Fortum Oyj : January-March 2021 Interim Report . pdf, 1.49 MB

Fortum Corporation

January-March 2021 Interim Report

Contents

Results improved in all segments - Uniper cooperation stepped up	3
Fortum's President and CEO Markus Rauramo's comments	4
Changes in reporting	5
Financial results	5
Financial position and cash flow	7
Segment reviews	9
Capital expenditures, divestments, and investments in shares	17
Operating and regulatory environment	18
Key drivers and risks	23
Outlook	24
Sustainability	25
Legal actions	28
Shares and share capital	28
Group personnel	28
Changes in Group management	29
Annual General Meeting 2021	29
Dividend payment	30
Further information	30
Tables to the Interim Report
Condensed consolidated income statement	31
Condensed consolidated balance sheet	33
Condensed consolidated statement of changes in total equity	34
Condensed consolidated cash flow statement	36
Change in net debt	38
Key ratios	38
Notes to the condensed consolidated interim financial statements	40
Definition of key figures	67
Market conditions and achieved power prices	72
Fortum's production and sales volumes	73

Figures in brackets refer to the comparison period, i.e. the same period last year, unless otherwise stated.

Fortum Corporation

January-March 2021 Interim Report

Results improved in all segments - Uniper cooperation stepped up

January-March 2021

• Comparable EBITDA was EUR 1,479 (543) million
• Comparable operating profit was EUR 1,171 (393) million
• Operating profit was EUR 1,345 (603) million, mainly impacted by changes in fair values of non-hedge- accounted derivatives
• Comparable share of profits of associates and joint ventures was EUR 67 (551) million
• Comparable earnings per share were EUR 0.94 (0.91)
• Earnings per share were EUR 1.23 (1.05)
• Cash flow from operating activities totalled EUR 831 (562) million
• Financial net debt-to-comparable EBITDA ratio at 1.9 times, below target level of <2 times
• On 12 March, Fortum signed an agreement to sell its district heating business in the Baltics for EUR 800 million
• Management changes at Fortum and Uniper to accelerate cooperation and strategy execution

Summary of outlook

• The Generation segment's Nordic generation hedges: approximately 80% at EUR 32 per MWh for the remainder of 2021 and approximately 55% at EUR 31 per MWh for 2022
• The Uniper segment's Nordic generation hedges: approximately 85% at EUR 27 per MWh for the remainder of 2021, approximately 80% at EUR 24 per MWh for 2022, and approximately 35% at EUR 21 per MWh for 2023
• Capital expenditure, including maintenance but excluding acquisitions, is expected to be approximately EUR 1,400 million in 2021

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Fortum Corporation

January-March 2021 Interim Report

Key figures*

EUR million	I/2021	I/2020	2020	LTM
Reported
Sales	21,493	1,357	49,015	69,152
Operating profit	1,345	603	1,599	2,341
Share of profit/loss of associates and joint ventures	80	479	656	257
Net profit	1,310	938	1,855	2,227
Net profit (after non-controlling interests)	1,092	930	1,823	1,984
Earnings per share, EUR	1.23	1.05	2.05	2.23
Net cash from operating activities	831	562	2,555	2,825

EUR million	I/2021	I/2020	2020	LTM
Comparable
EBITDA	1,479	543	2,434	3,370
Operating profit	1,171	393	1,344	2,122
Share of profit/loss of associates and joint ventures	67	551	656	172
Net profit (after non-controlling interests)	837	812	1,483	1,508
Earnings per share, EUR	0.94	0.91	1.67	1.70

EUR million	31 Mar 2021	31 Dec 2020	LTM
Financial net debt (at period-end)	6,410	7,023
Adjusted net debt (at period-end)	8,892	9,784
Financial net debt/comparable EBITDA		2.9	1.9

• Uniper has been consolidated as a subsidiary from 31 March 2020. Previously, Uniper's contribution to the income statement was recognised in the Share of profit/loss of associates and joint ventures.

Fortum's President and CEO Markus Rauramo:

"The start of the year has been very strong for Fortum. We pushed ahead with necessary changes to speed up our strategy execution and the market fundamentals supported our businesses in the first quarter, after a considerably more challenging 2020.

In the first quarter, all our segments recorded higher comparable operating profits than a year ago. Nordic power prices increased significantly from last year, despite the persistently high hydro reservoir levels. The higher power prices were also the main driver for the 14% increase in the comparable operating profit of the Generation segment. The Russia segment improved slightly, supported by the profitable sale of Fortum's 116-MW solar power project to a partly-owned joint venture for renewable power. This profit offset most of the negative effects from the weaker Russian rouble. Excluding these two effects, the Russia segment's operative results improved somewhat. While the City Solutions segment had some challenges with its performance in 2020, the district heating business benefitted from the clearly colder weather and also the recycling and waste business improved its performance from last year. Improving power margins and the sale of value-added services continued to strengthen the results of Consumer Solutions.

The performance of our newest segment, Uniper, was very strong in the first quarter; even compared to the very good results in the first quarter of 2020. Uniper's results represent a significant share of Fortum's first-quarter results and we can now for the first time report its contribution to Fortum's comparable operating profit for the full twelve-month period of second-quarter 2020 to first-quarter 2021: EUR 1,074 million. As we consistently have been focusing on strengthening of the balance sheet, this puts Fortum's leverage for the last twelve months, measured as financial net debt-to-comparable EBITDA, at the level of 1.9 times, which is in line with our long-term target of less than 2.0 times.

This spring Fortum took further steps in order to step up cooperation, realise benefits, and accelerate the strategy execution. We made several changes aimed at leveraging the combined strengths more widely and developing a joint culture based on our common values. Our ambition is that the leadership teams of the two companies would work in a more integrated way to ensure efficient decision making and faster value creation, for the benefit of both companies. At the end of March, Klaus-Dieter Maubach took over as the CEO of Uniper and Tiina Tuomela assumed the role of Uniper's CFO following the departure of the former CEO and CFO. In April, we announced that Sirpa-Helena Sormunen and Risto Penttinen were appointed General Counsel and Executive Vice President Strategy of Uniper,

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Fortum Corporation

January-March 2021 Interim Report

respectively, moving out of their previous roles in Fortum's Executive Management. I am happy to welcome Simon- Erik Ollus, Nora Steiner-Forsberg, Eveliina Dahl, and Nebahat Albayrak as new members of the Fortum Executive Management. Nebahat succeeds Arto Räty who will retire later this year. Earlier this week, we announced big concrete steps towards realisation of the cooperation benefits via the 'One Team' approach between Fortum and Uniper. The planning phase of the three strategic cooperation areas has now been concluded and the proposal is to combine the Nordic hydro and physical trading optimisation under Fortum's Generation segment and to adopt a functional cooperation model in wind and solar development as well as in the development of the hydrogen business.

Also the regulatory development within the EU took several positive steps forward at the beginning of 2021. The EU institutions agreed on the European Climate Law, including the tightening of the 2030 climate target to a 55% reduction of GHG emissions and a goal of climate neutrality by 2050. Furthermore, the first delegated act under the EU Sustainable Finance Taxonomy was adopted. The final version saw a clear improvement regarding hydropower, as the criteria are now aligned with the EU Water Framework Directive, making the bulk of the Nordic CO2-free hydropower eligible under the taxonomy. The eligibility of nuclear power and gas will be addressed in a separate complementary delegated act in the summer. The expert group of the Commission's Joint Research Centre concluded that nuclear power generation causes no more harm than other forms of power generation, and Fortum expects the Commission will respect the view of its own scientific body. As for gas, we are glad that the Commission highlighted a clear transitional role for natural gas in reducing greenhouse gas emissions in the path towards climate neutrality and expect this role to be reflected in the upcoming legislation."

Changes in reporting

In the first quarter of 2021, Fortum introduced two new Alternative Performance Measures (APM) to provide additional financial performance indicators that better reflect the underlying profitability.

• Comparable net profit, and
• Comparable earnings per share

Comparable net profit is shown after non-controlling interest and adjusted for items affecting comparability, as well as adjustments to share of profit of associates and joint ventures, net finance costs, income tax expenses, and non- controlling interest. Comparable earnings per share is calculated from comparable net profit.

See Note 4.2 and Note 23.

Financial results

Sales by segment

EUR million	I/2021	I/2020	2020	LTM
Generation	675	574	2,006	2,107
Russia	264	317	929	876
City Solutions	418	342	1,075	1,151
Consumer Solutions	661	424	1,267	1,504
Uniper	19,770	-	44,514	64,284
Other Operations	34	34	140	140
Netting of Nord Pool transactions	-223	-83	-317	-457
Eliminations	-107	-250	-598	-455
Total	21,493	1,357	49,015	69,152

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