||
| 231 | 22 | 13 | 68 | - | 72 | –406 | 0 | |
| 2,365 | 1,372 | 787 | 1,381 | 623 | 0 | 5,435 | ||
| –510 | ||||||||
| 1,782 | ||||||||
| 21 | ||||||||
| –167 | ||||||||
| –285 | ||||||||
| 1,351 | ||||||||
| –93 1,335 –35 2) |
–162 248 30 |
–164 263 10 |
bution Markets –6 22 0 |
–75 –26 20 |
–10 –60 –4 |
Netting of Nord Pool 74 –1,095 2 –1,095 |
1)Sales and purchases with Nord Pool are netted on Group level on an hourly basis and posted either as revenue or cost depending on if Fortum is a net seller or net buyer during any particular hour.
2) Share of profit of associated companies in the Power segment includes effects from the accounting of Fortum's part of the associated companies share of the Finnish nuclear fund amounting to EUR –5 million, see also Note 33 Nuclear related assets and liabilities on page 163.
| Comparable operating profit | |||||||
|---|---|---|---|---|---|---|---|
| EUR million | Power | Heat | Distri | bution Markets | Russia | Other | Total |
| Comparable operating profit | 1,469 | 227 | 262 | 22 | –26 | –66 | 1,888 |
| Non-recurring items | 6 | 21 | 1 | 0 | 0 | 1 | 29 |
| Changes in fair values of derivatives hedging future cash-flow |
–81 | 0 | 0 | 0 | - | 5 | –76 |
| Nuclear fund adjustment | –59 | - | - | - | - | - | –59 |
| Other items effecting comparability | –140 | 0 | 0 | 0 | - | 5 | –135 |
| Operating profit | 1,335 | 248 | 263 | 22 | –26 | –60 | 1,782 |
˭ For further information on items not included in comparable operating profit please see:
- Note 9 Other income regarding non-recurring items on page 142;
- Note 6 Fair value changes of derivatives and underlying items regarding changes in fair values of derivatives hedging future cash flow on page 138;
- Note 33 Nuclear related assets and liabilities regarding nuclear fund adjustment on page 163.
| Distri | |||||||
|---|---|---|---|---|---|---|---|
| EUR million | Power | Heat | bution Markets | Russia | Other | Total | |
| Recognised impairment losses for trade receivables |
0 | 0 | –2 | –4 | –5 | - | –11 |
| Recognised impairment losses for property, plant and equipment |
0 | 0 | - | - | –2 | –1 | –3 |
| Restructuring costs | –2 | –2 | 0 | –1 | –5 | –1 | –11 |
Impairment losses, EUR –11 million, and restructuring costs, EUR –11 million, are included in comparable operating profit.
| Distri | |||||||
|---|---|---|---|---|---|---|---|
| EUR million | Power | Heat | bution Markets | Russia | Other | Total | |
| Non-interest-bearing assets | 5,113 | 4,062 | 3,535 | 485 | 2,104 | 127 15,426 | |
| Participations in associated companies and joint ventures |
863 | 178 | 230 | 12 | 425 | 480 | 2,188 |
| Assets included in Net assets | 5,976 | 4,240 | 3,765 | 497 | 2,529 | 607 | 17,614 |
| Interest-bearing receivables | 943 | ||||||
| Deferred taxes | 47 | ||||||
| Other assets | 347 | ||||||
| Liquid funds | 890 | ||||||
| Total assets | 19,841 | ||||||
| Liabilities included in Net assets | 464 | 454 | 466 | 350 | 281 | 252 | 2,267 |
| Deferred tax liabilities | 1,750 | ||||||
| Other liabilities | 474 | ||||||
| Total liabilities included in Capital employed |
4,491 | ||||||
| Interest-bearing liabilities | 6,859 | ||||||
| Total equity | 8,491 | ||||||
| Total equity and liabilities | 19,841 |
| Distri | |||||||
|---|---|---|---|---|---|---|---|
| EUR million | Power | Heat | bution Markets | Russia | Other | Total | |
| Gross investments in shares | 57 | 1 | 5 | - | 3 | 1 | 67 |
| Capital expenditure | 97 | 358 | 188 | 1 | 215 | 3 | 862 |
| of which capitalised borrowing costs | - | 12 | - | - | 18 | - | 30 |
˭ See also Note 7 Acquisitions and disposals on page 139 regarding gross investments in shares, Note 21.2 Capital expenditure on page 151 for more information regarding capital expenditure by segment and Note 22 Participations in associated companies and joint ventures on page 152.
| Net assets by | Return on net | Comparable return | ||
|---|---|---|---|---|
| EUR million | segments | assets (%) | on net assets (%) | |
| Power | 5,512 | 23.9 | 26.6 | |
| Heat | 3,786 | 7.8 | 7.2 | |
| Distribution | 3,299 | 8.7 | 8.6 | |
| Markets | 147 | 16.8 | 18.6 | |
| Russia | 2,248 | –0.3 | –0.3 | |
| Other | 355 | –12.2 | –18.7 |
| Employees | Distri | ||||||
|---|---|---|---|---|---|---|---|
| Power | Heat | bution Markets | Russia | Other | Total | ||
| Number of employees 31 Dec | 3,063 | 2,246 | 1,088 | 611 | 4,090 | 515 11,613 | |
| Average number of employees | 3,373 | 2,208 | 1,166 | 629 | 5,380 | 522 13,278 |
| Netting of Nord Pool |
|||||||||
|---|---|---|---|---|---|---|---|---|---|
| Distri | transac | Elimina | |||||||
| EUR million | Power | Heat | bution Markets | Russia | Other | tions 1) | tions | Total | |
| Sales | 2,892 | 1,466 | 789 | 1,922 | 489 | 83 –1,736 | –269 | 5,636 | |
| Of which internal sales | 0 | 0 | 10 | 177 | - | 82 | –269 | 0 | |
| External sales | 2,892 | 1,466 | 779 | 1,745 | 489 | 1 –1,736 | 0 | 5,636 | |
| Depreciation, amortisation and |
|||||||||
| impairment | –97 | –169 | –165 | –7 | –67 | –10 | –515 | ||
| Operating profit | 1,599 | 307 | 248 | –35 | –91 | –65 | 1,963 | ||
| Share of profit of associated companies and joint ventures |
26 2) | 12 | 16 | 5 | 19 | 48 | 126 | ||
| Finance costs - net | –239 | ||||||||
| Income taxes | –254 | ||||||||
| Profit for the period | 1,596 |
1)Sales and purchases with Nord Pool are netted on Group level on an hourly basis and posted either as revenue or cost depending on if Fortum is a net seller or net buyer during any particular hour.
2) Share of profit of associated companies in the Power segment includes effects from the accounting of Fortum's part of the associated companies share of the Finnish and Swedish nuclear funds amounting to EUR +9 million, see also Note 33 Nuclear related assets and liabilities on page 163.
| Comparable operating profit | |||||||
|---|---|---|---|---|---|---|---|
| EUR million | Power | Heat | Distri | bution Markets | Russia | Other | Total |
| Comparable operating profit | 1,528 | 250 | 248 | –33 | –92 | –56 | 1,845 |
| Non-recurring items | 18 | 64 | 2 | - | 1 | 0 | 85 |
| Changes in fair values of derivatives hedging future cash-flow |
72 | –7 | –2 | –2 | - | –9 | 52 |
| Nuclear fund adjustment | –19 | - | - | - | - | - | –19 |
| Other items effecting comparability | 53 | –7 | –2 | –2 | - | –9 | 33 |
| Operating profit | 1,599 | 307 | 248 | -35 | –91 | –65 | 1,963 |
˭ For further information on items not included in comparable operating profit please see:
- Note 9 Other income regarding non-recurring items on page 142;
- Note 6 Fair value changes of derivatives and underlying items regarding changes in fair values of derivatives hedging future cash flow on page 138;
- Note 33 Nuclear related assets and liabilities regarding nuclear fund adjustment on page 163.
| Power | Heat | Russia | Other | Total | ||
|---|---|---|---|---|---|---|
| 0 | –1 | –1 | –1 | –8 | 0 | –11 |
| 0 | 0 | 0 | - | 0 | 0 | 0 |
| - | - | –5 | –4 | - | –1 | –10 |
| Distri | bution Markets |
Impairment losses, EUR –11 million, and restructuring costs, EUR –10 million, are included in comparable operating profit.
| Distri | |||||||
|---|---|---|---|---|---|---|---|
| EUR million | Power | Heat | bution Markets | Russia | Other | Total | |
| Non-interest-bearing assets | 4,914 | 3,763 | 3,336 | 651 | 2,047 | 514 15,225 | |
| Participations in associated companies and joint ventures |
818 | 160 | 210 | 12 | 429 | 483 | 2,112 |
| Assets included in Net assets | 5,732 | 3,923 | 3,546 | 663 | 2,476 | 997 17,337 | |
| Interest-bearing receivables | 799 | ||||||
| Deferred taxes | 2 | ||||||
| Other assets | 819 | ||||||
| Liquid funds | 1,321 | ||||||
| Total assets | 20,278 | ||||||
| Liabilities included in Net assets | 401 | 455 | 514 | 475 | 271 | 201 | 2,317 |
| Deferred tax liabilities | 1,851 | ||||||
| Other liabilities | 199 | ||||||
| Total liabilities included in Capital employed |
4,367 | ||||||
| Interest-bearing liabilities | 7,500 | ||||||
| Total equity | 8,411 | ||||||
| Total equity and liabilities | 20,278 |
| Distri | |||||||
|---|---|---|---|---|---|---|---|
| EUR million | Power | Heat | bution Markets | Russia | Other | Total | |
| Gross investments in shares | 0 | 23 | - | 0 | 1,492 | 1 | 1,516 |
| Capital expenditure | 134 | 408 | 296 | 3 | 256 | 11 | 1,108 |
| of which capitalised borrowing costs | - | 4 | - | - | 17 | - | 21 |
˭ See also Note 7 Acquisitions and disposals on page 139 regarding gross investments in shares, Note 21.2 Capital expenditure on page 151 for more information regarding capital expenditure by segment and Note 22 Participations in associated companies and joint ventures on page 152.
| Net assets by | Return on net | Comparable return | |
|---|---|---|---|
| EUR million | segments | assets (%) | on net assets (%) |
| Power | 5,331 | 29.6 | 28.0 |
| Heat | 3,468 | 8.9 | 7.3 |
| Distribution | 3,032 | 8.1 | 8.2 |
| Markets | 188 | –14.0 | –15.3 |
| Russia | 2,205 | –3.7 | –3.8 |
| Other | 796 | –1.8 | –1.7 |
| Distri | |||||||
|---|---|---|---|---|---|---|---|
| Power | Heat | bution Markets | Russia | Other | Total | ||
| Number of employees 31 Dec | 3,520 | 2,318 | 1,336 | 635 | 7,262 | 508 15,579 | |
| Average number of employees | 3,591 | 2,422 | 1,222 | 766 | 5,566 | 510 14,077 | |
The Group's operating segments operate mainly in the Nordic countries, Russia, Poland and other parts of the Baltic Rim area. Power, Distribution and Markets operate mainly in Finland and Sweden, whereas Heat operates in all geographical areas except Russia. Other countries are mainly the Baltic countries and the U.K. The home country is Finland.
The information below is disclosing sales by product area as well as sales by the country in which the customer is located. Assets, capital expenditure and personnel are reported where the assets and personnel are located. Participations in associates and joint ventures are not divided by location since the companies concerned can have business in several geographical areas.
| EUR million | 2009 | 2008 |
|---|---|---|
| Power sales excluding indirect taxes | 3,192 | 3,291 |
| Heat sales | 1,314 | 1,298 |
| Network transmissions | 760 | 746 |
| Other sales | 169 | 301 |
| Total | 5,435 | 5,636 |
Heating sales include sale of delivered heat and transmission of heat. Decrease of other sales, –132 million euro, is mainly due to sale of construction and operation of infrastructure business to Hafslund Infratek ASA.
Due to the large number of customers and the variety of its business activities, there are no individual customer whose business volume is material compared with Fortum's total business volume.
| EUR million | 2009 | 2008 |
|---|---|---|
| Nordic | 4,449 | 4,767 |
| Russia | 632 | 494 |
| Poland | 136 | 156 |
| Other countries | 218 | 219 |
| Total | 5,435 | 5,636 |
The Nordic power production is not split by countries since Nordic power production is mainly sold through Nord Pool.
| EUR million | 2009 | 2008 |
|---|---|---|
| Finland | 255 | 296 |
| Sweden | 264 | 401 |
| Russia | 215 | 256 |
| Poland | 65 | 56 |
| Norway | 12 | 19 |
| Other countries | 51 | 80 |
| Total | 862 | 1,108 |
| EUR million | 2009 | 2008 |
|---|---|---|
| Finland | 4,148 | 4,623 |
| Sweden | 8,760 | 8,478 |
| Russia | 2,111 | 2,047 |
| Poland | 310 | 249 |
| Norway | 223 | 205 |
| Other countries | 407 | 313 |
| Eliminations | –533 | –690 |
| Non-interest bearing assets | 15,426 | 15,225 |
| Participations in associates and joint ventures | 2,188 | 2,112 |
| Total | 17,614 | 17,337 |
| 2009 | 2008 |
|---|---|
| Finland 2,700 |
3,045 |
| Sweden 2,445 |
3,436 |
| Russia 4,853 |
7,262 |
| Poland 756 |
767 |
| Norway 143 |
292 |
| Other countries 716 |
777 |
| Total 11,613 |
15,579 |
Fair value changes in operating profit presented below are arising from financial derivatives hedging future cash flows where hedge accounting is not applied according to IAS 39 and the ineffectiveness from cash flow hedges.
Fair value changes of currency derivatives in net financial expenses are arising mainly from balance sheet hedges without hedge accounting status according to IAS 39, because they are natural hedges of loans and receivables. Fair value change of interest rate hedges without hedge accounting is EUR 5 million (2008: 2). The net effect of fair value changes of hedging derivative and hedged bonds are EUR –12 million (2008: 0).
Fortum discloses in segment reporting comparable operating profit to give a better view of each segment's performance. The following items in operating profit have been adjusted for in comparable operating profit:
| EUR million | 2009 | 2008 |
|---|---|---|
| In operating profit | ||
| Fair value changes from derivatives not getting hedge accounting status | ||
| Electricity derivatives | –9 | –8 |
| Currency derivatives | –57 | 57 |
| Oil derivatives | 3 | –8 |
| Coal derivatives | 1 | –10 |
| Share derivatives with hedged items 1) | 5 | –9 |
| Ineffectiveness from cash flow hedges | –19 | 30 |
| Total effect in operating profit | –76 | 52 |
| Fair value changes of derivatives not getting hedge accounting included in share of profit of associated companies |
–4 | –2 |
| In finance costs | ||
| Exchange gains and losses on loans and receivables | 315 | –757 |
| Fair value changes of derivatives not getting hedge accounting status | ||
| Currency derivatives | –306 | 744 |
| Interest rate derivatives | 5 | 2 |
| Fair value change of hedging derivatives in fair value hedge relationship | 3 | 11 |
| Fair value change of hedged item in fair value hedge relationship | –15 | –11 |
| Total 2) | –313 | 746 |
| Total effect in finance costs | 2 | –11 |
| Total effect on profit before income tax | –78 | 39 |
1) Related to cash-settled share forwards used as a hedging instrument for Fortum Group's performance share arrangement.
2) Including fair value gains and losses on financial instruments and exchange gains and losses on derivatives.
| EUR million | 2009 | 2008 |
|---|---|---|
| Power | - | 0 |
| Heat | 0 | 14 |
| Distribution | 5 | 0 |
| Markets | - | 0 |
| Russia | 3 | 1,492 |
| Other | - | - |
| Total | 8 | 1,506 |
| EUR million | 2009 | 2008 |
|---|---|---|
| Finland | 0 | 0 |
| Sweden | 5 | 3 |
| Russia | 3 | 1,492 |
| Other countries | - | 11 |
| Total | 8 | 1,506 |
Gross investments in subsidiary shares consist of interest-bearing debt as well as paid cash according to purchase agreement added with direct costs relating to the acquisition less cash and cash equivalents in acquired subsidiary.
There were no material acquisitions during 2009. In June 2009 OAO Fortum has redeemed additional shares, approximately 0.2%. During last half of 2009 Fortum has acquired the remaining non-controlling interest in Ekerö Energy Group. Total investments in subsidiary shares in 2009 amounted to EUR 8 million.
In 2008 Fortum acquired shares in TGC-10 (renamed as OAO Fortum) in Russia, in Jelgava Kogeneracija SIA (renamed as Fortum Jelgava SIA) in Latvia and in Hofors Energi AB in Sweden. Fortum also acquired the remaining shares in Fortum Wroclaw SA, Poland. Total investments in subsidiary shares in 2008 amounted to EUR 1,506 million.
Below is the purchase price information relating to acquisition of OAO Fortum and other acquisitions done in 2008.
In March 2008 Fortum acquired 76.49% of OAO Fortum which is a Russian territorial generating company founded in 2006 and operating in the Urals and West Siberia region. The total installed capacity is 3,000 MW electricity and 15,800 MW heat with an annual production of 18 TWh electricity and 27 TWh heat. The company is committed and contractually obligated to an extensive investment plan to further increase its electricity capacity with 2,300 MW by 2013. The contractual obligations of OAO Fortum's investment programme include penalty clauses tied to the availability of the new generating capacity. Total sales during 2007 in OAO Fortum were EUR 723 million and operating profit was EUR 26 million based on 2007 published IFRS financial statements.
The acquisition was made through an acquisition of shares and through participation in a share issue. On 20 March 2008 Fortum paid for 47.42% of the shares in OAO Fortum through a share issue for approximately EUR 1.3 billion. The capital received by OAO Fortum will remain in the company and will be used to finance its committed capacity investment programme planned at EUR 2.2 billion. In October 2008, Fortum estimated the value of the investment programme in new capacity to be approximately EUR 2.5 billion. The value for the remaining part of the programme is estimated to be EUR 1.8 billion from January 2010 onwards.
On 26 March 2008 Fortum paid for an additional 29.07% of the shares in OAO Fortum from United Energy Systems of Russia (RAO UES) for approximately EUR 0.8 billion. On 29 April 2008 Fortum filed the mandatory public tender offer (MTO) to OAO Fortum minority shareholders. The offer was valid from 30 April until 18 October 2008. The tender offer covered 23.51% of the share capital of OAO Fortum and has been launched at a price of 111.8 roubles per share to be fully paid in cash. At the end of December 2008, Fortum's registered ownership in OAO Fortum was 93.4% including the shares held by OAO Fortum's 100% owned subsidiary. Additional shares, approximately 0.9%, have been redeemed by OAO Fortum in a redemption process ending in December 2008, but with payment and registration in 2009. These shares are included in the acquisition cost as of 31 December 2008 and by that time Fortum had invested EUR 465 million for share purchases under the MTO including the additionally redeemed shares.
In June 2009 OAO Fortum redeemed additional shares, approximately 0.2%. At the end of December 2009, Fortum's ownership in OAO Fortum was 94.51% including treasury shares and shares held by OAO Fortum's 100% owned subsidiary. The shares redeemed in June 2009 are not included in the purchase consideration disclosed in the table below.
The gross investment for the total transaction was EUR 1,492 million, excluding cash in OAO Fortum (mainly coming from the share issue) and including interestbearing liabilities in the company. The purchase price allocation is based on a balance sheet as of 31 March 2008 of OAO Fortum. Fortum financial statements include the income statement effect of OAO Fortum from 1 April 2008 onwards. The purchase price allocation initially prepared at March 2008 has been finalised during Q1 2009 as permitted by International Financial Reporting Standards. There have not been material changes to the information disclosed in the Consolidated Financial Statements for 2008. The final and the preliminary purchase price calculations are presented in the table below. The initial purchase price allocation calculated in roubles has been translated into euros by using the exchange rate from the acquisition date.
| OAO Fortum | |
|---|---|
| EUR million | Group |
| Purchase consideration: | |
| Cash paid | 2,533 |
| Direct costs relating to the acquisition | 8 |
| Total purchase consideration | 2,541 |
| Fair value of the acquired net assets | 2,211 |
| Translation difference | –9 |
| Goodwill | 339 |
| Preliminary allocation 31 Dec 2008 | Final allocation 31 March 2009 | |||||
|---|---|---|---|---|---|---|
| EUR million | Total Value | Allocated Fair Values |
Acquired Book Value |
Total Value | Allocated Fair Values |
Acquired Book Value |
| Liquid funds | 1,321 | 1,321 | 1,321 | 1,321 | ||
| Intangible assets | 9 | 9 | 9 | 9 | ||
| Property, plant and equipment |
1,602 | 1,022 | 580 | 1,585 | 1,005 | 580 |
| Participations in associates and joint ventures |
36 | 36 | 36 | 36 | ||
| Inventories | 60 | 60 | 60 | 60 | ||
| Receivables | 122 | 122 | 122 | 122 | ||
| Non-interest bearing liabilities | –306 | –192 | –114 | –306 | –192 | –114 |
| Interest-bearing liabilities | –272 | –272 | –272 | –272 | ||
| Deferred tax liabilities | –192 | –199 | 7 | –189 | –196 | 7 |
| Net identifiable assets | 2,380 | 631 | 1,749 | 2,366 | 617 | 1,749 |
| Non-controlling interest | –169 | –53 | –116 | –155 | –38 | –117 |
| Fair value of the acquired net identifiable assets |
2,211 | 578 | 1,633 | 2,211 | 579 | 1,632 |
Adjustments to initial purchase price allocation mainly relate to the finalisation of the fair valuation of acquired property, plant and equipment.
| OAO Fortum | |
|---|---|
| EUR million | Group |
| Purchase consideration settled in cash | 2,541 |
| Liquid funds in OAO Fortum | 1,321 |
| Cash outflow on acquisition | 1,220 |
| Interest-bearing debt in OAO Fortum | 272 |
| Gross investment in OAO Fortum |
1,492 |
In Latvia, Fortum acquired 100% of the shares in Jelgavas Kogeneracija SIA at the end of March. The acquired company provides district heating to the city of Jelgava. The annual heat sales are 200 GWh, the sales EUR 10 million, and the number of employees 170. The gross investment was EUR 10 million.
In Sweden, Fortum acquired additional 11.22% shares in Hofors Energi AB. After this acquisition Fortum's total ownership of the shares in Hofors Energi AB is 60%. The acquired company provides district heating to the Hofors area. The annual heat sales are 130 GWh, the sales EUR 7 million, and Fortum has already earlier taken care of operations in the company. The gross investment was EUR 3 million.
During 2008 Fortum continued to acquire shares in its Polish subsidiaries. Fortum reached 100% ownership in Fortum Wroclaw S.A and the company has been merged to Fortum Power and Heat Polska Sp z o.o. at year-end 2008.
| Other | |
|---|---|
| EUR million | acquisitions |
| Purchase consideration | |
| Cash paid | 12 |
| Direct costs relating to the acquisition | 0 |
| Total purchase consideration | 12 |
| Fair value of the acquired net assets | 12 |
| Translation difference | 0 |
| Goodwill | 0 |
| Other acquisitions | |||
|---|---|---|---|
| EUR million | Total Value | Allocated Fair Values |
Acquired Book Value |
| Liquid funds | 2 | 0 | 2 |
| Intangible assets | 1 | 0 | 1 |
| Property, plant and equipment | 32 | 21 | 11 |
| Participations in associates and joint ventures | 1 | 0 | 1 |
| Inventories | 0 | 0 | 0 |
| Receivables | 4 | 0 | 4 |
| Non-interest bearing liabilities | –5 | 0 | –5 |
| Interest-bearing liabilities | –4 | 0 | –4 |
| Deferred tax liabilities | –7 | –5 | –2 |
| Net identifiable assets | 24 | 16 | 8 |
| Non-controlling interest | –5 | –3 | –2 |
| Step-by-step acquisition 1) | –7 | –4 | –3 |
| Fair value of the acquired net identifiable assets | 12 | 9 | 3 |
1) Refers to book values for the part of Hofors Energi previously owned by the Group and the related changes in asset revaluation surplus.
| Other | |
|---|---|
| EUR million | acquisitions |
| Purchase consideration settled in cash | 12 |
| Liquid funds in subsidiaries acquired | 2 |
| Cash outflow on acquisition | 10 |
| Interest-bearing debt in subsidiaries acquired | 4 |
| Gross investment in subsidiaries acquired | 14 |
In January 2009 Fortum and (Norwegian) Hafslund Infratek ASA combined their businesses of construction and operating of infrastructure in Sweden, Finland and Norway. In the transaction Fortum received 33% ownership in the new combined company. ˭ For more information see Note 22 Participations in associated companies and joint ventures on page 152.
In the end of December 2008 Fortum sold its 60% ownership in Jyväskylän Energiantuotanto Oy to Jyväskylän Energia. The transaction included both subsidiary shares, land on which the power plant is located on and assets related to business operations. In July 2008 Fortum sold its 100% ownership in Recotech AB to Tellestate AB.
The income statement of subsidiaries, whose measurement and reporting currencies are not euros, are translated into the Group reporting currency using the average exchange rates, whereas the balance sheet of such subsidiaries are translated using the exchange rates on the balance sheet date.
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 month's ending rate from the European Central Bank during the year and ending rate previous year.
| Average rate | Balance sheet date rate | ||||
|---|---|---|---|---|---|
| Currency | 2009 | 2008 31 Dec 2009 31 Dec 2008 | |||
| Sweden | SEK | 10.6092 | 9.6647 | 10.2520 | 10.8700 |
| Norway | NOK | 8.7708 | 8.2605 | 8.3000 | 9.7500 |
| Poland | PLN | 4.3321 | 3.5328 | 4.1045 | 4.1535 |
| Russia | RUB | 44.0684 | 36.6905 | 43.1540 | 41.2830 |
| EUR million | 2009 | 2008 |
|---|---|---|
| Capital gains on disposal of non-current assets | 31 | 86 |
| Gain on sale of emission rights | 6 | 8 |
| Rental income | 42 | 39 |
| Fair value changes on derivatives that do not qualify for hedge accounting status | –77 | 52 |
| Insurance compensation | 10 | 6 |
| Other items | 22 | 39 |
| Total | 34 | 230 |
Revenue from activities outside normal operations is reported in other income. This includes recurring items such as rental income and non-recurring items such as gains from sale of shares. Gains on sale of shares, property, plant and equipment are included in capital gains on disposal of non-current assets.
Capital gains in 2009 mainly include the sale of a combined heat and power plant in the city of Kokkola, Finland, fixed assets in Stockholm, both in Heat segment, and gain in Power segment from combining the construction and operating of infrastructure business with Hafslund Infratek ASA.
Capital gains in 2008 mainly include the sales gains from the divestments of Fortum's 50% shareholding in Panjin Liaohe Fortum Thermal Power Company Co in China and the 30% shareholding in Polartest Oy, both in Power segment, and Fortum's 60% ownership in Jyväskylän Energiantuotanto Oy to Jyväskylän Energia and fixed assets in Stockholm, both in Heat segment.
Gain on sale of emission rights amounted to EUR 6 million (2008: 8). Costs for made emissions which are not covered by emission rights received for free were EUR 12 million (2008: 14). The costs are included in Materials and services.
Fortum has leased out its 308-MW share of the Meri-Pori power plant from January 2007 to the end of June 2010. The lease agreement is classified as an operating lease and the rental income is included in other income.
Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in other income.
˭ For more information regarding fair value changes of derivatives, see Note 6 Fair value changes of derivatives and underlying items in income statement on page 138.
˭ For more information regarding disposals of shares, see Note 7 Acquisitions and disposals on page 139.
| EUR million | 2009 | 2008 |
|---|---|---|
| Materials | 1,159 | 1,345 |
| Materials purchased from associated companies | 556 | 556 |
| Transmission costs | 131 | 127 |
| External services | 181 | 89 |
| Total | 2,027 | 2,117 |
Materials contain mainly nuclear, coal and gas used as fuels for producing power and heat. Materials purchased from associated companies consist of purchases of nuclear power and hydropower at production costs including interest costs, production taxes and income taxes.
Total materials and services include production taxes and duties EUR 148 million (2008: 170) of which nuclear related capacity and property taxes EUR 62 million (2008: 80) and hydro power related property taxes EUR 11 million (2008: 11). Taxes related to nuclear and hydro production include taxes paid through electricity purchased from associated companies as mentioned above.
˭ See note 22 Participations in associated companies and joint ventures on page 152.
| EUR million 2009 Operation and maintenance costs 212 |
2008 234 |
|---|---|
| Property taxes 79 |
79 |
| IT and telecommunication costs 64 |
67 |
| Research and development costs 30 |
27 |
| Other items 274 |
277 |
| Total 659 |
684 |
The major components recorded in other expenses are the external operation and maintenance costs of power and heat plants and of transmission lines. Property taxes include property taxes relating to directly owned hydropower production EUR 63 million (2008: 67).
| EUR million | 2009 | 2008 |
|---|---|---|
| Audit fees | 1.4 | 1.2 |
| Audit related assignments | 0.1 | 0.2 |
| Tax assignments | 0.0 | 0.3 |
| Other assignments | 0.1 | 0.2 |
| Total | 1.6 | 1.9 |
Deloitte is the appointed auditor for the period until 2010 Annual General Meeting. In OAO Fortum, KPMG was the appointed auditor for the period until 2009 Annual General Meeting at which Deloitte was appointed auditors. Audit fees include fees for the audit of the consolidated financial statements, review of the interim reports as well as the fees for the audit of Fortum Oyj and its subsidiaries. Audit related assignments include fees for assurance and associated services related to the audit. Tax fees include fees for tax advice and tax planning services.
| Wages and salaries Pensions Defined contribution plans Defined benefit plans Social security costs |
2008 | |
|---|---|---|
| 351 | 406 | |
| 35 | 36 | |
| 13 | 11 | |
| 67 | 83 | |
| Share-based remunerations | 5 | 19 |
| Other employee costs | 20 | 32 |
| Total | 491 | 587 |
The Nomination and Compensation Committee discusses, assesses and makes recommendations and proposals on the remuneration policy, pay structures, bonus and incentive systems for the Group and its management, and contributes to the Group's nomination issues. The remuneration policy is determined by the Board of Directors.
The compensation package for Fortum employees consists of a combination of salaries, benefits, short-term incentives, profit sharing paid to Personnel Fund and share-based long-term incentives. The majority of Fortum employees are covered by an annual performance bonus system. The long-term incentive schemes are intended for senior executives and other management of the Fortum Group.
˭ For further information on Fortum's employee bonus and equity incentive schemes as well as Personnel Fund, see Note 29 on page 157 and for pension obligations see Note 35 on page 165.
The Supervisory Board comprises a minimum of six and a maximum of 12 members. The Supervisory Board meetings are also attended by employee representatives who are not members of the Supervisory Board. The Annual General Meeting confirms the remuneration for the Supervisory Board members. Total remuneration for the Supervisory Board service in 2009 was EUR 81 thousand (2008: 76).
Each Supervisory Board member receives a fixed monthly fee and a meeting fee. The employee representatives receive only a meeting fee. All members are entitled to travel expense compensation against receipts in accordance with the company's travel policy. Supervisory Board members are not offered any long-term incentive benefits or participation in other incentive schemes. There is no pension plan for non-executive members.
The Annual General Meeting confirmed the following remuneration for the Supervisory Board:
| EUR/month | 2009 | 2008 |
|---|---|---|
| Chairman | 1,000 | 1,000 |
| Deputy Chairman | 600 | 600 |
| Members | 500 | 500 |
| Meeting fee | 200 | 200 |
The Board of Directors comprises five to seven members who are elected at the Annual General Meeting for a one-year term of office, which expires at the end of the first Annual General Meeting following the election. During 2009 the Board consisted of six members (2008 seven members). The table below presents the total compensation including meeting fees paid to the Board of Directors.
| EUR thousand | 2009 | 2008 |
|---|---|---|
| Chairman, Matti Lehti (from 7 April 2009) | 54 | NA |
| Chairman, Peter Fagernäs (until 7 April 2009) | 21 | 70 |
| Deputy chairman, Sari Baldauf (from 7 April 2009) | 41 | NA |
| Deputy chairman, Matti Lehti (until 7 April 2009) | 17 | 51 |
| Birgitta Johansson-Hedberg | 49 | 49 |
| Christian Ramm-Schmidt | 43 | 42 |
| Esko Aho | 43 | 41 |
| Ilona Ervasti-Vaintola | 43 | 32 |
| Marianne Lie (until 7 April 2009) | 17 | 47 |
| Birgitta Kantola | NA | 13 |
| Total | 328 | 345 |
The Annual General Meeting confirms the yearly compensation for the Board of Directors. In addition, a EUR 600 meeting fee is paid. The meeting fee is also paid for committee meetings and is paid in double to a member who lives outside Finland in Europe. The members are entitled to travel expense compensation in accordance with the company's travel policy. Board members are not offered any long-term incentive benefits or participation in other incentive schemes. There is no pension plan for non-executive management.
| EUR 2009 |
2008 |
|---|---|
| Chairman 66,000 |
66,000 |
| Deputy Chairman 49,200 |
49,200 |
| Members 35,400 |
35,400 |
| Meeting fee 600 |
600 |
The Fortum Management Team (FMT) consists of nine members from 1 October 2009 (previously eight members), including the President and CEO to whom the other members of the FMT report.
During 2009 there were changes in the Fortum management. As of 1 May 2009 Tapio Kuula was appointed President and CEO replacing Mikael Lilius. In connection with Fortum's new business structure new FMT members were appointed from 1 October 2009 onwards.
Following tables present the remuneration of the management for their respective terms of office. Tapio Kuula has also previously been a member of FMT. Therefore his Other
Other
The
remuneration is divided into two parts. For comparison purposes his annual remuneration is also presented. The first table presents the expenses booked in the financial statements and the second table presents the actual payments made during the period. Social security expenses EUR 342 thousand (2008: 303) have been booked for salaries, fringe benefits and bonuses in accordance with local legislation in respective countries. In addition to this, termination benefits of EUR 833 thousand including social security charges have been booked in 2009 relating to former FMT members.
˭ Additional information about the terms and conditions of the remuneration of the President and CEO Tapio Kuula is available online at www.fortum.com/Investors/Corporate governance/ Management team/Remuneration of President and CEO and on page 74 Remuneration in the Annual Report.
| Remuneration booked as expense during 2009 | |||
|---|---|---|---|
| The | Former |
| President | President | FMT | FMT | President | |
|---|---|---|---|---|---|
| and CEO | and CEO | members | members | and CEO4) | |
| EUR thousands | May 1–Dec 31 Jan 1–Apr 30 Oct 1–Dec 31 Jan 1–Sep 30 | Annual | |||
| Salaries and fringe benefits | 604 | 288 | 805 | 1,114 | 745 |
| Performance bonuses 1) | 158 | 80 | 177 | 272 | 237 |
| Pensions | 191 | 713 | 193 | 746 | 479 |
| Total | 953 | 1,081 | 1,175 | 2,132 | 1,461 |
| The | Former | Other | Other | The | |
|---|---|---|---|---|---|
| President | President | FMT | FMT | President | |
| and CEO | and CEO | members | members | and CEO4) | |
| EUR thousands | May 1–Dec 31 Jan 1–Apr 30 Oct 1–Dec 31 Jan 1–Sep 30 | Annual | |||
| Salaries and fringe benefits | 604 | 288 | 805 | 1,114 | 745 |
| Performance bonuses 2) | - | 347 | - | 605 | 134 |
| Pensions 3) | 151 | 102 | 143 | 703 | 452 |
| Total | 755 | 737 | 948 | 2,422 | 1,331 |
| Former | Other | |
|---|---|---|
| President | FMT | |
| EUR thousands | and CEO | members |
| Salaries and fringe benefits | 867 | 1,719 |
| Performance bonuses | 388 | 586 |
| Pensions | 1,013 | 757 |
| Total | 2,268 | 3,062 |
| Former | Other | |
|---|---|---|
| President | FMT | |
| EUR thousands | and CEO | members |
| Salaries and fringe benefits | 867 | 1,719 |
| Performance bonuses | 156 | 102 |
| Pensions 3) | 1,075 | 595 |
| Total | 2,098 | 2,416 |
3) Payments relating to pensions are paid to the insurance companies and to Fortum's pension funds.
4) The full year remuneration for Tapio Kuula representing the period Jan 1–Apr 30 as a member of FMT and from May 1 onwards as the President and CEO.
The compensation package for FMT consists of base salaries, purposeful benefits, annual individual short-term incentives (annual bonus) and share-based long-term incentives.
The President and CEO as well as the other FMT members are paid annual performance bonuses in addition to their salary and fringe benefits. The criteria used in determining the size of the annual bonus for senior management are decided annually by the Board of Directors on the recommendation of the Board's Nomination and Compensation Committee. The performance of each senior executive is evaluated annually. The size of each senior executive's annual bonus is dependent on the Group's financial performance, as well as on their own success in reaching their individual goals, which for the President and CEO are set by the Board's Nomination and Compensation Committee. The Committee recommends the level of the President and CEO's compensation to the Board of Directors for approval. Performance bonuses are paid next spring after publication of Fortum's yearly results and after the annual performance discussions have been held.
For the President and CEO the retirement age is 63. The President and CEO's pension arrangement has been changed from a defined benefit pension plan to a defined contribution pension plan during 2009. Its annual contribution is 25% of the annual salary. The annual salary consists of a base salary, fringe benefits and short-term incentives (annual bonus). In case the assignment is terminated before retirement age, the person is entitled to retain the benefits accrued in the arrangement for his benefit. For other management team members the retirement age is 60 or 63. The pension paid is maximum 66% or 60% of the remuneration. In the first case they are defined benefit pensions and are insured and paid by Fortum's pension fund. In the latter, pensions are either defined benefit or defined contribution schemes insured by an insurance company.
In the event that Fortum decides to give notice of termination to the President and CEO, he is entitled to compensation equalling 24 months' salary and other FMT members to a compensation equaling 12 to 24 months' salary.
The President and CEO as well as the other FMT members participate in long-term incentive plans. The expense in the income statement for these plans is calculated in accordance with IFRS 2 Share-based payments.
In the table below is presented the amounts booked as expense and the amounts paid for remuneration under long-term incentive schemes.
| The President and CEO |
Former President and CEO |
Other FMT members |
Other FMT members |
The President and CEO 2) |
|
|---|---|---|---|---|---|
| EUR thousands | May 1–Dec 31 Jan 1–Apr 30 Oct 1–Dec 31 Jan 1–Sep 30 | Annual | |||
| Share-based remuneration booked as expense |
318 | 140 | 226 | 892 | 477 |
| Income from LTI plans settled during the year 1) | |||||
| Value of actual shares received | - | 343 | - | 561 | 133 |
| Income tax and other charges | - | 383 | - | 644 | 142 |
| Taxable income from the long-term incentive plan |
- | 726 | - | 1,205 | 275 |
| Actual number of shares received | - | 22,423 | - | 36,685 | 8,682 |
| Share-based remuneration booked as expense 475 |
1,024 |
|---|---|
| EUR thousands and CEO |
members |
| President | FMT |
| Former | Other |
| Value of actual shares received | 1,013 | 1,654 |
|---|---|---|
| Income tax and other charges | 1,136 | 1,814 |
| Taxable income from the long-term incentive plan | 2,149 | 3,468 |
1) The shares are delivered in February after the announcement of the Group's annual result for the last calendar year.
2) The full year remuneration for Tapio Kuula representing the period Jan 1–Apr 30 as a member of FMT and from May 1 onwards as the President and CEO.
Shares for long-term incentive plan 2003–2008 were delivered to the participants in February 2009. The number of shares was granted in spring 2006 after the three-year earning period. The value of the shares at the grant date could not exceed participants' one year salary including fringe benefits. The shares were delivered to the participant after the three-year lock-up period in February 2009. Taxable income includes the value of actual Fortum shares received, income taxes, transfer taxes and certain statutory employment related expenses paid on the reward depending on the practice in the participant's country. The value of the shares is calculated based on the Fortum share price at the purchase date.
˭ See Note 29 Employee bonus system, personnel fund and incentive schemes on page 157.
| EUR million | 2009 | 2008 |
|---|---|---|
| Depreciation of property, plant and equipment | ||
| Buildings and structures | 86 | 79 |
| Machinery and equipment | 396 | 410 |
| Other tangible assets | 5 | 5 |
| Amortisation of intangible assets | 20 | 21 |
| Total | 507 | 515 |
| Impairment charges | ||
| Buildings and structures | 3 | 0 |
| Total | 3 | 0 |
| Depreciation, amortisation and impairment charges total | 510 | 515 |
˭ See also Note 5 Segment reporting on page 134.
| EUR million | 2009 | 2008 |
|---|---|---|
| Interest expense | ||
| Borrowings | –268 | –363 |
| Other interest expense | –3 | –9 |
| Capitalised borrowing costs | 30 | 21 |
| Total | –241 | –351 |
| Interest income | ||
| Loan receivables | 88 | 130 |
| Other interest income | 10 | 13 |
| Total | 98 | 143 |
| Fair value gains and losses on financial instruments 1) | –1 | –11 |
| Exchange gains and losses | ||
| Loans and receivables | 315 | –757 |
| Derivatives | –312 | 759 |
| Dividend income | 1 | 1 |
| Interest income on share of State Nuclear Waste Management Fund 2) | 20 | 30 |
| Unwinding of discount on nuclear provisions 2) | –26 | –32 |
| Unwinding of discount on other provisions 3) | –14 | –12 |
| Other financial income | 2 | 4 |
| Other financial expenses | –9 | –13 |
| Total | –23 | –20 |
| Finance costs - net | –167 | –239 |
1)Please see Note 6 Fair value changes of derivatives and underlying items in the income statement on page 138.
2) Please see Note 33 Nuclear related assets and liabilities on page 163.
3) Please see Note 34 Other provisions on page 165.
Interest expenses include interest expenses on interest-bearing loans, interest on interest rate and currency swaps, forward points on forward foreign exchange contracts hedging loans and receivables. Other interest expenses includes interest on financial leases EUR –1 million (2008: –3) and other interest cost EUR –2 million (2008: –6). ˭ About capitalised borrowing costs see Note 21.1 Capitalised borrowing costs on page 151.
Interest income includes EUR 37 million (2008: 33) from shareholders' loans in Finnish and Swedish nuclear companies, EUR 55 million (2008: 65) from deposits as well as the effect from hedging of SEK denominated interest income of EUR –5 million (2008: 27). Other interest income includes mainly income from financial leases as a lessor.
Fair value gains and losses on financial instruments include change in clean price of interest rate and cross currency swaps not getting hedge accounting and fair value changes of interest rate derivatives in hedge relationship and hedged items. Accrued interest on these derivatives is entered in interest expenses of borrowings. Fair value gains and losses include also rate difference from forward contracts hedging loans and receivables without hedge accounting.
Exchange gains and losses includes exchange rate differences arising from valuation of foreign currency loans and receivables and exchange rate differences from forward foreign exchange contracts and interest rate and currency swaps.
| EUR million | 2009 | 2008 |
|---|---|---|
| Interest rate and cross currency swaps | ||
| Interest expenses on borrowings | 20 | 4 |
| Exchange rate difference from derivatives | –95 | 322 |
| Rate difference in fair value gains and losses on financial instruments 1) | 8 | 13 |
| Total fair value change of interest rate derivatives in finance costs - net | –67 | 339 |
| Forward foreign exchange contracts | ||
|---|---|---|
| Interest expenses on borrowings | –4 | –11 |
| Exchange rate difference from derivatives | –217 | 437 |
| Rate difference in fair value gains and losses on financial instruments | 6 | –13 |
| Total fair value change of currency derivatives in finance costs - net | –215 | 413 |
| Total fair value change of interest and currency derivatives | ||
| in finance costs - net | –282 | 752 |
1) Fair value gains and losses on financial instruments include fair value changes from interest rate swaps not getting hedge accounting amounting to EUR 5 million (2008: 2).
Aggregated exchange rate differences included in operating profit were EUR –1 million (2008: –1) and in finance costs EUR 3 million (2008: 2).
| EUR million | 2009 | 2008 |
|---|---|---|
| Finnish companies | 540 | 584 |
| Swedish companies | 659 | 723 |
| Other companies | 437 | 543 |
| Total | 1,636 | 1,850 |
| EUR million | 2009 | 2008 |
|---|---|---|
| Current taxes | ||
| Finnish companies | –168 | –47 |
| Swedish companies | –179 | –147 |
| Other companies | –40 | –66 |
| Total | –387 | –260 |
| Deferred taxes | ||
| Finnish companies | 70 | –86 |
| Swedish companies | 17 | 36 |
| Other companies | 8 | 51 |
| Total | 95 | 1 |
| Adjustments recognised for current tax of prior periods | ||
| Finnish companies | –2 | 2 |
| Swedish companies | –2 | 1 |
| Other companies | 11 | 2 |
| Total | 7 | 5 |
| Total income taxes | –285 | –254 |
The table below explains the difference between the theoretical enacted tax rate in Finland compared to the tax rate in the income statement.
| EUR million | 2009 | % | 2008 | % |
|---|---|---|---|---|
| Profit before tax | 1,636 | 1,850 | ||
| Tax calculated at nominal Finnish tax rate | –425 | 26.0 | –481 | 26.0 |
| Differences in tax rates and regulations in other | ||||
| countries | 126 | –7.7 | 76 | –4.1 |
| Tax rate changes | - | - | 113 | –6.1 |
| Income not subject to tax | 16 | –1.0 | 9 | –0.5 |
| Tax exempt capital gains | 1 | –0.1 | 14 | –0.8 |
| Expenses not deductible for tax purposes | –5 | 0.4 | –13 | 0.7 |
| Share of profit of associated companies and joint | ||||
| ventures | 5 | –0.4 | 34 | –1.8 |
| Taxes related to dividend distributions | –3 | 0.2 | –3 | 0.2 |
| Tax losses for which no deferred tax was recognised | –6 | 0.4 | –4 | 0.2 |
| Utilisation of previously unrecognised tax losses | - | - | 1 | –0.1 |
| Adjustments recognised for change in deferred tax of | ||||
| prior periods | –1 | 0.1 | –5 | 0.3 |
| Adjustments recognised for current tax of prior period | 7 | –0.5 | 5 | –0.3 |
| Tax charge in the income statement | –285 | 17.4 | –254 | 13.7 |
The weighted average applicable tax rate was 27.5% (2008: 29.1%). The tax rate according to the income statement was 17.4% (2008: 13.7%). The tax rate used in the income statement is always impacted by the fact that share of profits of associates and joint ventures are recorded based on Fortum's share of profits after tax. Excluding the share of profits from associates, capital gains and other one-time items, the tax rate was 18.5% (2008: 22.1%).
Fortum tax rate in the income statement (17.4%) was mainly effected by the balance of income in different countries combined with the effects from the latest acquisitions and other operative actions and structures and their tax treatment.
The major part of the tax exempt capital gains in 2009 is from sale of shares in companies with construction and operation of infrastructure business.
In December 2008 the Swedish Government passed legislation lowering the income tax rate from 28% to 26.3%. The one-time positive effect from legislation in the income tax cost from revaluing the deferred taxes approximated EUR 81 million. Also in December 2008 the Russian Government passed legislation lowering the income tax rate from 24% to 20%. The one-time positive effect from legislation in the income tax cost from revaluing the deferred taxes approximated EUR 32 million.
˭ See also Note 32 Deferred income tax on page 162.
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year.
| 2009 | 2008 |
|---|---|
| Profit attributable to owners of the parent, (EUR million) 1,312 |
1,542 |
| Weighted average number of shares (thousands) 888,230 |
887,256 |
| Basic earnings per share (EUR per share) 1.48 |
1.74 |
Diluted earnings per share is calculated adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. At the end of 2009 Fortum had no diluted stock option schemes. At the end of 2008 the Group had one diluting stock option scheme 2002 for key employees. For the warrants and stock options a calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Fortum's shares) based on the monetary value of the subscription rights attached to outstanding options. The number of shares calculated as above
is compared with the number of shares that would have been issued assuming the exercise of the stock options.
The number of shares calculated as above is deducted from the number of shares that would have been issued assuming the exercise of the stock options. The incremental shares obtained through the assumed exercise of the options and warrants are added to the weighted average number of shares outstanding.
Options and warrants have a dilutive effect only when the average market price of ordinary shares during the period exceeds the exercise price of the options or warrants. Previously reported earnings per share are not retroactively adjusted to reflect changes in price of ordinary shares.
| 2009 | 2008 |
|---|---|
| Profit attributable to owners of the parent (EUR million) 1,312 |
1,542 |
| Weighted average number of shares (thousands) 888,230 |
887,256 |
| Effect of the 2002 key employees stock options (thousands) - |
583 |
| Diluted average number of shares (thousands) 888,230 |
887,839 |
| Diluted earnings per share (EUR per share) 1.48 |
1.74 |
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 2 February 2010, is to be proposed at the Annual General Meeting on 25 March 2010. These financial statements do not reflect this dividend.
The Annual General Meeting on 7 April 2009 decided to distribute a dividend of EUR 1.00 per share in respect of 2008 to the shareholders. The total dividend amounted to EUR 888 million based on the number of shares registered as of 14 April 2009. The dividend was paid on 21 April 2009.
The Annual General Meeting on 1 April 2008 decided to distribute a dividend of EUR 1.35 per share in respect of 2007 to the shareholders, of which EUR 0.77 per share was paid from Fortum's recurring earnings. An additional dividend of EUR 0.58 per share was decided to steer Fortum's capital structure towards agreed target. The total dividend amounted to EUR 1,198 million based on the amount of shares registered as of 4 April 2008. The dividend was paid on 11 April 2008.
Financial assets and liabilities in the tables below are split into categories in accordance with IAS 39. The categories are further split into classes which are basis for valuing respective asset or liability. Further information can be found in the Notes mentioned in the table.
| Financial assets by categories | Loans and receivables | Financial assets at fair-value through profit and loss | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| EUR million | Note | Amortised cost | Hedge accounting, fair value hedges |
Non-hedge accounting | Fair-value recognised in equity, cash flow hedges |
Available-for-sale financial assets |
Finance leases | Total financial assets | |||||||
| 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | ||
| Financial instruments in non-current assets | |||||||||||||||
| Other non-current assets 1) | 23 | 25 | 18 | 44 | 40 | 69 | 58 | ||||||||
| Derivative financial instruments | 3 | ||||||||||||||
| Electricity derivatives | 38 | 52 | 16 | 167 | 54 | 219 | |||||||||
| Interest rate and currency derivatives | 59 | 16 | 77 | 202 | 3 | 5 | 139 | 223 | |||||||
| Oil and other futures and forward contracts | 2 | 3 | 2 | 3 | |||||||||||
| Long-term interest-bearing receivables | 24 | 854 | 672 | 64 | 70 | 918 | 742 | ||||||||
| Financial instruments in current assets | |||||||||||||||
| Derivative financial instruments | 3 | ||||||||||||||
| Electricity derivatives | 33 | 36 | 43 | 252 | 76 | 288 | |||||||||
| Interest rate and currency derivatives | 95 | 443 | 3 | 11 | 98 | 454 | |||||||||
| Oil and other futures and forward contracts | 8 | 19 | 8 | 19 | |||||||||||
| Trade receivables | 26 | 784 | 849 | 784 | 849 | ||||||||||
| Other short-term interest-bearing receivables | 26 | 12 | 46 | 13 | 11 | 25 | 57 | ||||||||
| Bank deposits | 27 | 397 | 588 | 397 | 588 | ||||||||||
| Cash and cash equivalents | 27 | 493 | 733 | 493 | 733 | ||||||||||
| Total | 2,565 | 2,906 | 59 | 16 | 253 | 755 | 65 | 435 | 44 | 40 | 77 | 81 | 3,063 | 4,233 |
1) In 2009 pension assets are excluded. Year 2008 has been changed accordingly.
| Financial liabilities by categories | Financial liabiliites at fair-value through profit and loss Other financial liabilities |
||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| EUR million | Note | Hedge accounting, Fair-value recognised in fair value hedges Non-hedge accounting equity, cash flow hedges |
Amortised cost | Fair value | Finance leases | Total financial liabilities | |||||||||
| 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | ||
| Financial instruments in non-current liabilities | |||||||||||||||
| Interest-bearing liabilities | 31 | 4,464 | 6,645 | 1,514 | 309 | 24 | 26 | 6,002 | 6,980 | ||||||
| Derivative financial instruments | 3 | ||||||||||||||
| Electricity derivatives | 34 | 42 | 67 | 3 | 101 | 45 | |||||||||
| Interest rate and currency derivatives | 75 | 58 | 10 | 11 | 85 | 69 | |||||||||
| Oil and other futures and forward contracts | 5 | 6 | 5 | 6 | |||||||||||
| Financial instruments in current liabilities | |||||||||||||||
| Interest-bearing liabilities | 31 | 854 | 514 | 3 | 6 | 857 | 520 | ||||||||
| Derivative financial instruments | 3 | ||||||||||||||
| Electricity derivatives | 60 | 59 | 39 | 7 | 99 | 66 | |||||||||
| Interest rate and currency derivatives | 161 | 24 | 8 | 8 | 169 | 32 | |||||||||
| Oil and other futures and forward contracts | 8 | 28 | 8 | 28 | |||||||||||
| Trade payables | 37 | 317 | 343 | 317 | 343 | ||||||||||
| Other liabilities | 37 | 158 | 116 | 158 | 116 | ||||||||||
| Total | - | - | 343 | 217 | 124 | 29 | 5,793 | 7,618 | 1,514 | 309 | 27 | 32 | 7,801 | 8,205 |
Financial instruments that are measured in the balance sheet at fair value are presented according to following fair value measurement hierarchy:
| Level 1 | Level 2 | Level 3 | Netting 3) | Total | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| EUR million | Note | 2009 2008 | 2009 | 2008 | 2009 2008 | 2009 | 2008 | 2009 | 2008 | ||
| In non-current assets | |||||||||||
| Available for sale financial assets | 23 | 44 | 40 1) | 44 | 40 | ||||||
| Derivative financial instruments |
3 | ||||||||||
| Electricity derivatives | |||||||||||
| Hedge accounting | 164 | 523 | –148 –356 | 16 | 167 | ||||||
| Non-hedge accounting | 3 | 86 | 152 | 2 | 2 2) | –53 –102 | 38 | 52 | |||
| Interest rate and currency derivatives |
|||||||||||
| Hedge accounting | 62 | 21 | 62 | 21 | |||||||
| Non-hedge accounting | 77 | 202 | 77 | 202 | |||||||
| Oil and other futures and forward contracts |
|||||||||||
| Non-hedge accounting | 2 | 3 | 2 | 3 | |||||||
| In current assets | |||||||||||
| Derivative financial instruments |
3 | ||||||||||
| Electricity derivatives | |||||||||||
| Hedge accounting | 418 | 826 | –375 –574 | 43 | 252 | ||||||
| Non-hedge accounting | 236 | 721 | –203 –685 | 33 | 36 | ||||||
| Interest rate and currency derivatives |
|||||||||||
| Hedge accounting | 3 | 11 | 3 | 11 | |||||||
| Non-hedge accounting | 95 | 443 | 95 | 443 | |||||||
| Oil and other futures and forward contracts |
|||||||||||
| Non-hedge accounting | 8 | 19 | 8 | 19 | |||||||
| Total | 13 | 22 1,141 2,899 | 46 | 42 | –779 –1,717 | 421 1,246 |
| Financial liabilities | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Level 1 | Level 2 | Level 3 | Netting 3) | Total | |||||||
| EUR million | Note | 2009 2008 | 2009 | 2008 | 2009 2008 | 2009 | 2008 | 2009 | 2008 | ||
| In non-current liabilities | |||||||||||
| Interest-bearing liabilities | 31 | 1,514 | 309 | 1,514 | 309 | ||||||
| Derivative financial instruments |
3 | ||||||||||
| Electricity derivatives | |||||||||||
| Hedge accounting | 215 | 361 | 1 | –149 –358 | 67 | 3 | |||||
| Non-hedge accounting | 2 | 83 | 140 | 1 | 2 2) | –52 –100 | 34 | 42 | |||
| Interest rate and currency derivatives |
|||||||||||
| Hedge accounting | 10 | 11 | 10 | 11 | |||||||
| Non-hedge accounting | 75 | 58 | 75 | 58 | |||||||
| Oil and other futures and forward contracts |
|||||||||||
| Non-hedge accounting | 5 | 6 | 5 | 6 | |||||||
| In current liabilities | |||||||||||
| Derivative financial instruments |
3 | ||||||||||
| Electricity derivatives | |||||||||||
| Hedge accounting | 413 | 581 | –375 –522 | 38 | 59 | ||||||
| Non-hedge accounting | 1 | 16 | 263 | 728 | –203 –737 | 61 | 7 | ||||
| Interest rate and currency derivatives |
|||||||||||
| Hedge accounting | 8 | 8 | 8 | 8 | |||||||
| Non-hedge accounting | 161 | 24 | 161 | 24 | |||||||
| Oil and other futures and forward contracts |
|||||||||||
| Non-hedge accounting | 8 | 28 | 8 | 28 | |||||||
| Total | 16 | 50 2,742 2,220 | 2 | 2 | –779–1,717 1,981 | 555 |
1) Available for sale financial assets, i.e. shares which are not classified as associated companies or joint ventures, consists mainly of shares in unlisted companies of EUR 43 million (2008: 39), for which the fair value can not be reliably determined. These assets are measured at cost less possible impairment.
Available for sale financial assets include listed shares at fair value of EUR 1 million (2008: 1). The cumulative fair value change booked in Fortum's equity was EUR –1 million (2008: –1).
2) Nord Pool quotes the closest 5 years, for years beyond a systematic price estimate made by Fortum is used. Reason for transferring electricity derivatives from level 3 to level 2 is the maturity of contracts.
3) Receivables and liabilities against electricity exchanges arising from standard derivative contracts with same delivery period are netted.
| Other | ||||||
|---|---|---|---|---|---|---|
| Goodwill | intangible assets | Total | ||||
| EUR million | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 |
| Cost 1 January | 298 | - | 379 | 344 | 677 | 344 |
| Exchange rate differences and other adjustments |
–13 | –41 | –27 | –3 | –40 | –44 |
| Increases through business combinations |
- | 339 | - | 13 | - | 352 |
| Capital expenditure | - | - | 20 | 9 | 20 | 9 |
| Change in emission rights | - | - | 0 | 14 | 0 | 14 |
| Disposals | - | - | –6 | –3 | –6 | –3 |
| Reclassifications | - | - | 6 | 5 | 6 | 5 |
| Cost 31 December | 285 | 298 | 372 | 379 | 657 | 677 |
| Accumulated depreciation 1 January |
- | - | 282 | 259 | 282 | 259 |
| Exchange rate differences and other adjustments |
- | - | –30 | 2 | –30 | 2 |
| Increases through business combinations |
- | - | - | 2 | - | 2 |
| Disposals | - | - | –6 | –2 | –6 | –2 |
| Reclassifications | - | - | - | - | - | - |
| Depreciation for the period | - | - | 20 | 21 | 20 | 21 |
| Accumulated depreciation 31 December |
- | - | 266 | 282 | 266 | 282 |
| Carrying amount 31 December |
285 | 298 | 106 | 97 | 391 | 395 |
The goodwill is included in Russia segment and relates to the acquisition of OAO Fortum (former TGC-10); see Note 7 Acquisitions and disposals on page 139. The goodwill has been tested for impairment by comparing recoverable amounts of the net operating assets for OAO Fortum, including goodwill, with their carrying amounts. The recoverable amounts were determined on the basis of value in use, applying discounted cash flow calculations.
Key assumptions made by management and used in the cash flow forecast were: expected development of Russian power market, utilization of power plants and other assets, forecasted maintenance and refurbishment investments as well as finalisation of the investment program and rate used for discounting. Assumptions are based on expectations of future events that are believed to be reasonable under the circumstances. The process used to determine these assumptions has not changed from previous year. The cash flows are based on business plan approved by the Board of Directors. The power market liberalisation in Russia and OAO Fortum's investment program has progressed expectedly during 2009. The discount rate is determined taking into account the risk profile of the country in which the cash flows are generated. Pre-tax discount rate used for Russia was 11.7% (2008: 11.7%). There have not
been any major changes in the discount rate components or in the methods used to determine them.
As of 31 December 2009, the recoverable values were found to be in excess of their carrying values and therefore the related goodwill is not impaired. According to management a reasonably possible change in discount rate or in the level of earnings would not cause Russian cash generating unit's carrying amount to exceed its recoverable amount.
The main items in other intangible assets are costs for software products and software licenses, which are amortised over their useful lives. Other intangible assets also include bought emission rights and emission rights received free of charge, which are recognised to the lower of fair value and historical cost. The amount of emission rights in intangible assets is EUR 14 million (2008: 14).
| EUR million | Land, waterfall rights and tunnels |
Buildings, plants and structures |
Machinery and equipment |
Other tangible assets |
Advances paid and construction in progress |
Total |
|---|---|---|---|---|---|---|
| Cost 1 January 2009 | 2,684 | 2,520 | 11,720 | 198 | 1,011 | 18,133 |
| Exchange rate differences and other adjustments |
156 | 60 | 354 | 4 | 21 | 595 |
| Increases through business combinations |
- | - | 2 | - | - | 2 |
| Capital expenditure | 1 | 111 | 229 | 2 | 499 | 842 |
| Nuclear asset retirement cost | - | - | –7 | - | - | –7 |
| Disposals | –1 | –18 | –23 | –2 | –56 | –100 |
| Reclassifications | 0 | 79 | 295 | 4 | –384 | –6 |
| Cost 31 December 2009 | 2,840 | 2,752 | 12,570 | 206 | 1,091 | 19,459 |
| Accumulated depreciation 1 January 2009 |
- | 1,082 | 4,785 | 128 | - | 5,995 |
| Exchange rate differences and other adjustments |
- | 21 | 163 | 4 | - | 188 |
| Increases through business combinations |
- | - | - | - | - | - |
| Disposals | - | –12 | –56 | –1 | - | –69 |
| Depreciation for the period | - | 86 | 396 | 5 | - | 487 |
| Impairment charges | - | 3 | 0 | 0 | - | 3 |
| Reclassifications | - | 4 | –4 | - | - | 0 |
| Accumulated depreciation 31 December 2009 |
- | 1,184 | 5,284 | 136 | - | 6,604 |
| Carrying amount 31 December 2009 |
2,840 | 1,568 | 7,286 | 70 | 1,091 | 12,855 |
Property, plant and equipment has increased during 2009. The increase is mostly due to the ongoing investment programme in OAO Fortum and Heat segment's building of four CHP plants of which two were taken into commercial use during 2009 and two are still under construction. The strengthening of currencies, mainly SEK, also
contributed to increase in property, plant and equipment.
˭ For more information on credit risk regarding ongoing investments, see Note 3.10 Credit risk, on page 132.
Property, plant and equipment that are subject to restrictions in the form of real estate mortgages amounts to EUR 357 million (2008: 343).
˭ See Note 38 Pledged assets on page 168.
| Land, waterfall rights and |
Buildings, plants and |
Machinery and |
Other tangible |
Advances paid and construction |
||
|---|---|---|---|---|---|---|
| EUR million | tunnels | structures | equipment | assets | in progress | Total |
| Cost 1 January 2008 | 3,059 | 2,373 | 11,385 | 217 | 578 | 17,612 |
| Exchange rate differences and other adjustments |
–395 | –264 | –1,340 | –16 | –154 | –2,169 |
| Increases through business combinations |
- | 341 | 1,196 | - | 183 | 1,720 |
| Capital expenditure | 18 | 54 | 183 | 3 | 841 | 1,099 |
| Nuclear asset retirement cost | - | - | 22 | - | - | 22 |
| Disposals | –1 | –32 | –103 | –1 | –9 | –146 |
| Reclassifications | 3 | 48 | 377 | –5 | –428 | –5 |
| Cost 31 December 2008 | 2,684 | 2,520 | 11,720 | 198 | 1,011 | 18,133 |
| Accumulated depreciation 1 January 2008 |
- | 1,073 | 5,059 | 137 | - | 6,269 |
| Exchange rate differences and other adjustments |
- | –109 | –634 | –13 | - | –756 |
| Increases through business combinations |
- | 62 | 28 | - | - | 90 |
| Disposals | - | –23 | –78 | –1 | - | –102 |
| Depreciation for the period | - | 79 | 410 | 5 | - | 494 |
| Impairment charges | - | - | - | - | - | - |
| Accumulated depreciation 31 December 2008 |
- | 1,082 | 4,785 | 128 | - | 5,995 |
| Carrying amount 31 December 2008 |
2,684 | 1,438 | 6,935 | 70 | 1,011 | 12,138 |
| EUR million | Machinery and equipment |
Advances paid and construction in progress |
Total | ||||
|---|---|---|---|---|---|---|---|
| 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | ||
| 1 January | 13 | 16 | 23 | 2 | 36 | 18 | |
| Increases | - | - | 30 | 21 | 30 | 21 | |
| Reclassification | 9 | - | –9 | - | 0 | - | |
| Depreciation | –1 | –3 | - | - | –1 | –3 | |
| 31 December | 21 | 13 | 44 | 23 | 65 | 36 |
New borrowing costs of EUR 30 million were capitalised in 2009 (2008: 21) for the OAO Fortum investment program, and for CHP-plant projects in Finland, Poland, Estonia and Latvia. The interest rate used for capitalisation varied between 5.4–11.0% (2008: 5.0–8.9%) depending on country and loan currency.
| Finland | Sweden | Other countries | Total | ||||||
|---|---|---|---|---|---|---|---|---|---|
| EUR million | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | |
| Power | |||||||||
| Hydropower | 4 | 11 | 49 | 52 | - | - | 53 | 63 | |
| Nuclear power | 35 | 57 | - | - | - | - | 35 | 57 | |
| Fossil-based power | 3 | 6 | - | - | - | 4 | 3 | 10 | |
| Other | 6 | 3 | - | 1 | - | - | 6 | 4 | |
| Total Power | 48 | 77 | 49 | 53 | - | 4 | 97 | 134 | |
| Heat | |||||||||
| Fossil-based heat | 53 | 54 | 17 | 16 | 66 | 82 | 136 | 152 | |
| Fossil-based power | 37 | 25 | - | - | - | 2 | 37 | 27 | |
| Renewable | 21 | 11 | 24 | 29 | 32 | 23 | 77 | 63 | |
| District heating network | 14 | 34 | 56 | 82 | 18 | 20 | 88 | 136 | |
| Other | 0 | - | 20 | 19 | 0 | 11 | 20 | 30 | |
| Total Heat | 125 | 124 | 117 | 146 | 116 | 138 | 358 | 408 | |
| Distribution | 79 | 83 | 98 | 200 | 11 | 13 | 188 | 296 | |
| Markets | 1 | 1 | - | 2 | - | - | 1 | 3 | |
| Other | 2 | 11 | - | - | 1 | - | 3 | 11 | |
| Total excluding Russia | 255 | 296 | 264 | 401 | 128 | 155 | 647 | 852 | |
| Russia | |||||||||
| Fossil-based power | 199 | 240 | |||||||
| Fossil-based heat | 16 | 16 | |||||||
| Total Russia | 215 | 256 | |||||||
| Total including Russia | 862 | 1,108 | |||||||
1)Includes capital expenditure to both intangible assets and property, plant and equipment.
Maintenance investments during 2009 in property, plant and equipment were EUR 139 million (2008: 170). Investments due to requirements of legislation were EUR 129 million (2008: 147). Investments increasing productivity were EUR 138 million (2008: 220) and growth investments were EUR 456 million (2008: 572).
In Finland, Fortum invested EUR 35 million (2008: 57) into the Loviisa nuclear power plant. Fortum continued to invest EUR 20 million (2008: 28) into several hydro projects, focusing on growth and productivity. The biggest of these was Eldforsen in Sweden, EUR 6 million (2008: 8). Power segment invested additionally EUR 42 million (2008: 50) into refurbishment type investments.
There have been four ongoing CHP plant construction projects during 2009, two of these, Suomenoja plant in Espoo, Finland and the Tartu CHP plant in Estonia, were taken into commercial use during 2009. Fortum has a 60% stake of the Tartu plant. The Częstochowa plant in Poland and Pärnu plant in Estonia are still under construction. Growth investments in Heat segment are EUR 262 million, which is EUR 47 million less than in 2008. Refurbishment and other investments are EUR 96 million in this segment, which is EUR 10 million less than in 2008. This amount consists mainly of investments in district heat networks, new connections as well as the maintenance of existing CHP plants.
Distribution invested EUR 188 million (2008: 296) in reliability of power delivery, maintenance and new investments in Finland, Sweden, Norway and Estonia.
In 2006 Fortum started the large-scale Automatic Meter Management (AMM) implementation project in Sweden. The project was completed during 2009 and during the project a total of 844 thousand meters was installed of which some 40 thousand in 2009. In 2009 Fortum invested EUR 17 million (2008: 104) into this project.
OAO Fortum has an extensive investment programme aiming to increase its power capacity with 2,300 MW. During 2009 EUR 186 million (2008: 250) was invested in this programme. The value for the remaining part of the programme is estimated to be EUR 1.8 billion from January 2010 onwards.
| EUR million | 2009 | 2008 |
|---|---|---|
| Acquisition cost | 54 | 53 |
| Accumulated depreciation at 1 January | –14 | –10 |
| Depreciation charge for the year | –4 | –4 |
| Total | 36 | 39 |
The assets leased by financial lease agreements are classified as machinery and equipment.
Fortum acts also as a lessor and has leased out property, plant and equipment for EUR 60 million (2008: 70), which are not included in property, plant and equipment in the consolidated financial statements.
| EUR million | 2009 | 2008 |
|---|---|---|
| Acquisition cost | 179 | 174 |
| Accumulated depreciation at 1 January | –106 | –99 |
| Depreciation charge for the year | –7 | –7 |
| Total | 66 | 68 |
Assets leased out by operating lease agreement consist mainly of Meri-Pori powerplant, where Fortum has leased out its 308 MW share in the power plant from January 2007 to the end of June 2010.
| EUR million | 2009 | 2008 |
|---|---|---|
| Historical cost | ||
| 1 January | 1,655 | 1,721 |
| Exchange rate differences and other adjustments | –36 | –94 |
| Acquisitions | 33 | 7 |
| New share issues and shareholders' contributions | 25 | 1 |
| Increase through acquisition of subsidiaries | 0 | 36 |
| Reclassifications | –7 | –3 |
| Divestments | –1 | –13 |
| Historical cost 31 December | 1,669 | 1,655 |
| Equity adjustments to participations in associates and joint ventures | ||
|---|---|---|
| 1 January | 457 | 1,132 |
| Exchange rate differences and other adjustments | 109 | –122 |
| Share of profits of associates | 21 | 126 |
| Dividends received | –32 | –51 |
| Fair value and other adjustments in equity | –36 | –628 |
| Equity adjustments 31 December | 519 | 457 |
| Total | 2,188 | 2,112 |
The carrying amount of investments in associated companies at the end of 2009 was EUR 2,188 million (2008: 2,112). Fortum owns shares in one (2008: one) company classified as joint venture. The total carrying value of this joint venture was EUR 42 million (2008: 40).
Fortum and (Norwegian) Hafslund Infratek ASA combined their businesses of construction and operating of infrastructure in Sweden, Finland and Norway at the beginning of 2009. Fortum received newly issued shares in Hafslund Infratek ASA resulting in 33% ownership in the new combined company.
Teollisuuden Voima Oyj's (TVO) Annual General meeting decided to raise the company's share capital by EUR 100 million of which Fortum's share is EUR 25 million. Increase in Fortum's participation in TVO was paid in 2009.
In 2008 Fortum acquired a 14.73% share in UAB Klaipedos Energija from Stadtwerke Leipzig GmbH. Fortum now owns a 19.63% share of the company. UAB Klaipedos Energija generates and distributes district heat to the residents and industries in the cities of Klaipeda and Gargzdai. The net sales of the company was around EUR 27 million, annual heat sales 1 TWh and power sales 20 gigawatthours (GWh). The investment was EUR 7 million.
Through the acquisition of OAO Fortum in March 2008, Fortum acquired a shareholding in Kurgan Generating Company.
No major divestments of associated companies were made in 2009.
Fortum has agreed to divest its shares in Swedegas AB in the first quarter of 2010.
During 2008 Fortum sold its 50% shareholding in Panjin Liaohe Thermal Power Company Co in China and its 30% shareholding in Polartest Oy and its 33% shareholding in Herbrechtingen GmbH.
Some of the principal associates present their financial statements according to local accounting principles. Fortum makes adjustments to the reported numbers to ensure consistency with policies adopted by the Group. If information is not available, the share of profit of associated companies is based on the previous quarterly information.
Fortum's share of profits from associates for 2009 amounts to EUR 21 million (2008: 126), of which Hafslund represents EUR –4 million (2008: 48) and TGC-1 EUR 19 million (2008: 17). Share of profits from associates also includes Fortum's share of the Swedish nuclear associates Forsmarks Kraftgrupp AB and OKG AB with EUR –16 million (2008: 47), of which EUR –6 million (2008: 42) is due to accounting of nuclear related assets and liabilities.
˭ See Note 33 Nuclear related assets and liabilities on page 163.
Hafslund sold 18 million shares in REC in November 2009. In accordance with the accounting policy Fortum recognised a EUR 13 million gain in relation to Hafslund's divestment of REC shares as a part of the share of profit from associates and joint ventures in 2009. 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.
Dividends received include dividend from Hafslund amounting to EUR 17 million (2008: 24).
When calculating the share of profits in Fortum's associated company Hafslund ASA, Fortum, in accordance with Fortum's accounting policies, reclassified Hafslund's accounting treatment for the shareholdings in REC from year 2006 until 19 November 2008. Until that date Hafslund has classified the shareholdings in REC as financial assets at fair value through profit and loss, while Fortum classified the shareholdings as available for sale financial assets with fair value changes directly through equity. After 19 November 2008 both companies classify the REC shareholding as available for sale financial assets with fair value changes directly through equity. Only if Hafslund would divest shares in REC would the cumulative fair value change effect Fortum's income statement. Since REC is listed in the Oslo stock exchange, Fortum is accounting for the fair value change in the share price in Oslo stock exchange at each closing date. The amount of shares is based on the amount published by Hafslund in the previous quarter if other information is not available.
The cumulative fair value change booked in Fortum's equity and based on the remaining number of shares reported by Hafslund was EUR 89 million at the end of the year 2009 (2008: 126).
| EUR million | Participation, % | Carrying amount in Group |
||||
|---|---|---|---|---|---|---|
| Company | Segment | Domicile | 2009 | 2008 | 2009 | 2008 |
| Kemijoki Oy | Power | Finland | 18 | 18 | 243 | 250 |
| Teollisuuden Voima Oyj (TVO) | Power | Finland | 26 | 26 | 232 | 220 |
| OKG AB | Power | Sweden | 46 | 46 | 131 | 131 |
| Forsmarks Kraftgrupp AB | Power | Sweden | 26 | 26 | 112 | 110 |
| Gasum Oy | Heat | Finland | 31 | 31 | 123 | 105 |
| Fingrid Oyj | Distribution | Finland | 25 | 25 | 112 | 99 |
| Territorial Generating Company 1 (TGC-1) |
Russia | Russia | 26 | 26 | 399 | 394 |
| Hafslund ASA | Other | Norway | 34 | 34 | 483 | 488 |
| Others | 353 | 315 | ||||
| Total | 2,188 | 2,112 |
Fortum owns 63.8% of the hydro shares and 15.4% of the monetary shares in Kemijoki Oy. Each owner of hydro shares is entitled to the hydropower production in proportion to its hydro shareholding. Fortum's total ownership is 17.5% of the share capital. Since Fortum has significant influence due to its representation on the board of directors and participation in policy-making processes, Kemijoki Oy is accounted for as an associated company.
TVO has three series of shares which entitle the shareholders to electricity produced in the different power plants owned by TVO. Series A entitles to electricity produced in nuclear power plants Olkiluoto 1 and 2, series B entitles to electricity in the nuclear power plant presently being built, Olkiluoto 3, and series C entitles to electricity produced in TVO's share of the thermal power plant Meri-Pori. The Meri-Pori power plant is a jointly controlled asset between Fortum and TVO. Fortum accounts for its 54.55% of the assets and TVO for 45.45%.
˭ See also Jointly controlled assets in Note 1.12.1 in Accounting principles on page 119.
Fortum owns 25.7% of the shares in Territorial Generating Company 1, TGC-1. TGC-1 was formed in late 2006 by mergers of several Russian companies. The company published its IFRS financial statements for 2008 in July 2009 and half-year IFRS financial statements for Q1–Q2/2009 in October 2009. Fortum accounted for its share of profits for 2008 in Q3 and for the first half of 2009 in Q4. According to Fortum's accounting policy the share of TGC-1's profits is recognised based on the most recently published IFRS financial statements.
Market value, based on market quotations of listed principal associated companies on 31 December (Hafslund ASA and TGC-1) was EUR 932 million (2008: 572), of which Hafslund was EUR 554 million and TGC-1 was EUR 378 million. The market quotation for the TGC-1 share is effected by the low liquidity of the TGC-1 shares in the Russian stock exchanges in 2009 and 2008. During 2009 trading volumes of TGC-1 shares in relation to the number of shares of the company were approximately 16% in Russian Stock Exchanges (less than 0.03% since August in 2008).
Assets, liabilities, sales and profit and loss as presented by the Group's principal associates are as follows
| Profit/ | owner | ||||||
|---|---|---|---|---|---|---|---|
| Company | Domicile | Assets Liabilities | Sales | loss | ship, % votes, % | ||
| Kemijoki Oy 1) 4) | Finland | 435 | 306 | 45 | –7 | 18 | 18 |
| Teollisuuden Voima Oyj 1) 3) | Finland | 5,103 | 4,224 | 149 | –26 | 26 | 26 |
| OKG AB 1) 4) | Sweden | 1,537 | 1,525 | 399 | 1 | 46 | 46 |
| Forsmarks Kraftgrupp AB 1) 4) | Sweden | 1,305 | 1,273 | 458 | 0 | 26 | 26 |
| Gasum Oy 2) | Finland | 656 | 267 | 742 | 48 | 31 | 31 |
| Fingrid Oyj 2) | Finland | 1,597 | 1,175 | 255 | 15 | 25 | 33 |
| Territorial Generating Company 1 (TGC-1) 3) Russia | 1,961 | 516 | 482 | 54 | 26 | 26 | |
| Hafslund ASA 2) | Norway | 3,503 | 2,087 | 871 | 35 | 34 | 33 |
1) Power plants are often built jointly with other power producers. Under the consortium agreements, each owner is entitled to electricity in proportion to its share of ownership or other agreements and each owner is liable for an equivalent portion of costs. The associated companies are not profit making, since the owners purchase electricity at production cost including interest cost, production and income taxes. (Note 10 Materials and services on page 142 and Note 43 Related party transactions on page 170).
2) Based on September 2009 figures. Gasum Oy reports profit before taxes. The figure has been decreased with nominal tax 26% in this table.
3) Based on June 2009 figures.
4) Based on December 2008 figures.
| EUR million | 2009 | 2008 |
|---|---|---|
| Sales to associated companies | 86 | 113 |
| Interest on associated company loan receivables | 37 | 34 |
| Purchases from associated companies | 555 | 563 |
Purchases from associated companies are purchases of nuclear and hydro power at production costs including interest costs, production and income taxes.
˭ See Note 10 Materials and services on page 142.
˭ See Note 43 Related party transactions on page 170.
| EUR million | 2009 | 2008 |
|---|---|---|
| Receivables from associated companies | ||
| Long-term interest-bearing loan receivables | 852 | 659 |
| Trade receivables | 14 | 24 |
| Other receivables | 5 | 5 |
| Liabilities to associated companies | ||
| Long-term loan payables | 199 | 184 |
| Trade payables | 23 | 26 |
| Other payables | 22 | 18 |
Long-term interest-bearing receivables are mainly from Swedish nuclear companies, OKG AB and Forsmarks Kraftgrupp AB, EUR 786 million (2008: 594). Investments in Swedish nuclear companies are financed through loans from owners of the nuclear companies, pro rata ownership.
| EUR million | 2009 | 2008 |
|---|---|---|
| Purchases | 1 | 1 |
| Receivables from joint ventures | 4 | 3 |
There were no outstanding loans receivable from joint ventures on 31 December 2009 or 2008.
| EUR million | 2009 | 2008 |
|---|---|---|
| Available for sale financial assets | 44 | 40 |
| Other | 25 | 18 |
| Total | 69 | 58 |
Available for sale financial assets, i.e. shares which are not classified as associated companies or joint ventures, consist mainly of shares in unlisted companies of EUR 43 million (2008: 39), for which the fair value can not be reliably determined. These assets are measured at cost less possible impairment.
Available for sale financial assets include listed shares at fair value of EUR 1 million (2008: 1). The cumulative fair value change booked in Fortum's equity was EUR –1 million (2008: –1).
| EUR million | 2009 | 2008 |
|---|---|---|
| Long-term loan receivables | 854 | 672 |
| Finance lease receivables | 64 | 70 |
| Total long-term interest-bearing receivables | 918 | 742 |
| Other short-term interest-bearing receivables | 12 | 46 |
| Short-term finance lease receivables | 13 | 11 |
| Total short-term interest-bearing receivables 1) | 25 | 57 |
| Total | 943 | 799 |
1)Included in trade and other receivables in the balance sheet, see Note 26 on page 156.
Long-term loan receivables include receivables from associated companies EUR 852 million (2008: 659), mainly from Swedish nuclear companies, OKG AB and Forsmarks Kraftgrupp AB, EUR 786 million (2008: 594). These companies are mainly funded with shareholder loans, pro rata each shareholder's ownership. The increase is related to investments made according to plan in OKG AB and Forsmarks Kraftgrupp AB.
Long-term loan receivables also include receivables from Teollisuuden Voima Oyj (TVO) amounting to EUR 45 million (2008: 45). Olkiluoto 3, the nuclear power plant being built by the associated company TVO, is funded through external loans, share issues and shareholder loans according to shareholders' agreements between the owners of TVO. In March 2009, TVO's shareholders committed to providing a EUR 300 million subordinated shareholder's loan to TVO. The facility will be available until the end of 2013. Fortum's share of this commitment is at maximum EUR 75 million.
˭ For further information regarding credit risk management see Note 3.10 Credit risk on page 132.
| Effective interest |
Carrying amount |
Repricing under |
Repricing 1–5 |
Repricing over |
Fair value |
Carrying amount |
Fair value |
|
|---|---|---|---|---|---|---|---|---|
| EUR million | rate | 2009 | 1 year | years | 5 years | 2009 | 2008 | 2008 |
| Long-term loan receivables | 5.0 | 854 | 853 | 1 | - | 886 | 672 | 686 |
| Finance lease receivables | 7.4 | 77 | 39 | 7 | 31 | 94 | 81 | 100 |
| Total long-term interest-bearing receivables 1) |
5.2 | 931 | 892 | 8 | 31 | 980 | 753 | 786 |
| Other short-term interest-bearing receivables |
0.1 | 12 | 12 | - | - | 12 | 46 | 46 |
| Total interest-bearing receivables |
5.1 | 943 | 904 | 8 | 31 | 992 | 799 | 832 |
1)Including current portion of long-term receivables.
On 31 December 2009 Fortum held mortgages as collateral for other interest-bearing receivables amounting to EUR 0 million (2008: 11).
Fortum owns assets (mainly CHP and heating plants) that it leases to customers under financial leasing agreements in Finland, Sweden, Norway and Estonia. These assets are recorded at the gross investment cost in the lease, less unearned financial income. The average lease term is approximately 14 years. Of all contracts, 2% carry a floating interest rate and 98% a fixed rate.
| EUR million | 2009 | 2008 |
|---|---|---|
| Gross investment in finance lease contracts | 102 | 110 |
| Less unearned finance income | 25 | 29 |
| Total | 77 | 81 |
| EUR million | 2009 | 2008 |
|---|---|---|
| Gross investment | ||
| Less than 1 year | 17 | 16 |
| 1–5 years | 60 | 66 |
| Over 5 years | 25 | 28 |
| Total | 102 | 110 |
| EUR million | 2009 | 2008 |
|---|---|---|
| Less than 1 year | 13 | 11 |
| 1–5 years | 44 | 48 |
| Over 5 years | 20 | 22 |
| Total | 77 | 81 |
No contingent rents were recognised in income statement neither in 2009 nor in 2008.
| EUR million | 2009 | 2008 |
|---|---|---|
| Nuclear fuel | 69 | 78 |
| Coal | 184 | 189 |
| Oil | 40 | 35 |
| Biofuels | 61 | 59 |
| Other inventories | 93 | 83 |
| Total | 447 | 444 |
No impairment costs have been booked related to inventories neither in 2009 nor in 2008.
| EUR million 2009 |
2008 |
|---|---|
| Trade receivables 784 |
849 |
| Income tax receivables 16 |
94 |
| Accrued interest income 1 |
9 |
| Accrued income and prepaid expenses 46 |
94 |
| Other receivables 158 |
132 |
| Short-term finance lease receivables 1) 13 |
11 |
| Other short-term interest-bearing receivables 1) 12 |
46 |
| Total 1,030 |
1,235 |
1) See also Note 24 Long-term and short-term interest-bearing receivables on page 155.
The management considers that the carrying amount of trade and other receivables approximates their fair value.
| 2009 | 2008 | |||
|---|---|---|---|---|
| EUR million | Gross | Impaired | Gross | Impaired |
| Not past due | 730 | 2 | 811 | - |
| Past due 1–90 days | 51 | 4 | 37 | 2 |
| Past due 91–180 days | 8 | 2 | 5 | 2 |
| Past due more than 181 days | 42 | 39 | 34 | 34 |
| Total | 831 | 47 | 887 | 38 |
Impairment losses recognised in the income statement were EUR 11 million (2008: 11), of which EUR 5 million (2008: 8) are impairment losses recognised in OAO Fortum Group. On 31 December 2009, trade receivables of EUR 47 million (2008: 38) were impaired and provided for, of which EUR 33 million (2008: 26) refers to OAO Fortum Group.
˭ For information regarding impairment losses by segment, see Note 5 Segment reporting on page 134.
| EUR million | 2009 | 2008 |
|---|---|---|
| EUR | 265 | 318 |
| SEK | 372 | 399 |
| NOK | 29 | 37 |
| USD | 0 | 1 |
| PLN | 28 | 29 |
| RUB | 100 | 74 |
| Other | 37 | 29 |
| Total | 831 | 887 |
Trade receivables are arising from a large number of customers mainly in EUR and SEK mitigating the concentration of risk. Fortum held on 31 December 2009 bank guarantees as collaterals for trade receivables amounting to EUR 6 million (2008: 8).
˭ For further information regarding credit risk management and credit risks, see 2.2.9 Counterpart risks on page 101 in the Operating and financial review and Note 3.10 Credit risk on page 132.
| EUR million | 2009 | 2008 |
|---|---|---|
| Cash at bank and in hand | 154 | 77 |
| Bank deposits with maturity under 3 months | 339 | 656 |
| Cash and cash equivalents | 493 | 733 |
| Bank deposits with maturity more than 3 months | 397 | 588 |
| Total | 890 | 1,321 |
Short-term and long-term bank deposits include bank deposits held by OAO Fortum amounting to EUR 229 million and EUR 397 million respectively (2008: 426 and 588 respectively). Of OAO Fortum's short-term deposits at the year end 2009, EUR 190 million were euros and EUR 39 million Russian roubles. All long-term deposits were in euros. The funds in OAO Fortum are committed to the investment programme to further increase OAO Fortum's electricity production capacity. The bank deposits in euros held by OAO Fortum are hedging future payments in euros.
Maturity of cash and cash equivalents is under 3 months.
˭ For further information regarding credit risk management and credit risks, see 2.2.9 Counterpart risks on page 101 in the Operating and financial review and Note 3.10 Credit risk on page 132.
| Number of | |
|---|---|
| 3,040 | |
| 4 | |
| 3,044 | |
| shares Share capital 3,044 886,683,058 955,022 3,046 887,638,080 56,000 |
Fortum has one class of shares. By the end of 2009, a total of 888,367,045 shares had been issued. The nominal value of the shares is EUR 3.40 and each share entitles the holder to one vote at the Annual General Meeting. All shares entitle holders to an equal dividend. At the end of 2009 Fortum Corporation's share capital, paid in its entirety and entered in the trade register, was EUR 3,046,185,953.00.
The registered share capital exceeds the aggregate nominal value of the issued shares due to the cancellations of the company's own shares in 2006 and 2007 (in total 7,570,000 shares) without decreasing the share capital.
Fortum Corporation's shares are listed on NASDAQ OMX Helsinki. The trading code is FUM1V. Fortum Corporation's shares are in the Finnish book entry system maintained by the Euroclear Finland Ltd.
At the beginning of 2009, the Finnish State owned 50.80% of the Company's shares. After the changes in amount of shares during 2009, increase in amount of shares due to the share subscriptions under stock option schemes for key employees, the Finnish State owned 50.76% of the company's shares at the end of the year. The Finnish Parliament has authorised the Government to reduce the Finnish State's holding in Fortum Corporation to no less than 50.1% of the share capital and voting rights.
At the end of 2009, the President and CEO and other members of the Fortum management team owned 185,345 shares (2008: 354,238), representing approximately 0.02% (2008: 0.04%) of the shares in the Company.
˭ A full description of Fortum's equity incentive schemes is shown in Note 29 together with details on the President and CEO and other members of the Fortum management team's shareholdings and interest in the equity incentive schemes on page 157. A description of shares, share capital and shareholders in Fortum is shown in the Operating and financial review on page 103.
At the end of 2009, Fortum Corporation did not own its own shares and the Board of Directors of Fortum Corporation has no unused authorisations from the General Meeting of shareholders to repurchase the company's own shares.
Fortum Corporation has not issued any convertible bonds or bonds with attached warrants, which would entitle the bearer to subscribe for Fortum shares. The Board of Directors of Fortum Corporation has today no unused authorisations from the General Meeting of shareholders to issue convertible bond loans or bonds with warrants or increase the company's share capital.
Fortum's short-term incentive system (called annual bonus below) exists to support the Group's values, the achievement of financial targets and structural changes and to secure an alignment between the performance targets of the individual employee and the targets of the Group and business division. All Fortum employees are covered by the annual bonus system except for some employee groups in Poland and Russia.
The criteria used in determining the size of the bonus for senior management (the President and CEO and other members of Fortum's Management Team) are decided annually by the Board of Directors on the recommendation of the Board's Nomination and Compensation Committee. The size of each senior executive's annual bonus is dependent on the Group's financial performance, as well as on their own success in reaching personal goals. The maximum bonus level for the senior management, in the case when all targets and goals are exceeded, is 40% of the person's annual salary including fringe benefits.
For executives with division responsibilities, the scheme reflects the performance of their division together with the Group's financial performance. The criteria for evaluating an executive's personal performance are mutually agreed between the executive and his/her superior in an annual performance discussion at the beginning of each year. The performance of the President and CEO is evaluated annually by the Board of Directors.
˭ For further information on bonus costs for senior management, see Note 12 Employee Costs and Management Remuneration on page 143.
The Fortum Personnel Fund (for employees in Finland only) has been in operation since year 2000. The Board of Directors determines the criteria for the fund's annual profit-sharing bonus. Persons included in the Management Performance Share Arrangement are not eligible to be members of this fund. Members of the personnel fund are the permanent and fixed-term employees of the Group. The membership of employees joining the company starts at the beginning of the next month after the employment relationship has been ongoing for six months. Fund membership terminates when the member has received his/her share of the fund in full.
The profit-sharing received by the fund is distributed equally between the members. Each employee's share is divided into a tied amount and an amount available for withdrawal. It is possible to transfer a maximum of 15% of capital from the tied amount to the amount available for withdrawal each year, once the employee has been a member for five years.
The amount available for withdrawal (maximum 15% of tied amount) is decided each year by the council of the fund and it is paid to members who want to exercise their withdrawal rights.
The fund's latest financial year ended at 30 April 2009 and the fund then had a total of 3,155 members (2008: 3,187). At the end of April 2009 Fortum contributed EUR 4.7 million (2008: 4.3) to the personnel fund as an annual profit-sharing bonus based on the financial results of 2008. The combined amount of members' shares in the fund was EUR 20.9 million (2008: 22.7).
The contribution to the personnel fund is expensed as it is earned.
Fortum's Management Performance Share Arrangement (LTI) is a performance-based, long-term incentive arrangement. The arrangement is a continuing incentive scheme divided into annual performance share plans. A new plan commences annually upon decision by the Board of Directors. The arrangement was launched in 2003 to support the achievement of the Group's long-term goals by attracting and retaining key personnel. In January 2008, the arrangement was further developed (called new arrangement below). The last plan under the previous arrangement (called previous arrangement below) was launched in 2007.
At present, approximately 160 managers, all of whom have been elected by the Board of Directors, are participants in at least one of the six on-going annual LTI plans. The 2006–2011 LTI plan is for non-stock option holders only.
Plans under the previous arrangement start with a three-year earning period, during which the person earns annual bonus based on the performance of the Group, the relevant division and the achievements of the individual participant. After the earning period, following the announcement of the Group's annual results for the last calendar year, the amount of the potential reward as a calculative amount of share rights is decided by the Board of Directors. The value of share rights allocated to an individual participant cannot at that time exceed the participant's one-year salary including fringe benefits.
The earning period of the previous arrangement is followed by an approximately three year lock-up period which ends at the cash-settlement of the earned reward provided that the participant remains an employee in the Group. The potential reward under each annual LTI plan is adjusted during the lock-up period by any dividends paid up until the settlement date. The participant has approved that the earned reward will be used to acquire Fortum shares in the name of the participant deducted by income tax and statutory employment related expenses and insurance contributions payable by the participant on the reward.
Performance share plans launched under the new LTI arrangement run over a fiveyear period. Each share plan begins with a three-year earning period, followed by a two-year lock-up period.
The participant has approved that the earned reward will be used to acquire Fortum shares in the name of the participant deducted by income tax and the statutory employment related expenses and insurance contributions payable by the participant on the reward. The individual number of shares delivered after the earning period is based on the achievement of the earnings criteria set by the Board of Directors. The earnings criteria are set annually, and may vary from year to year. The value in shares given to a participant after the three years earning period cannot at that time exceed the participant's one-year salary including fringe benefits following Cabinet Committee's Economic Policy.
During the lock-up period the shares may not be sold, transferred, pledged or disposed in any other way. Dividends and other financial returns paid on the shares during the lock-up period are, however, not subject to restrictions. The shares will be released from the lock-up after publishing of the Company's financial results for the fifth calendar year of an individual plan.
Both LTI arrangements are treated as cash-settled arrangements in accordance with IFRS 2 Share-based payment. The expense is recognised during the vesting period with a corresponding increase in the liabilities. The fair value of the potential reward of outstanding share rights is measured based on the market value of Fortum share initially when the share participation is defined and at each closing date after that. Income tax and other statutory employment related expenses and insurance contributions payable by the participant will be deducted from the outstanding amounts at the payments.
The total LTI liability including accrual for social charges at the end of the year 2009 was EUR 28 million (2008: 22). The expense recorded in the employee costs for the period was EUR 5 million (2008: 19) netted with the change in the fair values of the hedge arrangements.
Under the previous LTI arrangement, in order to hedge the Group against the changes in the fair values of the potential rewards, the Group has entered into share forward transactions which are settled in cash. The change during year 2009 in the fair values of the ongoing hedge arrangements amounted to EUR 5 million (2008: –24). Under the new LTI arrangement Fortum has no obligation to hedge or otherwise protect the value of the shares for the participants during the lock-up period.
Earning period Lock-up period
| Plan | Plan | Plan | Plan | |
|---|---|---|---|---|
| 2006–2011 | 2005–2010 | 2004–2009 | 2003–2008 | |
| Outstanding at the beginning of the period 1 January 2009 |
0 | 309,920 | 496,177 | 518,496 |
| Granted during the period | 76,134 | 0 | 0 | 0 |
| Dividend adjustments during the period | 5,865 | 21,999 | 34,895 | 0 |
| Payments during the period | –1,770 | –7,591 | –13,540 | –511,780 |
| Cancelled during the period | –8,300 | –6,088 | –12,720 | –6,716 |
| Outstanding at the end of the period 31 December 2009 |
71,929 | 318,240 | 504,812 | 0 |
| Grant date | 9.2.2009 | 8.2.2008 | 8.2.2007 | 13.2.2006 |
| Grant price, EUR | 15.19 | 27.54 | 20.99 | 19.07 |
| Number of share rights granted | 76,134 | 303,153 | 496,362 | 514,903 |
| Estimated departures, % | 4.52 | 4.52 | 4.52 | 4.52 |
| Fortum share price at the end of the grant year, EUR | 18.97 | 15.23 | 30.81 | 21.56 |
The calculative share rights with adjustment for dividends and after taxes (assumed tax deduction based on previous years) that the President and CEO and other members of the Fortum Management Team will receive in 2011 and 2012 are on 31 December as follows. For 2010 and 2009 the number of shares represent the actual number of shares delivered in February 2010 and February 2009.
| Name | Year 2009 Year 2010 Year 2011 Year 2012 | |||
|---|---|---|---|---|
| Tapio Kuula | 8,682 | 8,422 | 5,661 | - |
| Mikael Frisk | 6,292 | 6,041 | 3,759 | - |
| Timo Karttinen | 5,174 | 5,166 | 3,272 | - |
| Juha Laaksonen | 7,227 | 7,014 | 5,170 | - |
| Maria Paatero-Kaarnakari | 2,643 | 2,539 | 1,745 | - |
| Anne Brunila (from 1 October 2009) | - | - | - | - |
| Alexander Chuvaev (from 1 October 2009) | - | - | - | - |
| Per Langer (from 1 October 2009) | 2,688 | 2,989 | 2,518 | - |
| Matti Ruotsala (from 1 October 2009) | - | - | - | 1,328 |
| Mikael Lilius (until 30 April 2009) | 22,423 | - | - | - |
| Christian Lundberg (until 30 September 2009) | 6,667 | - | - | - |
| Maria Romantschuk (until 30 September 2009) | - | - | - | - |
In March 2002, a resolution was passed to issue a maximum of 25,000,000 stock options to key employees of the Fortum Group and to a wholly owned subsidiary of Fortum Corporation. Of the total number of stock options, 12,500,000 were marked with the letter A and were exercisable from 1 October 2004 through 1 May 2007, and 12,500,000 were marked with the letter B and were exercisable from 1 October 2006 through 1 May 2009. The Board of Directors could distribute stock options to the key personnel, only if the increase in Fortum Group's earnings per share (EPS) was at least five percent compared with the preceding period. The proportion of the annual maximum amount that became available for distribution was influenced by the Company's relative share price development compared to the European Utilities Index during a period of twelve calendar months preceding the month that the stock options were distributed.
The total number of stock options marked with a letter A listed on 1 October 2004 was 10,767,000. Each stock warrant entitled the holder to subscribe for one share. The warrants were exercisable during the period from 1 October 2004 through to 1 May 2007. By the end of the option 2002 A scheme in May 2007, a total of 10,767,000 shares were subscribed for and entered into the trade register. This scheme covered some 350 persons.
The total number of stock options marked with a letter B listed on 2 October 2006 was 10,003,000. Each stock warrant entitled the holder to subscribe for one share. The warrants were exercisable during the period from 2 October 2006 to 1 May 2009. By the end of the option 2002 B scheme in May 2009, a total of 10,003,000 shares were subscribed for and entered into the trade register. The scheme covered some 350 persons.
| 2009 | 2008 | |||
|---|---|---|---|---|
| Weighted average exercise price, EUR |
Number of options (thousand) |
Weighted average exercise price, EUR |
Number of options (thousand) |
|
| Outstanding at the beginning of the period | 3.40 | 729 | 3.40 | 1,684 |
| Exercised during the period | 3.40 | 729 | 3.40 | 955 |
| Outstanding 31 December | 0 | 729 | ||
| Exercisable 31 December | 0 | 729 |
On 31 December 2009, the members of the Supervisory Board of Fortum Corporation owned a total of 1,090 shares (2008: 690) or 0.0 % of the shares and voting rights. The members of the Board of Directors owned a total of 12,700 shares (2008: 38,991), which corresponds to 0.0% of the company's shares and voting rights.
The President and CEO and other members of the Fortum Management Team owned a total of 185,345 shares (2008: 354,238) which corresponds to approximately 0.02% (2008: 0.04%) of the company's shares and voting rights. The President and CEO and other members of the Fortum Management Team did not have any remaining stock options on 31 December 2009.
| 2009 | 2008 |
|---|---|
| Chairman Matti Lehti (from 7 April 2009) 2,000 |
- |
| Chairman Peter Fagernäs (until 7 April 2009) NA |
30,591 |
| Deputy chairman Sari Baldauf (from 7 April 2009) 2,300 |
NA |
| - Esko Aho |
- |
| Christian Ramm-Schmidt 3,500 |
3,500 |
| Ilona Ervasti-Vaintola 4,000 |
4,000 |
| Birgitta Johansson-Hedberg 900 |
900 |
| Total 12,700 |
38,991 |
| 2009 | 2008 | |
|---|---|---|
| Tapio Kuula | 73,147 | 64,465 |
| Mikael Frisk | 31,642 | 25,350 |
| Timo Karttinen | 43,796 | 38,622 |
| Juha Laaksonen | 27,227 | 20,000 |
| Maria Paatero-Kaarnakari | 4,044 | 5,751 |
| Anne Brunila (from 1 October 2009) | - | NA |
| Alexander Chuvaev (from 1 October 2009) | - | NA |
| Per Langer (from 1 October 2009) | 5,489 | NA |
| Matti Ruotsala (from 1 October 2009) | - | NA |
| Mikael Lilius (until 30 April 2009) | NA | 170,050 |
| Christian Lundberg (until 30 September 2009) | NA | 30,000 |
| Maria Romantschuk (until 30 September 2009) | NA | NA |
| Total | 185,345 | 354,238 |
| EUR million | 2009 | 2008 | |
|---|---|---|---|
| AB Fortum Värme Holding samägt med Stockholms stad Group 1) | Sweden | 302 | 269 |
| OAO Fortum Group | Russia | 132 | 164 |
| Tartu Energi Group | Estonia | 8 | 5 |
| Ekerö Energi Group | Sweden | - | 4 |
| Other | 15 | 15 | |
| Total | 457 | 457 |
1) Non-controlling interests for AB Fortum Värme Holding samägt med Stockholms stad Group has been restated for 2008 to include all non-controlling interests in the group.
Acquisitions during 2009 affecting non-controlling interests in the group consists mainly of the acquisition of the remaining 18,26% non-controlling interest part in Ekerö Energi Group. Fortum has also redeemed approximately 0,2% of additional shares in OAO Fortum. The remaining non-controlling interest part in OAO Fortum is 5.49%.
During 2008 Fortum acquired 93.4% of the shares in OAO Fortum, leaving 6.6% as a minority. Fortum also acquired 11% of the shares in Hofors Energi AB in Sweden, resulting in a 60% ownership.
Fortum owns, via Fortum Power and Heat AB, 90.1% of the shares which represents 50.1% of the votes in AB Fortum Värme Holding samägt med Stockholms stad. 9.9% of the shares are owned by the City of Stockholm. The City of Stockholm holds preference shares in AB Fortum Värme Holding samägt med Stockholms stad, which entitles them 50% of the economical output. The ownership and administration of AB Fortum Värme Holding samägt med Stockholms stad is settled by a consortium agreement.
| EUR million | 2009 | 2008 |
|---|---|---|
| Bonds | 3,665 | 2,495 |
| Loans from financial institutions | 1,024 | 3,016 |
| Finance lease liabilities | 24 | 26 |
| Other long-term interest-bearing debt | 1,289 | 983 |
| Total long-term interest-bearing debt | 6,002 | 6,520 |
| Current portion of long-term bonds | 501 | 422 |
| Current portion of loans from financial institutions | 33 | 31 |
| Current portion of other long-term interest-bearing debt | 12 | 1 |
| Current portion of financial lease liabilities | 3 | 6 |
| Commercial papers | 250 | 457 |
| Other short-term interest-bearing debt | 58 | 63 |
| Total short-term interest bearing debt | 857 | 980 |
| Total | 6,859 | 7,500 |
| EUR million | Effective interest rate |
Carrying amount 2009 |
Repricing under 1 year |
Repricing 1–5 years |
Repricing over 5 years |
Fair value 2009 |
Carrying amount 2008 |
Fair value 2008 |
|---|---|---|---|---|---|---|---|---|
| Bonds | 4.6 | 4,166 | 842 | 1,755 | 1,569 | 4,724 | 2,918 | 2,925 |
| Loans from financial institutions | 1.6 | 1,057 | 1,037 | 20 | - | 1,090 | 3,047 | 3,115 |
| Other long-term interest-bearing debt 1) |
1.7 | 1,328 | 1,322 | 6 | - | 1,349 | 1,015 | 1,032 |
| Total long-term interest-bearing debt 2) |
3.5 | 6,551 | 3,201 | 1,781 | 1,569 | 7,163 | 6,980 | 7,072 |
| Commercial papers | 1.2 | 250 | 250 | - | - | 251 | 457 | 467 |
| Other short-term interest-bearing debt |
5.2 | 58 | 58 | - | - | 60 | 63 | 64 |
| Total short-term interest-bearing debt |
1.9 | 308 | 308 | - | - | 311 | 520 | 531 |
| Total interest-bearing debt 3) | 3.5 | 6,859 | 3,509 | 1,781 | 1,569 | 7,474 | 7,500 | 7,603 |
1) Includes loans from State Nuclear Waste Management Fund and Teollisuuden Voima Oyj EUR 774 million (2008: 708), financial leases EUR 27 million (2008: 32), loans from Fortum's Finnish pension fund EUR 273 million (2008: 33) and other loans EUR 254 million (2008: 242). 2) Including current portion of long-term debt.
3) The average interest rate on loans and derivatives on 31 December 2009 was 3.4% (2008: 4.7%).
Fortum Oyj issued during the year a dual-tranche Euro Bond of EUR 750 million due 2014 and EUR 750 million due 2019 and a dual-tranche Private Placement of NOK 500 million due 2014 and NOK 500 million due 2017 (totally EUR 110 million) under Fortum's Euro Medium-Term Note Program. Fortum Oyj also raised a 10 year loan of EUR 250 million from the European Investment Bank to finance investment projects in Sweden and Poland. Fortum Oyj with its Finnish subsidiaries (mainly Fortum Power and Heat Oy) agreed a 10 year loan of EUR 240 million from Varma Mutual Insurance Company.
During the year Fortum Oyj repaid EUR 600 million under the EUR 1.5 billion 5 year revolving Credit Facility, amortised EUR 1,650 million of a 3 year EUR 2,000 million Term loan and bonds issued in 2006 of SEK 2,500 million (EUR 231 million). OAO Fortum repaid almost fully the RUB 5,000 million bond (EUR 112 million) and repaid RUB 2,937 million (EUR 67 million) on the RUB 3,000 million bond.
Issuance of Commercial Papers (CPs) in the Finnish and Swedish markets decreased in 2009, per year-end the amount of short-term CPs outstanding amounted to EUR 250 million (2008: 457). Debt in OAO Fortum amounted to the equivalent of EUR 29 million (2008: 259) as per year-end.
The reported interest-bearing debt decreased during the year by EUR 641 million to EUR 6,859 million (2008: 7,500). Liquid funds decreased by EUR 431 million to EUR 890 million (2008: 1,321) including liquid funds held by OAO Fortum amounting to EUR 632 million (2008: 1,020).
˭ For more information please see Note 3 Financial risk management on page 126, Note 38 Pledged assets on page 168 and Note 41 Contingent liabilities on page 169.
| Issued/ Maturity |
Interest basis | Interest rate | Effective interest |
Currency | Nominal million |
Carrying amount |
|---|---|---|---|---|---|---|
| Fortum Oyj EUR | 5,000 Million EMTN | Programme 1) | ||||
| 2003/2010 | Fixed | 4.625 | 4.728 | EUR | 500 | 500 |
| 2003/2013 | Fixed | 5.000 | 5.164 | EUR | 500 | 497 |
| 2006/2011 | Fixed | 3.750 | 3.793 | SEK | 2,000 | 195 |
| 2006/2016 | Fixed | 4.500 | 4.615 | EUR | 750 | 768 |
| 2007/2012 | Floating Stibor 3M+0.15 | SEK | 3,500 | 341 | ||
| 2007/2014 | Fixed | 4.700 | 4.764 | SEK | 2,600 | 253 |
| 2009/2014 | Fixed | 4.625 | 4.714 | EUR | 750 | 751 |
| 2009/2019 | Fixed | 6.000 | 6.095 | EUR | 750 | 741 |
| 2009/2014 | Fixed | 5.250 | 5.400 | NOK | 500 | 60 |
| 2009/2017 | Fixed | 6.125 | 6.240 | NOK | 500 | 59 |
| OAO | Fortum (former TGC-10) | |||||
| 2007/2010 | Fixed | 7.600 | 7.745 | RUB | 3,000 | 1 |
| 2008/2013 | Fixed | 9.750 | 9.988 | RUB | 5,000 | 0 |
| Total outstanding carrying amount 31 December 2009 | 4,166 |
1) EMTN = Euro Medium Term Note
OAO Fortum has two bond loans of totally RUB 8,000 million with final maturity 2010 and 2013. The loan documentation includes a put option, which gave bond holders the right to request redemption of the bonds in 2009 and after this they are almost fully repaid. In the balance sheet these bonds are classified as short-term.
On 31 December 2009 Fortum had a small number of finance lease agreements for machinery and equipment. No new leasing commitments were entered into in 2009 or 2008.
| EUR million | 2009 | 2008 |
|---|---|---|
| Minimum lease payments | 32 | 43 |
| Less future finance charges | 5 | 11 |
| Total | 27 | 32 |
| EUR million | 2009 | 2008 |
|---|---|---|
| Less than 1 year | 4 | 8 |
| 1–5 years | 28 | 16 |
| Over 5 years | - | 19 |
| Total | 32 | 43 |
| EUR million | 2009 | 2008 |
|---|---|---|
| Less than 1 year | 3 | 6 |
| 1–5 years | 24 | 9 |
| Over 5 years | - | 17 |
| Total | 27 | 32 |
| Charged | Charged to other compre |
Exchange rate differences, |
||||
|---|---|---|---|---|---|---|
| to income | hensive | reclassifications | Acquisitions | |||
| EUR million Deferred tax assets |
1 Jan 2009 | statement | income | and other changes | and disposals 31 Dec 2009 | |
| Property, plant and equipment | 12 | 6 | 18 | |||
| Provisions | 16 | –4 | 38 | –1 | 49 | |
| Tax losses and tax credits carry-forward |
31 | 9 | 40 | |||
| Other | 15 | 3 | 18 | |||
| Total deferred tax assets | 74 | 14 | 38 | –1 | 125 | |
| Offset against deferred tax liabilities |
–72 | –6 | –78 | |||
| Net deferred tax assets | 2 | 8 | 38 | –1 | 47 | |
| Deferred tax liabilities | ||||||
| Property, plant and equipment | 1,694 | –29 | 104 | –1 | 1,768 | |
| Long-term loans | 67 | –35 | 32 | |||
| Derivative financial instruments | 118 | –31 | –117 | –30 | ||
| Current assets | 12 | 21 | 33 | |||
| Other | 32 | –7 | 25 | |||
| Total deferred tax liabilities |
1,923 | –81 | –117 | 104 | –1 | 1,828 |
| Offset against deferred tax assets | –72 | –6 | –78 | |||
| Net deferred tax liabilities |
1,851 | –87 | –117 | 104 | –1 | 1,750 |
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority.
Deferred income tax liabilities of EUR 7 million (2008: 5) have been recognised for the withholding tax and other taxes that would be payable on all the undistributed earnings of Estonian subsidiaries. Undistributed earnings from these companies totalled EUR 26 million on 31 December 2009 (2008: 23).
Deferred tax assets and liabilities from disposals 2009 mainly refer to the divestment following Power segment's combining of the construction and operating of infrastructure business with Hafslund Infratek ASA.
| Charged to | ||||||
|---|---|---|---|---|---|---|
| other | Exchange rate | |||||
| Charged | compre | differences, | ||||
| to income | hensive | reclassifications | Acquisitions | |||
| EUR million | 1 Jan 2008 | statement | income | and other changes | and disposals 31 Dec 2008 | |
| Deferred tax assets | ||||||
| Property, plant and equipment | 10 | 3 | –1 | 12 | ||
| Provisions | 19 | –2 | –1 | 16 | ||
| Tax losses and tax credits carry forward |
20 | 11 | 31 | |||
| Other | 10 | 6 | –1 | 15 | ||
| Total deferred tax assets | 59 | 18 | –3 | 74 | ||
| Offset against deferred tax liabilities |
–56 | –16 | –72 | |||
| Net deferred tax assets | 3 | 2 | –3 | 2 | ||
| Deferred tax liabilities | ||||||
| Property, plant and equipment | 1,769 | –93 | –180 | 198 | 1,694 | |
| Long-term loans | 0 | 67 | 67 | |||
| Derivative financial instruments | –47 | 14 | 153 | –2 | 118 | |
| Current assets | 7 | 5 | 12 | |||
| Other | 14 | 19 | –1 | 32 | ||
| Total deferred tax liabilities |
1,743 | 12 | 153 | –183 | 198 | 1,923 |
| Offset against deferred tax assets | –56 | –16 | –72 | |||
| Net deferred tax liabilities |
1,687 | –4 | 153 | –183 | 198 | 1,851 |
In December 2008 the Swedish Government passed legislation lowering the income tax rate from 28% to 26.3%. The one-time positive effect in the net deferred liabilities approximated EUR 81 million. Also in December 2008 the Russian Government passed legislation lowering the income tax rate from 24% to 20%. The one-time positive effect in the net deferred liabilities approximated EUR 32 million.
˭ See also Note 15 Income tax expense on page 146.
Deferred income tax assets are recognised for tax loss carry-forward to the extent that realisation of the related tax benefit through future profits is probable. The recognized tax assets relate to losses carry-forward with no expiration date and partly with expiry date as described below.
| 2009 | 2008 | |||
|---|---|---|---|---|
| Deferred tax | Deferred tax | |||
| EUR million | Tax losses | asset | Tax losses | asset |
| Losses without expiration date (Sweden, Norway) | 27 | 4 | 110 | 28 |
| Losses with expiration date (Poland, Belgium and Latvia) |
105 | 36 | 18 | 3 |
| Total | 132 | 40 | 128 | 31 |
Deferred tax assets of EUR 19 million (2008: 14) have not been recognised in the consolidated financial statements, because the realisation is not probable. The major part of the unrecognised tax asset (EUR 9 million) relates to capital loss in UK, which has no expiration date. The rest of the unrecognised tax assets (EUR 10 million) relates to loss carry-forwards that are unlikely to be used in the foreseeable future.
Fortum owns the Loviisa nuclear power plant in Finland. Based on the Nuclear Energy Act in Finland, Fortum has a legal obligation to fully fund the legal liability decided by the governmental authorities, for decommissioning of the power plant and disposal of spent fuel through the State Nuclear Waste Management Fund. The text below should be read in conjunction with information in Note 1 Accounting policies on page 113.
| EUR million | 2009 | 2008 |
|---|---|---|
| Amounts recognised in the balance sheet | ||
| Nuclear provisions | 570 | 566 |
| Share in the State Nuclear Waste Management Fund | 570 | 566 |
| Legal liability and actual share of the State Nuclear Waste Management Fund | ||
| Liability for nuclear waste management according to the Nuclear Energy Act | 913 | 895 |
| Funding obligation target | 830 | 767 |
| Fortum's share of the State Nuclear Waste Management Fund | 786 | 728 |
The nuclear provisions are related to future obligations for nuclear waste management including decommissioning of the power plant and disposal of spent fuel. The fair values of the provisions are calculated according to IAS 37 based on future cash flows regarding estimated future costs for each of the provisions separately. The cash flows used are based on the cost estimates which are also the basis for the legal liability. Provisions for decommissioning and for disposal of spent fuel are both included in Nuclear provisions in the balance sheet.
In September 2009 Fortum submitted the yearly proposal for the nuclear waste management legal liability regarding the Loviisa nuclear power plant to the Ministry of Employment and the Economy. The legal liability is calculated according to the Nuclear Energy Act in Finland and was decided by the Ministry of Employment and the Economy in January 2010. The liability is based on an updated cost estimate, which is done every year, and on a technical plan, which is made every third year. Following the annual update, the discounted liability decreased due to updated cost estimate and timing for the disposal of the spent fuel. The techical plan was updated last time in 2007 and the new technical plan with updated cost estimates is expected in 2010.
The legal liability by the end of 2009, decided by the Ministry of Employment and the Economy and calculated according to the Nuclear Energy Act, is EUR 913 million (2008: 895). The carrying value of the nuclear provisions in the balance sheet, calculated according to IAS 37, has increased by EUR 4 million compared to 31 December 2008, totalling EUR 570 million on 31 December 2009. The nuclear provision decreased by EUR 18 million during the last quarter 2009 due to an updated cost estimate. 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.
The decrease of the provision for spent fuel caused a positive one-time effect of EUR 7 million in comparable operating profit in Q4 2009 (Q4 2008: –3 million) due to lower nuclear waste management costs related to already spent fuel. The decrease of the provision for spent fuel also caused a positive one-time effect in interest costs, due to unwinding of the provision for the period during which the spent fuel provision has been accumulated and present point in time, which are recognised immediately in the income statement.
The change of the provision for decommissioning is added to the nuclear decommissioning cost and depreciated over the remaining estimated operating time of the nuclear power plant. See Note 21 Property, plant and equipment on page 150.
| EUR million | 2009 | 2008 |
|---|---|---|
| 1 January | 566 | 516 |
| Additional provisions | –4 | 34 |
| Used during the year | –18 | –16 |
| Unwinding of discount | 26 | 32 |
| 31 December | 570 | 566 |
| Fortum's share in the State Nuclear Waste Management Fund | 570 | 566 |
Fortum contributes funds to the State Nuclear Waste Management Fund in Finland to cover future obligations based on the legal liability calculated according to the Finnish Nuclear Energy Act. The Fund is managed by governmental authorities. The carrying value of the Fund in Fortum's balance sheet is calculated according to IFRIC 5 Rights to interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds.
According to the Nuclear Energy Act, Fortum is obligated to contribute the funds in full to the State Nuclear Waste Management Fund to cover the legal liability. Based on the law, Fortum applied for periodising of the payments to the Fund over six years, due to the proposed increase in the legal liability. The application was approved by the Council of State in December 2007.
The periodisation of the payments to the State Nuclear Waste Management Fund has an impact on cash flow, but also on operating profit since the carrying value of the Fund in the balance sheet cannot exceed the carrying value of the nuclear provisions according to IFRIC Interpretation 5. The Fund is from an IFRS perspective overfunded with EUR 216 million (2008: 162), since Fortum's share of the Fund on 31 December 2009 is EUR 786 million (2008: 728) and the carrying value in the balance sheet is EUR 570 million (2008: 566).
Operating profit for 2009 includes a negative total adjustment of EUR –59 million (2008: –19), since the value of the Fund has increased more than the carrying value of the provision. These adjustments are included in "Other items effecting comparability" in the Power segment, see Note 5 Segment reporting, and are not included in comparable operating profit. As long as the Fund stays overfunded from an IFRS perspective, positive accounting effects to Operating profit will always occur when the nuclear provision is increasing more than the net payments to the Fund. Negative accounting effects will occur when the net payments to the Fund are higher than the increase of the provision.
The funding obligation target for each year is decided by the Ministry of Employment and the Economy retrospectively in January each year after the legal liability has been decided. The difference between the funding obligation target for Fortum and Fortum's actual share of the State Nuclear Waste Management Fund is paid in Q1 each year.
The funding obligation target, corresponding to both the new legal liability and the new decision for periodisation to the Fund, amounts EUR 830 million (2008: 767). The difference between the legal liability at year end 2009 and the corresponding funding obligation target, EUR 44 million (2008: 39) is covered by a security which has been given in the end of June 2009. The real estate mortgages given also cover unexpected events according to the Nuclear Energy Act, see also Note 38 Pledged assets on page 168.
Finnish participants in the State Nuclear Waste Management Fund are allowed to borrow from the Fund according to certain rules. Fortum uses the right to borrow back and has pledged Kemijoki shares as security for the loan. The loans are renewed yearly.
˭ See also Note 31 Interest-bearing liabilities on page 161 and Note 38 Pledged assets on page 168.
Fortum has minority shareholdings in associated Finnish and Swedish nuclear production companies. The shareholdings entitle Fortum to electricity produced according to consortium agreements. Fortum has for these companies accounted for its share of the effects from nuclear related assets and provisions according to Fortum accounting principles.
Fortum has at year-end received updated cash flow information for its nuclear associated companies Teollisuuden Voima Oyj, OKG AB and Forsmarks Kraftgrupp AB. Based on the updated cost estimates, the effect in share of profits was EUR –13 million in 2009 which included EUR –5 million due to decrease of the carrying value of the State Nuclear Waste Management Fund in Finland. In 2008, the effect in share of profits was EUR +42 million which included EUR +9 million due to the change of the carrying values of the Finnish (EUR –7 million) and Swedish Nuclear Waste Funds (EUR +16 million). The State Nuclear Waste Management Fund in Finland is overfunded whereas the value of the Swedish Nuclear Waste Fund is estimated to be slightly below the value of provisions at year-end 2009.
Fortum has according to law given guarantees to the Finnish and Swedish nuclear Funds on behalf of the associated companies, to guarantee that sufficient funds exist to cover future expenses of decommissioning of the power plants and disposal of spent fuel, see Note 41 Contingent liabilities on page 169.
Through the shareholding in TVO, Fortum uses the right to borrow from the Fund.
| EUR million | CSA provision Environmental | Other | Total | |
|---|---|---|---|---|
| 1 January 2009 | 180 | 8 | 20 | 208 |
| Provisions for the period | - | 2 | 17 | 19 |
| Decreases through disposal of subsidiary companies | - | - | –1 | –1 |
| Provisions used | - | - | –4 | –4 |
| Provisions reversed | - | 0 | –9 | –9 |
| Unwinding of discount | 14 | 0 | –2 | 12 |
| Exchange rate differences | –8 | 1 | 2 | –5 |
| 31 December 2009 | 186 | 11 | 23 | 220 |
| Allocation between current and non-current provisions | ||||
| Current provisions | - | - | 11 | 11 |
| Non-current provisions | 186 | 11 | 12 | 209 |
| Total | |||
|---|---|---|---|
| 25 | |||
| 12 | |||
| 195 | |||
| –7 | |||
| –2 | |||
| 12 | |||
| –27 | |||
| 180 | 8 | 20 | 208 |
| 9 | |||
| 180 | 8 | 11 | 199 |
| - - 192 - - 12 –24 - |
CSA provision Environmental 9 - - - - - –1 - |
Other 16 12 3 –7 –2 - –2 9 |
Capacity supply agreement provision (CSA) is the possible penalty that the Russian System Operator can claim against Fortum if the extensive investment program of OAO Fortum to increase electricity capacity with 2,300 MW by 2013 is substantially delayed or agreed major terms in connection with the acquisition of OAO Fortum are not otherwise fulfilled.
Environmental provision relates to dismantling of buildings and structures on contaminated land. The provision is estimated to be used within five years. Other provisions include provisions for restructuring costs, insurance payments, tax claims and provisions for onerous contracts. The provision is estimated to be used within two to five years.
Restructuring provisions, included in other provisions, amounts to EUR 9 million (2008: 10). The restructuring provision relates to re-organisation of service functions in order to develop internal processes and aims to create more efficient and higher quality workflows. The main part of the restructuring provision is staff costs and the major part of the provision will be utilised in 2010.
The Group companies have various defined benefit and defined contribution pension plans in accordance with the local conditions and practices in the countries in which they operate. The concerned pensions are primarily retirement pensions, disability pensions and family pensions but contain also early retirement arrangements.
In Finland the most significant pension plan is the Finnish Statutory Employment Pension Scheme (TyEL) in which benefits are directly linked to employees' earnings. These pensions are funded in insurance companies and treated as defined contribution plans. The benefits provided under TyEL are old age pensions, disability pensions, unemployment pensions and survivors' pensions. In addition, certain employees in the Group in Finland have additional pension coverage through the company's own pension fund or through insurance companies. These defined benefit plans are fully funded. The Fortum Pension Fund is a closed fund providing old age pension, disability pension, survivor's pension and funeral grant. The additional pensions through insurance companies provide old age pension and funeral grant.
In Sweden the Group operates several defined benefit and defined contribution plans like the general ITP-pension plan and the PA-KL and PA-KFS plans that are eligible for employees within companies formerly owned by municipalities. The defined benefit plans are fully funded and have partly been financed through Fortum's own pension fund and partly through insurance premiums. The pension arrangements comprise normal retirement pension, complementary retirement pensions, survivors' pension and disability pension. The most significant pension plan is the ITP-plan for white-collar employees in permanent employment (or temporary employees after a certain waiting period), who fulfill the age conditions. To qualify for a full pension the employee must have a projected period of pensionable service, from the date of entry until retirement age, of at least 30 years.
In April 2008 Fortum transferred a majority of its pension liabilities previously financed through insurance premiums or through provisioning to a newly established own pension fund. Among the transferred pension arrangements were the major part of the general ITP-pension plan, all plans eligible for employees of formerly municipality-owned companies as well as certain other smaller arrangements. The total amount of transferred liability was at the time of transfer SEK 742 million (EUR 68 million). At the time of transfer Fortum paid contributions to the fund amounting to the same amount, in order to cover this liability.
During 2009 Fortum transferred the remaining part of its pension liabilities previously financed through provisioning to Fortum's own pension fund. The total amount of transferred liability was at the time of transfer SEK 259 million (EUR 25 million). At the time of transfer Fortum paid contributions to the fund amounting to the same amount, in order to cover this liability.
The part of the ITP multiemployer pension plan that is secured by paying pension premiums to Alecta, in Fortums case the collective family pension, is accounted for as a defined contribution plan due to that there is no consistent and reliable basis to allocate assets or liabilities to the participating entities within the ITP insurance. The reason for this is that it is not possible to determine from the terms of the plan to which extent a surplus or a deficit will affect future contributions.
The Norwegian companies are part of schemes that are common for municipalities in Norway. These are defined benefit pension plans and provide old age pensions, disability pension and survivor's pension, including pension benefits from the National Insurance Scheme (Folketrygden). The schemes are fully funded within the rules set out in the Norwegian insurance legislation.
Pension arrangements in Russia include payments made to the Russian Federation's state pension fund. These arrangements are treated as defined contribution plans. In addition the Russian companies participate in a non-state power industry pension fund as well as in certain defined benefit plans, defined by collective agreements, which are unfunded. The benefits provided under these arrangements include, in addition to pension payments, one-time benefits paid in case of employee mortality or disability as well as lump sum payments for anniversary and financial support to honored workers and pensioners.
In other countries the pension arrangements are done in accordance with the local legislation and practice, mostly being defined contribution plans.
The pension obligations are calculated annually, on the balance sheet date, based on actuarial principles. When accounting for defined contribution plans the obligation for each period is determined by the amounts to be contributed for that period. When accounting for defined benefit plans, actuarial calculations are required to measure the obligation on discounted basis and the expense. The plan assets for pensions are valued at market value. When the net cumulative unrecognised actuarial gain or loss on pension obligations and plan assets goes outside the corridor with 10% of the greater of either pension obligations or the market value of the plan assets, the surplus amount is amortised over the average remaining employment period.
| EUR million | 2009 | 2008 |
|---|---|---|
| Current service cost | –11 | –11 |
| Interest cost | –19 | –20 |
| Expected return on plan assets | 20 | 20 |
| Settlements | –1 | 1 |
| Past service cost | 0 | –1 |
| Actuarial gains and losses | –3 | 0 |
| Curtailments | 1 | - |
| Total included in employee costs (Note 12) | –13 | –11 |
The actual return on plan assets in Finland and Sweden totalled EUR 44 million (2008: –29).
| EUR million | 2009 | 2008 |
|---|---|---|
| Present value of funded obligations | 406 | 393 |
| Fair value of plan assets | –398 | –343 |
| Deficit (+) / Surplus (–) | 8 | 50 |
| Present value of unfunded obligations 1) | 3 | 13 |
| Unrecognised past service cost | 4 | –4 |
| Unrecognised actuarial gains and losses | –51 | –67 |
| Net asset (–) / liability (+) in the balance sheet | –36 | –8 |
| Defined benefit asset included in the assets | 59 | 59 |
| Total pension obligations | 23 | 51 |
| Defined benefit obligations | 23 | 51 |
| Defined benefit assets included in assets | –59 | –59 |
| Net asset (–) / liability (+) | –36 | –8 |
| Experience adjustments arising on funded obligations; gain (–) / loss (+) | –6 | 20 |
| Experience adjustments arising on plan assets; gain (+) / loss (–) | 22 | –48 |
1) The unfunded obligation relates to arrangements in Russia. Comparable information has been reclassified accordingly.
Contributions expected to be paid during the year 2010 are EUR 14 million.
| EUR million | 2009 | 2008 |
|---|---|---|
| 1 January | 406 | 390 |
| Exchange rate differencies | 16 | –28 |
| Increases through acquisition of subsidiary companies | - | 11 |
| Decreases through disposals of subsidiary companies | –21 | - |
| Service cost | 11 | 11 |
| Interest cost | 19 | 20 |
| Past service cost | –7 | 4 |
| Effect of settlement | –13 | –1 |
| Actuarial gains (-) / losses (+) on obligations | 16 | 17 |
| Benefits paid | –16 | –18 |
| Curtailments | –2 | - |
| 31 December | 409 | 406 |
| EUR million | 2009 | 2008 |
|---|---|---|
| 1 January | 343 | 276 |
| Exchange rate differencies | 12 | –6 |
| Decreases through disposals of subsidiary companies | –13 | - |
| Expected return of plan assets | 20 | 20 |
| Actuarial gains and losses | 24 | –44 |
| Transfers to the Swedish pension fund | 25 | 68 |
| Contributions by employer | 10 | 41 |
| Effect of settlement | –9 | - |
| Benefits paid | –14 | –12 |
| 31 December | 398 | 343 |
| EUR million | 2009 | 2008 |
|---|---|---|
| Equity instruments | 164 | 101 |
| Debt instruments | 133 | 112 |
| Property (of which EUR 72 million (2008: 71) occupied by the Group) | 83 | 75 |
| Company's own ordinary shares | 6 | 4 |
| Other assets | 12 | 51 |
| Total | 398 | 343 |
When the pension plan has been financed through an incurance company, a specification of the plan assets has not been available. In these cases the fair value of plan assets has been included in the Other assets.
| Other | ||||
|---|---|---|---|---|
| EUR million | Finland | Sweden | countries | Total |
| Present value of funded obligations | 211 | 169 | 26 | 406 |
| Fair value of plan assets | –239 | –144 | –15 | –398 |
| Deficit (+) / Surplus (–) | –28 | 25 | 11 | 8 |
| Present value of unfunded obligations | - | - | 3 | 3 |
| Unrecognised past service cost | - | - | 4 | 4 |
| Unrecognised actuarial gains and losses | –8 | –38 | –5 | –51 |
| Net asset (–) / liability (+) in the balance sheet | –36 | –13 | 13 | –36 |
| Defined benefit asset included in the assets | 45 | 14 | 0 | 59 |
| Pension obligations in the balance sheet | 9 | 1 | 13 | 23 |
| Other | ||||
|---|---|---|---|---|
| EUR million | Finland | Sweden | countries | Total |
| Present value of funded obligations | 204 | 151 | 38 | 393 |
| Fair value of plan assets | –222 | –98 | –23 | –343 |
| Deficit (+) / Surplus (–) | –18 | 53 | 15 | 50 |
| Present value of unfunded obligations | 0 | 0 | 13 | 13 |
| Unrecognised past service cost | 0 | 0 | –4 | –4 |
| Unrecognised actuarial gains and losses | –16 | –43 | –8 | –67 |
| Net asset (–) / liability (+) in the balance sheet | –34 | 10 | 16 | –8 |
| Defined benefit asset included in the assets | 46 | 13 | 0 | 59 |
| Pension obligations in the balance sheet | 12 | 23 | 16 | 51 |
| EUR million | 2009 | 2008 | 2007 | 2006 |
|---|---|---|---|---|
| Present value of defined benefit obligation | 409 | 406 | 390 | 361 |
| Fair value of plan assets | –398 | –343 | –276 | –250 |
| Deficit/(surplus) in the plan | 11 | 63 | 114 | 111 |
| Experience adjustments on plan liabilities | –6 | 20 | 11 | 21 |
| Experience adjustments on plan assets | 22 | –48 | 21 | –10 |
| 2009 | 2008 | |||||||
|---|---|---|---|---|---|---|---|---|
| Finland Sweden | Russia | Other countries |
Finland Sweden | Russia | Other countries |
|||
| Discount rate, % | 5.00 | 4.00 | 9.25 | 4.40 | 5.50 | 4.30 | 9.00 | 4.30 |
| 5.80– | ||||||||
| Expected return on plan assets, % | 5.92 | 4.85 | NA | 5.60 | 6.50 | 5.50 | NA | 6.30 |
| Future salary increases, % | 4.00 | 3.50 | 8.50 | 4.25 | 4.00 | 3.70 | 8.00 | 4.50 |
| Future pension increases, % | 2.10 | 2.00 | 7.00 | 4.00 | 2.10 | 2.20 | 6.50 | 1.75 |
| Rate of inflation, % | 2.00 | 2.00 | 7.00 | 2.25 | 2.00 | 2.20 | 6.50 | 2.50 |
The discount rate in Finland is based on high quality European corporate bonds with maturity that best reflects the estimated term of the defined benefit pension plans. The discount rate in Sweden, Russia and Norway is based on the yield of long-term government bonds which are consistent with the currency and the estimated term of the post-employment benefit obligations. The expected return on plan assets is determined by considering the expected returns available on the assets underlying the current investment policy. Expected returns are based on long-term real rates of return experienced in the respective markets and reported by external asset manager.
The discount, inflation and salary growth rates used are the key assumptions used when calculating defined benefit obligations. Effects of 0.5 percentage point change in the rates to the defined benefit obligation on 31 December 2009, holding all other assumptions stable, are presented in the table below.
| pension obligation increase +/ decrease – |
||||
|---|---|---|---|---|
| Change in the assumptions | Finland | Sweden | ||
| 0.5% increase in discount rate | –6.0% | –8.5% | ||
| 0.5% decrease in discount rate | 6.7% | 9.7% | ||
| 0.5% increase in inflation rate | 2.9% | 7.4% | ||
| 0.5% decrease in inflation rate | –2.7% | –6.7% | ||
| 0.5% increase in salary growth rate | 1.3% | 2.1% | ||
| 0.5% decrease in salary growth rate | –1.1% | –2.1% | ||
| EUR million | 2009 | 2008 |
|---|---|---|
| Connection fees | 413 | 410 |
| Other liabilities | 59 | 60 |
| Total | 472 | 470 |
Connection fees to the electricity network in Finland that are paid before 2003 are refundable, if the customer would ever disconnect the initial connection. The connections fees to the electricity network amounted to EUR 307 million (2008: 307).
Refundable connection fees to the district heating network in Finland amounted to EUR 106 million (2008: 103).
| EUR million | 2009 | 2008 |
|---|---|---|
| Trade payables | 317 | 343 |
| Accrued expenses and deferred income | ||
| Personnel expenses | 71 | 78 |
| Interest expenses | 121 | 86 |
| Other accrued expenses and deferred income | 84 | 158 |
| Other liabilities | ||
| VAT-liability | 46 | 61 |
| Current tax liability | 81 | 22 |
| Energy taxes | 34 | 33 |
| Advances received | 88 | 87 |
| Other liabilities | 158 | 116 |
| Total | 1,000 | 984 |
The management considers that the amount of trade and other payables approximates fair value.
| EUR million | 2009 | 2008 |
|---|---|---|
| On own behalf | ||
| For debt | ||
| Pledges | 293 | 229 |
| Real estate mortgages | 137 | 137 |
| For other commitments | ||
| Real estate mortgages | 220 | 206 |
| On behalf of associated companies and joint ventures | ||
| Pledges and real estate mortgages | 2 | 2 |
Finnish participants in the State Nuclear Waste Management Fund are allowed to borrow from the Fund. Fortum has during 2009 increased the loan from the fund and has pledged additional shares in Kemijoki as security. The value of the pledged shares is EUR 263 million on 31 December 2009 (2008: 208).
Pledges also include bank deposits as trading collateral of EUR 11 million (2008: 1) for trading of electricity and CO2 allowances in Nord Pool and trading of CO2 with Intercontinental Exchange (ICE) and European Energy Exchange (EEX).
Fortum Tartu in Estonia (60% owned by Fortum) has given real estate mortgages for a value of EUR 96 million (2008: 96) as a security for an external loan. Real estate mortgages have also been given for loans from Fortum's pension fund for EUR 41 million (2008: 41).
˭ Regarding the relevant interest-bearing liabilities, see Note 31 Interest-bearing liabilities on page 161.
Fortum has given real estate mortgages in Naantali and Inkoo power plants in Finland for a value of EUR 220 million (2008: 206) as a security to the State Nuclear Waste Management Fund for the uncovered part of the legal liability and unexpected events relating to costs for future decommissioning and disposal of spent fuel in the wholly owned Loviisa nuclear power plant. The legal liability, based on the situation as of 31 December, is decided by the Ministry of Employment and the Economy in January the following year and the amount of the security is adjusted by the end of June.
˭ See also Note 33 Nuclear related assets and liabilities on page 163.
The rental income recognised in income statement was EUR 28 million (2008: 25). The major part of the rental income derives from Meri-Pori power plant, where Fortum has leased out its 308 MW share of the power plant from January 2007 to the end of June 2010.
| EUR million | 2009 | 2008 |
|---|---|---|
| Not later than 1 year | 13 | 25 |
| Later than 1 year and not later than 5 years | 1 | 12 |
| Later than 5 years | - | - |
| Total | 14 | 37 |
Fortum leases office equipment and cars under various non-cancellable operating leases, some of which contain renewal options. The future costs for non-cancellable operating lease contracts are stated below. Lease rental expenses amounting to EUR 15 million (2008: 15) are included in the income statement in other expenses. Future minimum lease payments include land leases with long lease periods.
| EUR million | 2009 | 2008 |
|---|---|---|
| Not later than 1 year | 23 | 28 |
| Later than 1 year and not later than 5 years | 35 | 47 |
| Later than 5 years | 93 | 86 |
| Total | 151 | 161 |
| EUR million | 2009 | 2008 |
|---|---|---|
| Property, plant and equipment | 1,326 | 1,321 |
| Intangible assets | 5 | 7 |
| Total | 1,331 | 1,328 |
The capital commitments have increased from 31 December 2008 due to the automatic meter reading investments in Distribution Finland as well as the progressing of OAO Fortum's investment program. On the other hand finalisation of the automatic meter reading investment in Distribution Sweden, decline of the Russian rouble and progressing of the CHP plant investments in the Heat business in Finland, Estonia and Poland have decreased the capital commitments since 31 December 2008.
˭ For more information regarding capital expenditure, see Note 21 Property, plant and equipment on page 150.
| EUR million | 2009 | 2008 |
|---|---|---|
| On own behalf | ||
| Other contingent liabilities | 321 | 362 |
| On behalf of associated companies and joint ventures | ||
| Guarantees | 592 | 565 |
| Other contingent liabilities | 125 | 125 |
| On behalf of others | ||
| Guarantees | 12 | 10 |
| Other contingent liabilities | 1 | 1 |
Other contingent liabilities on own behalf include guarantees issued for the fulfillment of various contractual obligations relating to Fortum's operation and maintenance business in the UK, amounting to a maximum of EUR 66 million (2008: 66). Fortum has also given guarantees to suppliers, EUR 53 million (2008: 60) regarding the new CHP plant being built by business unit Heat in Częstochowa in Poland and EUR 158 million (2008: 173) regarding the investment program in OAO Fortum.
Guarantees and other contingent liabilities on behalf of associated companies and joint ventures mainly consist of guarantees relating to Fortum's associated nuclear companies Teollisuuden Voima Oyj (TVO), Forsmarks Kraftgrupp AB (FKA) and OKG AB (OKG). The guarantees are given in proportion to Fortum's respective ownership in each of these 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 the power plant and disposal of spent fuel. In Finland, Fortum has given a guarantee on behalf of TVO to the Finnish State Nuclear Waste Management Fund amounting to EUR 67 million (2008: 70) to cover Fortum's part of TVO's uncovered part of the legal liability and for unexpected events.
In Sweden, Fortum has given guarantees on behalf of FKA and OKG to the Swedish Nuclear Waste Fund to cover Fortum's part of FKA's and OKG's liability. The total amount of guarantees relating to nuclear waste management in Sweden is SEK 5,314 million (EUR 518 million in 2009, EUR 489 million in 2008).
Meri-Pori power plant in Finland is owned by Fortum 54.55% and Teollisuuden Voima Oyj (TVO) 45.45%. Based on the participation agreement Fortum has to give a guarantee to TVO against possible loss of asset or breach in contract of TVO's share of the asset, EUR 125 million (2008: 125).
Fortum's 100% owned subsidiary Fortum Heat and Gas Oy has a collective contingent liability with Neste Oil Oyj of the demerged Fortum Oil and Gas Oy's liabilities based on the Finnish Companies Act's (734/1978) Chapter 14a Paragraph 6.
Two subsidiaries of Fortum, Grangemouth CHP Limited and Fortum O&M (UK) Limited, are defendants in a court case regarding greenhouse gas emissions allowances in the High Court of Justice in London. Grangemouth CHP Limited is a party to an Electricity Supply Agreement with Ineos Manufacturing Scotland Limited, pursuant to which Grangemouth CHP Limited provides electricity from its CHP plant to the Grangemouth site in Scotland until April 2016. Ineos Manufacturing Scotland Limited claims that it is entitled to all of the emissions allowances allocated under the EU ETS scheme for greenhouse gas emission allowance trading with respect to the CHP plant. Grangemouth CHP Limited denies this claim. The case was stayed in 2008, but the stay was lifted in late 2009. The court decision is likely to be rendered in late 2010 or early 2011.
The Finnish Competition Authority gave on 2 June 2006 its conditional approval to the transaction by which Fortum acquired control in E.ON Finland Oyj. On 3 July 2006 Fortum appealed against the decision to the Market Court. In March 2008 the Finnish Market Court decision overruled the conditional decision given by the Finnish Competition Authority in June 2006 on the acquisition of E.ON Finland. In their ruling, the Market Court stated that the Finnish Competition Authority had no grounds for setting conditions, because Fortum cannot be considered to have a dominant position in the power generation and wholesale market. According to the Market Court, the relevant geographical market area in power generation and wholesale consists of at least Finland and Sweden. The Finnish Competition authority has appealed the decision to the Supreme Administrative Court.
In addition to the litigations described above, some Group companies are involved in disputes incidental to their business. In management's opinion the outcome of such disputes will not have material effect on the Group's financial position.
In Finland, Fortum is participating in the country's fifth nuclear power plant unit, Olkiluoto 3, through the shareholding in Teollisuuden Voima Oyj (TVO) with an approximately 25% share representing some 400 MW in capacity. In January 2009 the constructor TVO disclosed information, confirmed by the plant supplier, consortium AREVA-Siemens that the construction of the unit is delayed and the unit is estimated to start up in June 2012. In October 2009 TVO informed that the start-up of the plant may be postponed even beyond June 2012. TVO has requested a re-analysis of the time schedule from AREVA-Siemens. In June 2009, TVO informed that the arbitration filed in December by AREVA-Siemens, concerning Olkiluoto 3 delay and related costs, amounted to EUR 1.0 billion. In response, in April 2009 TVO filed a counter-claim for costs and losses that TVO is incurring due to the delay and other defaults on the part of the supplier. The value of TVO's counterclaim is currently approximately EUR 1.4 billion.
At the beginning of 2009 the Finnish State owned 50.80% of the company and at the end of 2009 50.76%.
˭ See The Fortum share and shareholders section of the Operating and Financial Review for further information on Fortum shareholders on page 103.
All transactions between Fortum and other companies owned by the Finnish State are on arms length basis. In the ordinary course of business Fortum engages in transactions on commercial terms with associated companies and other related parties, which are on same terms as they would be for third parties, except for some associates as discussed later in this note.
Fortum has not been involved in any material transactions with members of the Board of Directors or Fortum Management Team. No loans exist to any member of the Board of Directors or Fortum Management Team at 31 December 2009. Members of the Board of Directors and Fortum Management Team holdings of options and shares are disclosed in Note 29 Employee bonus system, personnel fund and incentive schemes on page 157. Compensation to members of the Supervisory Board, the Board of Directors and Fortum Management Team are disclosed in Note 12 Employee costs and management remuneration on page 143.
Fortum owns shareholdings in associated companies and joint ventures which in turn own hydro and nuclear power plants. Under the consortium agreements, each owner is entitled to electricity in proportion to its share of ownership or other agreements. Each owner is liable for an equivalent portion of costs regardless of output. The associated companies are not profit making, since the owners purchase electricity at production cost including interest costs and income taxes, which generally is lower than market price.
˭ For further information on transactions and balances with associated companies and joint ventures, see Note 22 Participations in associated companies and joint ventures on page 152.
In December, Fortum agreed to sell its shares in the Swedish gas transmission company Swedegas AB. The transaction will take place in early 2010.
In January 2010, Fortum acquired the combined heat and power plant in the city of Nokia, Finland from Nokian Lämpövoima Oy. At the same time Fortum sold its shares in Nokian Lämpövoima Oy to Pohjolan Voima Oy (PVO).
In February 2010, Fortum signed an agreement to sell its 49% shareholding in Karlskoga Energi & Miljö AB to the Karlskoga municipality in Sweden for SEK 435 million (EUR 42 million).
Fortum has agreed to sell its shares in OJSC Kurgan Generating Company in Kurgan, Russia. Fortum expects the transaction to close and the ownership to be transferred during the first half of 2010.
| 1) Acquired |
|---|
| 2) Founded |
| 3) Shares held by the parent company |
| Group | |||
|---|---|---|---|
| Corp. Name | Domicile | Segment | holding, % |
| Fortum Asiakaspalvelu Oy | 3) Finland | 100.0 | |
| Fortum Assets Oy | Finland | 100.0 | |
| Fortum BCS Oy | Finland | 100.0 | |
| Fortum Espoo Distribution Oy | 3) Finland | 100.0 | |
| Fortum Heat and Gas Oy | 3) Finland | 100.0 | |
| Fortum Hyötytuotanto Oy | Finland | 100.0 | |
| Fortum Markets Oy | 3) Finland | 100.0 | |
| Fortum Nuclear Services Oy | Finland | 100.0 | |
| Fortum Portfolio Services Oy | Finland | 100.0 | |
| Fortum Power and Heat Oy | 3) Finland | 100.0 | |
| Fortum Sähkönsiirto Oy | 3) Finland | 100.0 | |
| Hexivo Oy | Finland | 52.0 | |
| Imatran Voima Oy | Finland | 100.0 | |
| Imatrankosken Voima Oy | Finland | 100.0 | |
| Kiinteistö Oy Espoon Energiatalo | Finland | 100.0 | |
| Killin Voima Oy | Finland | 60.0 | |
| Koillis-Pohjan Energiantuotanto Oy | Finland | 100.0 | |
| Koskivo Oy | Finland | 100.0 | |
| KPPV-Sijoitus Oy | Finland | 100.0 | |
| Linnankosken Voima Oy | Finland | 100.0 | |
| Lounais-Suomen Lämpö Oy | Finland | 100.0 | |
| Mansikkalan Voima Oy | Finland | 100.0 | |
| Mäntynummen Lämpö Oy | Finland | 58.3 | |
| Oy Pauken Ab | Finland | 100.0 | |
| Oy Tersil Ab | Finland | 100.0 | |
| Oy Tertrade Ab | Finland | 100.0 | |
| Rajapatsaan Voima Oy | Finland | 100.0 | |
| Saimaanrannan Voima Oy | Finland | 100.0 | |
| Tunturituuli Oy | Finland | 55.4 | |
| Varsinais-Suomen Sähkö Oy | Finland | 100.0 | |
| Fortum EIF NV | 3) Belgium | 100.0 | |
| Fortum Project Finance N.V. | 3) Belgium | 100.0 | |
| Fortum Energi A/S | Denmark | 100.0 | |
| AS Anne Soojus | Estonia | 60.0 | |
| AS Fortum Tartu | Estonia | 60.0 | |
| AS Tartu Joujaam | Estonia | 60.0 | |
| AS Tartu Keskkatlamaja | Estonia | 60.0 | |
| Fortum CFS Eesti OU | Estonia | 100.0 | |
| Fortum Elekter AS | Estonia | 99.3 | |
| Fortum Termest AS | Estonia | 99.7 |
| Group | |||
|---|---|---|---|
| Corp. Name | Domicile | Segment | holding, % |
| Lauka Turvas OU | Estonia | 60.0 | |
| Fortum Service Deutschland GmbH | Germany | 100.0 | |
| Fortum Direct Ltd | Great Britain | 100.0 | |
| Fortum Energy Ltd | Great Britain | 100.0 | |
| Fortum Gas Ltd | Great Britain | 100.0 | |
| Fortum Insurance Ltd | Great Britain | 100.0 | |
| Fortum O&M (UK) Ltd | Great Britain | 100.0 | |
| Grangemouth CHP Ltd | Great Britain | 100.0 | |
| IVO Energy Ltd | Great Britain | 100.0 | |
| Kildare Energy Ltd | Ireland | 55.0 | |
| Fortum Jelgava SIA | Latvia | 100.0 | |
| Fortum Latvija SIA | Latvia | 100.0 | |
| UAB Fortum Ekosiluma | Lithuania | 100.0 | |
| UAB Fortum Heat Lietuva | Lithuania | 100.0 | |
| UAB Fortum Klaipeda | Lithuania | 90.0 | |
| UAB Joniskio energija | Lithuania | 66.0 | |
| UAB Svencioniu energija | Lithuania | 50.0 | |
| Fortum L.A.M SNC. | 2) Luxemburg | 100.0 | |
| Fortum Sendi Prima Sdn Bhd | Malaysia | 100.0 | |
| Fortum Distribution AS | Norway | 100.0 | |
| Fortum Fjernvarme AS | Norway | 100.0 | |
| Fortum Förvaltning AS | Norway | 100.0 | |
| Fortum Holding Norway AS | Norway | 100.0 | |
| Fortum Leasing KS | Norway | 100.0 | |
| Fortum Markets AS | Norway | 100.0 | |
| Fortum NIT AS | 1) Norway | 100.0 | |
| Mosjøen Fjernvarme AS | Norway | 100.0 | |
| Fortum Częstochowa S.A. | Poland | 100.0 | |
| Fortum Plock Sp z o.o. | Poland | 99.5 | |
| Fortum Power and Heat Polska Sp.z.o.o | Poland | 100.0 | |
| Chelyabinsk Energoremont | Russia | 94.5 | |
| LLC Fortum Energy OOO Fortum Energija | Russia | 100.0 | |
| OAO Fortum | Russia | 94.5 | |
| TGC-10 Invest | Russia | 94.5 | |
| Tyumen Energoremont | Russia | 94.5 | |
| Urals Heat Network | Russia | 94.5 | |
| AB Fortum Värme Holding samägt med Stockholms stad | Sweden | 50.1 | |
| AB Fortum Värme samägt med Stockholms stad | Sweden | 50.1 | |
| AB Ljusnans Samkörning | Sweden | 80.0 | |
| Akallaverket AB | Sweden | 37.6 |
= Power
= Heat
= Distribution
= Markets
= Russia
= Other
| Corp. Name | Domicile | Segment | Group holding, % |
|---|---|---|---|
| Arvika Fjärrvärme AB | Sweden | 30.1 | |
| Blybergs Kraft AB | Sweden | 66.7 | |
| Brännälven Kraft AB | Sweden | 67.0 | |
| Bullerforsens Kraft AB | Sweden | 88.0 | |
| Ekerö Energi AB | Sweden | 100.0 | |
| Ekerö Energi Försäljning AB | Sweden | 100.0 | |
| Elbolaget OEP AB | Sweden | 100.0 | |
| Fortum 1 AB | Sweden | 100.0 | |
| Fortum AMCO AB | 1) Sweden | 100.0 | |
| Fortum Dalälvens Kraft AB | Sweden | 100.0 | |
| Fortum Distribution AB | Sweden | 100.0 | |
| Fortum Fastigheter AB | Sweden | 100.0 | |
| Fortum Four AB | Sweden | 100.0 | |
| Fortum Generation AB | Sweden | 100.0 | |
| Fortum Indalskraft AB | Sweden | 100.0 | |
| Fortum Ljunga Kraft AB | Sweden | 100.0 | |
| Fortum Ljusnans Kraft AB | Sweden | 100.0 | |
| Fortum Markets AB | Sweden | 100.0 | |
| Fortum Nordic AB | 3) Sweden | 100.0 | |
| Fortum Portfolio Services AB | Sweden | 100.0 | |
| Fortum Power and Heat AB | Sweden | 100.0 | |
| Fortum Produktionsnät AB | Sweden | 100.0 | |
| Fortum Service AB | Sweden | 100.0 | |
| Fortum Service Öst AB | Sweden | 100.0 | |
| Fortum Sweden AB | 3) Sweden | 100.0 | |
| Fortum Värme Alpha AB | Sweden | 50.1 | |
| Fortum Värme Fastigheter AB | Sweden | 50.1 | |
| Fortum Värme Nynäshamn AB | Sweden | 100.0 | |
| Fortum Zeta AB | Sweden | 100.0 | |
| Fortum Älvkraft i Värmland AB | Sweden | 100.0 | |
| Frostviken Kraft AB | Sweden | 100.0 | |
| Hofors Energi AB | Sweden | 30.1 | |
| Hällefors Värme AB | Sweden | 47.6 | |
| Mellansvensk Kraftgrupp AB | Sweden | 86.9 | |
| NGI Naturgasinvest AB | Sweden | 100.0 | |
| Oreälvens Kraft AB | Sweden | 65.0 | |
| Parteboda Kraft AB | Sweden | 100.0 | |
| Processio AB | Sweden | 100.0 | |
| Ryssa Energi AB | Sweden | 100.0 | |
| Sigtuna-Väsby Fastighets AB | Sweden | 50.1 |
1) Acquired 2) Founded
3) Shares held by the parent company
| Group | |||
|---|---|---|---|
| Corp. Name | Domicile | Segment | holding, % |
| Stockholm Gas AB | Sweden | 50.1 | |
| Säffle 5:35 Fastighets AB | Sweden | 50.1 | |
| Säffle Fjärrvärme AB | Sweden | 25.6 | |
| Uddeholm Kraft AB | Sweden | 100.0 | |
| Voxnan Kraft AB | Sweden | 100.0 | |
| Värmlandskraft OKG-delägarna AB | Sweden | 73.3 | |
| FB Generation Services B.V. | The Netherlands | 75.0 | |
| Fortum Alpha B.V. | The Netherlands | 100.0 | |
| Fortum East China Energy Investments B.V. | The Netherlands | 100.0 | |
| Fortum Finance 2 B.V. | The Netherlands | 100.0 | |
| Fortum Holding B.V. | 3) The Netherlands | 100.0 | |
| Fortum Power Holding B.V. | The Netherlands | 100.0 | |
| Fortum Russia B.V. | The Netherlands | 100.0 | |
| Fortum Russia Holding B.V. | The Netherlands | 100.0 |
Fortum Corporation and its subsidiaries (together the Fortum Group) is a leading energy company focusing on the Nordic countries, Russia and the Baltic Rim area. Fortum's activities cover the generation, distribution and sale of electricity and heat, the operation and maintenance of power plants as well as energy-related services. Neste Oil was included in Fortum Group up until 31 March 2005, when the Annual General Meeting took the final decision to separate the oil operations by distributing approximately 85% of Neste Oil Corporation shares as dividend. The remaining approximately 15% of shares were sold to investors in April 2005.
Oil operations have been presented as discontinued operations in years 2004 and 2005.
As from 2005, Fortum applies International Financial Reporting Standards (IFRS) for the annual and interim reports. The 2005 annual report included one comparison year 2004, which was restated to IFRS. The years 1998–2003 have not been restated to comply with IFRS. They are presented under Finnish Accounting Standards (FAS).
| Change | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| FAS | FAS | FAS | FAS | FAS | FAS | IFRS | IFRS | IFRS | IFRS | IFRS | IFRS | 09/08 | |
| EUR million or as indicated | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | % |
| Sales total Fortum | 8,494 | 8,232 | 10,614 | 10,410 | 11,148 | 11,392 | 11,659 | 5,918 | |||||
| Sales continuing operations | 3,835 | 3,877 | 4,491 | 4,479 | 5,636 | 5,435 | –4 | ||||||
| EBITDA total Fortum 1) | 1,049 | 1,192 | 1,431 | 1,501 | 1,952 | 1,917 | 2,443 | 2,307 | |||||
| EBITDA continuing operations | 1,583 | 1,754 | 1,884 | 2,298 | 2,478 | 2,292 | –8 | ||||||
| Operating profit total Fortum | 586 | 705 | 906 | 914 | 1,289 | 1,420 | 1,916 | 1,864 | |||||
| - of sales % | 6.9 | 8.6 | 8.5 | 8.8 | 11.6 | 12.5 | 16.4 | 31.5 | |||||
| Operating profit continuing operations | 1,195 | 1,347 | 1,455 | 1,847 | 1,963 | 1,782 | –9 | ||||||
| - of sales % | 31.2 | 34.7 | 32.4 | 41.2 | 34.8 | 32.8 | |||||||
| Comparable operating profit continuing operations | 1,148 | 1,334 | 1,437 | 1,564 | 1,845 | 1,888 | 2 | ||||||
| Profit before income tax total Fortum | 363 | 954 | 623 | 702 | 1,008 | 1,184 | 1,700 | 1,776 | |||||
| - of sales % | 4.3 | 11.6 | 5.9 | 6.7 | 9.0 | 10.4 | 14.6 | 30.0 | |||||
| Profit before income tax continuing operations | 962 | 1,267 | 1,421 | 1,934 | 1,850 | 1,636 | –12 | ||||||
| - of sales % | 25.1 | 32.7 | 31.6 | 43.2 | 32.8 | 30.1 | |||||||
| Profit for the period continuing operations | 703 | 936 | 1,120 | 1,608 | 1,596 | 1,351 | –15 | ||||||
| - of which attributable to owners of the parent | 670 | 884 | 1,071 | 1,552 | 1,542 | 1,312 | –15 | ||||||
| Capital employed, total Fortum | 8,647 | 9,425 | 11,365 | 11,032 | 13,765 | 12,704 | 12,890 | ||||||
| Capital employed continuing operations | 10,739 | 11,357 | 12,663 | 13,544 | 15,911 | 15,350 | –4 | ||||||
| Interest-bearing net debt | 3,898 | 3,818 | 4,626 | 3,674 | 5,848 | 5,626 | 5,095 | 3,158 | 4,345 | 4,466 | 6,179 | 5,969 | –3 |
| Capital expenditure and gross investments in shares, total Fortum | 1,702 | 1,059 | 3,131 | 713 | 4,381 | 1,136 | 830 | 578 | 1,395 | 972 | 2,624 | 929 | –65 |
| - of sales % | 20.0 | 12.9 | 29.5 | 6.8 | 39.3 | 10.0 | 7.1 | 9.8 | 31.1 | 21.7 | 46.6 | 17.1 | |
| Capital expenditure and gross investments in shares continuing | |||||||||||||
| operations | 514 | 479 | 1,395 | 972 | 2,624 | 929 | –65 | ||||||
| Capital expenditure continuing operations | 335 | 346 | 485 | 655 | 1,108 | 862 | –22 |
| Change | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| FAS | FAS | FAS | FAS | FAS | FAS | IFRS | IFRS | IFRS | IFRS | IFRS | IFRS | 09/08 | |
| EUR million or as indicated | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | % |
| Net cash from operating activities, total Fortum | 793 | 524 | 424 | 1,145 | 1,351 | 1,577 | 1,758 | 1,404 | |||||
| Net cash from operating activities continuing operations | 1,232 | 1,271 | 1,151 | 1,670 | 2,002 | 2,264 | 13 | ||||||
| Return on capital employed, total Fortum, % | 7.7 | 8.4 | 9.4 | 8.7 | 11.1 | 11.4 | 15.8 | 16.6 | |||||
| Return on capital employed continuing operations, % | 11.4 | 13.5 | 13.4 | 16.5 | 15.0 | 12.1 | |||||||
| Return on shareholders' equity, total Fortum, % | 5.7 | 7.7 | 8.6 | 8.3 | 10.5 | 12.3 | 18.2 | 18.7 | |||||
| Return on shareholders' equity continuing operations, % 2) | 13.5 | 14.4 | 19.1 | 18.7 | 16.0 | ||||||||
| Interest coverage | 2.6 | 3.4 | 3.7 | 4.3 | 4.7 | 5.8 | 8.0 | 11.6 | 11.5 | 12.8 | 9.4 | 12.4 | |
| Interest coverage including capitalised borrowing costs | 8.6 | 10.3 | |||||||||||
| Funds from operations / interest-bearing net debt, % | 17.9 | 14.3 | 19.9 | 28.8 | 21.6 | 26.1 | 36.4 | 43.2 | 30.6 | 36.3 | 34.1 | 37.6 | |
| Gearing, % 3) | 93 | 79 | 73 | 54 | 80 | 85 | 67 | 43 | 53 | 52 | 73 | 70 | |
| Net debt / EBITDA | 3.7 | 3.2 | 3.2 | 2.4 | 3.0 | 2.9 | 2.1 | 1.4 | |||||
| Net debt / EBITDA continuing operations | - | 1.8 | 2.3 | 1.9 | 2.5 | 2.6 | |||||||
| Equity-to-assets ratio, % | 36 | 39 | 43 | 48 | 41 | 40 | 44 | 49 | 48 | 49 | 41 | 43 | |
| Dividends 4) | 99 | 141 | 194 | 220 | 262 | 357 | 506 | 987 | 1,122 | 1,198 | 888 | 888 5) | 0 |
| Dividends continuing operations | 511 | 650 | 683 | ||||||||||
| Dividends additional in 2006 and 2007 / discontinued operations in 2005 | 476 | 472 | 515 | ||||||||||
| Research and development expenditure | 92 | 72 | 58 | 53 | 33 | 35 | 26 | 14 | 17 | 21 | 27 | 30 | 11 |
| - of sales % | 1.1 | 0.9 | 0.5 | 0.5 | 0.3 | 0.3 | 0.2 | 0.2 | 0.4 | 0.5 | 0.5 | 0.5 | |
| Average number of employees total Fortum | 19,003 | 17,461 | 16,220 | 14,803 | 14,053 | 13,343 | 12,859 | 10,026 | 8,910 | 8,304 | 14,077 | 13,278 | |
| Average number of employees continuing operations | 8,592 | 8,939 | 8,910 | 8,304 | 14,077 | 13,278 |
1) EBITDA is defined as Operating profit continuing operations + Depreciation, amortisation and impairment charges. According to Finnish Accounting Standards (FAS) share of profit of associated companies was included in operating profit. In calculating EBITDA presented under FAS share of profit of associated companies has been excluded in 1998–2003.
2) Return on equity for continuing operations for 2005 is calculated based on profit for the period from continuing operations divided by total equity at the end of the period. Profit for the period from discontinued operations has been subtracted from total equity on 31 December 2005.
3) Gearing is defined as interest-bearing net debt over shareholders' equity plus non-controlling interests. In 2000–2002 non-controlling interests included the preference shares amounting to EUR 1.2 billion, carrying fixed income dividend of 6.7 percent, issued by Fortum Capital Ltd.
4) In addition to cash dividend Fortum distributed approximately 85% of Neste Oil Corporation shares as dividend in 2005.
5) Board of Directors' proposal for the Annual General Meeting on 25 March 2010.
˭ See Definitions of key figures on page 179.
| Change | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| FAS | FAS | FAS | FAS | FAS | FAS | IFRS | IFRS | IFRS | IFRS | IFRS | IFRS | 09/08 | |
| EUR or as indicated | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | % |
| Earnings per share total Fortum | 0.27 | 0.41 | 0.55 | 0.57 | 0.79 | 0.91 | 1.48 | 1.55 | 1.22 | 1.74 | 1.74 | 1.48 | –15 |
| Earnings per share continuing operations | - | - | - | - | - | - | 0.79 | 1.01 | 1.22 | 1.74 | 1.74 | 1.48 | –15 |
| Earnings per share discontinued operations | - | - | - | - | - | - | 0.69 | 0.54 | - | - | - | - | |
| Diluted earnings per share total Fortum | - | - | 0.55 | 0.57 | 0.78 | 0.90 | 1.46 | 1.53 | 1.21 | 1.74 | 1.74 | 1.48 | –15 |
| Diluted earnings per share continuing operations | - | - | - | - | - | - | 0.78 | 1.00 | 1.21 | 1.74 | 1.74 | 1.48 | –15 |
| Diluted earnings per share discontinued operations | - | - | - | - | - | - | 0.68 | 0.53 | - | - | - | - | |
| Cash flow per share total Fortum | 1.01 | 0.67 | 0.54 | 1.43 | 1.60 | 1.86 | 2.06 | 1.61 | 1.31 | 1.88 | 2.26 | 2.55 | 13 |
| Cash flow per share continuing operations | - | - | - | - | - | - | 1.44 | 1.46 | 1.31 | 1.88 | 2.26 | 2.55 | 13 |
| Equity per share | 5.06 | 6.00 | 6.32 | 6.49 | 6.97 | 7.55 | 8.65 | 8.17 | 8.91 | 9.43 | 8.96 | 9.04 | 1 |
| Dividend per share total Fortum 1) | 0.13 | 0.18 | 0.23 | 0.26 | 0.31 | 0.42 | 0.58 | 1.12 | 1.26 | 1.35 | 1.00 | 1.00 2) | 0 |
| Dividend per share continuing operations | - | - | - | - | - | - | - | 0.58 | 0.73 | 0.77 | - | - | |
| Dividend per share additional in 2006 and 2007 / discontinued operations in 2005 |
- | - | - | - | - | - | - | 0.54 | 0.53 | 0.58 | - | - | |
| Payout ratio total Fortum, % | 46.3 | 43.4 | 41.9 | 45.6 | 39.2 | 46.2 | 39.2 | 72.3 | 103.3 4) | 77.6 4) | 57.5 | 67.6 2) | |
| Payout ratio continuing operations, % | - | - | - | - | - | - | - | 57.4 3) | 59.8 4) | 44.3 4) | - | - | |
| Payout ratio additional dividend in 2006 and 2007 / discontinued operations in 2005, % |
- | - | - | - | - | - | - | 100.0 3) | 43.4 4) | 33.3 4) | - | - | |
| Dividend yield, % | 2.5 | 4.0 | 5.3 | 5.5 | 5.0 | 5.1 | 4.3 | 7.1 | 5.8 | 4.4 | 6.6 | 5.3 2) | |
| Price/earnings ratio (P/E) | 18.5 | 10.9 | 7.9 | 8.3 | 7.9 | 9.0 | 9.2 | 10.2 | 17.7 | 17.7 | 8.8 | 12.8 | |
| Share prices | |||||||||||||
| At the end of the period | 5.03 | 4.50 | 4.35 | 4.75 | 6.25 | 8.18 | 13.62 | 15.84 | 21.56 | 30.81 | 15.23 | 18.97 | |
| Average share price | 5.66 | 4.76 | 4.18 | 4.79 | 5.87 | 6.94 | 10.29 | 13.87 | 20.39 | 23.57 | 24.79 | 15.91 | |
| Lowest share price | 4.86 | 4.24 | 3.50 | 4.05 | 4.75 | 5.66 | 7.45 | 10.45 | 15.71 | 20.01 | 12.77 | 12.60 | |
| Highest share price | 6.05 | 5.80 | 4.94 | 5.70 | 6.52 | 8.75 | 13.99 | 16.90 | 23.48 | 31.44 | 33.00 | 19.20 | |
| Market capitalisation at the end of the period, EUR million | 3,949 | 3,532 | 3,456 | 4,017 | 5,286 | 6,943 | 11,810 | 13,865 | 19,132 | 27,319 | 13,519 | 16,852 | |
| Trading volumes | |||||||||||||
| Number of shares, 1,000 shares | 17,643 | 112,398 | 93,900 | 134,499 | 251,216 | 270,278 | 478,832 | 900,347 | 830,764 | 787,380 | 628,155 | 580,899 | |
| In relation to the weighted average number of shares, % | 2.2 | 14.3 | 11.9 | 16.8 | 29.7 | 31.9 | 59.2 | 103.2 | 94.3 | 88.5 | 70.8 | 65.4 | |
| Number of shares, 1,000 shares | 784,783 | 784,783 | 845,609 | 845,609 | 845,776 | 849,813 | 867,084 | 875,294 | 887,394 | 886,683 | 887,638 888,367 | ||
| Number of shares excluding own shares, 1,000 shares | NA | NA | 794,571 | NA | NA | NA | NA | NA | NA | NA | NA | NA | |
| Average number of shares, 1,000 shares | 784,783 | 784,783 | 787,223 | 798,346 | 845,642 | 846,831 | 852,625 | 872,613 | 881,194 | 889,997 | 887,256 | 888,230 | |
| Diluted adjusted average number of shares, 1,000 shares | - | - | 787,223 | 798,308 | 851,482 | 858,732 | 861,772 | 887,653 | 886,929 | 891,395 | 887,839 | 888,230 |
1) In addition to cash dividend Fortum distributed approximately 85% of Neste Oil Corporation shares as dividend in 2005. 2) Board of Directors' proposal for the Annual General Meeting on 25 March 2010.
3) 2005 payout ratio for continuing and discontinued operations are calculated based on the respective earnings per share from continuing and discontinued operations. 4) Payout ratios for dividends in 2006 and 2007 are based on the total earnings per share.
Years 1998–2003 have not been restated to comply with IFRS. They are presented under Finnish Accounting Standards (FAS). ˭ See Definitions of key figures on page 179.
| 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | ||
|---|---|---|---|---|---|---|---|
| Fortum's total power and heat generation in EU and Norway | |||||||
| Power generation | TWh | 55.5 | 52.3 | 54.4 | 52.2 | 52.6 | 49.3 |
| Heat generation | TWh | 25.4 | 25.1 | 25.8 | 26.1 | 25.0 | 23.2 |
| Fortum's total power and heat generation in Russia | |||||||
| Power generation | TWh | - | - | - | - | 11.6 | 16.0 |
| Heat generation | TWh | - | - | - | - | 15.3 | 25.6 |
| Fortum's own power generation by source, total in the Nordic countries | |||||||
| Hydropower | TWh | 19.1 | 21.2 | 19.8 | 20.0 | 22.9 | 22.1 |
| Nuclear power | TWh | 25.8 | 25.8 | 24.4 | 24.9 | 23.7 | 21.4 |
| Thermal power | TWh | 9.5 | 4.2 | 9.0 | 6.2 | 5.0 | 4.6 |
| Total | TWh | 54.4 | 51.2 | 53.2 | 51.1 | 51.6 | 48.1 |
| Fortum's own power generation by source, total in the Nordic countries | |||||||
| Hydropower | % | 35 | 42 | 37 | 39 | 44 | 46 |
| Nuclear power | % | 47 | 50 | 46 | 49 | 46 | 44 |
| Thermal power | % | 18 | 8 | 17 | 12 | 10 | 10 |
| Total | % | 100 | 100 | 100 | 100 | 100 | 100 |
| Fortum's total electricity and heat sales in EU and Norway | |||||||
| Electricity sales | EUR million | 2,017 | 2,002 | 2,437 | 2,370 | 2,959 | 2,802 |
| Heat sales | EUR million | 809 | 867 | 1,014 | 1,096 | 1,157 | 1,095 |
| Fortum's total electricity and heat sales in Russia | |||||||
| Electricity sales | EUR million | - | - | - | - | 332 | 390 |
| Heat sales | EUR million | - | - | - | - | 141 | 219 |
| Fortum's total electricity sales by area | |||||||
| Finland | TWh | 31.1 | 26.0 | 29.6 | 29.0 | 28.7 | 26.1 |
| Sweden | TWh | 27.6 | 30.4 | 28.5 | 27.6 | 28.5 | 26.9 |
| Russia | TWh | - | - | - | - | 14.8 | 19.5 |
| Other countries | TWh | 3.6 | 3.3 | 3.5 | 3.1 | 3.0 | 3.2 |
| Total | TWh | 62.3 | 59.7 | 61.6 | 59.7 | 75.0 | 75.7 |
| Fortum's total heat sales by area | |||||||
| Finland | TWh | 10.5 | 9.8 | 10.7 | 11.1 | 10.8 | 8.0 |
| Russia | TWh | - | - | - | - | 15.3 | 25.6 |
| Sweden | TWh | 9.6 | 9.5 | 9.3 | 9.2 | 9.1 | 9.8 |
| Poland | TWh | 0.4 | 1.1 | 3.6 | 3.5 | 3.6 | 3.7 |
| Other countries | TWh | 3.3 | 3.4 | 3.2 | 3.3 | 3.4 | 3.5 |
| Total | TWh | 23.8 | 23.8 | 26.8 | 27.1 | 42.2 | 50.6 |
| Volume of distributed electricity in distribution networks | |||||||
| Finland | TWh | 6.2 | 6.3 | 7.7 | 9.2 | 9.3 | 9.4 |
| Sweden | TWh | 14.2 | 14.4 | 14.4 | 14.3 | 14.0 | 14.0 |
| Norway | TWh | 2.1 | 2.2 | 2.3 | 2.3 | 2.3 | 2.3 |
| Estonia | TWh | 0.2 | 0.2 | 0.2 | 0.2 | 0.2 | 0.2 |
| Total | TWh | 22.7 | 23.1 | 24.6 | 26.0 | 25.8 | 25.9 |
As from 2005, Fortum applies International Financial Reporting Standards (IFRS) for the annual and interim reports. The 2005 annual report included one comparison year 2004, which was restated to IFRS. Segment numbers are presented based only on IFRS for comparison purposes, because in the transition to IFRS reportable segments were redefined and segment reporting as such was reassessed.
Following the acquisition of the Russian company, OAO Fortum, Fortum changed its segment reporting during 2008. Comparison numbers for 2004–2007 were restated in 2008.
˭ For further information see Note 5 Segment reporting on page 134.
| EUR million | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 |
|---|---|---|---|---|---|---|
| Power | 2,084 | 2,058 | 2,439 | 2,350 | 2,892 | 2,596 |
| - of which internal | 128 | –97 | –133 | 323 | 0 | 231 |
| Heat | 1,025 | 1,063 | 1,268 | 1,356 | 1,466 | 1,394 |
| - of which internal | 49 | –12 | –32 | 38 | 0 | 22 |
| Distribution | 707 | 707 | 753 | 769 | 789 | 800 |
| - of which internal | 10 | –8 | 8 | 9 | 10 | 13 |
| Markets | 1,387 | 1,365 | 1,912 | 1,683 | 1,922 | 1,449 |
| - of which internal | 92 | –101 | 149 | 155 | 177 | 68 |
| Russia | - | - | - | - | 489 | 623 |
| - of which internal | - | - | - | - | - | - |
| Other | 90 | 91 | 78 | 81 | 83 | 74 |
| - of which internal | 93 | –63 | 62 | 72 | 82 | 72 |
| Eliminations | –1,458 | –1,407 | –1,959 | –1,760 | –2,005 | –1,501 |
| Total | 3,835 | 3,877 | 4,491 | 4,479 | 5,636 | 5,435 |
| EUR million | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 |
|---|---|---|---|---|---|---|
| Power | 730 | 854 | 985 | 1,095 | 1,528 | 1,469 |
| Heat | 207 | 253 | 253 | 290 | 250 | 227 |
| Distribution | 240 | 244 | 250 | 231 | 248 | 262 |
| Markets | 23 | 30 | –4 | –1 | –33 | 22 |
| Russia | - | - | - | - | –92 | –26 |
| Other | –52 | –47 | –47 | –51 | –56 | –66 |
| Comparable operating profit | 1,148 | 1,334 | 1,437 | 1,564 | 1,845 | 1,888 |
| Non-recurring items | 18 | 30 | 61 | 250 | 85 | 29 |
| Other items effecting comparability |
29 | –17 | –43 | 33 | 33 | –135 |
| Operating profit | 1,195 | 1,347 | 1,455 | 1,847 | 1,963 | 1,782 |
| EUR million | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 |
|---|---|---|---|---|---|---|
| Power | 104 | 112 | 108 | 103 | 97 | 93 |
| Heat | 124 | 123 | 144 | 163 | 169 | 162 |
| Distribution | 133 | 145 | 147 | 162 | 165 | 164 |
| Markets | 16 | 15 | 19 | 11 | 7 | 6 |
| Russia | - | - | - | - | 67 | 75 |
| Other | 11 | 12 | 11 | 12 | 10 | 10 |
| Total | 388 | 407 | 429 | 451 | 515 | 510 |
| EUR million | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 |
|---|---|---|---|---|---|---|
| Power | –21 | –21 | –9 | –23 | 26 | –35 |
| Heat | 15 | 11 | 23 | 24 | 12 | 30 |
| Distribution | 16 | 20 | 15 | 18 | 16 | 10 |
| Markets | 0 | 1 | 1 | 0 | 5 | 0 |
| Russia | - | - | - | - | 19 | 20 |
| Other | 2 | 44 | 39 | 222 | 48 | –4 |
| Total | 12 | 55 | 69 | 241 | 126 | 21 |
| EUR million | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 |
|---|---|---|---|---|---|---|
| Power | 84 | 83 | 95 | 93 | 134 | 97 |
| Heat | 123 | 124 | 184 | 309 | 408 | 358 |
| Distribution | 106 | 115 | 183 | 236 | 296 | 188 |
| Markets | 10 | 10 | 8 | 3 | 3 | 1 |
| Russia | - | - | - | - | 256 | 215 |
| Other | 12 | 14 | 15 | 14 | 11 | 3 |
| Total | 335 | 346 | 485 | 655 | 1,108 | 862 |
| EUR million | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 |
|---|---|---|---|---|---|---|
| Power | 23 | 45 | 5 | 52 | 0 | 57 |
| Heat | 53 | 87 | 589 | 18 | 23 | 1 |
| Distribution | 0 | - | 130 | 1 | 0 | 5 |
| Markets | 0 | - | 6 | 0 | 0 | - |
| Russia | 103 | 2 | 140 | 245 | 1,492 | 3 |
| Other | 0 | - | 40 | 1 | 1 | 1 |
| Total | 179 | 134 | 910 | 317 | 1,516 | 67 |
| EUR million | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 |
|---|---|---|---|---|---|---|
| Power | 5,804 | 5,493 | 5,690 | 5,599 | 5,331 | 5,512 |
| Heat | 2,440 | 2,551 | 3,407 | 3,507 | 3,468 | 3,786 |
| Distribution | 3,091 | 3,021 | 3,412 | 3,239 | 3,032 | 3,299 |
| Markets | 194 | 228 | 176 | 247 | 188 | 147 |
| Russia | 151 | 153 | 294 | 456 | 2,205 | 2,248 |
| Other | 220 | 447 | 835 | 1,237 | 796 | 355 |
| Total | 11,900 | 11,893 | 13,814 | 14,285 | 15,020 | 15,347 |
| % | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 |
|---|---|---|---|---|---|---|
| Power | 12.6 | 14.3 | 17.5 | 19.2 | 29.6 | 23.9 |
| Heat | 9.8 | 11.6 | 9.6 | 9.3 | 8.9 | 7.8 |
| Distribution | 8.1 | 8.8 | 8.4 | 7.7 | 8.1 | 8.7 |
| Markets | 25.2 | 17.4 | –1.6 | 6.9 | –14.0 | 16.8 |
| Russia | - | - | - | 66.3 | –3.7 | –0,3 |
| % | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 |
|---|---|---|---|---|---|---|
| Power | 12.0 | 14.9 | 17.4 | 18.9 | 28.0 | 26.6 |
| Heat | 9.3 | 11.0 | 9.2 | 9.2 | 7.3 | 7.2 |
| Distribution | 8.3 | 8.6 | 8.3 | 7.6 | 8.2 | 8.6 |
| Markets | 17.1 | 16.4 | –0.8 | –0.6 | –15.3 | 18.6 |
| Russia | - | - | - | 0.0 | –3.8 | –0,3 |
| 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | |
|---|---|---|---|---|---|---|
| Power | 4,588 | 4,374 | 4,147 | 3,475 | 3,591 | 3,373 |
| Heat | 1,605 | 2,186 | 2,345 | 2,302 | 2,422 | 2,208 |
| Distribution | 995 | 1,008 | 983 | 1,060 | 1,222 | 1,166 |
| Markets | 682 | 745 | 825 | 936 | 766 | 629 |
| Russia | - | - | - | - | 5,566 | 5,380 |
| Other | 722 | 626 | 610 | 531 | 510 | 522 |
| Total | 8,592 | 8,939 | 8,910 | 8,304 | 14,077 | 13,278 |
| EBITDA (Earnings before interest, taxes, depreciation and amortisation) |
= Operating profit + Depreciation, amortisation and impairment charges |
|
|---|---|---|
| Comparable operating profit | = Operating profit – non-recurring items – other items effecting comparability |
|
| Non-recurring items | = Mainly capital gains and losses | |
| Other items effecting comparability | = Includes effects from financial derivatives hedging fu ture cash flows where hedge accounting 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 operations (FFO) | = Net cash from operating activities before change in working capital |
|
| Capital expenditure | = Capitalised investments in property, plant and equip ment and intangible assets 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 us age/availability and/or maintains reliability. Productiv ity 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 shares | = Investments in subsidiary shares, shares in associated companies and other shares in available for sale finan cial assets. Investments in subsidiary shares are net of cash and grossed with interest-bearing liabilities in the acquired company. |
|
| Profit for the year | ||
| Return on shareholders' equity, % | = | x 100 Total equity average |
| Return on capital employed, % | = | Profit before taxes + interest and other financial expenses x 100 |
| Capital employed average | ||
| Return on capital employed continuing | = | Profit before taxes continuing operations + interest and other financial expenses continuing operations x 100 |
| operations, % | Capital employed continuing operations average |
| Operating profit + Share of profit (loss) in associated companies and joint ventures |
Average number of employees | = Based on monthly average for the whole period | |||
|---|---|---|---|---|---|
| Return on net assets, % | = Net assets average |
x 100 | Profit for the period – non-controlling interests | ||
| Comparable operating profit + Share of profit (loss) in | Earnings per share (EPS) | = Average number of shares during the period |
|||
| associated companies and joint ventures (adjusted for IAS 39 effects and major sales gains or losses) |
Net cash from operating activities | ||||
| Comparable return on net assets, % | = Comparable net assets average |
x 100 | Cash flow per share | = Average number of shares during the period |
|
| Capital employed | = Total assets – non-interest bearing liabilities – deferred | Shareholders' equity | |||
| tax liabilities – provisions | Equity per share | = Number of shares at the end of the period |
|||
| Net assets | = Non-interest bearing assets + interest-bearing assets related to the Nuclear Waste Fund – non-interest |
Dividend per share | |||
| bearing liabilities – provisions (non-interest bearing assets and liabilities do not include finance related |
Payout ratio, % | = Earnings per share |
x 100 | ||
| items, tax and deferred tax and assets and liabilities from fair valuations of derivatives where hedge |
Dividend per share continuing operations | ||||
| accounting is applied) | Payout ratio continuing operations, % = | Earnings per share continuing operations | x 100 | ||
| Comparable net assets | = Net assets adjusted for non-interest-bearing assets and liabilities arising from financial derivatives hedging |
Dividend per share | |||
| future cash flows where hedge accounting is not applied according to IAS 39 |
Dividend yield, % | = Share price at the end of the period |
x 100 | ||
| Interest-bearing net debt | = Interest-bearing liabilities – liquid funds | Share price at the end of the period | |||
| Price/earnings (P/E) ratio | = Earnings per share |
||||
| Gearing, % | Interest-bearing net debt = |
x 100 | Amount traded in euros during the period | ||
| Total equity | Average share price | = Number of shares traded during the period |
|||
| Equity-to-assets ratio, % | Total equity including non-controlling interests = |
x 100 | Market capitalisation | = Number of shares at the end of the period x | |
| Total assets | share price at the end of the period | ||||
| Net debt / EBITDA | Interest-bearing net debt = |
Trading volumes | = Number of shares traded during the period in relation to the weighted average number of shares during the |
||
| Operating profit + Depreciation, amortisation and impairment charges |
period | ||||
| Net debt / EBITDA continuing | = Interest-bearing net debt | ||||
| operations | Operating profit continuing operations + Depreciation, amortisation and impairment charges continuing operations |
||||
| Operating profit | |||||
| Interest coverage | = Net interest expenses |
||||
| Interest coverage including capitalised | Operating profit | ||||
| borrowing costs | = Net interest expenses-capitalised borrowing costs |
| EUR million | Note | 2009 | 2008 |
|---|---|---|---|
| Sales | 2 | 61 | 68 |
| Other income | 3 | 8 | 7 |
| Employee costs | 4 | –41 | –48 |
| Depreciation, amortisation and write-downs | –10 | –10 | |
| Other expenses | –58 | –60 | |
| Operating profit | –40 | –43 | |
| Financial income and expenses | 5 | 580 | 1,215 |
| Profit after financial items | 540 | 1,172 | |
| Group contributions 1) | 792 | 757 | |
| Profit before income tax | 1,332 | 1,929 | |
| Income tax expense | 6 | –134 | –108 |
| Profit for the period | 1,198 | 1,821 | |
1)Taxable profits transferred from Finnish subsidiaries.
| EUR million | Note | 2009 | 2008 |
|---|---|---|---|
| ASSETS | |||
| Non-current assets | 7 | ||
| Intangible assets | 14 | 15 | |
| Property, plant and equipment | 11 | 15 | |
| Investments in group companies | 15,965 | 16,285 | |
| Interest-bearing receivables from group companies | 698 | 970 | |
| Investments in associated companies | 0 | 0 | |
| Interest-bearing receivables from associated companies | 1 | 2 | |
| Other non-current assets | 4 | 6 | |
| Deferred tax assets | 3 | 3 | |
| Total non-current assets | 16,696 | 17,296 |
| Trade and other receivables from group companies | 8 | 819 | 798 |
|---|---|---|---|
| Trade and other receivables from associated companies | 8 | 0 | 0 |
| Trade and other receivables | 8 | 125 | 686 |
| Cash and cash equivalents | 9 | 214 | 249 |
| Total current assets | 1,158 | 1,733 | |
| Total assets | 17,854 | 19,029 |
| EUR million | Note | 2009 | 2008 |
|---|---|---|---|
| SHAREHOLDER S' EQUITY AND LIABILITIE S |
|||
| Shareholders' equity | 10 | ||
| Share capital | 3,046 | 3,044 | |
| Share issue | - | 0 | |
| Share premium | 2,822 | 2,822 | |
| Retained earnings | 2,854 | 1,921 | |
| Profit for the period | 1,198 | 1,821 | |
| Total shareholders' equity | 9,920 | 9,608 | |
| Provisions for liabilities and charges | 0 | - | |
| LIABILITIE S |
|||
| Non-current liabilities | |||
| External interest-bearing liabilities | 11 | 5,266 | 6,016 |
| Interest-bearing liabilities to group companies | 11 | 1,438 | 1,767 |
| Interest-bearing liabilities to associated companies | 11 | 199 | 184 |
| Other non-current liabilities | 12 | 13 | |
| Deferred tax liabilities | 33 | 67 | |
| Total non-current liabilities | 6,948 | 8,047 | |
| Current liabilities | |||
| External interest-bearing liabilities | 11 | 780 | 687 |
| Trade and other payables to group companies | 12 | 43 | 570 |
| Trade and other payables to associated companies | 12 | 5 | 8 |
| Trade and other payables | 12 | 158 | 109 |
| Total current liabilities | 986 | 1,374 | |
| Total liabilities | 7,934 | 9,421 | |
| Total equity and liabilities | 17,854 | 19,029 |
| EUR million | 2009 | 2008 |
|---|---|---|
| Cash flow from operating activities | ||
| Profit for the period | 1,198 | 1,821 |
| Adjustments: | ||
| Income tax expense | 134 | 108 |
| Group contributions | –792 | –757 |
| Finance costs - net | –580 | –1,215 |
| Depreciations, amortisation and write-downs | 10 | 10 |
| Operating profit before depreciations | –30 | –33 |
| Non-cash flow items and divesting activities | 0 | –1 |
| Interest and other financial income | 23 | 152 |
| Interest and other financial expenses paid, net | –282 | –442 |
| Dividend income | 1,147 | 1,596 |
| Group contribution received | 757 | 724 |
| Realised foreign exchange gains and losses | 612 | –695 |
| Income taxes paid | –66 | –147 |
| Funds from operations | 2,161 | 1,154 |
| Decrease/increase in trade and other short-term receivables | 13 | 5 |
| Increase in trade and other short-term payables | –11 | 0 |
| Change in working capital | 2 | 5 |
| Net cash from operating activities | 2,163 | 1,159 |
| Cash flow from investing activities | –13 | |
| Capital expenditures Acquisition of shares and capital contributions in subsidiaries |
–4 - |
–4,110 |
| Acquisition of other shares | –1 | 0 |
| Proceeds from sales of fixed assets | 0 | 1 |
| Proceeds from sales of shares in associates | 0 | - |
| Change in interest-bearing receivables and other non-current assets | 274 | 1,005 |
| Net cash used in investing activities | 269 | –3,117 |
| Cash flow before financing activities | 2,432 | –1,958 |
| Cash flow from financing activities | ||
| Proceeds from long-term liabilities | 1,606 | 5,382 |
| Payment of long-term liabilities | –2,497 | –3,346 |
| Change in short-term liabilities | –692 | 993 |
| Proceeds from stock options exercised | 3 | 4 |
| Dividends paid | –888 | –1,198 |
| Net cash used in financing activities | –2,468 | 1,835 |
| Net increase (+) /decrease (–) in cash and cash equivalents | –36 | –123 |
| Cash and cash equivalents at the beginning of the period | 250 | 373 |
| Cash and cash equivalents at the end of the period | 214 | 250 |
| Net increase (+) / decrease (–) in cash and cash equivalents | –36 | –123 |
The financial statements of Fortum Oyj are prepared in accordance with Finnish Accounting Standards (FAS).
Sales include sales revenue from actual operations and exchange rate differences on trade receivables, less discounts and indirect taxes such as value added tax.
Other income includes gains on the sales of tangible assets and shareholdings, as well as all other operating income not related to the sales of products or services, such as rents.
Transactions denominated in foreign currencies have been valued using the exchange rate at the date of the transaction. Receivables and liabilities denominated in foreign currencies outstanding on the balance sheet date have been valued using the exchange rate quoted on the balance sheet date. Exchange rate differences have been entered in the financial net in the income statement.
Fortum Oyj enters into derivative contracts mainly for hedging foreign exchange and interest rate exposures.
Derivatives used to hedge balance sheet items e.g. bank accounts, loans or receivables are valued employing the exchange rate quoted on the balance sheet date, and gains or losses are recognised in the income statement. The interest element on forward contracts is accrued for the period.
Option premiums are treated as advances paid or received until the option matures, and any losses on options entered into other than for hedging purposes are entered as an expense in the income statement.
Interest income or expense for derivatives used to hedge the interest rate risk exposure is accrued over the period to maturity and is recognised as an adjustment to the interest expense of the liabilities.
Income taxes presented in the income statement consist of accrued taxes for the financial year and tax adjustments for prior years.
The balance sheet value of property, plant and equipment consists of historical costs less depreciation and other deductions. Property, plant and equipment are depreciated using straight-line depreciation based on the expected useful life of the asset.
| The depreciation is based on the following expected useful lives: | |
|---|---|
| Buildings and structures | 15–40 years |
| Machinery and equipment | 3–15 years |
| Other intangible assets | 5–10 years |
Statutory pension obligations are covered through a compulsory pension insurance policy or Group's own pension fund. Payments to Group's pension fund are recorded in the income statement in amounts determined by the pension fund according to the actuarial assumptions pursuant to the Finnish Employees' Pension Act.
Costs related to the Fortum long-term incentive plans are accrued over the plan period and the related liability is booked to the balance sheet.
Foreseeable future expenses and losses that have no corresponding revenue to which Fortum is committed or obliged to settle, and whose monetary value can be reasonably assessed, are entered as expenses in the income statement and included as provisions in the balance sheet.
| EUR million | 2009 | 2008 |
|---|---|---|
| Finland | 57 | 63 |
| Other countries | 4 | 5 |
| Total | 61 | 68 |
| EUR million | 2009 | 2008 |
|---|---|---|
| Gain on sales of shareholdings | 0 | - |
| Rental and other income | 8 | 7 |
| Total | 8 | 7 |
| EUR million | 2009 | 2008 |
|---|---|---|
| Personnel expenses | ||
| Wages, salaries and remunerations | 32 | 30 |
| Indirect employee costs | ||
| Pension costs | 5 | 11 |
| Other indirect employee costs | 2 | 2 |
| Other personnel expenses | 2 | 5 |
| Total | 41 | 48 |
| Salaries and remunerations | ||
| President and CEO 1) | 2 | 3 |
| Board of Directors | 0 | 1 |
| Supervisory Board | 0 | 0 |
| Total | 2 | 4 |
1) The President and CEO of the company changed May 1, 2009. The salaries and remuneration to the President and CEO is presented for the former CEO January 1–April 30 and the new CEO May 1–December 31.
For the President and CEO the retirement age is 63. The pension obligations are covered either through insurance companies or through the Fortum Pension Fund. ˭ See also Note 35 Pension obligations on page 165 in the Consolidated financial statements.
| 2009 | 2008 | |
|---|---|---|
| Average number of employees | 422 | 504 |
| EUR million | 2009 | 2008 |
|---|---|---|
| Dividend income from group companies | 1,147 | 1,596 |
| Interest and other financial income from group companies | 60 | 125 |
| Write-downs of participations in group companies | –320 | –80 |
| Interest and other financial income | 4 | 12 |
| Exchange rate differences | –7 | –7 |
| Interest and other financial expenses to group companies | –28 | –112 |
| Interest and other financial expenses | –276 | –319 |
| Total | 580 | 1,215 |
| Total interest income and expenses | ||
| Interest income | 63 | 136 |
| Interest expenses | –299 | –427 |
| Interest net | –236 | –291 |
Write-downs of participations in group companies is related to shares in Fortum Heat and Gas Oy. Write-downs is a consequence of received dividends.
| EUR million | 2009 | 2008 |
|---|---|---|
| Taxes on regular business operations | –72 | –89 |
| Taxes on group contributions | 206 | 197 |
| Total | 134 | 108 |
| Current taxes for the period | 166 | 45 |
| Current taxes for prior periods | 2 | 0 |
| Changes in deferred tax | –34 | 63 |
| Total | 134 | 108 |
| Ingtangible | |
|---|---|
| EUR million | assets total |
| Cost 1 January 2009 | 36 |
| Additions | 3 |
| Disposals | –5 |
| Cost 31 December 2009 | 34 |
| Accumulated depreciation 1 January 2009 | 21 |
| Disposals | –5 |
| Depreciation for the period | 4 |
| Accumulated depreciation 31 December 2009 | 20 |
| Carrying amount 31 December 2009 | 14 |
| Carrying amount 31 December 2008 | 15 |
| Machinery | Advances paid and |
|||
|---|---|---|---|---|
| Buildings and | and | construction | ||
| EUR million | structures | equipment | in progress | Total |
| Cost 1 January 2009 | 1 | 31 | 5 | 37 |
| Additions | - | 2 | - | 2 |
| Disposals | - | –7 | –1 | –8 |
| Cost 31 December 2009 | 1 | 26 | 4 | 31 |
| Accumulated depreciation 1 January 2009 | 0 | 22 | - | 22 |
| Disposals | - | –7 | - | –7 |
| Depreciation for the period | 0 | 5 | - | 5 |
| Accumulated depreciation 31 December 2009 | 0 | 20 | - | 20 |
| Carrying amount 31 December 2009 | 1 | 6 | 4 | 11 |
| Carrying amount 31 December 2008 | 1 | 9 | 5 | 15 |
| Receivables | ||||||
|---|---|---|---|---|---|---|
| Shares in | Receivables | Shares in | from | Other non | ||
| Group | from Group | associated | associated | current | ||
| EUR million | companies | companies | companies | companies | assets | Total |
| 1 January 2009 | 16,365 | 970 | 0 | 2 | 6 | 17,343 |
| Additions 1) | - | 149 | - | 0 | 1 | 150 |
| Disposals | - | –421 | 0 | –1 | –3 | –425 |
| 31 December 2009 | 16,365 | 698 | 0 | 1 | 4 | 17,068 |
| Accumulated depreciation 1 January 2009 |
–80 | - | - | - | - | –80 |
| Impairment charges | –320 | - | - | - | - | –320 |
| Accumulated depreciation 31 December 2009 2) |
–400 | - | - | - | - | –400 |
| Carrying amount 31 December 2009 | 15,965 | 698 | 0 | 1 | 4 | 16,668 |
1) Additions regarding shares comprise acquisitions of shares and capital contributions.
2) Write-downs of participations in group companies is related to shares in Fortum Heat and Gas Oy. Write-downs is a consequence of received dividends.
| EUR million | 2009 | 2008 |
|---|---|---|
| Trade and other receivables from group companies | ||
| Trade receivables | 17 | 28 |
| Other receivables | 792 | 757 |
| Accrued income and prepaid expenses | 10 | 13 |
| Total | 819 | 798 |
| Trade and other receivables from associated companies | ||
| Trade receivables | 0 | 0 |
| Trade and other receivables | ||
| Trade receivables | 0 | 0 |
| Other receivables | 1 | 1 |
| Accrued income and prepaid expenses | 124 | 685 |
| Total | 125 | 686 |
| EUR million | 2009 | 2008 |
|---|---|---|
| Cash at bank and in hand | 104 | 19 |
| Bank deposits | 110 | 230 |
| Cash and cash equivalents | 214 | 249 |
| EUR million | Share capital | Share issue | Share premium |
Retained earnings |
Total |
|---|---|---|---|---|---|
| Total equity 31 December 2008 | 3,044 | 0 | 2,822 | 3,742 | 9,608 |
| Stock options exercised | 2 | 0 | - | - | 2 |
| Cash dividend | - | - | - | –888 | –888 |
| Profit for the period | - | - | - | 1,198 | 1,198 |
| Total equity 31 December 2009 | 3,046 | 0 | 2,822 | 4,052 | 9,920 |
| Total equity 31 December 2007 | 3,040 | 0 | 2,822 | 3,119 | 8,981 |
| Stock options exercised | 4 | - | - | - | 4 |
| Cash dividend | - | - | - | –1,198 | –1,198 |
| Profit for the period | - | - | - | 1,821 | 1,821 |
| Total equity 31 December 2008 | 3,044 | 0 | 2,822 | 3,742 | 9,608 |
| EUR million | 2009 | 2008 |
|---|---|---|
| Distributable funds 31 December | 4,052 | 3,742 |
| EUR million | 2009 | 2008 |
|---|---|---|
| Bonds | 3,642 | 2,488 |
| Loans from financial institutions | 866 | 2,837 |
| Other long-term interest-bearing debt | 758 | 691 |
| Total long-term interest-bearing debt | 5,266 | 6,016 |
| Current portion of long-term bonds | 500 | 230 |
| Current portion of loans from financial institutions | 0 | 0 |
| Commercial papers | 250 | 457 |
| Other short-term interest-bearing debt | 30 | 0 |
| Total short-term interest-bearing debt | 780 | 687 |
| Total external interest-bearing debt | 6,046 | 6,703 |
| EUR million | 2009 |
|---|---|
| 2010 | 780 |
| 2011 | 576 |
| 2012 | 441 |
| 2013 | 522 |
| 2014 | 1,105 |
| 2015 and later | 2,622 |
| Total | 6,046 |
| EUR million | 2009 | 2008 |
|---|---|---|
| Bonds | 1,550 | 985 |
| Loans from financial institutions | 321 | 120 |
| Other long-term liabilities | 751 | 691 |
| Total | 2,622 | 1,796 |
| 2009 | 2008 |
|---|---|
| 17 | |
| 184 | |
| 216 | 201 |
| 17 199 |
| EUR million | 2009 | 2008 |
|---|---|---|
| Trade and other payables to group companies | ||
| Trade payables | 1 | 8 |
| Other liabilities | 42 | 559 |
| Accruals and deferred income | 0 | 3 |
| Total | 43 | 570 |
| Trade and other payables to associated companies | ||
| Trade payables | 0 | - |
| Accruals and deferred income | 5 | 8 |
| Total | 5 | 8 |
| Trade and other payables | ||
| Trade payables | 7 | 10 |
| Other liabilities | 2 | 2 |
| Other short-term accruals and deferred income | 149 | 97 |
| Total | 158 | 109 |
| EUR million | 2009 | 2008 |
|---|---|---|
| On own behalf | ||
| Other contingent liabilities | 5 | 6 |
| On behalf of group companies | ||
| Guarantees | 648 | 463 |
| On behalf of associated companies | ||
| Guarantees | 518 | 489 |
| On behalf of others | ||
| Guarantees | 1 | 4 |
| Contingent liabilities total | 1,172 | 962 |
| EUR million | 2009 | 2008 |
|---|---|---|
| Lease payments | ||
| Not later than 1 year | 1 | 1 |
| Later than 1 year and not later than 5 years | 0 | 0 |
| Total | 1 | 1 |
| 2009 | 2008 | |||||
|---|---|---|---|---|---|---|
| Contract or notional |
Not recognised as an |
Contract or notional |
Not recognised as an |
|||
| EUR million | value Fair value | income | value Fair value | income | ||
| Forward rate agreements | - | - | - | 230 | 0 | 0 |
| Interest rate swaps | 3,985 | 41 | –5 | 2,977 | –12 | –13 |
| Forward foreign exchange contracts 1) | 15,307 | 1 | –3 | 12,846 | 366 | –4 |
| Interest rate and currency swaps | 1,372 | 68 | 4 | 2,145 | 217 | 6 |
1)Includes also future positions.
˭ See Note 43 Related party transactions on page 170 in the Consolidated financial statements.
Parent company's distributable equity as of 31 December 2009 amounted to EUR 4,052,460,031.65. After the end of the financial period there have been no material changes in the financial position of the Company.
The Board of Directors proposes to the Annual General Meeting that Fortum Corporation pay a cash dividend of EUR 1.00 per share for 2009, totalling EUR 888 million based on the number of registered shares as of 2 February 2010.
Espoo, 2 February 2010
Matti Lehti
Esko Aho
Birgitta Johansson-Hedberg
Sari Baldauf
Ilona Ervasti-Vaintola
Christian Ramm-Schmidt
Tapio Kuula President and CEO
13 14
We have audited the accounting records, the financial statements, the Operating and Financial Review, and the administration of Fortum Oyj for the financial period 1.1.– 31.12.2009. The financial statements comprise of the consolidated income statement, statement of comprehensive income, balance sheet, statement of changes in equity, cash flow statement and notes to the consolidated financial statements, as well as the parent company's balance sheet, income statement, cash flow statement and notes to the financial statements.
The responsibility of the Supervisory Board is to supervise the company's administration by the Board of Directors and the President and CEO. The Board of Directors and the President and CEO are responsible for the preparation of the financial statements and the Operating and Financial Review and for the fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, as well as for the fair presentation of the parent company's financial statements and the Operating and Financial Review in accordance with laws and regulations governing the preparation of the financial statements and the Operating and Financial Review in Finland. The Board of Directors is responsible for the appropriate arrangement of the control of the company's accounts and finances, and the President and CEO shall see to it that the accounts of the company are in compliance with the law and that its financial affairs have been arranged in a reliable manner.
Our responsibility is to perform an audit in accordance with good auditing practice in Finland, and to express an opinion on the parent company's financial statements, on the consolidated financial statements and on the Operating and Financial Review based on our audit. Good auditing practice requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements and the Operating and Financial Review are free from material misstatement and whether the members of the parent company's Supervisory Board and Board of Directors and the President and CEO have complied with the Limited Liability Companies Act.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements and the Operating and Financial Review. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company's preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements and the Operating and Financial Review.
The audit was performed in accordance with good auditing practice in Finland. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
In our opinion, the consolidated financial statements give a true and fair view of the financial position, financial performance, and cash flows of the group in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.
In our opinion, the financial statements, together with the consolidated financial statements included therein, and the Operating and Financial Review give a true and fair view of the financial performance and financial position of the company in accordance with the laws and regulations governing the preparation of the financial statements and the Operating and Financial Review in Finland. The information in the Operating and Financial Review is consistent with the information in the financial statements.
The consolidated financial statements and the parent company's financial statements can be adopted and the members of the Supervisory Board and the Board of Directors and the President and CEO of the parent company can be discharged from liability for the period audited by us. The proposal by the Board of Directors regarding the treatment of distributable funds is in compliance with the Limited Liability Companies Act.
Espoo, February 2, 2010
Deloitte & Touche Oy Authorized Public Audit Firm
Mikael Paul Authorized Public Auditor
The Supervisory Board has today in its meeting reviewed Fortum Corporation's income statement, balance sheet and notes to the financial statements for the year 2009 as well as consolidated financial statements, operating and financial review and auditors' report provided by the Company's auditors. The Supervisory Board has no comments to make on these. The Supervisory Board recommends that the income statement, balance sheet and consolidated financial statements can be approved.
The Supervisory Board states that it has received adequate information from the Board of Directors and the company's management.
Espoo, 10 February 2010
Markku Laukkanen
Martti Alakoski Tarja Filatov
Sampsa Kataja
Kimmo Kiljunen Katri Komi
Panu Laturi
Juha Mieto Jukka Mäkelä
Sanna Perkiö
Helena Pesola
| EUR million | Q1/2008 | Q2/2008 | Q3/2008 | Q4/2008 | 2008 | Q1/2009 | Q2/2009 | Q3/2009 | Q4/2009 | 2009 |
|---|---|---|---|---|---|---|---|---|---|---|
| Sales | 1,440 | 1,322 | 1,272 | 1,602 | 5,636 | 1,632 | 1,194 | 1,046 | 1,563 | 5,435 |
| EBITDA | 720 | 483 | 532 | 743 | 2,478 | 721 | 499 | 414 | 658 | 2,292 |
| Operating profit | 609 | 348 | 395 | 611 | 1,963 | 599 | 375 | 286 | 522 | 1,782 |
| Share of profit/loss of associates and joint ventures | 34 | 36 | 8 | 48 | 126 | –33 | 29 | 3 | 22 | 21 |
| Finance costs - net | –45 | –74 | –66 | –54 | –239 | –32 | –49 | –47 | –39 | –167 |
| Profit before income tax | 598 | 310 | 337 | 605 | 1,850 | 534 | 355 | 242 | 505 | 1,636 |
| Income tax expense | –122 | –65 | –69 | 2 | –254 | –111 | –61 | –39 | –74 | –285 |
| Profit for the period | 476 | 245 | 268 | 607 | 1,596 | 423 | 294 | 203 | 431 | 1,351 |
| Profit for the period, non-controlling interests | –24 | –2 | 16 | –44 | –54 | –17 | –5 | 8 | –25 | –39 |
| Profit for the period, owners of the parent | 452 | 243 | 284 | 563 | 1,542 | 406 | 289 | 211 | 406 | 1,312 |
| Earnings per share, basic, EUR | 0.51 | 0.27 | 0.32 | 0.64 | 1.74 | 0.46 | 0.32 | 0.24 | 0.46 | 1.48 |
| Earnings per share, diluted, EUR | 0.51 | 0.27 | 0.32 | 0.64 | 1.74 | 0.46 | 0.32 | 0.24 | 0.46 | 1.48 |
| EUR million | Q1/2008 | Q2/2008 | Q3/2008 | Q4/2008 | 2008 | Q1/2009 | Q2/2009 | Q3/2009 | Q4/2009 | 2009 |
|---|---|---|---|---|---|---|---|---|---|---|
| Power | 717 | 721 | 718 | 736 | 2,892 | 705 | 625 | 587 | 679 | 2,596 |
| Heat | 493 | 284 | 226 | 463 | 1,466 | 513 | 248 | 176 | 457 | 1,394 |
| Distribution | 232 | 180 | 171 | 206 | 789 | 229 | 176 | 168 | 227 | 800 |
| Markets | 519 | 411 | 461 | 531 | 1,922 | 469 | 298 | 272 | 410 | 1,449 |
| Russia | - | 152 | 140 | 197 | 489 | 184 | 136 | 109 | 194 | 623 |
| Other | 20 | 21 | 21 | 21 | 83 | 18 | 19 | 18 | 19 | 74 |
| Netting of Nord Pool transactions 1) | –426 | –369 | –465 | –476 | –1,736 | –358 | –212 | –200 | –325 | –1,095 |
| Eliminations | –115 | –78 | 0 | –76 | –269 | –128 | –96 | –84 | –98 | –406 |
| Total | 1,440 | 1,322 | 1,272 | 1,602 | 5,636 | 1,632 | 1,194 | 1,046 | 1,563 | 5,435 |
1) Sales and purchases with Nord Pool is netted on Group level on an hourly basis and posted either as revenue or cost depending on if Fortum is a net seller or net buyer during any particular hour.
| EUR million | Q1/2008 | Q2/2008 | Q3/2008 | Q4/2008 | 2008 | Q1/2009 | Q2/2009 | Q3/2009 | Q4/2009 | 2009 |
|---|---|---|---|---|---|---|---|---|---|---|
| Power | 395 | 384 | 371 | 378 | 1,528 | 419 | 346 | 310 | 394 | 1,469 |
| Heat | 121 | 27 | –7 | 109 | 250 | 112 | 26 | –14 | 103 | 227 |
| Distribution | 87 | 49 | 49 | 63 | 248 | 81 | 54 | 47 | 80 | 262 |
| Markets | –10 | –15 | –8 | 0 | –33 | –2 | 6 | 7 | 11 | 22 |
| Russia | - | –33 | –39 | –20 | –92 | 5 | –16 | –22 | 7 | –26 |
| Other | –12 | –9 | –13 | –22 | –56 | –13 | –16 | –12 | –25 | –66 |
| Comparable operating profit | 581 | 403 | 353 | 508 | 1,845 | 602 | 400 | 316 | 570 | 1,888 |
| Non-recurring items | 2 | 0 | 15 | 68 | 85 | 4 | 10 | 7 | 8 | 29 |
| Other items effecting comparability | 26 | –55 | 27 | 35 | 33 | –7 | –35 | –37 | –56 | –135 |
| Operating profit | 609 | 348 | 395 | 611 | 1,963 | 599 | 375 | 286 | 522 | 1,782 |
The first and last quarters of the year are usually the strongest quarters for power and heat businesses.
˭ Quarterly information is available on Fortum's website www.fortum.com/investors/financial information.
Fortum publishes three interim reports in 2010:
The reports are published at approximately 9:00 EET in Finnish and English, and are available on Fortum's website at www.fortum.com.
Fortum's management hosts regular press conferences for analysts and the media. A webcast of these conferences is available online at www.fortum.com. Management also gives interviews on a one-on-one and group basis. Fortum observes a silent period of 30 days prior to publishing its results.
Fortum was ranked number four in the Hallvarsson &
The Annual General Meeting of Fortum Corporation will be held on Thursday, 25 March 2010 at 1:00 p.m. EET at the Finlandia Hall, address: Mannerheimintie 13 e, 00100 Helsinki. The reception of shareholders who have registered for the meeting will commence at 12:00 a.m. EET.
The Board of Directors proposes to the Annual General Meeting that Fortum Corporation pay a cash dividend of EUR 1.00 per share for 2009, totalling EUR 888 million based on the number of regis tered shares as of 2 February 2010.
Listed on NASDAQ OMX Helsinki Trading ticker: FUM1V Number of shares, 2 February 2010: 888,367,045 Sector: Utilities
Mika Paloranta, Vice President, Investor Relations, tel. +358 (0)10 452 4138, fax +358 (0) 10 452 4176, e-mail: [email protected]
Rauno Tiihonen, Manager, Investor Relations, tel. +358 (0)10 453 6150, fax +358 (0) 10 452 4176, e-mail: [email protected]
Financial documents can be obtained from Fortum Corporation, Mail Room, POB 1, FI-00048, FORTUM, Finland, tel. +358 (0)10 452 9151, e-mail: [email protected]
Investor information is available online at www.fortum.com/investors
Graphic design, illustrations and production: Miltton Oy Photographs: Tomi Parkkonen (cover, 7, 9, 11, 17, 78–81), Finnish Press Agency (inner front cover), An drey Semenov (12), Petri Hakala (14), Stefan Sjödin (15, 30, 82), Fortum (15), Pekka Koski, Veho (15), Loviisan voimalaitos (15, 40), Echelon & Fortum (15). Johner (22), Natalia Zaitseva (52), Fennopress (64). Paper: Invercote Creato 300 g, Galerie Art Matt 130/100 g. Printing: Libris Oy 2010
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