Annual Report 2013 | Suomeksi |

A very demanding market environment in 2012

Efficiency programme proceeding as planned.

2004 2005 2006 2007 2008 2009 2010 2011 2012
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 53.7 55.3 53.9
Heat generation TWh 25.4 25.1 25.8 26.1 25.0 23.2 26.1 22.0 18.5
Fortum's total power and heat generation in Russia
Power generation TWh - - - - 11.6 16.0 16.1 17.4 19.2
Heat generation TWh - - - - 15.3 25.6 26.0 25.4 24.8
Fortum's own power generation by source, total in the Nordic area
Hydropower TWh 19.1 21.2 19.8 20.0 22.9 22.1 22.0 21.0 25.2
Nuclear power TWh 25.8 25.8 24.4 24.9 23.7 21.4 22.0 24.9 23.4
Thermal power TWh 9.5 4.2 9.0 6.2 5.0 4.6 8.3 7.2 3.0
Total TWh 54.4 51.2 53.2 51.1 51.6 48.1 52.3 53.1 51.6
Fortum's own power generation by source, total in the Nordic area
Hydropower % 35 42 37 39 44 46 42 40 49
Nuclear power % 47 50 46 49 46 44 42 47 45
Thermal power % 18 8 17 12 10 10 16 13 6
Total % 100 100 100 100 100 100 100 100 100
Power generation capacity by division
Power MW 10,003 9,540 9,560 9,575 9,709 9,728 9,752 9,702
Heat MW 1,278 1,373 1,360 1,213 1,446 1,600 1,670 1,569
Russia MW - - - 2,785 2,785 2,785 3,404 3,404
Total MW 11,281 10,913 10,920 13,573 13,940 14,113 14,826 14,675
Heat production capacity by division
Power MW 250 250 250 250 250 250 250 250
Heat MW 9,757 10,633 10,973 10,218 10,284 10,448 10,375 8,785
Russia MW - - - 13,796 13,796 13,796 14,107 13,396
Total MW 10,007 10,883 11,223 24,264 24,330 24,494 24,732 22,431
2004 2005 2006 2007 2008 2009 2010 2011 2012
Fortum's total power and heat sales in EU and Norway
Electricity sales EUR million 2,017 2,002 2,437 2,370 2,959 2,802 3,110 2,868 2,700
Heat sales EUR million 809 867 1,014 1,096 1,157 1,095 1,309 1,278 1,201
Fortum's total power and heat sales in Russia
Electricity sales EUR million - - - - 332 390 505 590 713
Heat sales EUR million - - - - 141 219 287 324 300
Fortum's total power sales by area
Finland TWh 31.1 26.0 29.6 29.0 28.7 26.1 30.7 24.6 21.6
Sweden TWh 27.6 30.4 28.5 27.6 28.5 26.9 28.3 29.4 30.1
Russia TWh - - - - 14.8 19.5 18.7 20.2 23.3
Other countries TWh 3.6 3.3 3.5 3.1 3.0 3.2 3.2 3.6 3.8
Total TWh 62.3 59.7 61.6 59.7 75.0 75.7 80.9 77.8 78.8
Fortum's total heat sales by area
Finland TWh 10.5 9.8 10.7 11.1 10.8 8.0 9.6 8.5 5.8
Russia TWh - - - - 15.3 25.6 26.8 26.7 26.4
Sweden TWh 9.6 9.5 9.3 9.2 9.1 9.8 10.9 8.5 8.5
Poland TWh 0.4 1.1 3.6 3.5 3.6 3.7 4.0 4.3 4.3
Other countries TWh 3.3 3.4 3.2 3.3 3.4 3.5 3.6 3.4 2.9
Total TWh 23.8 23.8 26.8 27.1 42.2 50.6 54.9 51.4 47.9
Volume of distributed electricity in distribution networks
Finland TWh 6.2 6.3 7.7 9.2 9.3 9.4 10.0 9.5 9.8
Sweden TWh 14.2 14.4 14.4 14.3 14.0 14.0 15.2 14.2 14.4
Norway TWh 2.1 2.2 2.3 2.3 2.3 2.3 2.5 2.3 2.4
Estonia TWh 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.1 0.0
Total TWh 22.7 23.1 24.6 26.0 25.8 25.9 27.9 26.1 26.6

Fortum's year in 2012 was good, considering the very demanding business environment. Group comparable operating profit totalled EUR 1,739 million in 2012 and net cash flow from operating activities EUR 1,382 million. The economic situation in Europe and globally and the uncertainty regarding its duration burdened Fortum. In addition, the hydrological situation – with historically high water reservoir levels – put additional pressure on Nordic prices, which were clearly lower in 2012 than in 2011.

In order to ensure the company’s strategic flexibility and competitiveness and to enable the company to continue to reach its financial targets in the future, Fortum launched an efficiency programme in the autumn of 2012. The aim is to increase the company’s cash flow by more than EUR 1 billion during 2013-2014 by reducing capital expenditures, divesting non-core assets, reducing

fixed costs and by focusing on working capital efficiency.

These targeted actions will increase the efficiency of our core processes and lead to cost reductions.

During 2012, Fortum continued to develop its operations to enable future growth in a continuously difficult market situation. While the company continued with investments to support its long-term goals, there was also an emphasis on driving efficiency into existing operations. Some of the year's key topics in the divisions are highlighted below:

In the Power Division, outages causing production losses and somewhat higher costs in Oskarshamn, Sweden, burdened the result significantly. Meanwhile water reservoirs were at high levels throughout the year

Suora energiankulutus maittain
vuonna 2012, TWh

resulting in an all-time high in Fortum’s hydro production that compensated for the lower nuclear volumes and lower price levels compared to 2011.

The highlight of the Heat Division was the investment decision of approximately EUR 500 million into a new bio-fuel-fired combined heat and power plant (CHP) in Stockholm, Sweden. The new plant will replace some of the existing heat production with a less expensive biofuel alternative as well as increase Fortum Värme's total electricity production by approximately one third.

In 2012, the Russia Division faced delays in its greenfield project in Nyagan. However, in mid-January 2013 the testing of the gas turbine at Nyagan unit 1 was successfully on-going. Development in the heat business was also positive as a commission to address issues such

as heat regulation was set up by the Russian Government.

In Distribution, the focus was on accelerated improvement of network reliability in Finland spurred by the year-end 2011 storms - most severe in 30 years - that caused considerable damage to the electricity distribution network as well as unfortunate outages for Fortum's customers.

In the Electricity Sales businesses area, the business attention is now on retail sales of electricity to a total of 1.2 million private customers. An emphasis is on eco-labelled and CO2-free electricity as well as on smart electricity solutions and services, which were successfully launched in 2012.

In January 2013, Fortum decided that the company will

access the strategic position of its electricity distribution business in accordance with Fortum's strategy. This decision does not change the basics of the efficiency programme, which will continue as originally planned.

Fortum's purpose is to create energy that improves life for present and future generations, the aim is to build on our strong Nordic core business, create solid earnings growth in Russia and build a platform for future growth.

Efficiency programme 2013-2014

In the fourth quarter, due to the increasingly demanding business environment, Fortum started an efficiency programme in order to maintain and strengthen strategic flexibility and competitiveness, and to enable the company to reach its financial targets in the future.

The aim is to improve the company’s cash flow by more than approximately EUR 1 billion during 2013-2014 by reducing capital expenditures (capex) by EUR 250-350 million, divesting approximately EUR 500 million of non-core assets, reducing fixed costs and focusing on working capital efficiency.

Capex in 2013 will be EUR 1.1-1.4 billion and in 2014 EUR 0.9-1.1 billion. At the end of 2014, the cost run rate will be approximately EUR 150 million lower compared to 2012, including growth projects.

If headcount reductions are needed, Fortum seeks to limit redundancies, by using natural rotation and retirement whenever possible. The assessments will therefore be done at a unit level.

The programme has proceeded according to plan and is integrated into division plans for 2013-2014. Already in 2012, minor cost reductions were achieved. In addition, the divestment of the Naantali power plant resulted in a net cash flow effect of approximately EUR 50 million.

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