Annual Report 2013 | Suomeksi |

1 Accounting policies

1.1 Basic information

Fortum Corporation (the Company) is a Finnish public limited liability company with its 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 3 February 2014.

1.2 Basis of preparation

The consolidated financial statements of the 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.

1.2.1 Income statement presentation

In the Consolidated income statement Comparable operating profit is presented to better reflect the Group’s business performance when comparing results for the current period with previous periods.

Items affecting comparability are disclosed as a separate line item. The following items are included in “Items affecting comparability”:

  • non-recurring items, which mainly consist of capital gains and losses;
  • effects from fair valuations of derivatives hedging future cash flows which do not obtain hedge accounting status according to IAS 39. The major part of Fortum’s cash flow hedges obtain hedge accounting where fair value changes are recorded in equity;
  • effects from accounting of Fortum’s part of the State Nuclear Waste Management Fund where the assets can not exceed the related liabilities according to IFRIC 5.

Comparable operating profit is used for financial target setting, follow up and allocation of resources in the group’s performance management.

1.2.2 Classification of current and non-current assets and liabilities

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.

1.3 Principles for consolidation

The consolidated financial statements have been prepared in accordance with the principles set forth in IAS 27, Consolidated and Separate Financial Statements. The consolidated financial statements comprise of the parent company, subsidiaries, joint ventures and associated companies.

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. 

1.3.1 Subsidiaries

Subsidiaries are defined as 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 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.

The Fortum Group subsidiaries are disclosed in Note 42 Subsidiaries by segment on 31 December 2013.

1.3.2 Associates and joint ventures

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.

1.3.3. Non-controlling interests

Non-controlling interests in subsidiaries are identified separately from the equity of the owners of the parent company. The non-controlling interests are 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. 

1.4 Foreign currency transactions and translation

1.4.1 Functional and  presentation currency

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.

1.4.2 Transactions and balances

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 Other equity components section of the equity.

1.4.3 Group companies

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.

The balance sheet date rate is based on the 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 the ending rate of the previous year.

Key exchange rates for Fortum Group applied in the accounts
Average rate Balance sheet date rate
Currency 2013 2012 31 Dec 2013 31 Dec 2012
Sweden SEK 8.6624 8.7015 8.8591 8.5820
Russia RUB 42.4441 40.2354 45.3246 40.3295
Poland PLN 4.2027 4.1900 4.1543 4.0740
Norway NOK 7.8266 7.4840 8.3630 7.3483

1.4.4 Associates and joint ventures

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 1.4.3 Group companies.

1.5 Accounting policies

Fortum describes the accounting principles in conjunction with the relevant note information. The table below lists the significant accounting policies and the note where they are presented as well as the relevant IFRS standard. 


Accounting principle Note IFRS-standard
Segment reporting 5. Segment reporting IFRS 8
Revenue recognition 5. Segment reporting and 24. Trade and other receivables IAS 18
Government grants 19. Property, plant and equipment IAS 20
Share-based payments 12. Employee benefits IFRS 2
Income taxes 29. Deferred income taxes IAS 12
Non-current assets held for sale and discontinued operations 9. Assets held for sale IFRS 5
Joint ventures 20. Participations in associated
companies and joint ventures
IAS 31
Investments in associates 20. Participations in associated
companies and joint ventures
IAS 28
Shares and participations 16. Financial assets and liabilities by categories IAS 32, IAS 36, IAS 39
Intangible assets 18. Intangible assets IAS 38
Tangible assets 19. Property, plant and equipment IAS 16, IAS 36, IAS 40
Leasing 36. Leasing IAS 17
Inventories 23. Inventories IAS 2
Earnings per share 15. Earnings and dividend per share IAS 33
Pensions and similar obligations 32. Pension obligations IAS 19
Decommissioning obligation 30. Nuclear related assets and liabilities IFRIC 5
Provisions 31. Other provisions IAS 37
Contingent liabilities 38. Contingent liabilities IAS 37
Financial instruments 16. Financial assets and liabilities by categories and
17. Financial assets and liabilities by fair value hierarchy
IAS 32, IAS 39, IFRS 7
Cash equivalents 25. Cash and cash equivalents IAS 7
Borrowings 28. Interest-bearing liabilities IAS 39

1.6 New accounting principles 

1.6.1 New IFRS standards adopted from 1 Jan 2013

Fortum has adopted the following new or amended standards on 1 January 2013: 

IAS 19 Employee benefits

The amendment to IAS 19 Employee benefits changed the accounting for defined benefit plans by eliminating the corridor approach. Accordingly actuarial gains and losses are immediately recognised in the period they occur in equity. The amendment did not have a material effect on Fortum's financial results or financial position, however it had an impact to equity through other comprehensive income.

Transition requirements in IAS19 require that the financial information for 2012 is restated. Restated quarterly information for 2012 (including effects for segments) is presented in the attachment to the Q1/2013 interim report. The following table summarises the adjustments made to the statement of financial position.

Impact on balance sheet as of 31 December 2012
EUR million Balances at 1 Jan 2012, previously reported Impact of change in accounting policy Restated balances at 1 Jan 2012 Balances at 31 Dec 2012, previously reported Impact of change in accounting policy Restated balances at 31 Dec 2012
Participation in associates and joint ventures 2,019 -5 2,014 2,019 -40 1,979
Deferred tax assets 150 25 175 148 29 177
Pension assets 60 -60 0 54 -54 0
Other non-current assets 69 -4 65 71 -2 69
Impact to assets -44 -67
Equity 10,161 -124 10,037 10,821 -178 10,643
Deferred tax liability 2,013 -16 1,997 1,893 -14 1,879
Pension obligations 26 95 121 27 125 152
Other non-current liabilities 465 1 466 472 0 472
Impact to equity and liabilities -44 -67

The effect on the consolidated income statement and consolidated statement of comprehensive income for 2012 is presented below. When starting to apply the amended IAS19 standard, Fortum has decided to present the net interest in financial items.

Impact on income statement for 2012
EUR million Previously reported 2012 Impact of change in accounting policy Restated 2012
Effect to income statement
Employee benefits -556 13 -543
Comparable operating profit 1,739 13 1,752
Share of profit in associates and joint ventures 21 2 23
Other financial expenses - net -38 -4 -42
Income tax expense -72 -2 -74
Profit for the year 1,503 9 1,512
Effect to other comprehensive income
Actuarial gains/losses on defined benefit plans - -24 -24
Actuarial gains/losses on defined benefit plans in associates - -36 -36

Other new or amended standards adopted from 1 January 2013 

New IFRS 13 Fair value measurement -standard establishes guidance under IFRS for all fair value measurements. IFRS 13 does not change the requirement when to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The application of IFRS 13 has not materially impacted the fair value measurements carried out by Fortum. IFRS 13 also requires specific disclosures on fair value hierarchy. These disclosures are given in Note 17.

IFRS 7 Financial Instruments: Disclosures Offsetting Financial Assets and Financial Liabilities -standard as amended requires disclosures about rights of offset and related arrangements (such as collateral posting requirements) for financial instruments under an enforceable master netting agreement or similar arrangement. This information is disclosed in Notes 16 and 17.

The amendment to IAS 1 Presentation of Financial statements: Presentation of Items of Other Comprehensive Income (effective for annual periods beginning on or after 1 July 2012) relates to presentation of Comprehensive Income. The adoption of the standard did not have impact on Fortum's reported result or financial position.

Annual improvements to IFRSs issued in May 2012 (effective for annual periods beginning on or after 1 January 2013). The improvements primarily remove inconsistencies and clarify wording of standards. There are separate transitional provisions for each standard. Amendments did not have an impact on Fortum’s financial statements.

1.6.2 Adoption of new IFRS standards from 1 Jan 2014 or later

Fortum will apply the following new IFRS standards starting from 1 January 2014:

IFRS 10 Consolidated financial statements,  IFRS 11 Joint arrangements and IFRS 12 Disclosures of interests in other entities

IFRS 10 Consolidated financial statements (mandatory application in EU for annual periods beginning on or after 1 January 2014). The standard builds on existing principles by identifying the concept of control as the determining factor whether an entity should be included within the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess.

IFRS 11 Joint arrangements (mandatory application in EU for annual periods beginning on or after 1 January 2014). The standard replaces IAS 31 Interests in joint ventures. Joint control under IFRS 11 is defined as the contractual sharing of control of an arrangement, which exists only when the decisions about the relevant activities require unanimous consent of the parties sharing control.

IFRS 12 Disclosures of interests in other entities (mandatory application in EU for annual periods beginning on or after 1 January 2014). The standard includes disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. These disclosures will be given in the consolidated financial statements for 2014.

When adopting the new standards Fortum has reassessed its control conclusions for its investees and re-evaluated its involvement in its partially owned investments. The reassessment has lead reclassification of some entities from an associated company to a joint venture. Notwithstanding the reclassification, the investments will continue to be recognised by applying the equity method and there will be no impact on the recognised assets, liabilities and comprehensive income of Fortum.

The accounting effects of applying the new standards to Fortum Group financial information relate to AB Fortum Värme samägt med Stockholms Stad (Fortum Värme), that will be treated as a joint venture and thus consolidated with equity method from 1 January 2014. Fortum Värme is a district heating company producing heat and power with CHP plants in Stockholm area. Currently the company is being consolidated as a subsidiary with 50% minority interest.

In the following tables Fortum's income statement, balances sheet and certain key figures are presented before and after restatement.

In the restated balance sheet shares of Fortum Värme are included in the Shares in associated companies and joint ventures. At the year end Fortum Oyj and its subsidiaries had given loans to Fortum Värme which are presented as shareholders loans in the restated balance sheet. There is a plan to refinance those shareholder loans with external financing e.g. bank financing by the end of 2015.

Restatement does not have any or only limited effect on Fortum's key ratios such as earnings per share, return on capital employed and return on shareholders' equity. The current financing arrangement effects the restated comparable net debt to EBITDA ratio negatively, increase from 3.4 to 3.9 in 2013, due to Fortum's definition of net debt where interest-bearing receivables are not deducted from net debt. The effect will decrease as Fortum's shareholder loans are replaced with external financing. Comparable net debt to EBITDA ratio would be 3.4, if the interest-bearing receivables from Fortum Värme are deducted from net debt.

When applying IFRS 10 and 11 in 2014, the standards require the comparative information to be restated i.e. 2013 financial information will be restated. Full set of restated quarterly information for 2013 will be given in the Q1/2014 interim report.

Impact on income statement for 2013
EUR million Fortum Group with Värme as subsidiary Fortum group restated Värme as joint venture Change
Sales 6,056 5,309 -747
Other income 94 93 -1
Materials and services -2,533 -2,270 263
Employee benefit costs -529 -460 69
Other expenses -740 -621 119
Depreciation, amortisation and impairment charges -741 -648 93
Comparable operating profit 1,607 1,403 -204
Items affecting comparability 105 105 0
Operating profit 1,712 1,508 -204
Share of profits in associates and joint ventures 105 178 73
Finance costs - net -318 -289 29
Profit before income taxes 1,499 1,397 -102
Income taxes -220 -185 35
Profit for the period 1,279 1,212 -67
Non-controlling interests -75 -8 67
Net profit for the period, owners of the parent 1,204 1,204 0
Earnings per share, EUR 1.36 1.36 0
Impact on balance sheet as of 31 December 2013
EUR million Fortum Group with Värme as subsidiary Fortum group restated Värme as joint venture Change
ASSETS
Intangible assets 392 384 -8
Property, plant and equipement 15,201 12,849 -2,352
Shares in associated companies and joint ventures 1,905 2,341 436
Long-term interest-bearing receivables 1,463 2,597 1,134
Other non-current assets 1,312 1,314 2
Total non-current assets 20,273 19,485 -788
Inventories, total 375 263 -112
Trade and other receivables 1) 2,518 2,350 -168
Liquid funds 1,254 1,250 -4
Total current assets 4,147 3,863 -284
Total assets 24,420 23,348 -1,072
EQUITY AND LIABILITIES
Share capital 3,046 3,046 0
Other equity 6,978 6,978 0
Total 10,024 10,024 0
Non-controlling interests 638 100 -538
Total equity 10,662 10,124 -538
Interest-bearing liabilities 9,098 9,039 -59
Deferred tax liabilities 1,648 1,338 -310
Other interest-free liabilities 2) 3,012 2,847 -165
Total liabilities 13,758 13,224 -534
Total liabilities and equity 24,420 23,348 -1,072
1) Include assets held for sale EUR 1,173 million.
2) Include liabilities related to assets held for sale EUR 540 million.
Impact on key ratios for 2013
EUR million Fortum Group with Värme as subsidiary Fortum group restated Värme as joint venture Change
Comparable EBITDA, EUR million 2,299 1,976 -323
Earnings per share (basic), EUR 1.36 1.36 0
Capital expenditure, EUR million 1,284 1,004 -280
Capital employed, EUR million 19,780 19,183 -597
Interest-bearing net debt, EUR million 7,849 7,794 -55
Interest-bearing net debt without Värme financing, EUR million 7,849 6,660 -1,189
Return on capital employed, % 9.2 9.0 -0.2
Return on shareholders' equity, % 12.0 12.0 0.0
Comparable net debt/EBITDA 3.4 3.9 0.5
Comparable net debt/EBITDA without Värme financing 3.4 3.4 0.0
Impact on Heat segment information for 2013
EUR million Heat segment with Värme as subsidiary Heat segment restated Värme as joint venture Change
Comparable EBITDA 489 166 -323
Comparable operating profit 273 69 -204
Operating profit 288 84 -204
Share of profits in associates and joint ventures 19 92 73
Depreciation and amortisation 216 97 -119
Capital expenditure 397 117 -280
Assets (at period end) 4,709 2,478 -2,231
Liabilities (at period end) 426 239 -187
Net assets (at period end) 4,283 2,239 -2,044
Comparable RONA, % 6.8 7.1 0.3
RONA, % 7.2 7.8 0.6
Number of employees (at period end) 2,102 1,402 -700
Power generation, TWh 4.0 2.8 -1.2
Heat production, TWh 16.5 8.3 -8.2
Power generation capacity, MW 1,398 788 -610
Heat production capacity, MW 7,943 4,326 -3,617

Fortum will apply the following new or amended standards and interpretations starting from 1 January 2015 or later

IFRS 9 Financial instruments (effective for annual periods beginning on or after 1 January 2015). The standard has new requirements for the classification and measurement of financial assets and liabilities. New requirements are expected to be added to the standard and it will eventually replace IAS 39 and IFRS 7. Fortum will apply the new standard in due course. The Standard is still subject to endorsement by EU.

IFRIC 21 Levies (effective for annual periods beginning on or after 1 January 2014). The interpretation has guidance on when to recognise a liability to pay a levy. Fortum will apply the new standard in due course. The Standard is still subject to endorsement by EU.

Annual improvements to IFRSs issued in December 2013 (effective for annual periods beginning on or after 1 July 2014). The improvements primarily remove inconsistencies and clarify wording of standards. There are separate transitional provisions for each standard. Amendments are not expected to have an impact on Fortum’s financial statements. The Standard is still subject to endorsement by EU.

 

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