Fortum January–September 2023 Interim Report: Resilient performance amid lower Nordic power prices – good hedging resulted in solid achieved power price

FORTUM CORPORATION JANUARY-SEPTEMBER 2023 INTERIM REPORT 2 NOVEMBER 2023 AT 9:00 EET

This release is a summary of Fortum’s January–September 2023 Interim Report. The complete report is attached to this release as a PDF file. It is also available on the company's website at www.fortum.com/investors

July–September 2023, continuing operations

• Comparable EBITDA was EUR 318 (454) million.
• Comparable operating profit was EUR 226 (354) million.
• Operating profit was EUR 251 (901) million. In the comparison period, items affecting comparability included fair value changes in non-hedge-accounted derivatives of EUR 409 million and tax-exempt capital gains of EUR 138 million.
• Comparable earnings per share were EUR 0.23 (0.31).
• Earnings per share were EUR 0.21 (0.82).
• Cash flow from operating activities totalled EUR 429 (366) million.

January–September 2023, continuing operations

• Comparable EBITDA was EUR 1,443 (1,251) million.
• Comparable operating profit was EUR 1,186 (942) million.
• Operating profit was EUR 1,286 (2,141) million, mainly impacted by fair value changes in non-hedge-accounted derivatives. In the comparison period, items affecting comparability included tax-exempt capital gains of EUR 780 million.
• Comparable earnings per share were EUR 0.93 (0.79).
• Earnings per share were EUR 1.23 (1.86).
• Cash flow from operating activities totalled EUR 1,561 (1,266) million.
• Financial net debt was EUR 474 million and the financial net debt-to-comparable EBITDA ratio was at 0.2 times for the last twelve months.
• In March, the Group’s new strategy and new financial and environmental targets were published. A renewed Group operating model, business structure and a revised Fortum Leadership Team became effective at the end of March.
• In April, the Russian authorities seized control of Fortum’s assets in Russia, Fortum lost control and deconsolidated and reported these operations as discontinued operations.
• In the second quarter, the Russian assets were fully written down and impairments of EUR 1.7 billion (equity impact) and deconsolidation-related negative cumulative foreign exchange translation differences of EUR 1.9 billion (no equity impact) were recorded.
• On 17 May, Fortum successfully issued five- and ten-year bonds with a total nominal amount of EUR 1.15 billion.
• On 7 June, Fortum agreed to acquire the entire shareholding in the Swedish electricity solutions provider Telge Energi AB on a cash and debt-free basis for approximately SEK 450 million (EUR 39 million). On 31 August, the transaction was completed.
• On 21 June, Fortum announced that it will invest approximately EUR 225 million in waste heat projects in Espoo and Kirkkonummi in Finland.
• On 29 September, Fortum announced that it will invest over SEK 700 million (over EUR 60 million) during 2023-2030 to modernise Untra, one of Sweden's oldest hydropower plants.

Summary of outlook

• The Generation segment’s Nordic outright generation hedges: approximately 75% hedged at EUR 50 per MWh for the remainder of 2023, approximately 65% at EUR 47 per MWh for 2024, and approximately 30% at EUR 43 per MWh for 2025.
• UPDATE: Capital expenditure, including maintenance but excluding acquisitions, is expected to be approximately EUR 650 million in 2023 (earlier EUR 700 million) and approximately EUR 550 million in 2024. Fortum also revises its outlook for capital expenditure for the years 2023-2025 and expects it to be up to 1 billion (earlier up to EUR 1.5 billion).
• UPDATE: Fortum revises the estimated optimisation margin included in the achieved power price to be in the range of EUR 6-8 per MWh (earlier EUR 1-3 per MWh).
• UPDATE: Fortum revises the estimate for comparable effective income tax rate to be in the range of 18−20% for 2023 (previously 20−23%) and for 2024 to be in the range of 18−20% (previously 19-21%).
• Fortum is initiating an efficiency programme with the target to lower its annual fixed cost base by EUR 100 million gradually until end of 2025.

Key figures, continuing operations

EUR million or as indicated		III/2023		III/2022 restated		I-III/2023		I-III/2022 restated		2022 restated		LTM
Reported
Sales		1,220		1,890		4,853		5,367		7,774		7,260
Operating profit		251		901		1,286		2,141		1,967		1,112
Share of profit/loss of associates and joint ventures		-9		-14		-30		-126		-185		-89
Net profit		187		726		1,102		1,657		2,084		1,529
Net profit (after non-controlling interests)		188		727		1,104		1,649		2,080		1,534
Earnings per share, EUR		0.21		0.82		1.23		1.86		2.34		1.71
Net cash from operating activities		429		366		1,561		1,266		1,717		2,012
EUR million or as indicated		III/2023		III/2022 restated		I-III/2023		I-III/2022 restated		2022 restated		LTM
Comparable
EBITDA		318		454		1,443		1,251		2,025		2,218
Operating profit		226		354		1,186		942		1,611		1,855
Share of profit/loss of associates and joint ventures		9		10		-24		28		-40		-92
Net profit (after non-controlling interests)		204		279		833		706		1,076		1,203
Earnings per share, EUR		0.23		0.31		0.93		0.79		1.21		1.34
EUR million or as indicated										31 Dec 2022		LTM
Financial position
Financial net debt (at period-end)										1,084		474
Financial net debt, at period-end, excl. Russia										1,127		N/A
Financial net debt/comparable EBITDA excl. Russia										0.6		0.2

Key figures, total of continuing and discontinued operations

Fortum’s condensed consolidated income statement and consolidated cash flow statement include the Russia segment as discontinued operations in the first quarter of 2023 and in 2022, and the Uniper segment as discontinued operations in 2022. Comparative information for the first quarter of 2023 and all quarters of 2022 was restated following the classification of the Russia segment as discontinued operations in the second quarter of 2023. For further details, see Note 1.

EUR million or as indicated		III/2023		III/2022 restated		I-III/2023		I-III/2022 restated		2022 restated		LTM
Reported
Net profit (after non-controlling interests)		188		6,099		-2,479		-1,809		-2,416		-3,087
Earnings per share, EUR		0.21		6.86		-2.76		-2.04		-2.72		-3.45
Net cash from operating activities		429		-8,120		1,670		-9,374		-8,767		2,278
Comparable
Net profit (after non-controlling interests)		204		-1,990		867		-1,204		-988		1,083
Earnings per share, EUR		0.23		-2.24		0.97		-1.36		-1.11		1.21

Fortum’s President and CEO Markus Rauramo:

“The continued high level of LNG imports, comforting gas storage levels and reduced energy demand have pushed European energy prices lower during the most recent two quarters this year. Precipitation was high in the Nordics during the third quarter, resulting in rapidly increasing inflow and hydro reservoir levels. In combination with increased capacity, as a result of the commissioning of Olkiluoto 3 and significant growth in installed wind capacity, this put pressure on and notably lowered the Nordic spot prices during the quarter. In the third quarter, power prices were volatile due to the higher share of wind supply, unexpected limitations in power supply and new concerns regarding security of supply ahead of the winter.

The lower Nordic spot power price is reflected in our third-quarter results; however, thanks to our prudent hedging and successful physical optimisation, we performed with resilience, and our achieved power price was at a solid level. The main reason for the result decline in our Generation segment was the lower achieved power price compared to one year ago, although this was partly offset by higher hydro volumes. The result development in the Consumer Solutions and Other Operations segments continued to weaken. In January-June, our overall Group performance was very strong, but signs of frail, softening markets and demand started to occur in the third quarter.

One of our strategy’s cornerstones is to deliver clean energy, and our focus now is to constantly optimise and ensure that our existing generation fleet stays competitive. In the third quarter, our operational efficiency ensured high availability and good load factors despite the annual outages at our nuclear power plant in Loviisa. We also announced the modernisation of our hydropower plant Untra, one of Sweden’s oldest hydropower plants, an investment of approximately EUR 60 million during 2023-2030. At the beginning of October, we also signed a fixed-price 13-year PPA agreement with the Norwegian Hydro Energi AS, which supports decarbonisation of industries while at the same time contributes to the stabilisation of our outright power portfolio.

Overall, geopolitical tensions are again on the rise and global economic growth is expected to be lacklustre; inflation is still high and elevated interest rates are not supporting investments at the moment. Our two-phased strategy responds well to this situation, and right now our focus is to manage the prevailing uncertainty. To succeed in this challenging environment going forward, we must transform and develop. Compared to a year ago, Fortum is a different and much smaller company. Therefore, we need to adjust to fit the new structure and purpose and are now launching an efficiency improvement programme with the target to lower annual fixed costs by EUR 100 million gradually until the end of 2025. We are also addressing turnaround actions for underperforming businesses as well as the rescope of our focus areas. To reach the target, it is unfortunately expected that actions will also include personnel reductions. To reflect the softer power demand and postponed investment appetite by industrials, we are lowering our growth capital expenditure guidance both on an annual level and also for growth, from up to EUR 1.5 billion to up to EUR 1 billion for the years 2023-2025.

Strong financial discipline is also of high strategic importance to us and continues to be the hallmark of our decisions and actions. Considering the current weaker market situation, we are very satisfied that we have managed to stabilise our financial position faster than expected. At the end of September, our leverage was very low at 0.2 times and we continue to have sufficient liquidity and credit line buffers. I am also pleased to say that we have started preparations for the Green Finance Framework.

Fortum welcomes the recent agreement on the European electricity market design legislation. The draft legislation, which was driven by the energy crisis last year, aims to respond to concerns relating to price volatility and to provide instruments that help to make the energy market more stable and predictable.

Despite the short-term uncertainty resulting from postponed investments and low visibility into demand growth, we maintain determined to drive decarbonisation together with our customers. The Nordics – and especially Fortum – are in a unique position in this clean energy transition as we are one of the few providers of CO2-free power at scale

Espoo, 1 November 2023

Fortum Corporation
Board of Directors

Webcast/teleconference

A combined live webcast/teleconference for investors, analysts and media will be arranged online on 2 November 2023 at 11:00 EET. For the webcast, use the link at https://fortum.videosync.fi/q3-2023-result.

To ask questions, please join the teleconference by registering using the following link: https://palvelu.flik.fi/teleconference/?id=10010571. After the registration you will be provided with phone numbers and a conference ID to access the conference. To ask a question, please press *5 on your telephone keypad to enter the queue.

A recording of the webcast, as well as the transcript will be published on www.fortum.com/investors after the event.

Further information:

Investor Relations and Financial Communications: Ingela Ulfves, tel. +358 40 515 1531, Rauno Tiihonen, tel. +358 10 453 6150, Nora Hallberg, tel. +358 40 720 1775, Pirjo Lifländer, tel. +358 40 643 3317, and [email protected]

Media: Fortum News Desk, tel. +358 40 198 2843

Financial calendar in 2024

Fortum’s Financial Statements Bulletin for the year 2023 will be published on 7 February 2024 at approx. 9.00 EET. Fortum’s Financial Statements and Operating and Financial Review for 2023 will be published during week 7 at the latest.

Fortum will publish three interim reports in 2024:

• January-March on 30 April 2024 at approx. 9.00 EEST
• January-June on 15 August 2024 at approx. 9.00 EEST
• January-September on 29 October 2024 at approx. 9.00 EET

Fortum's Annual General Meeting 2024 is planned to be held on 25 March 2024. The Board of Directors will summon the Annual General Meeting and publish the dates related to possible dividend at a later date.

Distribution:

Nasdaq Helsinki
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