The year 2008 was a year of big swings in power and fuel prices. In the first half of the year, commodity prices and wholesale power prices increased rapidly. During the second half of the year, all fuel prices and also power prices in the Nordic region declined significantly from the peaks in autumn.

In 2008, Fortum took a major strategic step in Russia through the acquisition of Territorial Generating Company 10 (TGC-10). The acquisition gave Fortum a significant presence in Russia’s fast-evolving power markets. The acquisition doubled Fortum’s heat production capacity, increased power generation capacity by over 25% and added over 7,000 employees to Fortum.

Fortum’s January-December comparable operating profit improved significantly from a year ago, driven by better results in the Power Generation segment. Fortum’s consistent hedging strategy, higher average Nord Pool spot prices and higher hydro power volumes contributed to the improvement.

In 2007, nonrecurring sales gains amounted to EUR412 million (Hafslund’s REC shares, Lenenergo), corresponding to EUR0.46 per share. In 2008, sales gains and a positive one-time tax effect amounted to EUR184 million in net earnings, corresponding to EUR0.21 per share. The tax effect is due to the lowering of corporate tax rates in Sweden and Russia, leading to a reduction in deferred tax liabilities.

The decline in the Swedish currency especially during the last two months of the year affected Fortum’s operating profit negatively. The average SEK rate in 2008 declined by about 5% from 2007. The negative effect from the decline on the average SEK rate was about EUR50 million in Fortum’s 2008 comparable operating profit. The effect mainly impacted fourth quarter earnings.

Fortum’s net cash from operating activities remained strong at EUR2,002 (1,670) million.

Liquidity remained strong with liquid funds amounting to EUR1,321 million. Undrawn committed credit facilities were EUR2.3 billion at the end of the year.

In the first quarter 2008, Fortum acquired a controlling stake in TGC-10. At the end of December 2008, Fortum’s ownership in TGC-10 was 93.4%. TGC-10 has been de-listed from the Russian MICEX and RTS stock exchanges because Fortum’s ownership in the company has increased over the 90% threshold.

In October, Fortum estimated the value of TGC-10’s capacity investment programme to be about EUR2.5 billion. The value for the remaining part of the programme, calculated at the current exchange rate, is estimated to be EUR2.0 billion from January 2009 onwards.

In the fourth quarter, the Power Generation segment’s achieved Nordic power price was EUR49.1 (43.0) per megawatt-hour (MWh), up by 14% from the previous year. The average system spot price of electricity in Nord Pool was EUR50.8 (42.7) per MWh.

Financial results


The Group’s net financial expenses increased to EUR239 (154) million. The increase is attributable to a higher average level of debt and higher short-term interest rates. The change in fair value of derivatives was EUR-11 (7) million.

Hafslund ASA is showing the fair value change in the REC shareholding through the income statement, while Fortum is showing the fair value change in equity. The fair value booked in Fortum’s equity and based on the number of shares reported by Hafslund ASA was EUR126 million at the end of December 2008 (EUR793 million at the end of 2007).

Fortum’s total equity stood at EUR7,954 (8,359) million. The equity was lowered by translation effects due to lower SEK, NOK and RUB exchange rates at year end, while cash flow hedges (mainly power derivatives) contributed positively.

Minority interests accounted for EUR54 (56) million. The minority interests are mainly attributable to Fortum Värme Holding AB, in which the City of Stockholm has a 50% economic interest.

Taxes for the period totalled EUR254 (326) million. The tax rate according to the income statement was 13.7% (16.9%). The tax rate in 2007 was lowered by the non-taxable gains from Hafslund’s sale of REC shares and from the sale of Lenenergo shares. The tax rate in 2008 was lowered by the one-time booking due to a reduction in deferred tax liabilities, stemming from the lowering of corporate tax rates in Sweden and Russia.

Return on capital employed was 15.0% (16.5%), and return on shareholders’ equity was 18.7% (19.1%).

Market conditions

According to preliminary statistics, the Nordic countries consumed 397 (401) terawatt hours (TWh) of electricity in 2008, about 1% less than the previous year. During the last quarter, consumption was about 104 (109) TWh, 5% less than the year before.

During the fourth quarter, the average system spot price for power in Nord Pool was EUR50.8 (42.7) per MWh or 19% higher than in the corresponding period in 2007. During the fourth quarter, the Finnish and Swedish area prices continued to be above the system price levels, being EUR52.4 (42.1) per MWh in Finland and EUR52.8 (43.1) per MWh in Sweden. This was mainly due to exceptional malfunctions in transmission connections between Sweden and Norway. During 2008, the average spot price for power in Nord Pool was EUR44.7 (27.9) per megawatt-hour, or 60 % higher than in 2007. The Nord Pool spot price was higher mainly due to higher fuel and CO2 prices.

In Germany, the average spot price for the fourth quarter was EUR68.0 (57.7) per MWh, being higher than in the Nordic area. This resulted in a net export from the Nordic area to Germany.

During 2008, the average market price of CO2 emission allowances (EUA) for 2008 was EUR23 per tonne CO2. In 2007, the corresponding price for CO2 emission allowances for 2007 was EUR0.7 per tonne CO2. Coal and oil prices decreased during the second half of 2008.

Year 2008 started with the Nordic water reservoirs being 9 TWh above the long-term average and remained above the average until late August. At the end of December, the Nordic water reservoirs were 5 TWh below the long-term average and 13 TWh below the corresponding level last year.

According to preliminary statistics, electricity consumption in Russia increased by about 2% in 2008 compared to 2007. In the Urals region, electricity consumption increased by about 1% in 2008 compared to 2007. The consumption decreased in the last quarter.

During the year, the average spot price for power for the European and Urals part of Russia in the Russian electricity exchange ATS was RUR 700 (570), about EUR19.1 (16.3) per MWh. The increase in the spot price was mainly due to higher gas prices.

In addition, there is a capacity tariff for power generation, which varies by production unit but is, on average, around EUR10 per MWh.

Segment Reviews

Power Generation

During the fourth quarter, the average system spot price in Nord Pool was EUR50.8 per MWh, with the Finnish area price being EUR52.4 per MWh and the Swedish area price EUR52.8 per MWh. In the fourth quarter, Generation’s achieved Nordic power price was EUR49.1 per MWh, up by 14% from a year ago. Segment’s Nordic sales volume without pass-through items was 12.0 (12.7) TWh in the period.

During January-December 2008, the average system spot price in Nord Pool was EUR44.7 per MWh, with the Finnish area price being EUR51.0 per MWh and the Swedish area price EUR51.1 per MWh. Generation’s achieved Nordic power price was EUR49.3 per MWh, up by 24% from a year ago.

The comparable operating profit of the Power Generation segment was higher in the fourth quarter than in the corresponding period last year. The improvement was mainly due to a higher achieved Nordic power price. In addition, higher hydro power generation contributed positively to the operating profit. The positive effects were partly offset by unplanned nuclear outages in Sweden, lower thermal power generation volumes and currency effect from weaker SEK.