Energy News Monitoring

Fortum’s business activities cover the production and sales of electricity and heat, waste-to-energy and circular economy solutions, as well as energy-sector expert services and various consumer solutions. Globally, the company is one of the leading heat producers. As two thirds of Fortum's power production is hydro and nuclear, Fortum is a leading clean-energy company, which operates power plants, generates and sells electricity and heat. It also provides waste services for the power generation industry and services for environmental construction. The company has operations in 10 countries, with the key markets in the Nordic and Baltic countries, Russia, Poland and India, and is the largest power generator and the largest electricity retailer in the Nordic countries. Fortum employs more than 8,000 energy-sector professionals.

Fortum's business divisions are: Generation – responsible for Nordic power production, including nuclear, hydro and thermal power production; City Solutions – responsible for heating and cooling, waste-to-energy, biomass and other circular economy solutions; Consumer Solutions – which comprise electricity and gas retail businesses in the Nordics and Poland, including a customer service, invoicing, and debt collection business; the Russia segment - which comprises power and heat generation and sales in Russia; Other Operations – which includes M&A and Solar & Wind Development, Technology and New Ventures as well as corporate functions. In November 2018, Fortum announced that the solar and wind businesses were to be reorganized; the wind operations became a business area within the Generation division and the solar operations within the City Solutions division. The Russian wind and solar operations continue as a part of the Russia division.

Fortum has 124 hydro power plants, 27 CHP (Combined Heat and Power), condensing, and nuclear power plants as well as three wind power parks and three solar power plants. Globally, the company supplies heat in 23 towns and cities, and has five main waste treatment facilities.

Closing the offer on Uniper shares in June 2018 was the most significant milestone during the year. At the end of 2018, Fortum held 49.99% of Uniper shares and voting rights.

The impact of the higher power prices is reflected in Fortum´s full-year comparable operating profit, which According to the Fortum Financial Statements Presentation 2018 increased by 22% from EUR 811 million in 2017 to EUR 987 million in 2018.

The investment in Uniper only had a marginal effect on Fortum's 2018 results, as they only include Fortum's share of Uniper's third-quarter results. In the future Uniper's profit and dividends will contribute to Fortum's earnings per share and cash flow.

Highlight of the year for the Generation division was the clearly improved results, driven by higher market prices. During the year Fortum finalised the automation modernisation project at the Loviisa nuclear power plant, the biggest single project since the construction of the plant. Following strong improvement in Russia over the past years, the 2018 results in roubles improved slightly. In the City Solutions and Consumer Solutions divisions, 2018 was characterised by the integration of Hafslund, which proceeded well. Unfortunately, the financial results for these two divisions have not yet reached satisfactory levels.

In 2018 comparable EBITDA increased by 19% from EUR 1,275 million in 2017 to EUR 1,523 million in 2018, mainly as a result of the higher achieved power price, the positive impact from the consolidation of the acquired Hafslund businesses and lower real-estate and capacity taxes in Swedish hydro and nuclear power plants. Fortum's sales increased by 16% to EUR 5,242 million, mainly reflecting the consolidation of Hafslund and higher power prices in 2018.

Among the group, the performance of four segments was indicated by an increase in comparable EBITDA of 26% (Generation), 8% (City Solutions), 93% (Consumer Solutions) and 40% (Other Operation) and by an increase in comparable operating profit of 32% (Generation), 15% (City Solutions), 2% (Consumer Solutions) and 23% (Other Operation).

The Russian segment was indicated by a decrease in comparable EBITDA of 5% from EUR 438 million in 2017 to EUR 417 million in 2018, and in comparable operating profit of 8% from EUR 296 million in 2017 to 271 million.

According to the Fortum Financial Statements Bulletin 2018, the total sales turnover increased by 16% in 2018 from EUR 4,520 million in 2017 to EUR 5,242 million in 2018, mainly reflecting the consolidation of Hafslund and higher power prices. The sales turnover in 2016 amounted to EUR 3,632 million. The operating profit decreased by 2% from EUR1,158 million in 2017 to EUR 1,138 million in 2018.

In 2018, net cash from operating activities decreased by EUR 189 million to EUR 804 million from EUR 993 million, mainly impacted by an increase in comparable EBITDA of EUR 248 million, an increase of realised foreign exchange gains and losses of EUR 314 million, and the negative effect of a EUR 751 million increase in working capital.

Capital expenditure decreased by EUR 78 million from EUR 657 million in 2017 to EUR 579 million in 2018 and was below the 2018 guidance of between EUR 600-700 million.

At the end of 2018, the comparable net debt to EBITDA ratio for the last 12 months was 3.6x compared to 0.8x in 2017, which is above the long-term over-the-cycle target of approximately 2.5x. Return on capital employed (ROCE) for the last twelve months was 6.7% in 2018 compared to 7.1% in 2017. Fortum targets a long-term over-the-cycle return on capital employed of at least 10%.

Total goodwill in the balance sheet as of 31 December 2018 amounted to EUR 588 million compared to EUR 613 million in 2017. In 2018 Fortum finalised the purchase price allocation of Hafslund Markets Group and Fortum Oslo Varme Group acquired in 2017.

Fortum also invests in technologies that support better utilisation of the current asset base and those that can create new markets and products for the Company. In 2018, Fortum’s R&D expenditure was EUR 56 million, or 1.1% of sales compared to EUR 53 million or 1.2% of sales in 2017.