CEO Letter 2016
Join the change
Dear stakeholders,
2016 was a fascinating year of learning for one who came from
outside the energy industry. Ten years in telecom and a little more
in technology and machine building gave me valuable tools that are
useful in the ongoing energy transition. However, a significant part
of the utility business logic will continue to be industry specific.
Fortum has in the past few years made several important
strategic decisions. The divestment of the distribution business
was, without a doubt, the most significant one. In February 2016,
we published a high-level strategy framework describing our
way forward. During the Capital Markets Day in November our
priorities, growth drivers and planned capital allocation were
expanded in more depth.
Fortum’s strategy
CO2-free power generation and deep knowledge about how to
operate generation assets is in the very core of Fortum’s DNA.
It is complemented by our thorough understanding of power
markets and trading as well as our deep expertise in combined
heat and power production. This is the solid foundation that we
build our future on.
There are four growth areas in our strategy and they have a clear
priority order. Growth engine number one and our first priority is
to drive productivity and industry transformation. Growth engine
number two and our second priority is solutions for sustainable
cities. Growth engines three and four – growing in solar and wind
and building new energy ventures – are targeting to secure our
long-term competitiveness in the future energy system.
The timing of our growth efforts and the redeployment of
cash will take place in two phases, and a significant part of the
redeployment is expected to take place during 2017. Our objective
is to maximise our cash flow, while targeting a net debt to EBITDA
ratio of 2.5. We believe that the European power generation
industry will consolidate and we want to have a significant role
in driving the change. Broadening the scope of our City Solutions
business will also offer growth opportunities.
We will utilise the competencies we have today in our
combined heat and power production and in the acquired
Ekokem business, and build on these combined strengths.
The acquisition of Ekokem, was therefore an essential step in
implementing our strategy. The cash flow generated as a result of
phase one will be used for 1) securing a competitive dividend; and
2) investments into phase two.
Phase two comprises growth engines three and four as
described above. We have already started investments in solar and
wind, in the Nordics, Russia and India. They are lower in priority
when it comes to capital allocation, but we have a clear target to
accumulate a gigawatt-scale portfolio in the coming years.
The final priority is New Ventures, in which we will allocate
approximately EUR 100-200 million into new innovations and start-
ups with disruptive potential. This is very important for our long-
term competitiveness, since many parts of the energy system of the
future will be significantly different from the one known today. Here,
too, we have already acted by investing in companies like Info24,
Chempolis and Exeger, which are small investments, but have good
potential for the future and are a good fit with Fortum’s business.
Vision and Mission
We updated our vision and mission during the autumn of 2016.
Our updated vision – ‘For a cleaner world’ – goes beyond just clean
energy production, it expresses our commitment to fuel and resource
efficiency and how we enable our stakeholders, customers and
society to make sustainable choices. Also here our acquisition of
Ekokem plays an important role. We wanted to create a vision that
clearly incorporates also the circular economy aspects, including
its connections to the energy system. It’s not only about energy
production, it’s also the wider added value potential of fuels like
biomass and waste. Our new strategy clearly pronounces our
commitment and the continuous alignment of our actions with
the principles of the UN Global Compact and Caring for Climate
initiatives.
In our mission we state that “we engage our customers and
society to drive the change towards a cleaner world.” In saying
2
so, we invite all our stakeholders – society, our employees, our
shareholders and our partners – to join us in the change. Still today
approximately 80% of the world’s primary energy demand is based
on fossil fuels, so decarbonisation needs to be a process. Our role is
to accelerate the change by reshaping the energy system, improving
resource efficiency and providing smart solutions for the future.
More and more of this will be digitally-enabled. And naturally
we believe that we can do this in a way that delivers excellent
shareholder value.
Megatrends
The global megatrends affecting our industry are quite well-
known and impact many other businesses as well: climate change,
urbanisation, digitalisation and active customers. Climate change
and the need for decarbonisation and resource efficiency is the one
changing our industry in a profound way.
The Paris Agreement sets a target to limit global warming
below 2°C above pre-industrial levels while pursuing efforts to
limit the increase to 1.5°C. The International Energy Agency has
estimated that in order to fulfil the targets of the Paris Agreement,
approximately USD 16,500 billion will have to be invested in the
world’s energy system. It’s obvious that that money will not come
from government budgets alone. We strongly believe that the
only way forward will be market mechanisms that remunerate
private investments. We continue to advocate for market-based,
technology-neutral solutions and efficient carbon pricing as tools
for decarbonisation.
The progress in renewable energy technology is very
encouraging. The investment cost of new renewables is declining
rapidly and is causing fundamental changes in the energy system.
The cost of solar has dropped approximately 80% in five years, and
we have seen recent drops in the levelised cost of electricity for on-
shore wind.
In addition, recycling and the circular economy create
opportunities for companies like Fortum. The amount of waste
the world is producing is roughly expected to double between 2015
and 2025. In the growing megacities of Asia, waste is a massive and
rapidly growing problem that will create additional opportunities.
Also, in the EU alone, about 30% of municipal waste today goes to
landfills, which will be restricted in the future.
A third very big shift will be the role of active customers and,
in particular, the role of the retail electricity business model.
Digitalisation enables new scalable services to consumers, and the
growth of decentralised generation means that many consumers
will become "prosumers" with their own production as well as
consumption. Consumers will also play an important role in
balancing the increasingly intermittent energy system.
Our operating market in 2016
2016 was a challenging year in many respects. The beginning of the
year was characterised by increased commodity market volatility;
especially coal and oil prices were very low. Nordic water reservoirs
were clearly above the long-term average, creating pressure on
electricity prices, and the British EU exit vote also created uncertainty.
From the second quarter onward, the power market started
showing positive signs, mainly driven by the improving commodity
market prices. Commodity prices increased throughout the year
and are now clearly higher than at the end of 2015. In the Nordic
system the role of hydro-power is very important. Typically, the
annual hydro-power production is around 200 terawatt hours
(TWh), but it can vary by 40 TWh in either direction between wet
and dry years. These changes have been quite fast. At the beginning
of 2016 Nordic water reservoirs were 15 TWh above the long-term
average, and by the end of 2016 they had dropped 23 TWh to 8 TWh
below the long-term average. There is a direct correlation to how
much we can produce. In 2016, our hydro production was almost
20% lower than the year before. The varying hydrological situation
in combination with the changes in commodity prices caused very
high volatility in power forwards, especially for 2017.
Our comparable operating profit for continuing operations was
EUR 644 million, down 20% from 2015. The decline was mainly
due to significantly lower hydro-power production and the lower
achieved power price.
Operationally, the year met our expectations, as availability in
our plants was good and ongoing projects progressed as planned.
We completed our extensive investment programme in Russia in
spring 2016, and the new capacity has been the key driver for the
earnings growth in the Russia division.
Also positive was the Swedish political agreement on energy
policy in June and the government’s budget proposal in September.
The budget proposal included the timetable for lowering the
real-estate tax on hydro assets and for phasing out the nuclear
capacity tax over the coming years. We are very pleased with the
swift decision and the finalisation of the timetable, which gives
regulatory stability to operate the plants and plan the necessary
safety investments. This is completely in line with what we have
been advocating for: a regulation and taxation policy where the
different forms of CO2-free production are treated more equally.
3
Going forward
The number one priority for Fortum going forward is to ensure
a controlled transition towards a low-carbon energy system.
Accordingly, our CO2-free production should increase. It is
important to recognise that the development is not necessary
linear. Sometimes it may seem that we are taking one step back
before taking two steps forward.
To the extent we have fossil production, our goal and strategy
is, of course, to make it as efficient as possible. Our specific CO2
emissions from power generation, measured as grams of CO2 per
kilowatt hour produced (gCO2/kWh), puts us among the lowest
emitters of all utilities in Europe. In 2016, 96% of our power
generation in the European Union was CO2-free. Including the
Russian power generation, which is mainly gas-based, and our
Indian solar power, 62% is still CO2-free, and our specific CO2
emissions of 173 gCO2/kWh puts us in the category of one of the
cleanest utilities in Europe.
The energy sector is among the key sectors that can contribute
to this mitigation, but the focus should not be solely on electricity
generation. We at Fortum have decided to take an active role in
mitigating climate change also by creating solutions for sustainable
cities, by developing new products and services to help our
customers mitigate their carbon footprint, and by building new
energy ventures that we believe will play an important role in the
future sustainable energy system.
We do this because it is the right thing to do for society, for our
customers and for our shareholders. By being at the forefront of
creating the new sustainable energy system, I am confident we will
create value, stronger earnings per share, and a good platform for
producing stable, sustainable and over time increasing dividends.
I would like to thank all our employees and partners for their
excellent work in 2016. Thank you also to our customers and
shareholders for your continued trust in us. I look forward to
continuing to work together with all of you for a cleaner world.
Pekka Lundmark
President and CEO
Megatrends and the energy industry
The world we live in is changing at an ever-increasing pace. Staying
competitive requires companies to be very aware of the underlying
megatrends and to take an active role in driving the change for a
better future.
This is especially true for the energy industry, as
decarbonisation of the energy system plays an essential role in
meeting the environmental targets of society. Only by working
actively to decarbonise the energy system, significantly expand
the share of renewable energy in the energy markets, reduce the
emissions, increase the efficiency of older assets, and increase the
amount of flexibility in the system can we mitigate climate change.
There are four megatrends that shape the energy sector:
Climate change and resource efficiency, Urbanisation,
Digitalisation & new technologies, and Active customers. These
megatrends will bring profound changes not only to how energy
is produced and sold to customers, but also to how it is consumed.
The megatrends will also push to maximise the value of resources,
such as waste and biomass.
Climate change and resource efficiency
Climate change and global warming is one of the largest challenges
facing mankind. The problem is global, and global efforts and
commitment are required in order to solve it. Discussions about
climate change have been ongoing for decades, but actions have
not been sufficient, due to lack of commitment, although positive
developments have been seen in some regions.
With the adoption of the Paris Agreement in December 2015,
mitigation of climate change rose to the top of the agenda all
over the world. The commitment to mitigate climate change
in order to limit global warming is now so widely spread that
it affects every industry. The effects can be seen everywhere,
e.g. the increase in low- or zero-emission housing, better fuel
efficiency, the increase in the number of electric vehicles, the
rapid growth in solar and wind power production, fuel switches
to more environmentally friendly fuels, increased resource
efficiency and waste recycling.
The whole energy industry is very heavily affected by this
megatrend. This can be seen in the transition to low-carbon and
renewable generation, which increases the share of intermittent
power production and the need for demand response and flexible
generation capacity. The increased need for resource efficiency
paves the way for circular economy solutions.
Urbanisation
The second megatrend is urbanisation. Over the last decades an
ever-increasing share of the world’s population has moved to urban
areas and the trend is continuing. This megatrend is very evident
in the emerging markets of Asia, where an increasing share of the
global GDP growth comes from the growing urban areas.
For many people in developing countries urbanisation might
also mean electrification as 1.2 billion people still lack access
to electricity. Increased urbanisation creates a demand for
sustainable, efficient and reliable utility services. In many areas
of the world the current heating, cooling and energy production
is based on old technologies with high emissions and low
efficiency. The increasing urbanisation creates a demand
for utilities with efficient solutions for heating, cooling and
electricity production.
Global Municipal Solid Waste Development (MSW),
mtpa
2,500
2,000
1,500
1,000
500
0
2002
2015
2025
Landfilling/other
Waste to Energy
Recycling
Source: World Bank Global Review of Solid Waste Management,
March 2012; Fortum view
2/3 of global emissions
are from the production
and use of energy
Source: World Energy Outlook Special Report
on Energy and Climate Change, IEA, June
2015
4
Digitalisation opens up for new storage and demand-response
solutions, which could change the way the customer interacts with
the market. There will be new ways to produce, market, sell and
deliver products and services offered by utilities, start-ups and
new market entrants. Through these services, customers can take
an active part in balancing a future power system that is heavily
dependent on intermittent power production.
Active customers
As new technologies are creating a market for new products,
there is another megatrend driving the change: Active customers.
Customers are becoming more conscious about their choices and
how they affect society. Customers are more willing to participate
in the energy markets, they are aware of what the new technologies
enable, and they are demanding services and solutions for that,
e.g. home automation, electrical vehicles with smart charging
solutions, local power production and storage as well as demand-
response solutions.
The market for prosumers (consumers who produce some of
their own energy) is growing rapidly. They require solutions for
storage and two-way power flows to/from their house, as they act
both as consumers and producers of energy. This challenges how
the energy markets traditionally have worked and offers great
potential for innovation and growth.
The large majority of customers are not yet demanding these
types of services; but as the services emerge, they can be expanded
to the masses on a large scale, which will have profound effects on
the whole market.
Twenty years ago, less than 3 percent of the
world’s population had a mobile phone;
now two-thirds of the world’s population
has one, and one-third of all humans are
able to communicate on the Internet.
Source: The four global forces breaking all the trends,
McKinsey Global Institute, April 2015
2/3 of the world’s population
will live in urban areas by 2050
Source: World Urbanization Prospects by United Nations,
Department of Economic and Social Affairs, Population Division, 2014
New solutions are also needed for transportation and waste
management. The amount of waste is expected to nearly double
between 2015 and 2025. Even with the increase in recycling and
waste-to-energy solutions, the global municipal solid waste going
to landfills is projected to grow over the coming years.
Digitalisation & new technologies
Technology development has always been a driver for change.
Digitalisation as a megatrend is further fuelled by the accelerated
pace of commercialisation and adoption of new technologies. The
processing power of devices is increasing and the amount of connected
devices is growing exponentially. This in combination with an
ever-increasing amount of data readily available for consumers and
businesses creates the perfect breeding ground for innovation.
This megatrend affects all companies and businesses. One
example of how technological innovations can quickly transform
industries is Uber and its impact on the taxi business. Rapid
technological development and high adoption rates quickly drive
down the costs for new technologies.
In the energy sector the cost of wind and solar power is
decreasing. In the next 25 years the amount of solar power is
expected to grow 12-fold and wind power more than 3-fold. This
development leads to an increasing share of intermittent power
production and fewer running hours for traditional baseload power.
This challenges the way the energy system has been functioning,
where production has been able to adapt to the changing power
demand of customers.
5
Market Development
In early 2016, many commodity prices reached long-term low
price levels. This marked the bottom of a downward trend that
had continued for many years. In February, coal prices1 were as
low as USD 36.50 per tonne. Since the price of coal is one of the
main drivers for European power prices, this also heavily impacted
Nordic power prices with the Nasdaq OMX forward price for 2017
dropping to as low as EUR 16.30 per MWh.
From February to December the markets were characterised
mainly by increasing prices and high volatility, as markets peaked
in early November. Coal prices almost doubled (USD 70.25 per
tonne at year end), resulting in increasing power prices. At the same
time, prices for CO2 emission allowances (EUA) fluctuated between
EUR 4 and 6 per tonne for most of 2016 and ended at EUR 6.5 per
tonne at the end of the year, down from EUR 8.1 per tonne at the
beginning of 2016. This added to the price volatility on the Nordic
power market.
The hydrological situation changed to the drier during 2016
due to low precipitation in the Nordic area and high hydropower
production mainly in Norway. Precipitation in Sweden was low
1) API 2 Index for year 2017
Nordic water reservoirs, energy content, TWh
120
100
80
60
40
20
0
Q1
Q2
Q3
Q4
2000
2003
2015
2016
Reference level
Source: Nord Pool
Power and coal prices 2016
Power, EUR/MWh
Coal, USD/tonne
35
30
25
20
15
80
70
60
50
40
30
Jan
Feb March April May
June
July Aug
Sept
Oct
Nov
Dec
Power (Nordic 2017 forward)
Coal (API2 2017 index)
Source: Bloomberg
6
during 2016 resulting in lower hydropower production compared to
2015. At the beginning of 2016, the Nordic water reservoirs were at
98 TWh, which is 15 TWh above the long-term average and 18 TWh
higher than a year earlier. By the end of the year, reservoirs were 8
TWh below the long-term average and 23 TWh lower than at the
end of 2015.
The Nordic spot power prices at the beginning of 2016 were
lower than in 2015. Due to increasing coal prices and the tightening
hydrological situation the spot prices increased above the 2015
levels from the middle of the second quarter and stayed above the
2015 levels throughout 2016. The average system spot price during
2016 was EUR 26.9 per MWh, with the area price in Finland at
EUR 32.4 per MWh and in Sweden SE3 (Stockholm) at EUR 29.2
per MWh. The increase was especially evident in the third quarter
when the system spot price almost doubled from the exceptionally
low level in 2015. The very low prices in 2015 were caused by high
inflows and late snow melt.
Nordic electricity consumption in 2016 increased by 8 TWh to
390 TWh, mainly due to closer to long-term average temperatures
compared to the warmer year in 2015; however, a modest basic
demand growth seen in the Nordic countries also contributed to
the increase in consumption.
In early 2016, many commodity prices
reached long-term low price levels. This
marked the bottom of a downward trend
that had continued for many years.
Spot price development 2015 & 2016, EUR/MWh
50
40
30
20
10
0
Jan
Feb March April May
June
July
Aug
Sept
Oct
Nov
Dec
System 2016
System 2015
Helsinki 2016
Helsinki 2015
Stockholm 2016
Stockholm 2015
Source: Nord Pool, Fortum
7
Strategy
We are ready to take the lead in driving
the transformation towards a cleaner world
Our vision “For a cleaner world” reflects our ambition to drive
the transformation towards a low-emissions energy system and
optimal resource efficiency.
Our mission is to engage our customers and society to drive
the change towards a cleaner world. Our role is to accelerate this
change by reshaping the energy system, improving resource
efficiency and providing smart solutions. This way we deliver
excellent shareholder value.
Fortum’s strategy
Fortum's strategy has four cornerstones: 1) Drive productivity and
industry transformation, 2) Create solutions for sustainable cities,
3) Grow in solar and wind, and 4) Build new energy ventures.
Sustainability is an integral part of our strategy. The tight
link between business operations and corporate responsibility
underscores the importance of sustainability as a competitive
advantage. In our operations, we give balanced consideration to
economic, social and environmental responsibility.
Drive productivity and industry transformation
As the entire energy sector is transforming, our first priority is
to participate in the consolidation of the generation business in
Europe. This includes at least one sizable acquisition targeted to
take place during 2017. This will maximise our opportunities for
growth and value creation.
To ensure our competitiveness, we will continue to optimise
our cost structure and asset portfolio in all businesses. We aim
to reduce the fixed cost base according to our earlier announced
plan, by EUR 100 million by the end of 2017. The progress so far
has been good.
Create solutions for sustainable cities
The scope of our City Solutions has broadened to include efficient
resource management within the circular economy. The Ekokem
acquisition offers us a good platform for new types of solutions
outside the traditional energy sector. Further organic- and/or
Megatrends
Climate change and resource efficiency
Urbanisation
Active customers
Digitalisation, new technologies
Mission
We engage our customers and society to drive the change
towards a cleaner world. Our role is to accelerate this change
by reshaping the energy system, improving resource efficiency
and providing smart solutions. This way we deliver excellent
shareholder value.
Vision
For a cleaner world
Strategy
Drive productivity
and industry
transformation
Create
solutions for
sustainable cities
Grow
in solar
and wind
Build
new energy
ventures
Must-win-battles
Put the customer in the centre
Establish a culture of speed and agility
Digitalise our business for maximum scalability
Create value from market volatility
Drive competitive markets and fair regulation
acquisition-based growth of City Solutions will also be considered,
mainly in Europe.
Growing cities and urban areas are facing multiple challenges,
such as high emissions from inefficient heating, cooling and
electricity production, increasing amounts of waste, and high
traffic pollution and noise. Fortum aims to use its expertise and
experience to help cities solve these challenges sustainably and to
support the building of a circular economy.
Grow in solar and wind
To secure our longer term competitiveness, we will continue to
develop the solar and wind business. In wind, we will focus on
areas closer to our current home markets in the Nordics and in
Russia. In solar, the immediate focus is in India. The next step
will focus on system integration, combining solar with other
components, such as new consumer solutions, demand response,
electric vehicles and storage.
We target a gigawatt-scale solar and wind portfolio. These
technologies are rapidly maturing. At the same time, utility
8
Our vision “For a cleaner world” reflects
our ambition to drive the transformation
towards a low-emissions energy system
and optimal resource efficiency.
competences are becoming increasingly important as subsidy
schemes are gradually being phased out and renewable energy
production is becoming more market-based.
leading suppliers, promising technology companies and research
institutions, as well as make direct and indirect investments in
start-ups with encouraging new innovations.
The Ekokem acquisition in 2016 offers us a good platform for new
types of circular economy solutions, while maintaining a strong
connection to our traditional core, the energy system.
Build new energy ventures
We will acquire and invest in start-ups and funds that focus on
energy-related technologies, because technological and digital
disruption accelerate energy sector transformation. Start-ups have
an increasingly important role in innovating both new technologies
and business models in the changing energy industry landscape.
Digitalisation will enable productivity improvements in the
existing businesses and development of new customer offerings.
Our goal is to be in the forefront of energy technology
and application development. To accelerate innovation and
commercialisation of new offerings, we will strengthen our in-
house focus on innovation and digitalisation, partner with global
Our next strategic steps, in two phases
The execution of our strategy and the redeployment of cash will
take place in two phases. A significant part of the redeployment is
targeted to take place during 2017.
In the first phase, the goal is to maximise cash flow through
balance sheet redeployment. Our first priority is to participate in
the consolidation of the generation business in Europe. This will
include at least one sizable acquisition targeted to take place during
2017. This is the area we know best, and we believe that this move
will maximise our opportunities for growth and value creation.
We plan also to invest to broaden the City Solutions business
scope, mainly in Europe – organically and/or through acquisitions.
The resulting cash flow will be used to enable a competitive
dividend and for investments into longer term competitiveness. In
addition, Fortum will continue its cost structure and asset portfolio
optimisation in all divisions.
The second phase of strategy implementation will focus on
securing Fortum’s longer-term competitiveness. This has already
started through wind investments in our Nordic and Russian home
markets and solar investments in India. The next steps will include
solar-enabled system solutions, maximising the added value from
waste and biomass, and minimising fossil emissions. In addition,
new digital services, active consumers, electric traffic, new storage
solutions and other potentially disruptive innovations will be
included in Phase 2.
9
The Fortum Transformation
Sustainability and CO2-free power generation have been part
of Fortum’s strategy for several decades. We believe that the
energy system needs to transform to a system with substantially
lower emissions, higher resource efficiency and a higher share
of power generation based on renewables. In implementing
our strategy we have worked to increase our CO2-free power
generation. We also have generation capacity based on fossil
fuels, located mainly in Russia, and we have worked to increase
its efficiency and reduce its specific emissions. We are focusing
on increasing our solar and wind power capacity heavily over the
coming years, and we are targeting a gigawatt-scale portfolio in
solar and wind power.
Long-term focus on increasing
CO2-free power generation
Over the past decades Fortum has been working for a more
sustainable world. We have increased our annual CO2-free power
generation from around 15 TWh in 1990 to 46 TWh in 2016. The
development has not always been linear, as annual variations in
hydropower production have a significant impact.
We have been advocating for market-based solutions to drive
the necessary change in the energy system. We were among the
early proponents for a market-based price on CO2. In our own
operations we have invested in CO2-free power generation, and the
carbon exposure of our production in Europe is among the lowest
in Europe at 28 gCO2/kWh in 2016. The respective figure for the
Fortum overall was 173 gCO2/kWh in 2016.
Increase efficiency and reduce specific emissions
In 2016, Fortum finalised the investment programme in Russia.
Thereby our Russian power and heat generation capacity has
increased substantially. By investing in high-efficiency combined
power and heat plants, we have increased the power and heat output
and at the same time substantially decreased the specific CO2
emissions from our Russian power and heat production.
Fortum is now operating a fleet of power and heat plants with
efficiency and emissions ranking among the best of our peers in
Russia.
Fortum’s power generation, TWh
80
70
60
50
40
30
20
10
0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
We have
increased our
annual CO2-
free power
generation from
around 15 TWh
in 1990 to 46
TWh in 2016.
CO2-free
Other
10
Grow in solar and wind
In addition to CO2-free hydro and nuclear power production, we
believe that solar and wind power will play an essential role in
the future. Solar power is becoming one of the most competitive
forms of new power generation in many parts of the world, and we are
targeting investments of EUR 200-400 million in solar power in India.
The market conditions in the Nord Pool area and in Russia
are more suitable for wind power, and Fortum is increasing its
investments heavily. Fortum is currently building the country's
largest wind farm in Russia. In Sweden, Fortum is participating in
the Blaiken wind park that is already operational and in the Solberg
wind farm, that is due to be commissioned in 2018. In Norway,
Fortum announced the purchase of one operational wind farm
and two wind farm projects to be commissioned in 2018 and 2019,
pending final investment decisions.
Our target in wind power is up to 1,000 MW in the Nord Pool
area and up to 500 MW in Russia.
The growth target in solar and wind is substantial compared to
the current solar and wind capacity of slightly less than 60 MW and
would represent a more than 10% increase in Fortum’s current total
power generation capacity of more than 13,000 MW.
We believe that the energy system
needs to transform to a system with
substantially lower emissions, higher
resource efficiency and a higher share of
power generation based on renewables.
Russian specific CO2 emissions from power and
heat production
Fortum’s wind and solar power generation capacity,
MW
380
370
360
350
340
330
320
2010
2011
2012
2013
2014
2015
2016
500
400
300
200
100
0
2014
2015
2016
2017
2018
planned
2019
Specific emissions (g CO2/kWh)
11
Wind
Solar
Projects under investigation
Financials 2016
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financials 2016 – Reader’s guide
This report consists of the Operating and Financial Review and the Consolidated Financial Statements of Fortum Group, including the Parent Company Financial
Statements. Other parts of Fortum’s reporting entity include the Online Annual Review, CEO Letter, Corporate Governance Statement, Remuneration Statement,
Tax Footprint as well as the Sustainability Report. The Online Annual Review and Sustainability Report are published during week 10.
Operating and financial review
This section includes
description of Fortum’s financial
performance during 2016. Here
you will also find a description
of the risk management as well
as information on Fortum share
performance.
Consolidated financial
statements
Primary statements include
Fortum’s consolidated income
statement, statement of
comprehensive income, balance
sheet, statement of changes
in total equity and cash flow
statement.
Notes
The notes to the consolidated
financial statements are
grouped to six sections based
on their nature. Use the note
number list on the right side of
the notes pages to navigate in
the financial statements.
Key figures 2007–2016
Key figures consist of financial
key figures, share key figures
and segment key figures for
2007–2016. The financial key
figures derive mainly from the
primary statements. Segment
key figures include information
on segments.
Auditor’s report
This section includes the audit
report issued by Fortum Oyj’s
auditor, Deloitte & Touche Oy.
Parent company
financial statements
Here you can read the parent
company financial statements
including the primary statements,
cash flow and notes to the
financial statements.
Proposal for the use of profit
shown on the balance sheet
The Board of Directors proposal
for the dividend in 2016 is
disclosed in this section.
Operational key figures and
quarterly financial information
Look here for volume related
key figures for 2007–2016 and
quarterly financial information
for the years 2015 and 2016.
Investor information
Here you will find information
on Fortum’s Annual General
Meeting, dividend payment,
basic share information as
well as details of the financial
information available to
shareholders in 2017.
1
Notes are grouped to the following sections:
1–2 Basis of preparation
These notes describe the basis of preparing the consolidated
financial statements and consist of the accounting policies and
critical accounting estimates and judgements.
3–4 Risks
In the Risks section you will find notes that disclose how Fortum
manages financial risks and capital risks.
5–15 Income statement
These notes provide supporting information for the income
statement.
16–34 Balance sheet
These notes provide supporting information for the balance sheet.
35–38 Off balance sheet items
The notes in this section provide information on items that are not
included in the balance sheet.
39–42 Group structure and related parties
This section includes information on events after balance sheet
date, acquisitions and disposals, related party transactions and
the subsidiaries of Fortum group.
The following symbols show which amounts in the notes
reconcile to the items in income statement, balance
sheets and cash flow statement.
IS = Income statement
BS = Balance sheet
CF = Cash flow
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financials 2016
Reader’s guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Operating and financial review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Financial performance and position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Fortum share and shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Consolidated income statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Consolidated statement of comprehensive income . . . . . . . . . . . . . . . . .30
Consolidated balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Consolidated statement of changes in total equity . . . . . . . . . . . . . . . . . 32
Consolidated cash flow statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Notes to the consolidated financial statements . . . . . . . . . . . . . . . . . 35
1 Accounting policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2 Critical accounting estimates and judgements . . . . . . . . . . . . . . .38
3 Financial risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
4 Capital risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
5 Segment reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
6 Items affecting comparability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
7 Effects from early closure of nuclear units in Sweden . . . . . . . . 52
8 Fair value changes of derivatives and
underlying items in income statement . . . . . . . . . . . . . . . . . . . . . . . . . 53
9 Other income and other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
10 Materials and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54
11 Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54
12 Finance costs – net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
13 Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
14 Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
15 Earnings and dividend per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
16 Financial assets and liabilities by categories . . . . . . . . . . . . . . . . . .63
17 Financial assets and liabilities by fair value hierarchy . . . . . . . . 67
18 Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
19 Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
20 Participations in associated companies and joint ventures . . 77
21 Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
22 Interest-bearing receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
23 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
24 Trade and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .83
25 Liquid funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84
26 Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84
27 Non-controlling interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85
28 Interest-bearing liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .85
29 Income taxes in balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
30 Nuclear related assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .89
31 Other provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
32 Pension obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
33 Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
34 Trade and other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
35 Lease commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .98
36 Capital commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .98
37 Pledged assets and contingent liabilities . . . . . . . . . . . . . . . . . . . . . . 99
38 Legal actions and official proceedings . . . . . . . . . . . . . . . . . . . . . . .100
39 Events after the balance sheet date . . . . . . . . . . . . . . . . . . . . . . . . . . 102
40 Acquisitions and disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
41 Related party transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
42 Subsidiaries by segment on 31 December 2016 . . . . . . . . . . . . . . 105
2
Key figures 2007–2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Financial key figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Share key figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .110
Segment key figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Definitions of key figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Parent company financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .119
Income statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .119
Balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .119
Cash flow statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Notes to the parent company financial statements . . . . . . . . . . . . . . . .121
Proposal for the use of the profit shown on
the balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
Auditor’s report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
Operational key figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
Quarterly financial information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
Investor information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial performance and position
Risk management
Fortum share and shareholders
Financial performance and position
Improved electricity prices, but very low hydro volumes ended a challenging year – Multi-year investment programme in Russia completed.
Key financial ratios 1)
Return on capital employed, %
Comparable net debt/EBITDA
2016
4.0
0.0
1) Key financial ratios are based on total Fortum, including discontinued operations. See Definitions of key figures.
Key figures
EUR million
IS Sales
Comparable EBITDA
IS Continuing operations
Discontinued operations
Total Fortum
Comparable operating profit
IS Continuing operations
Discontinued operations
Total Fortum
Operating Profit
IS Continuing operations
Discontinued operations
Total Fortum
Share of profits from associates and joint ventures
IS Continuing operations
Discontinued operations
Total Fortum
Profit before taxes
IS Continuing operations
Discontinued operations
Total Fortum
Earnings per share, EUR
IS Continuing operations
Discontinued operations
Total Fortum
CF Net cash from operating activities, continuing operations
Shareholders’ equity per share, EUR
Interest-bearing net debt (at end of period)
2016
3,632
1,015
-
1,015
644
-
644
633
-
633
131
-
131
595
-
595
0.56
-
0.56
621
15.15
-48
2014
19.5
2.3
Change 16/15
-82%
100%
2014
4,088
Change 16/15
5%
1,457
416
1,873
1,085
266
1,351
1 296
2,132
3,428
146
3
149
1,232
2,128
3,360
1.22
2.33
3.55
1,406
12.23
4,217
-8%
-20%
-20%
-30%
522%
-85%
555%
555%
295%
-85%
315%
-88%
-49%
-2%
98%
2015
22.7
-1.7
2015
3,459
1,102
163
1,265
808
114
922
-150
4,395
4,245
20
0
20
-305
4,393
4,088
-0.26
4.92
4.66
1,228
15.53
-2,195
3
2016 was a challenging year in many respects. The beginning of the
year was characterised by increased commodity market volatility;
especially coal and oil prices were very low. Nordic water reservoirs
were clearly above the long-term average, creating pressure on
electricity prices, and the British EU exit vote also created uncertainty.
Late in the year, however, some positive signs were seen on the power
market, mainly driven by improved commodity and emission prices,
although the overall business environment still continued to be
demanding. Although some European economies have started to
recover, the industry’s power demand is still too weak and commodity
prices are too low and volatile to support a material increase in
electricity prices.
A positive development in 2016 was the Swedish government’s
budget proposal in September; it included the timetable for
lowering the real-estate tax on hydro assets and for phasing out the
nuclear capacity tax over the coming years. We are pleased with
the swift decision and the finalisation of a timetable, which gives
regulatory stability to operate the plants and plan the necessary
safety investments. This is completely in line with what we have
been advocating for, a regulation and taxation policy where the
different forms of production are treated more equally.
Operationally, the year met our expectations, as availability in
our plants was good and ongoing projects progressed as planned.
We completed our extensive investment programme in Russia in
the spring 2016, and the new capacity has been the key driver for the
earnings growth in the Russia division.
In February, we published the key high-level elements in
our strategy. We also adjusted our operational model to better
enable strategy implementation. During the year we screened
opportunities in line with our strategy. The acquisition of the
Polish electricity and gas sales company DUON, wind power
investments in Sweden, Norway and Russia, and the acquisition
of Ekokem, a leading Nordic circular economy company, are
important steps in the implementation of our strategy and give us
access to new revenue streams independent of the Nordic power
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial performance and position
Risk management
Fortum share and shareholders
Reorganisation of operations
Fortum reorganised its operating structure in April 2016. The
target of the new organisation is to enable the implementation
of the company’s new vision and strategy. The new organisation
consists of three business divisions: Generation, City Solutions and
Russia. In addition, two development units focusing on growing
new businesses were established: (1) M&A and Solar & Wind
Development, and (2) Technology and New Ventures.
The changes to Fortum’s segment reporting were minor. The
company continues to have four segments. The segments as of the
second quarter of 2016 are: Generation (mainly the former Power
and Technology); City Solutions (mainly the former Heat, Electricity
Sales and Solutions); Russia; and Other, under which M&A, Solar
& Wind Development, and Technology and New Ventures, as
well as corporate functions are reported. Some businesses were
repositioned due to the reorganisation, but because of the minor
financial impact, the comparable segment information for 2015 has
not been restated.
Following the divestment of the Swedish distribution business,
Fortum no longer has electricity distribution operations. The
Distribution segment was reclassified as discontinued operations
as of the first quarter of 2015.
price. In addition, as we are continuously looking to optimise our
production fleet, we divested the Tobolsk power plant in Russia.
We updated our vision and mission in the autumn. Our vision
and mission go beyond just clean energy production, they express
our commitment to fuel and resource efficiency and how we enable
our stakeholders, customers and society to make sustainable
choices. Our updated vision – ‘For a cleaner world’ reflects our
ambition to drive the transformation towards an low-emission
energy system and optimal resource efficiency. Our role is to
accelerate this change by reshaping the energy system, improving
resource efficiency and providing smart solutions.
We expect the energy sector transformation to accelerate in
the future. At the same time as we lower the cost and improve the
productivity of our existing operations, we will focus on additional
organic and M&A growth opportunities. We have two phases in
our capital redeployment. Priority one in phase one is generation
consolidation in Europe – consolidation of assets and businesses
within our core competence and giving us direct access to cash
flows. Priority two in phase one is to take the competencies that we
have today in our combined heat and power production and in the
acquired Ekokem business, and widen the City Solution’s scope.
The overall goal of phase one is to maximize our cash flow to enable
both a competitive dividend and “phase two” investments into
the future energy system. Phase two involves growing in solar and
wind, and new internal or external energy ventures to take care of
our long-term competitiveness.
Fortum’s vision, strategic cornerstones
and updated financial targets
In February 2016, Fortum launched its new vision, strategic
cornerstones and updated financial targets. The new vision and
strategy target growth and continued profitability with a strong
focus on clean energy, customers and shareholder value creation.
The long-term financial target for return on capital employed
(ROCE) was revised to at least 10%, while the target for comparable
net debt to EBITDA, around 2.5 times, remained unchanged. The
dividend policy also remained unchanged.
Fortum’s strategy has four cornerstones: (1) enhance
productivity of the current fleet and drive industry transformation,
(2) create sustainable solutions for growing cities and urban areas,
(3) increase investments in solar and wind power, and (4) build new
energy ventures.
At Fortum’s Capital Market Day in November 2016, the strategy
execution plan was expanded in more depth. The redeployment of
cash and the execution of Fortum’s strategy will take place in two
phases, and a significant part of the redeployment is targeted to
take place during 2017.
Phase 1: The goal for the first phase is to maximise cash flow
through capital redeployment. The priority is consolidation of
the generation business in Europe. After this, and subject to the
remaining financial headroom, also further organic growth and/
or acquisition-based growth of City Solutions will be considered,
mainly in Europe. The resulting cash flow will be used for two
purposes: 1) implementing Fortum’s dividend policy; and
2) investments into Phase 2 as described below. In addition,
Fortum will continue its cost and asset portfolio optimisation in all
divisions, informing the market about these as they advance.
Phase 2: The goal for the second phase is to secure Fortum’s
longer-term competitiveness. This has already started through
wind investments in our Nordic and Russian home markets and
through solar investments in India. The next steps will include
solar-enabled system solutions, maximising the added value from
waste and biomass as well as minimising fossil emissions. In
addition, phase 2 will also include new digital services, services for
active consumers, electric traffic, new storage solutions, and other
potentially disruptive innovations.
Fortum also updated its vision and mission to cover a broader
scope. “For a cleaner world” reflects the company’s mission “We
engage our customers and society to drive the change towards a
cleaner world. Our role is to accelerate this change by reshaping the
energy system, improving resource efficiency and providing smart
solutions. In this way we deliver excellent shareholder value.”
4
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial performance and position
Risk management
Fortum share and shareholders
New Finnish GAAP requirement
for financial derivatives
A new requirement issued by Finnish Accounting Board
relating to accounting for financial derivatives was published
13 December 2016. The requirements have to be applied in 2016
separate financial statements for Finnish companies. Based on
this requirement Fortum has chosen to apply IFRS principles for
accounting financial derivatives in Fortum Oyj and its Finnish
subsidiaries.
Applying IFRS principles means that financial derivatives are
fair valued at each balance sheet date, which may create volatility
in income statement and equity. The changes due to the new
requirement has no effect to Fortum Group, but had a minor effect
to net profit and equity of Fortum Oyj in 2016.
Comparability of information
presented in tables and graphs
Fortum has restated the financial information in prior years as
follows:
• Distribution segment is treated as discontinued operations in
2015. The comparative period information for 2014 was restated
accordingly, but information in the tables and graphs presented
for year 2013 or earlier is not restated due to reclassification of
discontinued operations. Financial results discussed in this
operating and financial review are for the continuing operations
of Fortum Group. See additional information in Note 14
Discontinued operations.
• Furthermore, information in the tables and graphs presented
for year 2012 or earlier is not restated due to the adoption
of IFRS 10 and IFRS 11. Adoption of standards influences
treatment of Fortum’s holding in AB Fortum Värme samägt med
Stockholms stad in the consolidated financial statements.
In addition, as of 2014, presented figures have been rounded and
consequently the sum of individual figures may deviate from the
sum presented. Figures in brackets refer to the comparison period
unless otherwise stated.
Sales, EUR million
7,500
5,000
2,500
0
Return on capital employed total Fortum, %
25
20
15
10
5
0
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
Operating profit and comparable operating profit,
EUR million
Return on capital employed, %
Target %, revised in 2016
2,000
1,500
1,000
500
0
-500
2012
2013
2014
2015
2016
Operating profit
Comparable operating profit
5
Return on shareholders’ equity total Fortum, %
35
30
25
20
15
10
5
0
2012
2013
2014
2015
2016
Earnings per share total Fortum, EUR
5.0
4.0
3.0
2.0
1.0
0.0
2012
2013
2014
2015
2016
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial performance and position
Risk management
Fortum share and shareholders
million. In 2015, net financial expenses included compensation of
EUR 37 million from the prepayment of loans by Fortum Värme
( Note 12).
Profit before taxes was EUR 595 (-305) million. Year 2015, was
impacted by EUR -910 million due to the decision on the early closing
of the two nuclear units in Sweden.
Taxes for the period totalled EUR -90 (78) million. The effective
income tax rate according to the income statement was 15.2%
(25.4%). The comparable effective income tax rate, excluding the
impact of the share of profit from associated companies and joint
ventures as well as non-taxable capital gains, was 20.0% (23.5%)
( Note 13).
The profit for the period for continuing operations was EUR 504
(-228) million. Earnings per share for continuing operations were
EUR 0.56 (-0.26), of which EUR -0.02 (-0.97) per share relates to items
affecting comparability. In 2015, the impact of the decision on the
early closure of two nuclear units in Sweden was EUR -0.82 per share.
Financial results
Sales by segment
EUR million
Generation
City Solutions
Russia
Other
Netting of Nord Pool
transactions 1)
Eliminations
IS Total continuing
operations
Discontinued operations
Eliminations
Total Fortum
2016
1,657
1,424
896
121
-384
-82
3,632
-
-
3,632
2015 Change 16/15
-4%
20%
0%
6%
1,722
1,187
893
114
-336
-122
3,459
274
-31
3,702
5%
-2%
1) Sales and purchases with Nord Pool are netted at the Group level on an hourly
basis and posted either as revenue or cost depending on whether Fortum is a net
seller or net buyer during any particular hour.
Comparable EBITDA by segment
EUR million
Generation
City Solutions
Russia
Other
IS Total continuing
operations
Discontinued operations
Total Fortum
2016
527
238
312
-61
1,015
-
1,015
2015 Change 16/15
-23%
680
14%
209
17%
267
-15%
-53
-8%
1,102
163
1,265
-20%
Comparable operating profit by segment
EUR million
Generation
City Solutions
Russia
Other
IS Total continuing
operations
Discontinued operations
Total Fortum
2016
417
112
191
-76
644
-
644
2015 Change 16/15
-26%
561
4%
108
-5%
201
-21%
-63
-20%
808
114
922
-30%
Operating profit by segment
EUR million
Generation
City Solutions
Russia
Other
IS Total continuing
operations
Discontinued operations
Total Fortum
2016
338
145
226
-76
633
-
633
2015 Change 16/15
185%
-396
38%
105
11%
203
-23%
-62
522%
-150
4,395
4,245
-85%
For further information see Note 5 Segment reporting.
In 2016, sales were EUR 3,632 (3,459) million. Comparable EBITDA
totalled EUR 1,015 (1,102) million. Comparable operating profit
totalled EUR 644 (808) million and reported operating profit
totalled EUR 633 (-150) million. Fortum’s operating profit for the
period was impacted by items affecting comparability, including
sales gains, Ekokem transaction costs, updated provisions and an
IFRS accounting treatment (IAS 39) of derivatives mainly used for
hedging Fortum’s power production, as well as nuclear fund
adjustments for continuing operations, amounting to EUR -11
(-958) million ( Note 5 and Note 6). The year 2015 included a
EUR -794 million impact from the decision on the early closure of
two nuclear units in Sweden ( Note 5 and Note 7).
The share of profit from associates was EUR 131 (20) million, of
which Hafslund represented EUR 51 (39) million, TGC-1 EUR 38 (32)
million, Fortum Värme EUR 66 (47) million and OKG EUR -30 (-107)
million. The share of profit from Hafslund and TGC-1 are based on the
companies’ published Q4 2015 and Q1–Q3 2016 interim reports
( Note 20). The OKG impact comes from the new technical plan for
nuclear waste management ( Note 30). Year 2015 was affected by the
decision on the early closure of two nuclear units in Sweden, which
impacted the share of profit from associates by EUR -116
million ( Note 7). In addition, Fortum Värme’s share of profit in
2015 was lower mainly due to the paid compensation for refinancing
the interest-bearing loans from Fortum.
Net financial expenses were EUR -169 (-175) million and include
changes in the fair value of financial instruments of EUR -2 (-18)
6
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial performance and position
Risk management
Fortum share and shareholders
Financial position and cash flow
EUR million
Interest expense
Interest income
Fair value gains and losses on financial instruments
Other financial expenses - net
IS Finance costs - net
Interest-bearing liabilities
Less: Liquid funds
Interest-bearing net debt
Interest-bearing net debt, EUR million
10,000
7,500
5,000
2,500
0
-2,500
2012
2013
2014
2015
2016
Interest-bearing net debt
Interest-bearing net debt without Värme financing
Comparable net debt/EBITDA
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
2012
2013
2014
2015
2016
Comparable net debt/EBITDA total Fortum
Comparable net debt/EBITDA without Värme financing
Target, comparable net debt/EBITDA
June, Fortum paid income taxes in Sweden totalling EUR 127 million
regarding tax disputes. The appeal process is ongoing and based on
legal opinions, no provision is made, and the payment is booked as a
receivable ( Note 38). Realised foreign exchange gains and losses of
EUR 110 (292) million relate to the rollover of foreign exchange
contract hedging loans to Fortum’s Swedish and Russian subsidiaries.
Capital expenditures increased by EUR 72 million to EUR 599
(527) million. Net cash used in investing activities increased to
EUR 1,701 (35) million, due to the acquired shares of EUR 695 (43)
million related mainly to acquisitions of Ekokem and DUON. The
increase in other interest-bearing receivables of EUR 340 million
during 2016 relates mainly to cash collaterals, given as trading
collaterals to commodity exchanges.
Cash flow before financing activities was EUR -1,080 (7,650)
million. In 2015, the impact from discontinued operations was EUR
6,457 million.
Fortum paid dividends totalling EUR 977 (1,155) million
in April 2016. Payments of long-term and short-term liabilities
totalled EUR 1,031 (1,040) million including repayment of a EUR
750 million bond and EUR 115 million Ekokem loans. The net
decrease in liquid funds was EUR 3,064 (increase of 5,490) million.
2016
-169
30
-2
-29
-169
5,107
5,155
-48
2015
-203
51
-18
-4
-175
6,007
8,202
-2,195
Change 16/15
17%
-41%
89%
-625%
3%
-15%
-37%
Cash flow
In 2016, net cash from operating activities from continuing
operations decreased by EUR 607 million to EUR 621 (1,228)
million, mainly due to EUR 87 million lower comparable EBITDA,
EUR 151 million higher income taxes paid, EUR -182 million lower
realised foreign exchange gains and losses, and an EUR 131 million
increase in working capital. The increase in working capital is
mainly due to the daily cash settlements for futures in Nasdaq OMX
Commodities Europe ( Additional cash flow information). In
Change in net cash during 2016, EUR million
1,015
-64
-227
-2,147
-102
-1,294
2,195
49
-457
-977
0 1 5
m
o
b l e
A
D
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a r a
B I T
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e c
c
n
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n
s t a
o
h i n w
o
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N
a
F i n
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d t a
o r k i n
a
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A
C
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n
X a
u isiti o
E
P
q
d
s
n
D i v
e
s t m
C
e
n t s
h i n i n t. b
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c
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C
At the end of 2016 and 2015 Fortum has been in net cash position,
see Financial position and cash flow table above.
-90
a r.
s
b l e
e
a
D i v i d
X , a
F
d
s
u ir e
a
n
b t
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e t c
e
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N
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e
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s
a
48
0 1 6
7
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial performance and position
Risk management
Fortum share and shareholders
Assets and capital employed
Total assets decreased by EUR 803 million to EUR 21,964
(22,767) million.
Liquid funds at the end of 2016 were EUR 5,155 (8,202) million.
Capital employed was EUR 18,648 (19,870) million, a decrease of
EUR 1,222 million.
Equity
Equity attributable to owners of the parent company totalled EUR
13,459 (13,794) million.
The decrease in equity attributable to owners of the parent
company totalled EUR 335 million and was mainly due to EUR 977
million in dividends paid and the net profit for the period of EUR
496 million.
Financing
Fortum was net cash positive at the end of 2016. Net cash decreased
by EUR 2,147 million to EUR 48 (2,195) million.
At the end of 2016, the Group’s liquid funds totalled EUR 5,155
(8,202) million. Liquid funds include cash and bank deposits held
by OAO Fortum amounting to EUR 105 (76) million. In addition to
liquid funds, Fortum had access to EUR 2.0 billion of undrawn
committed credit facilities ( Note 28).
Net financial expenses in January-December 2016 were EUR
-169 (-175) million, of which net interest expenses were EUR -139
(-152) million. Net financial expenses include changes of EUR -2
(-18) million in the fair value of financial instruments and EUR 37
million compensation from the prepayment of loans by Fortum
Värme in 2015.
In June 2016, Fortum signed a EUR 1,750 million syndicated
Multicurrency Revolving Facility Agreement. The committed facility
will be used for general corporate purposes and replaces the existing
credit facility signed in July 2011. The facility has an initial maturity
of five years and Fortum may request two one-year extension options.
Fortum’s long-term credit ratings were unchanged. Standard &
Poor’s rating is BBB+ and the short-term rating A-2. The outlook
is stable. Fitch Ratings long-term Issuer Default Rating (IDR) and
senior unsecured rating is BBB+ and the short-term IDR is F2 with a
stable outlook.
Nordic water reservoirs, energy content, TWh
120
100
80
60
40
20
0
Q1
Q2
Q3
Q4
2000
2003
2015
2016
Reference level
Source: Nord Pool
Key figures
At the end of 2016, the comparable net debt to EBITDA was 0.0 (-1.7).
Gearing was 0% (-16%) and the equity-to-assets ratio 62%
(61%). Equity per share was EUR 15.15 (15.53). Return on capital
employed for year 2016 totalled 4.0% (22.7%).
MWh and in Sweden SE3 (Stockholm) at EUR 29.2 (22.0) per MWh.
Nordic reservoirs turned from a 15 TWh surplus to an 8 TWh deficit
during the year. 2016 was again warmer than normal, but less so
than in 2015.
In Germany, the average spot price in 2016 was EUR 29.0
Market conditions
Nordic countries
According to preliminary statistics, electricity consumption in the
Nordic countries increased in 2016 by 9 TWh to 390 (381) TWh,
mainly due to closer-to-long-term average temperature compared
to the warmer year in 2015, although modest demand growth was
seen in the Nordic countries.
At the beginning of 2016, the Nordic water reservoirs were
at 98 TWh, which is 15 TWh above the long-term average and
18 TWh higher than a year earlier. By the end of the year, reservoirs
were 8 TWh below the long-term average and 23 TWh lower than
at the end of 2015. Reservoir levels have decreased due to low
precipitation in the Nordic area and high hydro production mainly
in Norway during 2016.
In 2016, the Nord Pool average system spot price was EUR 26.9
(21.0) per MWh, with the area price in Finland at EUR 32.4 (29.7) per
8
(31.6) per MWh.
The market price of CO2 emission allowances (EUA) was EUR 8.1
per tonne at the beginning of the year. Throughout most of the
fourth quarter and the whole calendar year the price fluctuated
between EUR 4 and 6 per tonne and ended at EUR 6.5 per tonne at
the end of 2016.
Russia
Fortum operates both in the Tyumen and Khanty-Mansiysk area
of Western Siberia, where industrial production is dominated by
the oil and gas industries, and in the Chelyabinsk area of the Urals,
which is dominated by the metal industry.
According to preliminary statistics, Russian electricity
consumption was 1,027 (1,007) TWh and the corresponding figure
in Fortum’s operating area in the First price zone (European and
Urals part of Russia) was 787 (772) TWh in 2016.
In 2016, the average electricity spot price, excluding capacity
price, increased by 4.3% to RUB 1,204 (1,154) per MWh in the First
price zone.
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial performance and position
Risk management
Fortum share and shareholders
Power consumption
TWh
Nordic countries
Russia
Tyumen
Chelyabinsk
Russia Urals area
Average prices
TWh
Spot price for power in Nord Pool power exchange, EUR/MWh
Spot price for power in Finland, EUR/MWh
Spot price for power in Sweden, SE3, Stockholm, EUR/MWh
Spot price for power in Sweden, SE2, Sundsvall, EUR/MWh
Spot price for power in European and Urals part of Russia, RUB/MWh 1)
Average capacity price, tRUB/MW/month
Spot price for power in Germany, EUR/MWh
Average regulated gas price in Urals region, RUB/1,000 m3
Average capacity price for old capacity, tRUB/MW/month 2)
Average capacity price for new capacity, tRUB/MW/month 2)
Spot price for power (market price), Urals hub, RUB/MWh 1)
CO2, (ETS EUA), EUR/tonne CO2
Coal (ICE Rotterdam), USD/tonne
Oil (Brent Crude), USD/bbl
1) Excluding capacity tariff.
2) Capacity prices paid only for the capacity available at the time.
Water reservoirs
TWh
Nordic water reservoirs level
Nordic water reservoirs level, long-term average
Export/import
TWh (+ = import to, - = export from Nordic area)
Export/import between Nordic area and Continental Europe+Baltics
Export/import between Nordic area and Russia
Export/import Nordic area, total
2016
390
1,027
94
35
259
2016
26.9
32.4
29.2
29.0
1,204
481
29.0
3,614
140
815
1,054
5
59
45
2015
381
1,007
93
35
258
2015
21.0
29.7
22.0
21.2
1,154
359
31.6
3,488
149
641
1,047
8
57
54
2014
378
1,021
93
36
260
2014
29.6
36.0
31.6
31.4
1,163
304
32.8
3,362
167
552
1,089
6
75
99
31 Dec 2016
75
83
31 Dec 2015
98
83
31 Dec 2014
80
83
2016
-10
6
-4
2015
-18
4
-14
2014
-14
4
-10
9
European business environment
and carbon market
Carbon pricing and emissions trading
The ratification of the global climate agreement adopted in
Paris 2015, entered into force in November 2016. Preparation of
implementation rules will take a couple of years, and the impact
on the energy industry will become concrete only via legislation
in different countries. The EU ratified the Agreement, but Russia’s
ratification is not expected before 2020. Carbon pricing schemes
are being planned in several countries. The start of the Chinese ETS
in 2017 is expected to double the coverage of emissions subject to
carbon pricing globally.
The EU Commission released an announcement on the
implications of the Paris Agreement for the EU climate policy. The
EU decided not to revise its climate target for 2030. Basically all EU
climate regulation to implement the 2030 target was under review
in 2016. The revision of the emissions trading directive (ETS) was
under discussion in the Parliament and the Council, but adoption
isn’t expected until late 2017 at the earliest or in 2018. Fortum
and the electricity industry as a whole have highlighted the need
to increase the ETS ambition and strengthen the market stability
reserve mechanism.
Progress in implementation of the Energy Union
Year 2016 was the EU Energy Union’s “year of delivery” with the
release of three major legislative packages. The in early 2016
released “winter package” focused on security of supply and on
heating and cooling (H&C). The new EU H&C strategy underlined
the importance of decarbonisation of heating and cooling and the
improvement of energy efficiency in the residential sector. The
“summer package” contained a proposal for sharing the burden
in the non-ETS sectors, i.e. binding national targets for member
states to cut CO2 emissions in transport, buildings, agriculture and
waste management in 2021–2030. The strategy has a strong focus
on electrification of the transport sector while also recognising
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial performance and position
Risk management
Fortum share and shareholders
the role of biofuels. A broader “winter package” (Clean Energy for
all Europeans) released in late 2016 completed to a large extent
the legislative work in the field of energy. The winter package
includes a renewal of the internal electricity market legislation, as
well as energy efficiency and renewable energy directives with the
intention to implement the related EU 2030 targets.
Swedish energy policy and taxation
The focus of the energy policy in 2016 was on the parliamentary
energy commission’s work with the aim of developing a long-
term energy policy for the period after 2030. In June, a broad
parliamentary agreement for long-term Swedish energy policy
was presented by the government and parts of the opposition. The
agreement aims at a 100% renewable energy system by 2040, but
with no actual limits regarding nuclear generation. The electricity
certificate system will be prolonged providing for an additional
18 TWh of electricity from renewable energy sources during
2020–2030. The progress of the energy agreement will be followed-
up every second year starting in 2018.
One of the key elements of the parliamentary agreement was
the proposal that taxation of different energy production forms
should be more equal, and that the tax burden of nuclear and hydro
should be taken to the level of other production technologies. The
tax on installed nuclear capacity will be reduced starting in July
2017 and totally abolished as of 2018. The regulatory framework
for investment of the nuclear waste funds’ assets is suggested to
be expanded to provide for a better long-term yield. The real-estate
tax rate on hydro assets will be reduced from current 2.8% to the
regular tax rate of 0.5% on real estate in four steps by 2020. In
addition, a proposal for new hydro legislation is being prepared and
is expected to be handed over to the parliament in autumn 2017.
Finnish energy policy and taxation
In late 2016 the Finnish Government published its energy and
climate strategy in order to implement both the national energy and
climate policy objectives of the Government’s strategic programme,
as well as the EU 2030 energy and climate targets. The key elements
are: increase the share of renewable energy to a minimum of 50%
with a strong focus on bioenergy, launch of a limited support
scheme for renewable electricity (2 TWh of electricity production is
auctioned, based on technology neutral tendering, in 2018–2020),
30% biofuel blending obligation and some incentives for electric
vehicles as well as a ban on the use of coal in energy production
by 2030.
In addition, the Finnish Government decided to increase the tax
on heating fuels from 2017 onwards. However, CHP continues to
pay only 50% of the CO2 tax component, while the original aim was
to increase it to 100%. The agreed tax model increases the tax on
both the CO2 and the energy content components. The Government
also decided to make an assessment during 2017 concerning the
possibility to apply real estate tax rates applicable to power plants
also to wind power. Currently windmills below 3 MW are in the
scope of lower tax rates. The earlier announced mechanism to
offset the indirect costs of the EU Emissions Trading System for
energy intensive industries was also approved.
Segment reviews
Generation
Generation is responsible for Nordic power production. The segment comprises
nuclear, hydro and thermal power production, portfolio management, and
trading and industrial intelligence, as well as nuclear services globally.
EUR million
Sales
- power sales
of which Nordic power sales 1)
- other sales
Comparable EBITDA
Comparable operating profit
Operating profit
Share of profits from associates and
joint ventures 2)
Comparable net assets
(at period-end)
Comparable return on net assets, %
Capital expenditure and gross
investments in shares
Number of employees
2016
1,657
1,635
1,339
22
527
417
338
2015
1,722
1,625
1,526
97
680
561
-396
Change
16/15
-4%
1%
-12%
-77%
-23%
-26%
185%
-34
-111
69%
5,815
6.9
203
979
5,931
9.5
203
1,341
-2%
-27%
0%
-27%
1) The Nordic power sales income and volume includes hydro and nuclear
generation, excluding minorities. It does not include thermal generation, minorities,
customer business or other purchases.
2) Power plants are often built jointly with other power producers, and owners
purchase electricity at cost including interest cost and production taxes. The share
of profit/loss is mainly IFRS adjustments (e.g. accounting for nuclear-related assets
and liabilities) and depreciations on fair-value adjustments from historical
acquisitions ( Note 20).
In 2016, the Generation segment’s comparable EBITDA was EUR
527 (680) million. Comparable operating profit was EUR 417 (561)
million. The decline was mainly due to the lower achieved power
price and lower hydro volumes. The decline was partly offset by
higher nuclear volumes and lower fixed costs.
Operating profit of EUR 338 (-396) million was affected by
sales gains, the IFRS accounting treatment (IAS 39) of derivatives,
mainly used for hedging Fortum’s power production, and by
nuclear fund adjustments, amounting to EUR -79 (-958)
million ( Note 5 and Note 6). Year 2015 included EUR -794
million from the decision on the early closure of two nuclear units
in Sweden ( Note 5 and Note 7).
10
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial performance and position
Risk management
Fortum share and shareholders
The share of profits from associated companies and joint
ventures totalled EUR -34 (-111) million ( Note 20).
Generation’s achieved Nordic power price was EUR 31.0 (33.0)
per MWh, EUR 2.0 per MWh lower than in 2015. The average
system spot price of electricity in Nord Pool was EUR 26.9 (21.0) per
MWh. The average area price in Finland was EUR 32.4 (29.7) per
MWh and in Sweden SE3 (Stockholm) EUR 29.2 (22.0) per MWh.
The segment’s total power generation in the Nordic countries
was 45.3 (48.1) TWh. The decrease is mainly due to lower hydro
volumes. The CO2-free production amounted to 99% (99%) of total
production.
Power generation by source
TWh
Hydro power, Nordic
Nuclear power, Nordic
Thermal power, Nordic
Total in the Nordic countries
Nordic sales volume
2016
20.7
24.1
0.5
45.3
2015
25.1
22.7
0.3
48.1
Change
16/15
-18%
6%
67%
-6%
TWh
Nordic sales volume
of which Nordic Power sales volume 1)
2016
52.4
43.2
Change
16/15
4%
-7%
2015
50.5
46.3
1) The Nordic power sales income and volume includes hydro and nuclear generation,
excluding minorities. It does not include thermal generation, minorities, customer
business or other purchases.
Generation segment’s power generation in
the Nordic area by source, TWh
Generation segment’s power generation
by area, TWh
60
45
30
15
0
60
45
30
15
0
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
Thermal power
Nuclear power
Hydro power
UK
Sweden
Finland
Nord Pool, power price, 2012–2016, EUR/MWh
100
80
60
40
20
0
2012
2013
2014
2015
2016
Sales price
Fortum achieved
Spot average
Spot price
EUR/MWh
Generation’s Nordic power price 2)
2016
31.0
Change
16/15
-6%
2015
33
2) Generation’s Nordic power price does not include sales income from thermal
generation, market price-related purchases or minorities.
Source: Nord Pool, Fortum
11
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial performance and position
Risk management
Fortum share and shareholders
City Solutions
City Solutions is responsible for developing sustainable city solutions into a
growing business for Fortum. The segment comprises heating and cooling,
waste-to-energy, biomass and other circular economy solutions, as well
as electricity sales and services. The business operations are located in the
Nordics, the Baltic countries and Poland. The segment also includes Fortum’s
50% holding in Fortum Värme, which is a joint venture and is accounted for
using the equity method.
EUR million
Sales
- heat sales
- power sales
- other sales
Comparable EBITDA
Comparable operating profit
of which Electricity Sales
Operating profit
Share of profits from associates and
joint ventures
Comparable net assets
(at period-end)
Comparable return on net assets, %
Capital expenditure and gross
investments in shares
Number of employees
2016
1,424
449
648
327
238
112
44
145
2015
1,187
423
682
83
209
108
55
105
Change
16/15
20%
6%
-5%
294%
14%
4%
-20%
38%
76
59
29%
3,052
7.5
927
2,314
2,182
7.9
128
1,417
40%
-5%
624%
63%
In August, Fortum finalised the acquisition of Ekokem
Corporation. The transaction was originally announced in May
2016. Ekokem has been integrated as a business area into the City
Solutions division and has been consolidated into Fortum Group
from the end of August 2016.
In 2016, sales increased to EUR 1,424 (1,187) million, mainly
due to the consolidation of DUON and Ekokem. Heat sales volumes
of the City Solutions segment amounted to 8.7 (7.8) TWh. Power
sales volumes from CHP production totalled 2.8 (2.5) TWh during
the same period.
Comparable EBITDA increased, and totalled EUR 238 (209)
million. Comparable operating profit was EUR 112 (108) million.
The main drivers for the improvement were the consolidations
of DUON and Ekokem. The full year result was burdened by an
unfavourable fuel mix and the lower achieved power price. In
addition, the use of more accurate consumption estimates had a
one-off, positive impact on electricity sales in 2015.
Operating profit of EUR 145 (105) million was affected mainly by
sales gains, Ekokem transaction costs and the IFRS accounting
treatment (IAS 39) of derivatives totalling EUR 33 (-3) million
( Note 5).
The share of profits from associated companies and joint
ventures totalled EUR 76 (59) million, including mainly the share
of profit from Fortum Värme ( Note 20).
Heat sales by country
TWh
Finland
Poland
Other countries
Total
Power sales
TWh
CHP
Electricity Sales
Total
2016
3.6
3.6
1.5
8.7
2016
2.8
12.3
15.1
Change
16/15
16%
6%
25%
12%
2015
3.1
3.4
1.2
7.8
2015
2.5
14.2
16.7
Change
16/15
12%
-13%
-10%
Electricity Sales in City Solutions segment, TWh
20
15
10
5
0
2012
2013
2014
2015
2016
Heat sales by country, TWh
25
20
15
10
5
0
2012
2013
2014
2015
2016
Other countries
Finland
Poland
Sweden
12
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial performance and position
Risk management
Fortum share and shareholders
Russia
The Russia segment comprises power and heat generation and sales in Russia.
The segment also includes Fortum’s over 29% holding in TGC-1, which is an
associated company and is accounted for using the equity method.
EUR million
Sales
- power sales
- heat sales
- other sales
Comparable EBITDA
Comparable operating profit
Operating profit
Share of profits from associates and
joint ventures
Comparable net assets
(at period-end)
Comparable return on net assets, %
Capital expenditure and gross
investments in shares
Number of employees
2016
896
691
199
6
312
191
226
Change
16/15
0%
5%
-13%
50%
17%
-5%
11%
2015
893
661
228
4
267
201
203
38
32
19%
3,284
8.0
201
3,745
2,561
8,2
285
4,126
28%
-2%
-29%
-9%
After the completion of the multi-year investment programme in
March 2016, Fortum has 2,268 MW of new capacity i.e. generation
capacity built after 2007, which under the Russian Capacity Supply
Agreement (CSA – “new capacity”) receives guaranteed payments
for a period of 10 years after the commissioning of each new unit.
The received capacity payments vary depending on the age,
location, type and size of the plant, as well as on seasonality and
availability. The CSA payments can also vary somewhat annually,
as they are linked to Russian Government long-term bonds with 8
to 10 years' maturity. In early 2016, the System Administrator of the
wholesale market published data on the weighted average cost of
capital (WACC) and the consumer price index (CPI) for 2015, which
was used to calculate the capacity price on CSA in 2016. The CSA
payments were revised upwards accordingly to reflect the higher
bond rates. In addition, the regulator will review the guaranteed
CSA payments by re-examining earnings from the electricity-only
market three and six years after the commissioning of a unit, and
may revise the CSA payments accordingly.
All of Fortum’s capacity generation built prior to 2008 (CCS –
“old capacity”), totalling 2,214 MW in December 2016, was allowed
to participate in the Competitive Capacity Selection for 2016,
and the majority of Fortum’s plants were selected. The volume of
Fortum’s installed capacity not selected in the auction totalled
175 MW, for which Fortum has obtained forced mode status, i.e. it
is receiving payments for the capacity.
In 2016, the Russia segment’s power sales volumes amounted
to 29.5 (29.4) TWh and heat sales volumes totalled 20.6 (25.4) TWh.
Electricity volumes increased mainly due to the commissioning
of two new units in Chelyabinsk. The divestment of the Tobolsk
CHP plant in February 2016 decreased the growth impact on both
electricity and heat volumes.
The Russia segment’s comparable EBITDA was EUR 312 (267)
million. Comparable operating profit was EUR 191 (201) million,
including CSA provision releases of EUR 2 (52) million. The
positive effect came from operationally good performance and high
utilisation rates in the power plants, the commissioning of new
units as well as from the higher received CSA payments following
the adjustments of the WACC component in the CSA prices. The
Russian rouble had a negative effect of EUR 13 million.
Operating profit was EUR 226 (203) million, including sales
gains of EUR 35 (1) million ( Note 5).
The share of profits from associated companies and joint
ventures totalled EUR 38 (32) million ( Note 20). The operating
profit (EBIT) for the whole Russia segment, which includes the
share of TGC-1, totalled RUB 19.5 billion in 2016, including a sales
gain RUB 2.6 billion on the sale of Tobolsk.
Fortum started receiving capacity payments under the Russian
Capacity Supply Agreement (CSA) for Chelyabinsk GRES unit 2 as of
1 March 2016. Fortum’s extensive investment programme in Russia
that started in 2008 was completed during 2016, as the final unit of
the programme started its commercial operation.
Key electricity, capacity and gas
prices for Fortum Russia
Electricity spot price (market price),
Urals hub, RUB/MWh
Average regulated gas price, Urals
region, RUB/1,000 m3
Average capacity price for CCS
“old capacity”, tRUB/MW/month 1)
Average capacity price for CSA
“new capacity”, tRUB/MW/month 1)
Average capacity price, tRUB/MW/
month
Achieved power price for Fortum in
Russia, RUB/MWh
Achieved power price for Fortum in
Russia, EUR/MWh 2)
2016
2015
Change
16/15
1,054
1,047
3,614
3,488
1%
4%
140
815
481
149
-6%
641
27%
359
34%
1,734
1,555
12%
23.5
22.5
4%
1) Capacity prices paid for the capacity volumes, excluding unplanned outages,
repairs and own consumption.
2) Translated using average exchange rate.
Discontinued operations (Distribution)
EUR million
Sales
- distribution network transmission
- regional network transmission
- other sales
Comparable EBITDA
Comparable operating profit
Operating profit
Capital expenditure and gross
investments in shares
2016
-
-
-
-
-
-
-
-
2015
274
229
40
7
163
114
4,395
44
The table above includes the Swedish electricity distribution
business for January-May 2015.
13
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial performance and position
Risk management
Fortum share and shareholders
Capital expenditure and gross investments in shares
continuing operations, EUR million
2,000
1,500
1,000
500
0
2012
2013
2014
2015
2016
Investments in shares
Capital expenditures
Capital expenditure continuing operations by
country, EUR million
591
Finland, 173
Sweden, 91
Russia, 201
Estonia, 11
Poland, 59
Other countries, 56
Fortum has had no distribution business since June 2015, when
it completed the divestment of its Swedish electricity distribution
business. The transaction concluded the divestment of Fortum’s
Distribution segment, a process that began in 2013.
Capital expenditure, divestments
and investments in shares
EUR million
Capital expenditure
Intangible assets
Property, plant and equipment
Total continuing operations
Gross investments in shares
Subsidiaries
Associated companies
Available for sale financial assets
Total continuing operations
2016
3
588
591
813
17
14
844
2015
5
577
582
1
27
15
43
See also Note 19.2 Capital expenditure.
Fortum expects to start the supply of power and heat from new
power plants and to upgrade existing plants as follows:
Generation
Loviisa, Finland
Several hydro plants
in Sweden and
Finland
City Solutions
Zabrze, Poland
Russia
Ulyanovsk
Other
Bhadla, India
Karnataka, India
Solberg, Sweden
Type
Nuclear
Hydro
CHP
Wind
Solar
Solar
Wind
Electricity
capacity
MW
Heat
capacity
MW
Supply
starts
6
10
75
35
70
100
75 1)
Q4 2017
End
2017
145
2018
2017
2017
2017
2018
1) Skellefteå Kraft AB (SKAB) is participating in the project with a 50% (37.5 MW)
share.
Generation
Through its interest in Teollisuuden Voima Oyj (TVO), Fortum is
participating in the building of Olkiluoto 3 (OL3), a 1,600-MW
nuclear power plant unit in Finland. The plant’s start of commercial
electricity production is expected to take place in late 2018,
according to the plant supplier AREVA-Siemens Consortium. TVO
has withdrawn a EUR 300 million shareholder loan from the total
EUR 600 million commitments. Fortum’s share of the EUR 300
million withdrawal is approximately EUR 75 million. Fortum’s
remaining commitment for OL3 is EUR 75 million ( Note 22).
City Solutions
In February, Fortum agreed to sell its 51.4% shareholding in the
Estonian natural gas import, sales and distribution company AS
Eesti Gaas. Fortum finalised the transaction in March 2016.
In March, Fortum completed the acquisition of 93.35% of
the shares in the Polish electricity and gas sales company Grupa
DUON S.A. In April, Fortum announced that it had purchased the
remaining shares through a mandatory squeeze-out procedure,
after which the extraordinary meeting of shareholders of Grupa
DUON S.A. decided to delist the company from the Warsaw Stock
Exchange.
In May, Fortum signed an agreement with the four biggest
owners of Ekokem Corporation, representing approximately 81%
of the shares, to acquire their shareholding in the company for
approximately EUR 470 million. This corresponded to a debt-
and cash-free purchase price of approximately EUR 700 million
for 100% of the company, as Fortum made a tender offer to all
remaining shareholders at the same price (EUR 165 per share).
Fortum obtained the required competition clearances in July.
Having reached the necessary ownership thresholds, Fortum has
started a minority redemption process. At the end of 2016, Fortum’s
total ownership was approximately 98%.
In December, Fortum finalised the acquisition of 100% of
Turebergs Recycling AB’s shares from Turebergs Åkeri AB with an
enterprise value of up to approximately EUR 11 million. The main
business of Turebergs Recycling is environmental construction,
recycling and processing of bottom ash from waste-to-energy plants.
14
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial performance and position
Risk management
Fortum share and shareholders
Number of employees by country, 31 December 2016
8,108
Finland, 2,029
Sweden, 724
Poland, 894
Estonia, 201
Russia, 3,745
Other countries, 515
Number of employees, 31 December 2016
15,000
10,000
5,000
0
2012
2013
2014
2015
2016
Russia
In February, Fortum sold its 100% shareholding in its Russian
subsidiary OOO Tobolsk CHP. OOO Tobolsk CHP owns and
operates the combined heat and power plant in the city of Tobolsk
in Western Siberia.
Other
In January, Fortum won the bid in a reverse auction in India for
a 70-MW solar project with a fixed tariff of 4.34 INR/kWh (about
60 EUR/MWh) for 25 years. In April, Fortum signed the Power
Purchase Agreement with NTPC, India’s largest utility.
In February, Fortum acquired a 75-MW wind farm project. The
Solberg site, located in Västernorrland County in northern Sweden,
is fully-permitted and construction-ready. In April, Fortum made
a final investment decision on the project together with Skellefteå
Kraft AB (SKAB), which is participating in the project with a 50%
share.
In April, Fortum won the bid in a reverse auction in India for
a 100-MW solar project. The solar power plant will be built in
Karnataka with a fixed tariff of 4.79 INR/kWh for 25 years.
In November, Fortum acquired three wind power projects from
the Norwegian company Nordkraft. The transaction consists of
the Nygårdsfjellet wind farm, which is already operational, as
well as the fully -permitted Ånstadblåheia and Sørfjord projects.
Fortum and Nordkraft agreed on co-operating on the construction
and operation of the wind farms. Fortum is preparing for the
construction of the Ånstadblåheia and Sørfjord projects, expected
to be commissioned in 2018 and 2019. When built the total
installed capacity of the three wind farms would be approximately
170 MW. The acquisitions were finalised in early January 2017.
Group personnel
Number of employees, 31 December
Average number of employees
Total amount of employee benefits,
EUR million
2016
8,108
7,994
2015
7,835
8,009
334
351
Fortum’s operations are mainly based in the Nordic countries,
Russia and the Baltic Rim area. The total number of employees at
the end of 2016 was 8,108 (7,835).
At the end of 2016, the Generation segment had 979 (1,341)
employees; City Solutions 2,314 (1,417); Russia 3,745 (4,126); and
Other 1,070 (951). Generation’s number of employees decreased,
mainly due to the reorganisation of the Group; City Solution’s
increased, mainly due to the acquisitions of DUON and Ekokem;
Russia’s decreased, due to the divestment of Tobolsk, and Other
increased, due to the reorganisation of the Group. The headcount
has also increased in new business areas, such as M&A and Solar
& Wind Development, Technology and New Ventures as well
as Nuclear Services, while it has decreased in the power plant
operations and maintenance due to partnerships.
In addition, as Fortum revised its organisation during 2016 to
align with its new strategy the organisational change focused on
job rotation and giving opportunities to young talents to enable
them to gain demanding and visible positions.
In autumn 2016, the “Energise Your Day” wellbeing programme
was launched in Finland. The Energise Your Day wellbeing
programme encourages employees to maintain and improve their
overall wellbeing and offers ideas and tools for self-management,
stress management, recovery, nutrition and physical activity.
The wellbeing programme started with a questionnaire and the
response rate was almost 80%. After completing the questionnaire,
the employees receive tailored suggestions on how to improve
their wellbeing; the programme also offers lectures and personal
counselling. The programme will be rolled out to other countries
in 2017.
For further details of Group personnel see Note 11 Employee
benefits.
15
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial performance and position
Risk management
Fortum share and shareholders
Research and development
Sustainability is at the core of Fortum’s strategy and, alongside
Fortum’s current businesses, the company is carefully exploring
and developing new sources of growth within renewable energy
production.
Fortum’s goal is to be at the forefront of energy technology
and application development. To accelerate innovation and the
commercialisation of new offerings, Fortum strengthens its in-
house innovation and digitalisation efforts and builds partnerships
with leading global suppliers, promising technology companies
and research institutions. Fortum makes direct and indirect
investments in start-ups with promising new innovations that
focus on connectivity, have disruptive potential and accelerate
the transition towards a circular economy. Fortum also invests
in technologies that support better utilisation of the current
asset base, and can create new markets and products for Fortum.
The company is continuously looking for emerging clean energy
solutions and for solutions that increase resource and system
efficiency.
During 2016, Fortum’s R&D focused on new urban, rural and
industrial business concept studies as well as on the sustainability,
quality and handling of mixed biofuels and biofuel availability.
Another very important area is how to increase energy system
flexibility throughout the energy value chain, from energy
production to consumers as well as customer solutions. As part of
this study Fortum developed a virtual power plant pilot in order to
optimise the system by using household water heaters as well as
household solar panels together with battery storage.
In nuclear R&D, a key objective is to enable growth of the
nuclear services business. In 2016, focus was also on future
nuclear technologies like Small Modular Reactors, and on further
development of the safety and efficiency of Fortum’s nuclear power
plants. Virtual Reality was developed for control room validation
and radiation safety training purposes. The NURES product for
purification of radioactive liquids was further developed to ensure
our competitiveness.
In 2016, Fortum also invested in a Finnish biorefining
technology company (Chempolis Oy) specialised in providing
innovative and sustainable carbon-neutral biorefining technologies
for the biomass, energy, oil, paper, alcohol, sugar and chemical
industries. Fortum is a significant user of biomass in its own
operations, and it has promoted the importance of resource
efficiency in the use of biomass and common sustainability criteria
for biomass. The company believes that biomass could be used
more efficiently for creating higher value products. Fortum also
invested in the Swedish solar technology company, Exeger Sweden
AB (Publ). The company is specialised in developing and producing
novel printable solar cells for use in consumer electronics, on
buildings and in other applications.
The Group reports its R&D expenditure on a yearly basis. In
2016, Fortum’s R&D expenditure was EUR 52 (47) million, or 1.4%
(1.4%) of sales.
EUR million
R&D expenditure, EUR million
R&D expenditure, % of sales
2016
52
1.4
Change
16/15
11%
0%
2015
47
1.4
Sustainability
Fortum strives for balanced management of economic, social
and environmental responsibility in the company’s operations.
Fortum’s sustainability targets consist both of Group-level key
indicators and division-level indicators.
The Group-level sustainability targets emphasise Fortum’s role
in society and measure not only environmental and safety targets,
but also Fortum’s reputation, customer satisfaction, employee
wellbeing, and the security of production of power and heat. At
the beginning of 2016, the Group-level target-setting was changed
by taking work wellbeing, measured as a percentage of sickness-
related absences, as a new Group target. In terms of specific carbon
dioxide emissions (gCO2/kWh), Fortum focuses on measuring
Group-level specific emissions from total energy production.
The achievement of the sustainability targets is monitored
in monthly, quarterly and annual reporting. Sustainability
target-setting and follow-up, as well as the approval of Fortum’s
Sustainability Policy, and the review of Fortum’s Sustainability
Reporting, are included in the working order of the Board of
Directors. Complete data on Fortum’s sustainability performance is
published in Fortum’s Sustainability Report.
Fortum sustainability targets and performance
Reputation index, based on One Fortum Survey
Customer satisfaction index (CSI), based on One Fortum Survey
Specific CO2 emissions from total energy production (electricity and heat) as a five-year
average, g/kWh
Energy-efficiency improvement by year 2020, base line year 2012, GWh/a
Major EHS incidents, no.
Energy availability of CHP plants, %
Total recordable injury frequency (TRIF) for own personnel
Lost workday injury frequency (LWIF) for own personnel
Lost workday injury frequency (LWIF) for contractors
Number of serious occupational accidents
Sickness-related absences, %
Target
72.0
level good, 70–74
< 200
> 1,400
≤ 23
> 95
≤ 2.5
≤ 1.0
≤ 3.0
≤ 8
≤ 2.4
2016
72.5
67–79
184
1,372
22
97.4
1.9
1.0
3.0
13
2.4
Five-year
average
188
16
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial performance and position
Risk management
Fortum share and shareholders
The company is listed on the Nasdaq Helsinki exchange
and is included in the STOXX Global ESG Leaders, OMX GES
Sustainability Finland, and ECPI® indices. Fortum is also ranked
in category A- and as the top Nordic company in the utilities sector
in the annual CDP (formerly the Carbon Disclosure Project) rating
2016, and it has received a Prime Status (B-) rating by the German
oekom research AG.
In 2016, integration of Ekokem and Duon operations into
Fortum’s sustainability approach and data compilation systems
were started. Sustainability information relating to DUON’s
operations is included in sustainability reporting from 1 April 2016
and Ekokem’s operations from 1 September 2016.
Economic responsibility
For Fortum, economic responsibility means competitiveness,
performance excellence and market-driven production, which
create long-term value for our stakeholders and enable profitable
growth. Satisfied customers are key to Fortum’s success. Fortum
aims to manage its supply chain in a responsible manner.
Fortum’s goal is to achieve excellent financial performance
in strategically selected core areas through strong competence
and responsible ways of operating. Fortum measures financial
performance with return on capital employed (target: 10%) and
capital structure (target: comparable net debt/EBITDA around
2.5). In addition, Fortum has used the applicable Global Reporting
Initiative (GRI) G4 indicators for reporting economic responsibility
as of 1 January 2014.
Targets for reputation and customer satisfaction are monitored
annually. Company reputation among the key stakeholders in the
One Fortum Survey in 2016 improved to 72.5 points (on a scale of
1-100 points) and exceeded the target of 72.0 points. The Group
target (70-74 points) for customer satisfaction was achieved in all
business areas except electricity sales for business customers.
Fortum expects its business partners to act responsibly and to
comply with the Fortum Code of Conduct and the Fortum Supplier
Code of Conduct. Fortum assesses the performance of its business
partners with supplier qualification and supplier audits. In 2016,
Fortum audited 13 (9) suppliers in China, India, Russia, Poland,
Latvia, Lithuania and Finland. In September 2016, Fortum signed a
contract with an external service provider for conducting supplier
sustainability audits.
Fortum as a tax payer
Fortum supports social development and wellbeing of the areas of
operations by e.g. paying taxes. The tax benefits Fortum produces
to society include not only corporate income taxes borne EUR 48
(106) million but also several other taxes. In 2016, Fortum’s taxes
borne were EUR 365 (413) million. Taxes borne include corporate
income taxes, production taxes, employment taxes, taxes on
property and cost of indirect taxes. Production taxes include
also taxes paid through electricity purchased from associated
companies.
In addition, Fortum administers and collects different taxes on
behalf of governments and authorities. Such taxes include e.g. VAT,
excise taxes on power consumed by customers, payroll taxes and
withholding taxes. The amount of taxes collected by Fortum was
EUR 376 (352) million.
Environmental responsibility
Fortum’s aim is to provide its customers with environmentally
benign products and services. Circular economy, resource and
energy efficiency, and maximising the added value of waste and
biomass are key priorities in Fortum’s environmental approach.
In addition, climate change mitigation, and the reduction of
environmental impacts are emphasised in Fortum’s environmental
responsibility. The company’s know-how in CO2-free hydro and
nuclear power production and in energy-efficient combined heat
and power production, investments in solar and wind power, as
well as solutions for sustainable cities play a key role in this.
Fortum’s Group-level environmental targets are related to CO2
emissions, energy efficiency, and major environmental, health and
safety (EHS) incidents. At the end of 2016, 99.9% of Fortum’s power
and heat production worldwide had ISO 14001 certification.
Fortum’s climate target over the next five years is for total
specific CO2 emissions from both electricity and heat production
in all countries to be below 200 g/kWh. The target is calculated
17
Effective income tax rate break down
20.0% -5.0%
25
20
15
10
5
-2.7%
-0.7% 1.4%
1.0%
1.2%
15.2%
0
Differences in tax rates
Share of profit of
N o minal
associated co m p anies
Finnish inco m e
and regulations
tax rate
and joint ventures
Taxes related to
Tax exe m pt
dividend distributions
ca pital g ains
C hanges in tax
valuation allo w ance
related to not
reco gnised
tax losses
O ther
ite m s
Effective
inco m e tax rate
Taxes borne by country, EUR million
250
200
150
100
50
0
-50
14
15
16
Finland
14
15
16
Sweden
14
16
15
Russia
14
15
16
Other
countries
Corporate income tax
Production taxes
Employment taxes
Taxes on property
Cost of indirect taxes
as a five-year average. At the end of 2016, the total specific CO2
emissions from energy production were at 188 (191) g/kWh, which
is better than the target level.
Fortum’s total CO2 emissions in 2016 amounted to 18.6 (19.2)
million tonnes (Mt), of which 2.7 (2.1) Mt were within the EU’s
emissions trading scheme (ETS). The estimate for Fortum’s free
emissions allowances in 2016 is 1.0 Mt.
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial performance and position
Risk management
Fortum share and shareholders
Fortum’s total CO2 emissions
(million tonnes, Mt)
Total emissions
Emissions subject to ETS
Free emission allocation
Emissions in Russia
2016
18.6
2.7
1.0
15.5
Change
16/15
-3%
29%
-23%
-9%
2015
19.2
2.1
1.3
17.0
By 2020, Fortum’s target is to achieve energy savings of more than
1,400 GWh annually, compared to 2012. At the end of 2016, about
1,372 GWh had been achieved. Among the projects executed in
2016 were nuclear plant refurbishments in Finland, hydropower
plant refurbishments in Finland and Sweden, and gas turbine plant
refurbishments in Russia.
Fortum’s target was fewer than 23 major EHS incidents
annually. In 2016, 22 (18) major EHS incidents took place in
Fortum’s operations: the incidents included 11 non-compliances
with environmental permits, seven fires, one leak and three
explosions. These incidents did not have significant environmental
or financial impacts.
Social responsibility
Fortum’s social responsibility emphasises the secure supply of
electricity and heat, creating solutions for sustainable cities,
operational and occupational safety, employee wellbeing, as well
as ethical business operations and compliance with regulations.
At the end of 2016, OHSAS 18001 certification covered 99.9% of
Fortum’s power and heat production worldwide.
The average energy availability of Fortum’s CHP plants in 2016
was 97.4% (96.4%), clearly above the annual target level of 95%.
The total recordable injury frequency (TRIF) for Fortum
employees in 2016 was 1.9 (1.6) per one million working hours,
which is better than the Group-level frequency target (≤ 2.5).
Fortum’s target for the lost-workday injury frequency (LWIF) for own
personnel was 1.0 and it was achieved (1.1). The lost-workday injury
frequency for contractors was 3.0 (2.7), which is at the set target
level. The number of serious occupational accidents was 13 (14).
Implementation of the agreed actions to improve contractor
safety will continue with a specific focus on contractor safety and
the integration of the Ekokem and Duon operations. As of 1 January
2017, Fortum has changed the definition of the severity of work-
related accidents and is now focusing on the consequences or
potential consequences of an accident rather than the length of the
sick-leave. The Group target for 2017 is ≤ 5 severe accidents. By 2020
our target is to reduce severe accidents to zero.
The percentage of sickness-related absences in 2016 was 2.4
(2.4), which is at the target level.
Changes in Fortum’s Management
In February 2016, Fortum announced that it will reorganise its
corporate structure effective 1 April 2016. The target of the new
organisation is to enable the implementation of the company’s new
vision and strategy, which were announced on 3 February 2016. The
new organisation comprises three business divisions: Generation,
City Solutions, and Russia. In addition, two development units
focusing on growing new businesses have been established: M&A
and Solar & Wind Development, and Technology and New Ventures.
The new organisation will also have four staff functions: Finance;
Legal; Strategy, People and Performance; and Corporate Affairs and
Communications.
Fortum’s Executive Management Team, as of 1 April 2016:
Pekka Lundmark, President and CEO
Matti Ruotsala, Deputy CEO until his planned retirement in
summer 2017
Timo Karttinen, CFO
Tiina Tuomela, Executive Vice President, Generation
Markus Rauramo, Executive Vice President, City Solutions
Alexander Chuvaev, Executive Vice President, Russia
Per Langer, Senior Vice President, Technology and New Ventures
Kari Kautinen, Senior Vice President, M&A and Solar & Wind
Development
Sirpa-Helena Sormunen, General Counsel
Risto Penttinen, Senior Vice President, Strategy, People and
Performance
Arto Räty, Senior Vice President, Corporate Affairs and
Communications
18
All members of the Executive Management Team report to the
President and CEO, except for the General Counsel, who reports
administratively to the CFO.
Events after the balance sheet date
On 27 January 2017, Fortum’s Nomination Board submitted its
proposals to the Annual General Meeting 2017 that the Board
would consists of eight (8) members and that the following persons
be elected to the Board of Directors for a term ending at the end of
the Annual General Meeting 2018: to be re-elected Ms Sari Baldauf
as Chairman, and as members, Mr Heinz-Werner Binzel, Ms Eva
Hamilton, Mr Kim Ignatius, Mr Tapio Kuula and Mr Veli-Matti
Reinikkala. To be elected as new members; Mr Matti Lievonen as
Deputy Chairman and as member Ms Anja McAlister.
In addition, the Shareholders’ Nomination Board will propose
that the annual fees paid for the term remain unchanged and to be
as follows: Chairman: EUR 75,000, Deputy Chairman: EUR 57,000,
and members: EUR 40,000. The Chairman of the Audit and Risk
Committee, if he/she is not simultaneously acting as Chairman or
Deputy Chairman of the Board: EUR 57,000/year.
Outlook
Key drivers and risks
Fortum’s financial results are exposed to a number of economic,
strategic, political, financial and operational risks.
One of the key factors influencing Fortum’s business
performance is the wholesale price of electricity in the Nordic
region. The key drivers behind the wholesale price development in
the Nordic region are the supply-demand balance, the prices of fuel
and CO2 emissions allowances, and the hydrological situation.
The continued uncertainty in the global and European
economies has kept the outlook for economic growth
unpredictable. The overall economic uncertainty impacts
commodity and CO2 emissions allowance prices, and this could
maintain downward pressure on the Nordic wholesale price of
electricity. In Fortum’s Russian business, the key drivers are
economic growth, the rouble exchange rate, regulation around the
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial performance and position
Risk management
Fortum share and shareholders
heat business, and further development of electricity and capacity
markets. In all regions, fuel prices and power plant availability also
impact profitability. In addition, increased volatility in exchange
rates due to financial turbulence could have both translation and
transaction effects on Fortum’s financials, especially through the
Russian rouble and Swedish krona.
In the Nordic countries, the regulatory and fiscal environment
for the energy sector has also added risks for utility companies. The
main strategic risk is that the regulatory and market environment
develops in a way that we have not been able to foresee and prepare
for. In response to these uncertainties, Fortum has analysed
and assessed a number of future energy market and regulation
scenarios including the impact of these on different generation
forms and technologies. As a result, Fortum’s strategy was
renewed in 2016 to include broadening the base of revenues and
diversification into new businesses, technologies and markets.
For further details on Fortum’s risks and risk management, see
the Risk management section of the Operating and financial
review and Note 3 Financial risk management.
Nordic market
Despite macroeconomic uncertainty, electricity is expected to
continue to gain a higher share of total energy consumption.
Electricity demand in the Nordic countries is expected to grow
by approximately 0.5% on average, while the growth rate for the
next few years will largely be determined by macroeconomic
developments in Europe, and especially in the Nordic countries.
During 2016, oil and coal prices increased, while the price of CO2
emission allowances (EUA) declined. The price of electricity for the
upcoming twelve months appreciated in the Nordic area as well as in
Germany, and both are now on higher levels than at the end of 2015.
In mid-January 2017, the quotation for coal (ICE Rotterdam) for
the remainder of 2016 was around USD 74 per tonne and for CO2
emission allowances for 2017 around EUR 5 per tonne. The Nordic
system electricity forward price in Nasdaq Commodities for the rest
of 2017 was around EUR 26 per MWh and for 2018 around EUR 23
per MWh. In Germany, the electricity forward price for the rest of
2017 was around EUR 34 per MWh and for 2018 around EUR 30 per
MWh. Nordic water reservoirs were about 9 TWh below the long-
term average and 19 TWh below the corresponding level in 2016.
Generation
The Generation segment’s achieved Nordic power price typically
depends on such factors as the hedge ratios, hedge prices, spot
prices, availability and utilisation of Fortum’s flexible production
portfolio, and currency fluctuations. Excluding the potential effects
from changes in the power generation mix, a 1 EUR/MWh change
in the Generation segment’s Nordic power sales achieved price
will result in an approximately EUR 45 million change in Fortum’s
annual comparable operating profit. In addition, the comparable
operating profit of the Generation segment will be affected by the
possible thermal power generation volumes and its profits.
As a result of the nuclear stress tests in the EU, the Swedish
nuclear safety authority (SSM) has decided to propose new
regulations for Swedish nuclear reactors. The process is ongoing.
Fortum emphasises that maintaining a high level of nuclear safety
is the highest priority, but considers EU-level harmonisation of
nuclear safety requirements to be of continued importance.
The Swedish Government increased the nuclear waste fund fee
from approximately 0.022 to approximately 0.04 SEK/kWh for the
2015–2017 period. The impact on Fortum is approximately EUR
25 million annually. The process to review the Swedish nuclear
waste fees is done in a three-year cycle. The Swedish Nuclear Fuel
and Waste Management Co (SKB) will update the new technical
plan in early 2017 for SSM to review. The final decision on the new
nuclear waste fees will be made by the Swedish Government in
December 2017. However, as a result of the decision on early closure
of nuclear power plants, the Swedish Radiation Safety Authority,
SSM, recalculated the waste fees for the Oskarshamn and Ringhals
power plants.
In September 2016 the Swedish government presented the
budget proposal for the coming years; One of the key elements was
the proposal that taxation of different energy production forms
should be more equal and the tax burden of nuclear and hydro
should be taken to the level of other production technologies. The
budget states that the nuclear capacity tax will be reduced to 1,500
19
SEK/MW per month from 1 July 2017 and abolished on 1 January
2018. In 2017, the tax is estimated to decrease by approximately
EUR 32 million to EUR 52 million due to the tax decrease and by
another EUR 5 million due to the premature closure of Oskarshamn
1 in the middle of the year. In 2018, there is no capacity tax.
A decision was also made to decrease the hydropower real-
estate tax over a four-year period beginning in 2017, from todays
2.8% to 0.5%. The real-estate tax on hydro will, as stated in the
government’s budget, be reduced in four steps: in January 2017
to 2.2%; in January 2018 to 1.6%; in January 2019 to 1.0%; and in
January 2020 to 0.5%. In 2017, the tax is estimated to decrease by
approximately EUR 20 million to approximately EUR 95 million.
In addition to the decrease in the tax rate, the hydropower
real-estate tax values, which are linked to electricity prices, will
be updated starting in 2019. The real-estate tax values are updated
every six years. With the current low electricity prices the tax values
in 2019 will be clearly lower than today. The process for renewing
existing hydro permits will also be reformed.
The tax reductions will be financed through a higher electricity
consumption tax that will mainly affect households. Electricity-
intensive industries will be exempt.
In October 2016, the Swedish Energy Agency presented a
concrete proposal on how to increase the production of renewable
electricity by 18 TWh in 2020–2030 within the electricity certificate
system, as part of the Energy Agreement. The government is
expected to decide on the proposal in late March 2017.
In 2015, OKG AB decided to permanently discontinue electricity
production at Oskarshamn unit 1 and to start decommissioning
after the permission for service operation has been granted by the
relevant Swedish authorities. The date for discontinued production
and the start of decommissioning has been set to 30 June 2017.
Oskarshamn unit 2, which has been out of operation since June
2013 due to an extensive safety modernisation, will stay out of
operation. The closing processes are estimated to take several
years.
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial performance and position
Risk management
Fortum share and shareholders
Hedging
At the end of 2016, approximately 60% of Generation’s estimated
Nordic power sales volume was hedged at EUR 30 per MWh for the
2017 calendar year and approximately 35% at EUR 26 per MWh for
the 2018 calendar year.
The reported hedge ratios may vary significantly, depending
on Fortum’s actions on the electricity derivatives markets. Hedges
are mainly financial contracts, most of them Nasdaq Commodities
forwards.
City Solutions
In May, the Finnish Government decided to increase the tax on
heating fuels by EUR 90 million annually from 2017 onwards. The
negative impact on Fortum is estimated to be approximately EUR 5
million per year.
Russia
The Russia segment’s new capacity generation built after 2007
under the Russian Capacity Supply Agreement (CSA) is a key driver
for earnings growth in Russia, as it is expected to bring income
from new volumes sold and also to receive considerably higher
capacity payments than the old capacity. Fortum will receive
guaranteed capacity payments for a period of 10 years from the
commissioning of a plant. The received CSA payment will vary
depending on the age, location, size and type of the plants, as
well as on seasonality and availability. CSA payments can vary
somewhat annually because they are linked to Russian Government
long-term bonds with 8 to 10 years' maturity. In addition, the
regulator will review the earnings from the electricity-only market
three years and six years after the commissioning of a unit and
could revise the CSA payments accordingly.
The Competitive Capacity Selection for generation built
prior to 2008 (CCS) takes place annually. The long-term CCS for
2017–2019 was held at the end of 2015, and the long-term CCS for
2020 was held in September 2016. The majority of Fortum’s plants
were selected. The volume of Fortum’s installed “old” capacity not
selected in the auction totalled 175 MW (out of 2,214 MW), for
which Fortum has obtained forced mode status, i.e. it will receive
payments for the capacity.
In December 2016, a bill draft containing the main principles
of the heat reform, approved by the Russian Government in 2014,
passed its first reading in the Russian Parliament. The draft
contradicts the Roadmap in some crucial points, e.g. it does not
include the requirement of the price liberalisation across the whole
country. Instead it requires the consent of both the regional and
the local authorities before starting the reform in certain pilot
regions. If implemented, the reform should provide heat market
liberalisation in 5 or 10 years, depending on the Government-
imposed criteria.
The targeted operating profit (EBIT) level of RUB 18.2 billion in
the Russia segment is expected to be reached during 2017–2018.
The segment’s profits are impacted by changes in power demand,
gas prices and other regulatory developments. Economic sanctions,
the currency crisis, oil prices and the inflation have impacted
overall demand. As a result, gas prices and electricity prices have
not developed favourably as expected. The Russian annual average
gas price growth was 3.6% in 2016. Fortum estimates the Russian
annual average gas price growth to be 2.0% in 2017.
The euro-denominated result level will be volatile due to the
translation effect. The income statements of non-euro subsidiaries
are translated into the Group reporting currency using average
exchange rates. The Russia segment’s result is also impacted by
seasonal volatility caused by the nature of the heat business, with
the first and last quarter being clearly the strongest.
Capital expenditure and divestments
Fortum currently expects its capital expenditure, excluding
acquisitions, to be approximately EUR 800 million in 2017. The
annual maintenance capital expenditure is estimated to be below
EUR 300 million in 2017, well below the level of depreciation.
Taxation
The effective corporate income tax rate for Fortum in 2017 is
estimated to be 19–21%, excluding the impact of the share of profits
of associated companies and joint ventures, non-taxable capital
gains and non-recurring items.
20
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial performance and position
Risk management
Fortum share and shareholders
Risk management
Risk management framework and objectives
Fortum’s Risk Management framework is comprised of the Group
Risk Policy and supporting documents. The Group Risk Policy
includes an overview of Fortum’s risk management systems
consisting of the general principles of risk management and the
main features of the risk management process. The objective of the
risk management framework and processes is to;
• support the development of the Group strategy,
• support strategy execution,
• support the achievement of agreed targets within acceptable
risk levels so that the Group’s ability to meet financial
commitments is not compromised,
• ensure the understanding of material risks and uncertainties
affecting Fortum’s earnings, and
• ensure understanding and support the prevention of accidents
that can have a severe effect on the health and safety of
employees or third parties, and from incidents that can
have a material impact on Fortum’s assets, reputation or the
environment.
Risk management organisation
The main principle is that risks are managed at source meaning
that each Division, Development Unit and Corporate Function Head
is responsible for managing risks that arise within their business
operations. However, in order to take advantage of synergies,
certain risks are managed centrally. For example, Group Treasury is
responsible for managing financial risks and information security
risk are managed by Corporate Security. The Audit and Risk
Committee (ARC) is responsible for monitoring the efficiency of the
company’s risk management systems and for annually reviewing
the material risks and uncertainties. Corporate Risk Management,
a function headed by the Chief Risk Officer (CRO) reporting to the
CFO, provides instructions and tools which support the Group in
running an efficient risk management process. Corporate Risk
Corporate Risk Policy Structure
Corporate Risk Policy Structure
Approving body
• Board of Directors
• President and CEO
Group
Risk Policy
Group
Risk Instructions
• Division, Development Unit
or Corporate Function Head
Division/Development Unit/
Corporate Function
Risk manuals and Guidelines
Reviewing Body
• Audit and Risk Committee
• CFO
• CRO
Management is responsible for assessing and reporting maturity of
risk management in Divisions, Development Units and Corporate
Functions and for providing independent monitoring and reporting
of material risk exposures to Group Management and the Board.
Risk control functions and controllers in the business monitor and
report risks to the CRO according to instructions and approved
models.
Risk management process
Fortum’s risk management process is designed to support the
achievement of agreed targets by ensuring that risk management
activities are consistent with the general principles of risk
management and that risks are monitored and followed-up in a
prudent manner. The main features of risk management process
consist of event identification, risk assessment, risk response
and risk control. Identification is carried out according to a
structured process and risks are assessed in terms of impact and
likelihood according to a Group-common methodology. Impact
is assessed in monetary terms, but also in terms of health and
safety, the environment and reputation where applicable. Risk
response actions are defined and implemented by the business
and operational management and can include to avoid, mitigate,
transfer or absorb the risk. Risk control processes, which include
monitoring and reporting of risks, are designed to support
compliance with approved instructions, manuals and guidelines
and to ensure that risk exposures remain within approved limits
and mandates.
21
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial performance and position
Risk management
Fortum share and shareholders
Fortum’s Board of Directors annually approves the Group Risk
Policy and the CEO annually approves Group Risk Instruction
covering commodity market and fuel risks, counterparty credit
risks, financial risks and operational risks. There are also other
Group policies and instructions covering e.g. sustainability and
information security risks which are aligned with the Group Risk
Policy. Risk mandates or limits are defined for commodity market
and fuel risks, counterparty credit risks and financial risks.
Risk factors
Strategic risks
The main strategic risk is that the regulatory and market
environment develops in way that we have not been able to foresee
and prepare for. In response to these uncertainties, Fortum has
analysed and assessed a number of future energy market and
regulation scenarios including the impact of these to different
generation forms and technologies. As a result, Fortum’s strategy
was renewed in 2016 to include broadening the base of revenues
and diversification into new businesses, technologies and markets.
Risks which could hinder Fortum in executing this strategy
have been identified as part of the strategy development and led to,
among other things, the creation of the five must-win battles. Risks
include an inability to identify and carry out successful investments
and acquisitions with the related project and integration risks,
inability to manage and respond to changes in energy policy and
the regulatory environment, and inability to manage and respond
to changes in technology.
Fortum Risk Map
Fortum Risk Map
Counter-
party
Business Ethics
& Compliance
Liquidity &
Refinancing
Tax
Currency &
Interest Rates
m m o d i
cial & C o
Mark ets
t y
Corp
Resp
or
a
t
e
o
n
S
s
i
o
b
c
i
l
i
i
a
n
a
in
F
Electricity,
Emissions &
Fuels
Production
t
l
y
Fortum’s
Risks
Strategic
O
p
e
r
a
tio
nal
EHS & Social
Investments &
Acquisitions
Energy Policy &
Regulations
Information
Security
& IT
Technology
Investment and acquisition risks
Fortum’s strategy includes growth of operations, including in
new businesses, technologies and geographies, and any future
investment or acquisition entails risk, including:
•
increased overall operating complexity and requirements for
management, personnel and other resources;
the need to understand the value drivers and their uncertainties
in investments or potential acquisition targets;
the need to understand and manage the new markets and
different cultural and compliance requirements;
the need to understand and manage subcontractor risks and
related sustainability and safety issues.
•
•
•
22
These risks are managed as part of the investment process
which is being further developed to improve how we identify and
assess opportunities and how we integrate new businesses.
Energy policy and regulation risks
The energy business is subject to energy policies and regulations,
and Fortum’s strategy has been developed based on scenarios of the
future development of the regulatory environment in both existing
and potential new businesses and market areas. The overall
complexity and possible changes to regulations in the various
countries and regions pose a risk if we are not able to identify and
manage them efficiently.
Fortum maintains an active dialogue with the bodies involved in
the development of laws and regulations in order to manage these
risks and proactively participate in the development of the energy
policy and regulatory framework.
Nordic/EU
Fortum’s strategy in the power sector is based on a market-driven
development, which would mean more interconnections and
competition supported by policy harmonization. Even if the Nordic
power market has a long tradition of harmonization, national
policies vary considerably when it comes to generation (e.g.
taxation, permitting and subsidies) as well as consumption (e.g.
unbundling, taxation and market model) indicating that risks are
also national. Potential risks within the policy framework include;
1) the electricity market model where the EU is currently
discussing capacity remuneration mechanisms that could
change the market model,
2) targets for future climate change mitigation where the specific
details of targets for CO2 emissions, renewables and energy
efficiency for 2030 are under discussion,
3) renewable energy where the Commission aims at presenting a
legislative proposal on sustainability criteria for solid biomass
at the end of 2016 and,
4) the implementation of the Water Framework Directive in
Sweden with potential effects on capacity and costs related to
hydro power production.
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial performance and position
Risk management
Fortum share and shareholders
The inter-linkage of these issues as well as national measures
such as taxation create uncertainty and changes in policies in one
area could undermine the effects of policy changes in other areas.
As part of the Circular Economy package, the EU waste
legislation will set more ambitious recycling targets for waste.
This will have a market impact, but possibly also a tax impact, on
the amounts of non-recyclable waste that can be used for energy
production. The implementation of EU’s heating and cooling
strategy through energy efficiency and renewable energy directives
will likely give policy direction towards better-functioning heat
markets and district heating systems. However, heating and
cooling, being local businesses, are primarily subject to local
legislation and regulations and thereby treated very differently in
different countries.
Russia
Russia is exposed to political, economic and social uncertainties
and risks resulting from changes in regulation, legislation,
economic and social upheaval and other similar factors. The
current economic sanctions may be enlarged and/or extended
having direct and indirect impacts on the business environment.
The main policy-related risks in Russia are linked to the
development of the whole energy sector, part of which, like the
wholesale power market, is liberalised while other parts, like
gas, heat, and retail electricity, are not. The wholesale power
market deregulation in Russia has been implemented to a large
extent according to original plans. However, regulated sectors are
inherently always exposed to a risk of regulatory changes which
could affect Fortum’s operations.
Technology risks
Fortum’s strategy includes developing or acquiring new
technologies. Fortum’s R&D activities focus on the development
of the energy system towards a future solar economy. Fortum is,
for example, developing circular economy, bioeconomy and other
renewable energy concepts as well as innovative solutions for its
customers. New technologies expose Fortum to new types of risks
such as risks related to intellectual property rights and viability of
technologies. Technology risks are managed primarily through
developing a diversified portfolio of projects consisting of different
technologies.
Corporate social responsibility
Corporate social responsibility and sustainable development
are integral parts of Fortum’s strategy. Fortum gives balanced
consideration to economic, environmental and social
responsibility. Changes to laws, regulations and the business
environment can pose a risk if not identified and managed
effectively. Same applies to changes of views of our main
stakeholders. In order to foresee and manage these risks, Fortum
endorses a number of international voluntary charters, standards
and guidelines in the area of sustainability, conducts stakeholder
surveys annually and has defined internal policies and instructions
of how to conduct business. Corporate Sustainability unit assesses
sustainability risks related to the Group’s operations annually.
Risks identified by Corporate Sustainability are assessed by
Divisions and mitigation actions are defined.
Environmental, health and safety and social risks
Operating power and heat generation plants involves use, storage
and transportation of fuels and materials that can have adverse
effects on the environment and expose personnel to safety risks.
Assessment of environmental risks and preparedness to operate
in exceptional and emergency situations follows the requirements
set in ISO 14001 standard. The same approach based on the
requirements set in OHSAS 18001 standard applies to risks related
to occupational health and safety and actions in emergency
situations.
Environmental, health and safety (EHS) risks as well as social
risks related to Fortum’s supply chain are evaluated through
supplier qualification, internal and external audits and risk
assessments. Corrective and preventive actions are implemented
when necessary. EHS related risks together with social risks
arising in investments are evaluated in accordance with Fortum’s
Investment Evaluation and Approval Procedure. Environmental
risks and liabilities in relation to past actions have been assessed
and provisions have been made for future remedial costs.
Tax risk
Fortum operates in a number of countries and is therefore exposed
to changes in taxation and how tax authorities interpret tax laws.
Changes in the international fiscal environment have created a
tax environment that is leading to new or increased taxes and new
interpretations of existing tax laws. This has led to challenges for
Fortum and how its operations are taxed as the predictability and
visibility around taxes has decreased.
Fortum’s tax policy aims to identify simple and cost-efficient
solutions to manage taxes in a sustainable manner. Artificial or
other aggressive solutions are not used and legality and honesty
are seen as a high value together with transparent and open
information. Fortum is continuously following the development of
tax related issues and their impact on the Group and maintains an
active dialogue with tax authorities in unclear cases. Tax-related
issues are communicated both internally and externally. Fortum’s
tax footprint is published annually.
Business ethics and compliance risks
Fortum’s operations are subject to laws, rules and regulations set
forth by the relevant authorities, exchanges, and other regulatory
bodies in all markets in which Fortum operates. Fortum’s ability to
operate in certain countries may be affected by future changes to
local laws and regulations.
Fortum has an established Code of Conduct to enhance the
understanding of the importance of business ethics for all Fortum
employees, contractors and partners. The supplier code of conduct
sets sustainability requirements for suppliers of goods and
services.
Fortum systematically identifies, assesses, mitigates and
reports compliance risks including risks related to sustainability
and business ethics. Internal controls are implemented to
minimise the possibilities of unauthorised activities or non-
compliance with Group policies and instructions.
23
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial performance and position
Risk management
Fortum share and shareholders
Financial risks
Market risk
Fortum’s business is exposed to fluctuations in prices and
availability of commodities used in the production and sales of
energy products. The main exposure is toward electricity prices and
volumes, prices of emissions and prices and availability of fuels.
Fortum hedges its exposure to commodity market risks in
accordance with annually approved Hedging Guidelines, Strategies
and Mandates. For further information on hedge ratios, exposures,
sensitivities and outstanding derivatives contracts, see Note 3
Financial risk management.
Electricity price risks
In competitive markets, such as in the Nordic region, the price
is determined as the balance between supply and demand. The
short-term factors affecting electricity prices and volumes on the
Nordic market include hydrological conditions, temperature,
CO2 allowance prices, fuel prices, economic development and the
import/export situation.
Electricity price risks are hedged by entering into electricity
derivatives contracts, primarily on the Nasdaq Commodities
power exchange. Hedging strategies are continuously evaluated as
electricity and other commodity market prices, the hydrological
balance and other relevant parameters change. In Russia, electricity
prices and capacity sales are the main sources of market risk. The
electricity price is highly correlated with the gas price and prices are
fixed through bilateral agreements limiting exposure. In India, the
electricity price received from solar production are fixed through
long term power-purchasing agreements.
Emission and environmental value risks
The European Union has established an emissions trading
scheme to reduce the amount of CO2 emissions. In addition to
the emissions trading scheme, there are other trading schemes in
environmental values in place in Sweden, Norway and Poland. Part
of Fortum’s power and heat generation is subject to requirements of
these schemes. There is currently no trading scheme in Russia for
emissions or other environmental values.
and refinancing risks through a combination of cash positions and
committed credit facility agreements with its core banks.
The main factor influencing the prices of CO2 allowances and
After the Distribution divestments, Fortum has a large cash
other environmental values is the supply and demand balance.
Fortum hedges its exposure to these prices and volumes through
the use of CO2 forwards and environmental certificates.
position. The credit risk of this position has been mitigated
by diversifying the deposits to high-credit quality financial
institutions and issuers of corporate bonds.
Fuel price and volume risks
Power and heat generation requires use of fuels that are purchased
on global or local markets. The main fuels used by Fortum are
natural gas, uranium, coal, various biomass-based fuels and waste.
The main risk factor for fuels that are traded on global markets such
as coal and natural gas, is the uncertainty in price. Prices are largely
affected by demand and supply imbalances that can be caused by,
for example, increased demand growth in developing countries,
natural disasters or supply constraints in countries experiencing
political or social unrest. For fuels traded on local markets, such
as bio-fuels, the volume risk in terms of availability of the raw
material of appropriate quality is more significant as there may be
a limited number of suppliers. Due to the sanctions and economic
development in Russia, the risks related to imported fuels from
Russia have increased.
In the Nordic market, exposure to fuel prices is limited due to
Fortum’s flexible generation capacity which allows for switching
between different fuels according to prevailing market conditions.
In some cases, the fuel price risk can be transferred to the
customer. The remaining exposure to fuel price risk is mitigated
through fixed- price physical delivery contracts or derivative
contracts. The main fuel source for heat and power generation in
Russia is natural gas. Natural gas prices are partially regulated, so
the price risk exposure is limited.
Liquidity and refinancing risks
The power and heat business is capital intensive and Fortum has
a regular need to raise financing. Fortum maintains a diversified
financing structure in terms of debt maturity profile, debt
instruments and geographical markets. Fortum manages liquidity
24
Currency and interest rate risks
Fortum’s debt portfolio consists of interest-bearing liabilities
and derivatives on a fixed- and floating-rate basis with differing
maturity profiles. Fortum manages the duration of the debt
portfolio through use of different types of financing contracts and
interest rate derivative contracts such as interest rate swaps.
Fortum’s currency exposures are divided into transaction
exposures (foreign exchange exposures relating to contracted cash
flows and balance sheet items where changes in exchange rates
will have an impact on earnings and cash flows) and translation
exposure (foreign exchange exposure that arises when profits and
balance sheets in foreign entities are consolidated at the Group
level). The main principle is that all material transaction exposures
should be hedged while translation exposures are not hedged, or
are hedged selectively. The main translation exposures toward the
EUR/RUB and EUR/SEK are monitored continuously. When these
currencies are weak they affect Fortum’s profit level and equity
when translating results and net assets to euros.
Counterparty risks
Fortum is exposed to counterparty risk whenever there is a
contractual arrangement with an external counterparty including
customers, suppliers, partners, banks and trading counterparties.
Credit risk exposures relating to financial derivative instruments
are often volatile. Although the majority of commodity derivatives
are cleared through exchanges, derivatives contracts are also
entered into directly with external counterparties. Such contracts
are limited to high-credit-quality counterparties active on the
financial or commodity markets.
Due to the financing needs and management of liquidity,
Fortum has counterparty credit exposure to a number of banks
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial performance and position
Risk management
Fortum share and shareholders
and financial institutions. This includes exposure to the Russian
financial sector in terms of deposits with financial institutions
as well as to banks that provide guarantees for suppliers and
contracting parties. Deposits in Russia have been concentrated
to the most creditworthy state-owned or controlled banks. Limits
with banks and financial institutions are monitored so that
exposures can be adjusted as ratings or the financial situation
changes, and Fortum is following the development of economic
sanctions against Russia as part of the monitoring process.
Credit risk exposures relating to customers is spread across
a wide range of industrial counterparties, small businesses and
private individuals over a range of geographic regions. The majority
of exposure is to the Nordic market, Poland and Russia. The risk of
non-payment in the electricity and heat sales business in Russia is
higher than in the Nordic market.
In order to manage counterparty credit risk, Fortum has
routines and processes to identify, assess and control exposure.
Credit checks are performed before entering into commercial
obligations and exposure limits are set for all larger individual
counterparties. Creditworthiness is monitored through the use
of internal and external sources so that mitigating actions can
be taken when needed. Mitigating actions include demanding
collateral, such as guarantees, managing payment terms and
contract length, and the use of netting agreements.
Operational risks
Operational risks are defined as the negative effects resulting from
inadequate or failed internal processes, systems or equipment,
or from external events. Process-related risks are assessed and
controls for the most relevant risks are defined and implemented
as part of the internal controls framework. Equipment and system
risks are primarily managed through monitoring and maintenance
planning.
Production risks
CHP
CHP production involves the use, storage and transportation of
fuels. Leakage of fuels and contamination of the surrounding
environment could lead to clean-up costs and third-party
liabilities. An explosion or fire at a production facility could cause
damages to the plant or third-parties and lead to possible business
interruption. These risks are mitigated by condition monitoring,
preventive maintenance and other operational improvements as
well as competence development of personnel operating the plants.
Hydro power
Operational events at hydro power generation facilities can
lead to physical damages, business interruptions, and third-
party liabilities. A long-term program is in place for improving
the surveillance of the condition of dams and for securing the
discharge capacity in extreme flood situations. In Sweden, third-
party liabilities from dam failures are strictly the plant owner’s
responsibility. Together with other hydro power producers, Fortum
has a shared dam liability insurance program in place that covers
Swedish dam failure liabilities up to SEK 10,000 million.
Nuclear power
Fortum owns the Loviisa nuclear power plant, and has minority
interests in two Finnish and two Swedish nuclear power
companies. At the Loviisa power plant, the assessment and
improvement of nuclear safety is a continuous process performed
under the supervision of the Radiation and Nuclear Safety Authority
of Finland (STUK).
Third-party liability relating to nuclear accidents is strictly the
plant operator’s responsibility and must be covered by insurance.
As the operator of the Loviisa power plant, Fortum has a statutory
liability insurance policy of 686M SDR (Special Drawing Right) and
the same type of insurance policies are in place for the operators
where Fortum has a minority interest.
Under the Finnish law, Fortum bears full legal and financial
responsibility for the management and disposal of nuclear waste
produced by the Loviisa power plant. In both Finland and Sweden,
Fortum bears partial responsibility, proportionate to the ownership
share, for the costs of the management and disposal of nuclear
waste produced by co-owned nuclear power plants. The future
costs of the final disposal of spent fuel, the management of low
and intermediate-level radioactive waste and nuclear power plant
decommissioning are provided for by state-established funds in
Finland and Sweden to which nuclear power plant operators make
annual contributions.
Information security and IT risks
Fortum’s business operations are dependent on well-functioning IT
and information management systems and processes. Due to the
nature of the business, large amounts of data are processed, often
in real-time, and used for decision-making and in internal and
external communication and reporting. Securing information and
availability of the systems are essential for Fortum. Information
security risks, including cyber security and privacy, are managed
centrally by Corporate Security. Group instructions and procedures
set requirements for managing and mitigating information risks.
IT functions in the business, support functions and outsourcing
partners are responsible for identifying and mitigating operational
IT security related risks as well as managing IT security incidents.
IT functions are also responsible for IT service continuity.
25
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial performance and position
Risk management
Fortum share and shareholders
Fortum share and shareholders
Fortum Corporation’s shares have been listed on Nasdaq Helsinki since 18 December 1998. The trading
code is FORTUM (until 25 January 2017: FUM1V). Fortum Corporation’s shares are in the Finnish book
entry system maintained by Euroclear Finland Ltd which also maintains the official share register of
Fortum Corporation.
Share key figures
EUR
Earnings per share
Continuing operations
Discontinued operations
Total Fortum
Cash flow per share total Fortum
Cash flow per share, continuing operations
Equity per share
Dividend per share
Extra dividend per share
Payout ratio, %
Dividend yield, %
2016
0.56
-
0.56
0.70
0.70
15.15
1.10 1)
-
196.4 1)
7.5 1)
2015
-0.26
4.92
4.66
1.55
1.38
15.53
1.10
-
23.6
7.9
2014
1.22
2.33
3.55
1.98
1.38
12.23
1.10
0.20
36.6
7.2
1) Board of Directors’ proposal for the Annual General Meeting 4 April 2017.
For full set of share Key figures 2007–2016, see the section Key figures in the Financial Statements.
Market capitalisation, EUR billion
30
25
20
15
10
5
0
2012
2013
2014
2015
2016
Shareholders value, share price performance and volumes
Fortum’s mission is to deliver excellent value to its shareholders. Fortum’s share price has depreciated
approximately 14% during the last five years, while Dow Jones European Utility Index has increased 4%.
During the same period NASDAQ Helsinki Cap index has increased 72%. During 2016 Fortum’s share
price appreciated approximately 5%, while Dow Jones European Utility index decreased 10% and
NASDAQ Helsinki Cap index increased 8%.
In 2016, a total of 611.6 million (2015: 541.9) Fortum Corporation shares, totalling EUR 8,295
million, were traded on the Nasdaq Helsinki. The highest quotation of Fortum Corporation shares
during 2016 was EUR 15.74, the lowest EUR 10.99, and the volume-weighted average EUR 13.57. The
closing quotation on the last trading day of the year 2016 was EUR 14.57 (2015: 13.92). Fortum’s market
capitalisation, calculated using the closing quotation of the last trading day of the year, was EUR 12,944
million (2015: 12,366).
In addition to the Nasdaq Helsinki, Fortum shares were traded on several alternative market places,
for example at Boat, BATS Chi-X and Turquoise, and on the OTC market as well. In 2016, approximately
63% (2015: 58%) of Fortum’s shares were traded on markets other than the Nasdaq Helsinki Ltd.
Share quotations, index 100 = quote on 2 January 2012
200
150
100
50
0
2012
2013
2014
2015
2016
Fortum
OMXHCap
DJ STOXX
Fortum share trading
Million shares
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0
2012
2014
2014
2015
2016
EUR
35
30
25
20
15
10
5
0
Number of traded shares / day (monthly average)
Share price, EUR (monthly average)
26
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial performance and position
Risk management
Fortum share and shareholders
Share capital
Fortum has one class of shares. By the end of 2016 a total of 888,367,045 shares had been issued. Each
share entitles the holder to one vote at the Annual General Meeting. All shares entitle holders to an equal
dividend. At the end of 2016 Fortum Corporation’s share capital, paid in its entirety and entered in the
trade register, was EUR 3,046,185,953.00.
Shareholders
At the end of 2016, the Finnish State owned 50.76% of the company’s shares. The Finnish Parliament has
authorised the Government to reduce the Finnish State’s holding in Fortum Corporation to no less than
50.1% of the share capital and voting rights.
The proportion of nominee registrations and direct foreign shareholders was 28.1 % (2015: 25.5%).
By shareholder category
Finnish shareholders
Corporations
Financial and insurance institutions
General government
Non-profit organisations
Households
Non-Finnish shareholders
Total
Breakdown of share ownership, 31 December 2016
Number of shares owned
1–100
101–500
501–1,000
1,001–10,000
10,001–100,000
100,001–1,000,000
1,000,001–10,000,000
over 10,000,000
%
of shareholders
27.18
39.50
16.03
16.34
0.87
0.06
0.02
0.00
100.00
In the joint book-entry account and in special accounts on 31 December
Nominee registrations
Total
No. of
shareholders
35,840
52,093
21,143
21,552
1,144
85
21
4
131,882
Shareholders, 31 December 2016
Shareholders
Finnish State
The State Pension Fund
Ilmarinen Mutual Pension Insurance Company
The Finnish Social Insurance Institution
Kurikan Kaupunki
Elo Mutual Pension Insurance Company
Varma Mutual Pension Insurance Company
Schweizerische Nationalbank
The Local Government Pensions Institution
Society of Swedish Literature in Finland
OP-Henkivakuutus Ltd.
OP-Delta Mutual Fund
SEB Gyllenberg Finlandia Fund
Aktia Capital Mutual Fund
Nominee registrations and direct foreign ownership 1)
Other shareholders in total
Total number of shares
1) Excluding Schweizerische Nationalbank.
No. of shares
450,932,988
8,300,000
7,976,986
7,030,896
6,203,500
4,545,000
4,250,167
2,928,762
2,568,955
1,716,375
1,380,412
1,285,000
1,231,135
1,200,000
246,298,728
140,518,141
888,367,045
Holding %
50.76
0.93
0.90
0.79
0.70
0.51
0.48
0.33
0.29
0.19
0.16
0.14
0.14
0.14
27.72
15.82
100.00
27
% of total amount of shares
1.54
1.99
55.93
1.64
10.85
28.05
100.00
% of total
amount of
shares
0.23
1.57
1.76
6.34
2.89
2.74
6.20
50.76
72.49
0.01
27.50
100.00
No.
of shares
2,042,557
13,980,902
15,629,845
56,285,821
25,650,795
24,348,358
55,084,687
450,932,988
643,955,953
73,616
244,337,476
888,367,045
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial performance and position
Risk management
Fortum share and shareholders
Management interests 31 December 2016
At the end of 2016, the President and CEO and other members of the Fortum Management Team owned
315,653 shares (2015: 347,478) representing approximately 0.04% (2015: 0.04%) of the total shares in
the company.
A full description of the shareholdings and interests in long-term incentive schemes of the
President and CEO and other members of the Fortum Executive Management Team is shown in
Note 11 Employee benefits.
Authorisations from the Annual General Meeting 2016
In 2016, the Annual General Meeting decided to authorise the Board of Directors to decide on the
repurchase and disposal of the company’s own shares up to a maximum number of 20,000,000 shares,
which corresponds to approximately 2.25 per cent of all the shares in the company. The authorisation is
effective for a period of 18 months from the resolution of the General Meeting. The authorisation had not
been used by the end of 2016.
Dividend policy
The dividend policy ensures that shareholders receive a fair remuneration for their entrusted capital,
supported by the company’s long-term strategy that aims at increasing earnings per share and thereby
the dividend. When proposing the dividend, the Board of Directors looks at a range of factors, including
the macro environment, balance sheet strength as well as future investment plans. Fortum Corporation’s
target is to pay a stable, sustainable and over time increasing dividend, in the range of 50–80% of
earnings per share, excluding one-off items.
Dividend distribution proposal
The distributable funds of Fortum Oyj as at 31 December 2016 amounted to EUR 5,203,674,879.03
including the profit of the financial period 2016 of EUR 779,867,542.66. After the end of the financial
period there have been no material changes in the financial position of the Company.
The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 1.10 per share
be paid for 2016.
Based on the number of registered shares as at 1 February 2017 the total amount of dividend proposed
to be paid is EUR 977,203,749.50. The Board of Directors proposes that the remaining part of the
distributable funds will be retained in shareholders’ equity.
The Annual General Meeting will be held on 4 April 2017 at 14:00 EET at Finlandia Hall in Helsinki.
Total shareholder return, EUR
32
28
24
20
16
12
8
4
0
2009
2010
2011
2012
2013
2014
2015
2016
Fortum’s share price, (EUR 14.57)
Fortum’s total shareholder return, EUR 24.52
(dividends reinvested)
Earnings per share total Fortum, EUR
5.0
4.0
3.0
2.0
1.0
0.0
2012
2013
2014
2015
2016
Dividend per share, EUR
1.5
1.0
0.5
0.0
2012
2013
2014
2015
2016
The dividend for 2016 represents the Board of Directors’ proposal for the
Annual General Meeting in April 2017.
Fortum paid extra dividend of EUR 0.20 per share for the financial year
that ended 31 Dec 2014.
28
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Income statement
Statement of comprehensive income
Balance sheet
Statement of changes in total equity
Cash flow statement
Consolidated income statement
EUR million
Sales
Other income
Materials and services
Employee benefits
Depreciation and amortisation
Other expenses
Comparable operating profit
Items affecting comparability
Operating profit
Share of profit of associates and joint ventures
Interest expense
Interest income
Fair value gains and losses on financial instruments
Other financial expenses - net
Finance costs - net
Profit before income tax
Income tax expense
Profit for the period from continuing operations
Profit for the period from discontinuing operations
Profit for the period
Attributable to:
Owners of the parent
Non-controlling interests
Earnings per share for profit attributable to the
equity owners of the company (EUR per share) 1)
Total Fortum
Continuing operations
Discontinued operations
Note
5
9
10
11
5, 18, 19
9
5
6, 7
5
5, 20
12
12
12
12
12
13
14
15
2016
3,632
34
-1,830
-334
-373
-485
644
-11
633
131
-169
30
-2
-29
-169
595
-90
504
0
504
496
8
504
0.56
0.56
-
2015
3,459
38
-1,515
-351
-346
-477
808
-958
-150
20
-203
51
-18
-4
-175
-305
78
-228
4,369
4,142
4,138
4
4,142
4.66
-0.26
4.92
1) As Fortum currently has no dilutive instruments outstanding, diluted earnings per share is the same as basic earnings per
share.
EUR million
Comparable operating profit
Impairment charges
Capital gains and other
Changes in fair values of derivatives hedging future cash flow
Nuclear fund adjustment
Items affecting comparability
Operating profit
Note
7
8
5
5, 6
2016
644
27
38
-65
-11
-11
633
2015
808
-918
22
-78
16
-958
-150
Early closure of nuclear units in Sweden in 2015
The decision made by the Extraordinary shareholders’ meeting of OKG AB to close Oskarshamn
nuclear power plant units 1 and 2 in Sweden impacted the 2015 net result attributable to the owners
of the parent by EUR -729 million. The impact is recognised on several rows of the income statement,
but the major part is included in Impairment charges, in Items effecting comparability. See further
information in Note 7 Effects from early closure of unit 1 and 2 in OKG AB.
Comparable operating profit, EUR million
1,000
922
-114
808
-144
4
-10
-13
644
m
0 1 5
p
o
n ti n
o
D is c
n
e r a ti o
e
d
0 1 5
u
s 2
p
o
n ti n
o
C
n
e r a ti o
g
0 1 5
u i n
s 2
n
e
G
n
e r a ti o
C it y S
s
n
o l u ti o
s si a
u
R
g
0 1 6
u i n
s 2
e r
O t h
p
o
n ti n
o
C
n
e r a ti o
800
600
400
200
0
o rt u
2
o t a l F
T
29
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Income statement
Statement of comprehensive income
Balance sheet
Statement of changes in total equity
Cash flow statement
Consolidated statement of comprehensive income
Components of Consolidated statement of comprehensive income (OCI) are items of income and
expense that are recognized in equity and not recognized in the consolidated income statement. They
include unrealized items, such as fair value gains and losses on financial instruments hedging future
cash flows. These items will be realized in the Consolidated income statement when the underlying
hedged items is recognized. OCI also includes gains and losses on fair valuation on available for sale
financial assets, actuarial gains and losses from defined benefit plans, items on comprehensive income
in associated companies and translation differences.
Fair valuation of cash flow hedges mainly relates to electricity prices in future cash flows. When electricity price
is higher (lower) than the hedging price, the impact on equity is negative (positive).
Translation differences from translation of foreign entities, mainly RUB and SEK.
See information on defined benefit plans in Note 32 Pension obligations.
EUR million
Profit for the period
Other comprehensive income
Note
2016
504
2015
4,142
Items that may be reclassified to profit or loss in subsequent
periods:
Cash flow hedges
Fair value gains/losses in the period
Transfers to income statement
Transfers to inventory/fixed assets
Deferred taxes
Net investment hedges
Fair value gains/losses in the period
Deferred taxes
Exchange differences on translating foreign operations
Share of other comprehensive income of associates and joint
ventures
Other changes
Items that will not be reclassified to profit or loss in subsequent
periods:
Actuarial gains/losses on defined benefit plans
Actuarial gains/losses on defined benefit plans in associates and
joint ventures
3.6
20
32
32
Other comprehensive income for the period from continuing
operations, net of deferred taxes
Other comprehensive income for the period from discontinued
operations, net of deferred taxes
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interests
-142
-85
-10
51
-2
0
342
-9
0
145
-7
12
5
150
-
654
639
15
654
124
-48
-6
-14
-8
2
-191
3
3
-135
76
0
76
-59
0
4,082
4,081
1
4,082
30
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Income statement
Statement of comprehensive income
Balance sheet
Statement of changes in total equity
Cash flow statement
Consolidated balance sheet
EUR million
ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
Participations in associates and joint ventures
Share in State Nuclear Waste Management Fund
Other non-current assets
Deferred tax assets
Derivative financial instruments
Long-term interest-bearing receivables
Total non-current assets
Current assets
Inventories
Derivative financial instruments
Short-term interest-bearing receivables
Tax receivables
Trade and other receivables
Deposits and securities (maturity over three months)
Cash and cash equivalents
Liquid funds
Total current assets
Total assets
Note
31 Dec 2016
31 Dec 2015
18
19
20
30
21
29
3
22
23
3
22
29
24
25
467
9,930
2,112
830
113
66
415
985
14,918
233
130
395
290
844
3,475
1,679
5,155
7,046
222
8,710
1,959
810
93
80
509
773
13,157
231
355
0
124
698
4,913
3,289
8,202
9,610
21,964
22,767
Note
31 Dec 2016
31 Dec 2015
26
27
28
3
29
30
31
32
33
28
3
34
3,046
73
10,369
-29
13,459
84
13,542
4,468
262
616
830
116
76
179
6,546
639
396
841
1,876
8,422
3,046
73
10,507
168
13,794
69
13,863
4,965
290
483
810
81
65
168
6,863
1,042
121
879
2,042
8,904
21,964
22,767
EUR million
EQUITY
Equity attributable to owners of the parent
Share capital
Share premium
Retained earnings
Other equity components
Total
Non-controlling interests
Total equity
LIABILITIES
Non-current liabilities
Interest-bearing liabilities
Derivative financial instruments
Deferred tax liabilities
Nuclear provisions
Other provisions
Pension obligations
Other non-current liabilities
Total non-current liabilities
Current liabilities
Interest-bearing liabilities
Derivative financial instruments
Trade and other payables
Total current liabilities
Total liabilities
Total equity and liabilities
31
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Income statement
Statement of comprehensive income
Balance sheet
Statement of changes in total equity
Cash flow statement
Consolidated statement of changes in total equity
Share capital
Share
premium
Retained earnings
Other equity components
Owners of
the parent
Non-
controlling
interests
Total equity
EUR million
BS Total equity 31 December 2015
Net profit for the period
Translation differences
Other comprehensive income
Total comprehensive income for the period
Cash dividend
Other
BS Total equity 31 December 2016
Total equity 31 December 2014
Net profit for the period
Translation differences
Other comprehensive income
Total comprehensive income for the period
Cash dividend
Other
BS Total equity 31 December 2015
Note
3,046
73
Retained
earnings and
other funds
12,663
496
Translation
of foreign
operations
-2,156
Cash
flow hedges
74
Other
OCI items
67
OCI items
associated
companies and
joint ventures
27
15
15
3,046
3,046
73
73
3,046
73
1
497
-977
3
12,186
9,676
4,138
0
4,139
-1,155
3
12,663
339
339
-1,817
-1,968
-189
-189
-2,156
-2
-186
-188
-115
19
-1
55
54
74
1
-10
-9
58
-5
-1
73
72
67
-3
3
0
27
22
2
3
5
27
13,794
496
335
-192
639
-977
3
13,459
10,864
4,138
-188
132
4,081
-1,155
3
13,794
69
8
7
15
-1
84
71
4
-3
1
-2
69
13,863
504
342
-192
654
-977
2
13,542
10,935
4,142
-191
132
4,082
-1,155
1
13,863
Translation differences
Translation of financial information from subsidiaries in foreign currency is done using average rate for
the income statement and end rate for the balance sheet. The exchange rate differences occurring from
translation to EUR are booked to equity. Translation differences impacted equity attributable to owners
of the parent company with EUR 335 million during 2016 (2015: -188). Translation differences are mainly
related to RUB and SEK. Part of this translation exposure has been hedged and the foreign currency
hedge result, amounting to EUR 5 million (2015: 8), is included in the other OCI items.
For information regarding exchange rates used, see Note 1 Accounting policies. For information
about translation exposure see Note 3.6 Interest rate risk and currency risk.
Cash flow hedges
The impact on equity attributable to owners of the parent from fair valuation of cash flow hedges,
EUR -188 million (2015: 54), mainly relates to cash flow hedges hedging electricity price for future
transactions. When electricity price is lower/higher than the hedging price, the impact on equity is
positive/negative.
32
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Income statement
Statement of comprehensive income
Balance sheet
Statement of changes in total equity
Cash flow statement
Consolidated cash flow statement
Note
EUR million
Cash flow from operating activities
Profit for the period from continuing operations
Adjustments:
Income tax expenses
Finance costs - net
Share of profit of associates and joint ventures
Depreciation and amortisation
Operating profit before depreciations (EBITDA)
Items affecting comparability
Net release of CSA provision
Comparable EBITDA
Non-cash flow items
Interest received
Interest paid
Dividends received
Realised foreign exchange gains and losses
Income taxes paid
Other items
Funds from operations
Change in working capital
Net cash from operating activities, continuing operations
Net cash from operating activities, discontinued operations
Total net cash from operating activities
5, 18, 19
Cash flow from investing activities
Capital expenditures
Acquisitions of shares
Proceeds from sales of fixed assets
Divestments of shares
Shareholder loans to associated companies and joint ventures
Change in other interest-bearing receivables
Net cash used in investing activities, continuing operations
Net cash used in investing activities, discontinued operations
Total net cash used in investing activities
2016
504
90
169
-131
373
1,006
11
-2
1,015
-49
39
-214
54
110
-216
-18
723
-102
621
-
621
-599
-695
10
39
-117
-340
-1,701
-
-1,701
2015
-228
-78
175
-20
346
196
958
-52
1,102
-15
52
-263
52
292
-65
43
1,199
29
1,228
154
1,381
-527
-43
28
27
481
-1
-35
6,303
6,268
33
EUR million
Cash flow before financing activities
Cash flow from financing activities
Proceeds from long-term liabilities
Payments of long-term liabilities
Change in short-term liabilities
Dividends paid to the owners of the parent
Other financing items
Net cash used in financing activities, continuing operations
Net cash used in financing activities, discontinued operations
Total net cash used in financing activities
Total net increase(+)/decrease(-) in liquid funds
Liquid funds at the beginning of the year
Foreign exchange differences in liquid funds
Liquid funds at the end of the period
Note
15
25
2016
-1,080
32
-934
-97
-977
-8
-1,984
-
-1,984
-3,064
8,202
18
5,155
2015
7,650
37
-956
-84
-1,155
-2
-2,160
0
-2,160
5,490
2,766
-54
8,202
Realised foreign exchange gains and losses relate mainly to financing of Fortum’s Russian and Swedish
subsidiaries and the fact that the Group’s main external financing currency is EUR. The foreign exchange gains
and losses arise from rollover of foreign exchange contracts hedging these internal loans as major part of the
forwards are entered into with short maturities i.e. less than twelve months.
Capital expenditures in cash flow do not include not yet paid investments. Capitalised borrowing costs are
presented in interest paid.
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Income statement
Statement of comprehensive income
Balance sheet
Statement of changes in total equity
Cash flow statement
Change in net debt
EUR million
Net debt 1 January
Foreign exchange rate differences
EBITDA
Paid net financial costs, taxes and adjustments for non-cash and
divestment items
Change in working capital
Capital expenditures
Acquisitions
Divestments
Proceeds from interest-bearing receivables relating to divestments
Shareholder loans to associated companies
Change in other interest-bearing receivables
Dividends
Other financing activities
Net cash flow (- increase in net debt)
Fair value change of bonds, amortised cost valuation,
acquired debt and other
Net debt 31 December
2016
-2,195
-70
1,006
-283
-102
-599
-695
49
0
-117
-340
-977
-8
-2,065
152
-48
Additional cash flow information for continuing operations
Change in working capital
EUR million
Change in interest-free receivables, decrease(+)/increase(-)
Change in inventories, decrease(+)/increase(-)
Change in interest-free liabilities, decrease(+)/increase(-)
CF Total
2016
-54
14
-62
-102
2015
4,217
89
4,640
-3,330
71
-592
-43
6,217
207
481
-1
-1,155
-2
6,493
-8
-2,195
2015
-121
24
126
29
Fortum is hedging electricity production and retail portfolios mainly with derivatives in Nasdaq OMX
Commodities Europe. For these transactions Nasdaq requires collaterals. In 2016 Nasdaq moved from
bank guarantees to cash collaterals due to EMIR requirements. The cash collaterals are included in the
short-term interest-bearing receivables, see Note 22 Interest-bearing receivables.
In the end of 2016 Nasdaq’s market making for forwards ended and the trading moved from forwards
with cash collaterals to futures with daily cash settlements. In Fortum’s cash flow the daily cash
settlements for futures are shown as change in working capital whereas the changes in cash collaterals
for forwards are in change of interest-bearing receivables. The Nasdaq futures settlements had a negative
impact in working capital (Change in interest-free receivables) of EUR 139 million in 2016.
Capital expenditure in cash flow
EUR million
Capital expenditure
Change in not yet paid investments, decrease(+)/increase(-)
Capitalised borrowing costs
CF Total
Note
5, 18, 19
2016
591
24
-16
599
2015
582
-11
-44
527
Capital expenditures for intangible assets and property, plant and equipment were in 2016 EUR 591
million (2015: 582). Capital expenditure in cash flow in 2016 EUR 599 million (2015: 527) is including
payments related to capital expenditure made in previous year i.e. change in trade payables related to
investments EUR 24 million (2015: -11) and excluding capitalised borrowing costs EUR -16 million
(2015: -44), which are presented in interest paid.
See also information about the investments by segments and countries in Note 5 Segment
reporting and the investment projects by segment in Note 19.2 Capital expenditure.
Acquisition of shares in cash flow
Acquisition of shares, net of cash acquired, amounted to EUR 695 million during 2016 (2015: 43)
including mainly shares in Ekokem Corporation of EUR 553 million and Grupa DUON S.A of
EUR 98 million. For further information see Note 40 Acquisitions and disposals.
Divestment of shares in cash flow
EUR million
Proceeds from sales of subsidiaries, net of cash disposed
Proceeds from sales of associates and joint ventures
CF Total
Note
40
20, 40
2016
6
34
39
2015
0
27
27
Gross divestment of shares, EUR 161 million (2015: 27), includes not yet received sales price of EUR 131
million (2015: 0) relating to divestment of shares in OOO Tobolsk CHP. For further information see
Note 22 Interest-bearing receivables and Note 40 Acquisitions and disposals.
34
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
1 Accounting policies
1.1 Basic information
Fortum Corporation (the Company) is a Finnish public limited liability company with its domicile in
Espoo, Finland. Fortum’s shares are traded on Nasdaq Helsinki.
The operations of Fortum Corporation and its subsidiaries (together the Fortum Group) focus on
the Nordic and Baltic countries, Russia and Poland. Fortum’s activities cover generation and sale of
electricity, generation, distribution and sale of heat, and energy- related expert services.
These financial statements were approved by the Board of Directors on 1 February 2017.
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-key figure 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
impairment charges and related provisions (mainly dismantling);
in “Items affecting comparability”:
•
• capital gains, transaction costs and other;
• 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;
impact of the reclassification can be found in Note 14 Discontinued operations and Note 40
Acquisitions and disposals.
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 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 (current Neste Oyj) 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 has control. Control exists when Fortum is
exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to
affect those returns through its power over the 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.
• effects from accounting of Fortum’s part of the State Nuclear Waste Management Fund where the
Subsidiaries are fully consolidated from the date on which control is transferred to the Group and are no
assets cannot exceed the related liabilities according to IFRIC5.
longer consolidated from the date that control ceases.
Comparable operating profit is used for financial target setting, follow up and allocation of resources in
the group’s performance management.
On 15 April 2015 Fortum published a stock exchange release regarding the IFRS 5 restatement of
income statement and cash flow for 2014. As described in the release, Distribution segment is treated as
discontinued operations from the first quarter interim report 2015 onwards. More information on the
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 2016.
35
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Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
1.3.2 Associates
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. The Group’s
interests in associated companies are accounted for using the equity method of accounting.
1.3.3 Joint ventures
Joint ventures are arrangement in which the Group has joint control. Joint ventures are accounted for
using the equity method of accounting.
1.3.4 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.
1.3.5 Assets held for sale and discontinued operations
Non-current assets (or disposal groups) classified as held for sale are valued at the lower of their carrying
amount and fair value less costs to sell if their carrying amount will be recovered principally through a
sale transaction rather than through continuing use. These classification criteria do not include non-
current assets to be abandoned or those that have been temporarily taken out of use. An impairment loss
(or subsequent gain) reduces (or increases) the carrying amount of the non-current assets or disposal
groups. The assets are not depreciated or amortised. Interest or other expenses related to these assets are
recognised as before the classification as held for sale.
Discontinued operations represent a separate major line of business that either has been disposed of
or is classified as held for sale. Assets and liabilities attributable to the discontinued operations must be
clearly distinguishable from the other consolidated entities in terms of their operations and cash flows.
In addition, the reporting entity must not have any significant continuing involvement in the operations
classified as a discontinued operation.
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 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.
The key exchange rates applied in the Fortum Group accounts
Sweden
Norway
Poland
Russia
Currency
SEK
NOK
PLN
Average rate
2016
9.4496
9.2888
4.3659
2015
9.3414
8.9953
4.1909
Balance sheet date rate
31 Dec 2016
9.5525
9.0863
4.4103
31 Dec 2015
9.1895
9.6030
4.2639
RUB
73.8756
69.0427
64.3000
80.6736
1.4.4 Associates and joint ventures
The Group’s interests in associated companies and joint ventures 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 Other accounting policies
Fortum describes the other 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.
36
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40
41
42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Accounting principle
Segment reporting
Revenue recognition
Government grants
Share-based payments
Income taxes
Joint arrangements
Note
Segment reporting and
Trade and other receivables
5. Segment reporting
5.
24.
19. Property, plant and equipment
11. Employee benefits
29.
20. Participations in associated companies and joint
Income taxes in balance sheet
Investments in associates
20. Participations in associated companies and joint
ventures
ventures
16. Financial assets and liabilities by categories
Intangible assets
18.
19. Property, plant and equipment
Inventories
36. Lease commitments
23.
15. Earnings and dividend per share
32. Pension obligations
IFRS standard
IFRS 8
IAS 18
IAS 20
IFRS 2
IAS 12
IFRS 11, IAS 28,
IFRS 12
IAS 28, IFRS 12
IAS 32, IAS 36,
IAS 39
IAS 38
IAS 16, IAS 36,
IAS 40
IAS 17
IAS 2
IAS 33
IAS 19
30. Nuclear related assets and liabilities
IFRIC 5
31. Other provisions
37. Pledged assets and contingent liabilities
16.
17.
25. Liquid funds
28.
Interest-bearing liabilities
Financial assets and liabilities by categories and
Financial assets and liabilities by fair value hierarchy
IAS 37
IAS 37
IAS 32, IAS 39,
IFRS 7
IAS 7
IAS 39
Other shares and
participations
Intangible assets
Tangible assets
Leasing
Inventories
Earnings per share
Pensions and similar
obligations
Decommissioning
obligation
Provisions
Contingent liabilities
Financial instruments
Liquid funds
Borrowings
1.6 New accounting principles
1.6.1 New IFRS standards adopted from 1 Jan 2016
Fortum has adopted the following new or amended standards on 1 January 2016:
Standard
Narrow-
scope yearly
amendments
Nature of change
The amendments primarily remove
inconsistencies, provide additional
guidance and clarify wording of
standards. There are separate
transitional provisions for each standard.
Impact
The amendments do
not have a material
impact on Fortum’s
financial statements.
Date of adoption
1 January 2016
1.6.2 Adoption of new IFRS standards from 1 Jan 2017 or later
Fortum will apply the following new or amended standards and interpretations starting from 1 January
2017 or later:
Date of
adoption
1
January
2018
Standard
IFRS 9
Financial
instruments
Nature of change
New standard. The
standard has new
requirements for the
classification and
measurement of financial
assets and liabilities and
hedge accounting and
it will replace IAS 39
and IFRS 7. Additionally,
it introduces a new
impairment model for
expected credit losses.
Impact
During the gapping and design phase of the project
Fortum has identified the key changes and made initial
interpretations/design solutions in the areas of:
• Classification and measurement of financial assets
• Impairment model using expected credit loss method (“ECL”)
• Hedge accounting
• Some of the areas considered are:
• Fortum expects to have a wider possibility to apply hedge
accounting and thereby reduce volatility in the income
statement.
• Fortum is currently evaluating the expected impact of
adopting the ECL model for impairment of financial assets.
• Fortum has decided to use the transition relief for not to
restate the comparative information at the date of initial
application.
The IFRS 15 impact analysis is on-going and will be
completed during 2017.
Analysis include:
• Identification and assessment of Fortum’s revenue
1
January
2018
streams,
• Determining key areas of potential differences between
old and new revenue recognition principles and
• Reviewing of sample contracts.
Based on the analysis completed so far no material
changes have been identified. As Fortum’s operations
do not include significant long-term sales contracts or
projects, no material impact from the new standard
is expected. Assessment is on-going and additional
information on the implementation will be given during
2017 as the project progresses.
Fortum will use the transition relief for not to restate
the comparative information at the date of initial
application.
Fortum is currently assessing the impact of the new rules. 1
January
2019
IFRS 15
Revenue
from
contracts
with
Customers
New standard. The
standard focuses on
revenue recognition
models and will replace
IAS 11 and IAS 18.
IFRS 16
Leases
New standard regarding
lease accounting that will
replace IAS 17. The new
lease standard will result
in almost all leases being
recognised on the balance
sheet, as the distinction
between operating and
finance lease is removed.
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41
42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
2 Critical accounting estimates
and judgements
3 Financial risk management
The preparation of IFRS consolidated financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities existing at the balance sheet date as well as the reported amounts of revenues and expenses
during the reporting period.
Estimates and judgements are continually evaluated and are based on historical experience and
other factors, including expectations of future events that are believed to be reasonable under the
circumstances. Actual results and timing may differ from these estimates.
The table below is listing the areas where management’s accounting estimates and judgements are
most critical to reported results and financial position. The table is also showing where to find more
information about above-mentioned estimates and judgements.
Critical accounting estimates and judgements
Assigned values and useful lives for intangible assets
and property, plant and equipment acquired in a
business combination
Assumptions related to impairment testing of property,
plant and equipment and intangible assets as well as
associated companies and joint ventures
Judgement used when assessing the nature of Fortum’s
interest in its investees and when considering the
classification of Fortum’s joint arrangements as well as
commitments arising from these arrangements
Assumptions and estimates regarding future tax
consequences
Assumptions made to determine long-term cash flow
forecasts of estimated costs for provision related to
nuclear production
Assumptions made when estimating provisions
Assumptions used to determine future pension
obligations
Note
18.
Intangible assets
19. Property, plant and equipment
20.
7.
Participations in associated companies and
joint ventures
Effects from early closure of nuclear units in
Sweden
Income taxes in balance sheet
Legal actions and official proceedings
29.
38.
30. Nuclear related assets and liabilities
31. Other provisions
32. Pension obligations
38
Risk management objectives, principles and framework including governance, organisation and
processes as well as description of risks i.e. strategic, financial and operational risks are described in the
Risk management part in the Operating and financial review (OFR).
3.1 Commodity market risks
Fortum’s business is exposed to fluctuations in prices and availability of commodities used in the
production and sales of energy products. The main exposure is toward electricity prices and volumes,
prices of emissions and prices and availability of fuels. Fortum hedges its exposure to commodity market
risks in accordance with annually approved Hedging Guidelines, Strategies and Mandates.
3.2 Electricity price risk
Electricity price risk is hedged by entering into electricity derivatives contracts, primarily on the
Nordic power exchange, Nasdaq Commodities. The main objective of hedging is to reduce the effect of
electricity price volatility on earnings. Hedging strategies cover several years in the short to medium
term and are executed within approved mandates. These hedging strategies are continuously evaluated
as electricity and other commodity market prices, the hydrological balance and other relevant
parameters change.
In Russia, electricity prices and capacity sales are the main sources of market risk. The electricity
price is highly correlated with the gas price and prices are fixed through bilateral agreements limiting
exposure.
Fortum’s sensitivity to electricity market price is dependent on the hedge level for a given time period.
As per 31 December 2016, approximately 60% of the Generation Segment’s estimated Nordic power
sales volume was hedged for the calendar year 2017 and approximately 35% for the calendar year 2018.
Assuming no changes in generation volumes, hedge ratios or cost structure a 1 EUR/MWh change in the
market price of electricity would affect Fortum’s 2017 comparable operating profit by approximately EUR
18 million and for 2018 by approximately EUR 29 million. The volume used in this sensitivity analysis
is 45 TWh which includes the electricity generation sold to the spot market in Sweden and Finland in
the Generation Segment without minority owner’s shares of electricity or other pass-through sales, and
excluding the volume of Fortum’s coal-condensing generation. This volume is heavily dependent on price
level, the hydrological situation, the length of annual maintenance periods and availability of power
plants. Sensitivity is calculated only for electricity market price movements. Hydrological conditions,
temperature, CO2 allowance prices, fuel prices and the import/export situation all affect the electricity
price on short-term basis and effects of individual factors cannot be separated.
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41
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Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
3.2.1 Sensitivity arising from financial instruments according to IFRS 7
Sensitivity analysis shows the sensitivity arising from financial electricity derivatives as defined in IFRS 7.
These derivatives are used for hedging purposes within Fortum. Sensitivities are calculated based on 31
December 2016 (31 December 2015) position. Positions are actively managed in the day-to-day business
operations and therefore the sensitivities vary from time to time. Sensitivity analysis includes only the
market risks arising from derivatives i.e. the underlying physical electricity sales and purchase are not
included. Sensitivity is calculated with the assumption that electricity forward quotations in NASDAQ
OMX Commodities Europe and in EEX would change 1 EUR/MWh for the period Fortum has derivatives.
Sensitivity according to IFRS 7
+/- 1 EUR/MWh change in electricity forward quotations, EUR million
Effect on Profit before income tax
Effect on Equity
Effect
-/+
-/+
2016
18
27
2015
5
28
3.2.2 Electricity derivatives
The tables below disclose the Group’s electricity derivatives used mainly for hedging electricity price risk.
The fair values represent the values disclosed in the balance sheet.
See also Note 16 Financial assets and liabilities by categories for accounting principles and basis for
fair value estimations and Note 8 Fair value changes of derivatives and underlying items in income
statement.
Electricity derivatives by instrument 2016
Volume, TWh
Fair value, EUR million
Electricity derivatives
Total
Netting against
electricity exchanges 1)
Total
Under
1 year
24
1–5 years
21
Over
5 years
0
Total
45
Positive Negative
711
711
491
491
-335
156
-335
376
Electricity derivatives by instrument 2015
Electricity derivatives
Total
Netting against
electricity exchanges 1)
Total
Volume, TWh
Fair value, EUR million
Under
1 year
77
77
1–5 years
57
57
Over
5 years
0
0
Total
134
134
Positive Negative
502
502
583
583
-292
291
-292
209
Net
-220
-220
0
-220
Net
82
82
0
82
1) Receivables and liabilities against electricity exchanges arising from standard derivative contracts with same delivery period
are netted.
39
Maturity analysis of commodity derivatives
Amounts in the table are fair values.
EUR million
Electricity derivatives assets
Electricity derivatives liabilities
Other commodity derivatives,
assets
Other commodity derivatives,
liabilities
Under 1
year
88
238
2016
1–5
years
67
136
Over 5
years
1
2
18
18
4
3
0
0
Under 1
year
156
83
2015
1–5
years
133
124
Over 5
years
2
3
16
12
5
6
0
0
Total
156
376
22
21
Total
291
209
22
18
3.3 Fuel price risks
Exposure to fuel prices is limited to some extent due to Fortum’s flexible generation capacity, which
allows for switching between different fuels according to prevailing market conditions. In some cases,
the fuel price risk can be transferred to the customer. The remaining exposure to fuel price risk is
mitigated through fixed-price physical delivery contracts or financial hedges, such as coal, gas and oil
derivatives included in the table above as part of “Other commodity derivatives”.
3.4 Emission allowance price and volume risk
Part of Fortum’s power and heat generation is subject to requirements of emission trading schemes.
Fortum hedges its exposure to these prices and volumes through the use of CO2 futures. Most of these
CO2 futures are own use contracts valued at cost and some are treated as derivatives in the accounts
included in the table above as part of “Other commodity derivatives”.
3.5 Liquidity and refinancing risk
Fortum’s business is capital intensive and the Group has a diversified loan portfolio mainly consisting of
long-term financing denominated in EUR and SEK. Long-term financing is primarily raised by issuing
bonds under Fortum’s Euro Medium Term Note programme as well as through bilateral and syndicated
loan facilities from a variety of different financial institutions.
Financing is primarily raised on parent company level and distributed internally through various
internal financing arrangements. For example Fortum’s Russian operations are mainly financed via
intra group internal long term RUB denominated loans. The internal RUB loan receivables are hedged via
external forward contracts offsetting the currency exposure for the internal lender. On 31 December 2016,
96% (2015: 97%) of the Group’s total external financing was raised by the parent company Fortum Oyj.
On 31 December 2016, the total interest-bearing debt was EUR 5,107 million (2015: 6,007) and the
interest-bearing net debt was EUR -48 million (2015: -2,195).
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42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Fortum manages liquidity and refinancing risks through a combination of cash positions and
committed credit facility agreements with its core banks. The Group shall at all times have access to
cash, marketable securities and unused committed credit facilities including overdrafts, to cover all
loans maturing within the next twelve-month period. However, cash/marketable securities and unused
committed credit facilities shall always amount to at least EUR 500 million.
On 31 December 2016, loan maturities for the coming twelve-month period amounted to EUR 639
million (2015: 1,042). Liquid funds amounted to EUR 5,155 million (2015: 8,202) and the total amount
of committed credit facilities amounted to EUR 1,963 million (2015: 2,215) of which EUR 1,963 million
(2015: 2,215) was undrawn.
Maturity of interest-bearing liabilities
EUR million
2017
2018
2019
2020
2021
2022 and later
Total
2016
639
582
803
69
539
2,475
5,107
Liquid funds, major credit lines and debt programmes 2016
EUR million
Liquid funds
Cash and cash equivalents
Deposits and securities over 3 months
Total
of which in Russia (OAO Fortum)
Committed credit lines
EUR 1,750 million syndicated credit facility
Bilateral overdraft facilities
Total
Debt programmes (uncommitted)
Fortum Corporation, CP programme EUR 500 million
Fortum Corporation, CP programme SEK 5,000 million
Fortum Corporation, EMTN programme EUR 8,000 million
Total
Total facility
Drawn
amount
Available
amount
1,750
213
1,963
500
523
8,000
9,023
-
-
-
-
-
3,329
3,329
1,679
3,475
5,155
105
1,750
213
1,963
500
523
4,671
5,694
40
Loan maturities per loan type, EUR million
1,500
1,200
900
600
300
0
2017
2018
Bonds
Financial institutions
2019
2020 2021
Other long-term debt
Other short-term debt
2022
2023
2024
2025
2026 2027+
In addition Fortum has received EUR 135 million based on Credit Support Annex agreements with several counterparties.
In addition Fortum has received EUR 135 million based on Credit Support Annex agreements with several
This amount has been booked as a short term liability. See also note 28 Interest bearing liabilities.
counterparties.
This amount has been booked as a short-term liability. See also Note 28 Interest bearing liabilities.
Corporate income tax
Production taxes
Taxes on property
Cost of indirect taxes
Liquid funds, major credit lines and debt programmes 2015
Employment taxes
EUR million
Liquid funds
Cash and cash equivalents
Bank deposits over 3 months
Total
of which in Russia (OAO Fortum)
Committed credit lines
EUR 2,000 million syndicated credit facility
Bilateral overdraft facilities
Total
Debt programmes (uncommitted)
Fortum Corporation, CP programme EUR 500 million
Fortum Corporation, CP programme SEK 5,000 million
Fortum Corporation, EMTN programme EUR 8,000 million
Total
Total facility
Drawn
amount
Available
amount
3,289
4,913
8,202
76
2,000
215
2,215
500
544
3,906
4,950
2,000
215
2,215
500
544
8,000
9,044
-
-
-
-
-
4,094
4,094
Liquid funds amounted to EUR 5,155 million (2015: 8,202), including OAO Fortum’s bank deposits
amounting to EUR 103 million (2015: 72).
See also Note 25 Liquid funds.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Maturity analysis of interest-bearing liabilities and derivatives
Amounts disclosed below are non-discounted expected cash flows (future interest payments and
amortisations) of interest-bearing liabilities and interest rate and currency derivatives.
EUR million
Interest-bearing liabilities
Interest rate and
currency derivatives liabilities
Interest rate and
currency derivatives recievables
Total
2016
2015
Under
1 year
765
1–5
years
2,307
Over 5
years
2,601
Total
5,673
Under
1 year
1,208
1–5
years
2,412
Over 5
years
3,168
Total
6,788
2,255
1,119
20
3,394
2,879
1,286
66
4,231
-2,131
889
-1,291
2,136
-27
2,594
-3,449
5,619
-3,026
1,061
-1,438
2,260
-80
3,154
-4,544
6,475
Interest-bearing liabilities include loans from the State Nuclear Waste Management Fund and
Teollisuuden Voima Oyj of EUR 1,094 million (2015: 1,074). These loans are renewed yearly and the
related interest payments are calculated for ten years in the table above.
For further information regarding loans from the State Nuclear Waste Management Fund and
Teollisuuden Voima Oyj, see Note 30 Nuclear related assets and liabilities.
31 December 2016 was 3.5% (2015: 3.7%). Average cumulative interest rate on loans and derivatives for
2016 was 3.5% (2015: 3.9%).
The average interest rate on deposits and securities excluding Russian deposits on 31 December 2016
was -0.01% (2015: 0.1%). Liquid funds held by OAO Fortum amounted to EUR 105 million (Dec 31 2015: 76)
and the average interest rate for this portfolio was 9.0% at the balance sheet date.
3.6.2 Currency risk
Fortum’s policy is to hedge major transaction exposures to avoid exchange differences in the profit and
loss statement. These exposures are mainly hedged with forward contracts.
Translation exposures in the Fortum Group are generally not hedged as the majority of these assets
are considered to be long-term strategic holdings. In Fortum this means largely entities operating in
Sweden, Russia, Norway and Poland, whose base currency is not euro.
The currency risk relating to transaction exposures is measured using Value-at-Risk (VaR) for a one-
day period at 95% confidence level. Translation exposures relating to net investments in foreign entities
are measured using a five-day period at 95% confidence level. The limit for transaction exposure is VaR
EUR 5 million. On 31 December 2016 the open transaction and translation exposures were EUR 2 million
(2015: 0) and EUR 7,213 million (2015: 7,292) respectively. The VaR for the transaction exposure was EUR
0 million (2015: 0) and VaR for the translation exposure was EUR 96 million (2015: 130).
3.6 Interest rate risk and currency risk
Group Treasury’s transaction exposure
3.6.1 Interest rate risk
Fortum risk policy states that the average duration of the debt portfolio shall always be kept within a
range of 12 and 36 months and that the flow risk i.e. changes in interest rates shall not affect the net
interest payments of the Group by more than EUR 50 million for the next rolling 12-month period.
Within these mandates, strategies are evaluated and developed in order to find an optimal balance
between risk and financing cost.
On 31 December 2016, the average duration of the debt portfolio (including derivatives) was 1.7 years
(2015: 2.0). Approximately 59% (2015: 54%) of the debt portfolio was on a floating rate basis or fixed rate
loans maturing within the next 12-month period. The effect of one percentage point change in interest
rates on the present value of the debt portfolio was EUR 87 million on 31 December 2016 (2015: 117). The
flow risk, measured as the difference between the base case net interest cost estimate and the worst-case
scenario estimate for Fortum’s debt portfolio for the coming 12 months, was EUR 3 million (2015: 6).
The average interest rate for the portfolio consisting mainly of EUR and SEK loans was 2.1% at
the balance sheet date (2015: 2.6%). Part of the external loans EUR 805 million (2015: 641) have been
swapped to RUB and the average interest cost for these loans, including cost for hedging the RUB, was
11.4% at the balance sheet date (2015: 12.8%). The average interest rate on loans and derivatives on
EUR million
RUB
SEK
PLN
NOK
INR
USD
Other
Total
Net position
677
532
226
-72
116
-98
-20
1,361
2016
Hedge
-677
-531
-226
72
-116
98
20
-1,359
Open Net position
477
81
165
-71
-
-36
-19
597
0
1
0
0
0
0
0
2
2015
Hedge
-477
-81
-165
71
-
36
19
-597
Open
0
0
0
0
-
0
0
0
Transaction exposure is defined as already contracted or forecasted foreign exchange dependent items
and cash flows. Transaction exposure is divided into balance sheet exposure and cash flow exposure.
Balance sheet exposure reflects currency denominated assets and liabilities for example loans, deposits
and accounts receivable/payable in currencies other than the company’s base currency. Cash flow
exposure reflects future forecasted or contracted currency flows in foreign currency deriving from
business activities such as sales, purchases or investments. Net conversion differences from transaction
41
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25
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30
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35
36
37
38
39
40
41
42
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
exposure are entered under financial income or expense when related to financial items or when related
to accounts receivable/payable entered under items included in operating profit. Conversion differences
related to qualifying cash flow hedges are deferred to equity.
Fortum’s policy is to hedge balance sheet exposures in order to avoid exchange rate differences in
the income statement. The Group’s balance sheet exposure mainly relates to financing of non-euro
subsidiaries and the fact that the Group’s main external financing currency is EUR. For derivatives
hedging this balance exposure Fortum does not apply hedge accounting, because they have a natural
hedge in the income statement.
Contracted cash flow exposures shall be hedged to reduce volatility in future cash flows. These
hedges normally consist of currency derivative contracts, which are matched against the underlying
future cash flow according to maturity. Fortum has currency cash flow hedges both with and without
hedge accounting treatment under IFRS. Those currency cash flow hedges, which do not qualify for
hedge accounting are mainly hedging electricity derivatives. Unrealised hedges create volatility in the
operating profit.
Group Treasury’s translation exposure
EUR million
RUB
SEK
NOK
PLN
Other
Total
Net
Investment
2,603
4,747
410
282
141
8,183
2016
Hedge
-132
-837
-
-
-
-970
Open
2,471
3,910
410
282
141
7,213
Net
Investment
1,997
5,390
337
162
45
7,930
2015
Hedge
-167
-471
-
-
-
-638
Open
1,830
4,919
337
162
45
7,292
Translation exposure position includes net investments in foreign subsidiaries and associated companies.
On consolidation, exchange differences arising from the translation of the net investment in foreign
entities are taken to equity. The net effect of exchange differences on equity attributable to equity holders
mainly from RUB and SEK was EUR 335 million in 2016 (2015: -188). Part of this translation exposure has
been hedged and the foreign currency hedge result amounted to EUR 5 million in 2016 (2015: 8).
Interest rate and currency derivatives by instrument 2016
EUR million
Forward foreign exchange
contracts
Interest rate swaps
Interest rate and currency
swaps
Total
Of which long-term
Of which short-term
Notional amount
Remaining lifetimes
Over 5
years
1–5
years
252
2,718
800
3,770
1,105
1,105
Under
1 year
6,443
259
29
6,731
Total
6,695
4,082
829
11,606
Fair value
Positive Negative
Net
26
269
71
366
343
23
130
127
5
261
121
140
-103
142
66
105
222
-117
Interest rate and currency derivatives by instrument 2015
EUR million
Forward foreign exchange
contracts
Interest rate swaps
Interest rate and currency
swaps
Total
Of which long-term
Of which short-term
Under
1 year
8,777
1,050
417
10,244
Notional amount
Remaining lifetimes
Over 5
years
1–5
years
Fair value
Total
Positive Negative
Net
295
2,213
827
3,335
-
1,934
9,072
5,197
-
1,934
1,244
15,513
81
303
167
551
369
182
13
162
9
184
152
32
68
141
158
367
217
150
3.7 Credit risk
Fortum is exposed to credit risk whenever there is a contractual obligation with an external counterparty.
Credit risk exposures relating to financial derivative instruments are often volatile. Although
the majority of commodity derivatives are cleared through exchanges, derivatives contracts are also
entered into directly with external counterparties. Such contracts are limited to high-credit-quality
counterparties active on the financial or commodity markets. Currency and interest rate derivative
counterparties are limited to investment grade banks and financial institutions. ISDA Master
agreements, which include netting clauses and in some cases Credit Support Annex agreements, are
in place with most of these counterparties. Commodity derivative counterparties are limited to those
considered of high creditworthiness. Master agreements, such as ISDA, FEMA and EFET, which include
netting clauses, are in place with the majority of the counterparties.
42
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20
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22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Due to the financing needs and management of liquidity, Fortum has counterparty credit exposure to
a number of banks and financial institutions. This includes exposure to the Russian financial sector in
terms of deposits with financial institutions as well as to banks that provide guarantees for suppliers and
contracting parties. Deposits in Russia have been concentrated to the most creditworthy state-owned
or controlled banks. Limits with banks and financial institutions are monitored so that exposures can
be adjusted as ratings or the financial situation changes, and Fortum is following the development of
economic sanctions against Russia as part of the monitoring process.
Credit risk relating to customers is spread across a wide range of industrial counterparties, small
businesses and private individuals over a range of geographic regions. The majority of exposure is to the
Nordic market, Poland and Russia. The risk of non-payment in the electricity and heat sales business in
Russia is higher than in the Nordic market.
3.7.1 Credit quality of major financial assets
Amounts disclosed below are presented by counterparties for interest-bearing receivables including bank
deposits and derivative financial instruments recognised as assets.
EUR million
Investment grade receivables
Deposits, commercial papers and cash in bank
accounts
Fair values of interest rate and currency derivatives
Fair values of electricity and other commodity
derivatives
Total investment grade receivables
Energy exchange receivables
Fair value of derivatives on NASDAQ OMX
Commodities Europe
Fair value of derivatives on European Energy
Exchange AG
Total energy exchange receivables
Associated companies and joint venture
receivables
Loan receivables
Fair values of interest rate and currency derivatives
Fair values of electricity and other commodity
derivatives
Total associated companies and joint venture
receivables
Other receivables
Investments in commercial papers
Russian deposits with non-investment grade banks
Restricted cash mainly given as collateral for
commodity exchanges
Divested shares of OOO Tobolsk
Loan and other interest bearing receivables
Fair values of electricity and other commodity
derivatives
Total other receivables
4,663
366
5
5,034
61
1
62
886
0
14
900
275
103
360
131
3
96
968
2016
2015
Carrying
amount
of which
past due
Carrying
amount
of which
past due
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7,521
549
17
8,087
52
-
52
773
1
38
812
563
65
0
0
1
205
834
9,785
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
6,964
43
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
The following tables indicate how bank deposits, commercial papers and fair values of derivatives are
distributed by rating class.
Interest rate and currency derivatives
Deposits and Securities
EUR million
Counterparties with external credit rating from Standard & Poor’s and/or
Moody’s Investment grade ratings
AAA
AA+/AA/AA-
A+/A/A-
BBB+/BBB/BBB-
Total investment grade ratings
BB+/BB/BB-
B+/B/B-
Below B-
Non-investment grade ratings
Counterparties without external credit rating from Standard & Poor’s and/or
Moody’s
Government or municipality
Fortum Rating 5 - Lowest Risk
Fortum Rating 4 - Low Risk
Fortum Rating 3 - Normal Risk
Fortum Rating 2 - High Risk
Fortum Rating 1 - Highest Risk
No rating
Total non-rated counterparties
2016
2015
-
995
3,437
231
4,663
103
-
-
103
-
275
-
-
-
-
-
275
-
1,201
4,820
1,501
7,521
92
-
-
92
34
301
114
83
-
-
4
536
Total
5,040
8,149
In addition, cash in other bank accounts totalled EUR 115 million on 31 December 2016 (2015: 53).
See Note 25 Liquid funds.
EUR million
Counterparties with external credit rating from
Standard & Poor’s and/or Moody’s Investment
grade ratings
AAA
AA+/AA/AA-
A+/A/A-
BBB+/BBB/BBB-
Total investment grade ratings
Total associated companies and joint ventures
Counterparties without external credit rating from
Standard & Poor’s and/or Moody’s
Total
2016
2015
Receivables
amount 1) Receivables
Netted
Netted
amount 1)
-
11
259
96
366
0
0
366
-
-
76
31
107
0
0
107
-
66
353
131
549
1
-
551
-
21
133
28
182
1
-
183
1) The netted amount includes the cash received in accordance with Credit Support Annex agreements EUR 135 million
(2015: 202).
Electricity, coal, gas and oil derivatives and CO2
emission allowances treated as derivatives
2016
2015
Receivables
Netted
amount Receivables
Netted
amount
EUR million
Counterparties with external credit rating from
Standard & Poor’s and/or Moody’s Investment
grade ratings
AAA
AA+/AA/AA-
A+/A/A-
BBB+/BBB/BBB-
Total investment grade ratings
Non-investment grade ratings
BB+/BB/BB-
B+/B/B-
Below B-
Total non-investment grade ratings
Total associated companies and joint ventures
14
44
-
0
4
1
5
1
-
-
1
-
0
3
0
3
0
-
-
0
7
-
0
13
4
17
7
-
-
7
-
0
5
2
7
7
-
-
7
38
19
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
2016
2015
Receivables
Netted
amount Receivables
Netted
amount
4 Capital risk management
EUR million
Counterparties without external credit rating from
Standard & Poor’s and/or Moody’s
Government or municipality
Fortum Rating 5 - Lowest risk
Fortum Rating 4 - Low risk
Fortum Rating 3 - Normal risk
Fortum Rating 2 - High risk
Fortum Rating 1 - Highest risk
No rating
Total non-rated counterparties
Total
0
34
39
22
0
0
0
95
115
0
28
29
19
0
0
0
77
87
1
54
76
67
0
0
0
198
260
1
51
71
65
0
0
0
188
221
For derivatives, the receivable is the sum of the positive fair values, i.e. the gross amount. Netted amount
includes negative fair values where a valid netting agreement is in place with the counterparty. When the
netted amount is less than zero, it is not included. In cases where a parent company guarantee is in place,
the exposure is shown on the issuer of the guarantee.
All counterparties for currency and interest rate derivatives and the majority of counterparties for
bank deposits have an external rating from Standard & Poor’s and/or Moody’s credit agencies. The above
rating scale is for Standard & Poor’s rating categories. For those counterparties only rated by Moody’s,
the rating has been translated to the equivalent Standard and Poor’s rating category. For counterparties
rated by both Standard & Poor’s and Moody’s, the lower of the two ratings is used.
In the commodity derivatives and commercial paper market, there are a number of counterparties not
rated by Standard & Poor’s or Moody’s. For these counterparties, Fortum assigns an internal rating. The
internal rating is based on external credit ratings from other credit agencies. The rating from Soliditet is
used for Finnish, Norwegian and Swedish counterparties and for other counterparties the rating from
Dun & Bradstreet is used. Governments and municipal companies are typically not rated, and are shown
separately. This rating category does not include companies owned by governments or municipalities.
Counterparties that have not been assigned a rating by the above listed credit agencies are in the “No
rating” category.
Fortum wants to have a prudent and efficient capital structure which at the same time allows the
implementation of its strategy. Maintaining a strong balance sheet and the flexibility of the capital
structure is a priority. The Group monitors the capital structure based on Comparable net debt to
EBITDA ratio. Net debt is calculated as interest-bearing liabilities minus liquid funds. EBITDA is
calculated by adding back depreciation and amortisation to operating profit, whereas Comparable
EBITDA is calculated by deducting items affecting comparability and the net release of CSA provision
from EBITDA. Fortum’s comparable net debt to EBITDA target is around 2.5.
The dividend policy ensures that shareholders receive a fair remuneration for their entrusted capital,
supported by the company’s long-term strategy that aims at increasing earnings per share and thereby
the dividend. When proposing the dividend, the Board of Directors looks at a range of factors, including
the macro environment, balance sheet strength as well as future investment plans. Fortum Corporation’s
target is to pay a stable, sustainable and over time increasing dividend, in the range of 50–80% of
earnings per share, excluding one-off items.
Fortum’s long-term credit ratings were unchanged. Standard & Poor’s rating is BBB+ and the short-
term rating A-2. The outlook is stable. Fitch Ratings long-term Issuer Default Rating (IDR) and senior
unsecured rating is BBB+ and the short-term IDR is F2 with a stable outlook.
Net debt/EBITDA ratios
EUR million
Interest-bearing liabilities
BS Less: Liquid funds
Net debt
Operating profit
Add: Depreciation and amortisation
EBITDA, total Fortum
Less: Items affecting comparability
Less: Net release of CSA provision
Comparable EBITDA, total Fortum
Note
28
25
2016
5,107
5,155
-48
633
373
1,006
-11
2
1,015
2015
6,007
8,202
-2,195
4,245
395
4,640
3,323
52
1,265
Comparable net debt/EBITDA, total Fortum
0.0
-1.7
45
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
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19
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22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
5 Segment reporting
ACCOUNTING POLICIES
NETTING AND INTER-SEGMENT TRANSACTIONS
Generation segment sells its production to Nord Pool and Electricity Sales in City Solutions buys its
REVENUE RECOGNITION
Revenue comprises the fair value consideration received or receivable at the time of delivery of products
electricity from Nord Pool. Eliminations of sales include eliminations of sales and purchases with Nord
Pool that are netted on group level on an hourly basis and posted either as revenue or cost depending
and/or upon fulfilment of services. Revenue is shown net of rebates, discounts, value-added tax and
on if Fortum is a net seller or net buyer during any particular hour. Inter-segment sales, expenses and
selective taxes such as electricity tax. Revenue is recognised as follows:
results for the different business segments are affected by intra-group deliveries, which are eliminated on
consolidation. Inter-segment transactions are based on commercial terms.
SALE OF ELECTRICITY, HEAT, COOLING AND RECYCLED MATERIALS
Sale of electricity, heat and cooling as well as sale of recycled materials is recognised at the time of
delivery. The sale to industrial and commercial customers and to end-customers is recognised based
on the value of the volume supplied, including an estimated value of the volume supplied to customers
between the date of their last meter reading and year-end.
Physical energy sales and purchase contracts are accounted for on accrual basis based on expected
purchase, sale and usage requirements.
CONNECTION FEES
Fees paid by the customer when connected to the gas, heat or cooling network are recognised as
income to the extent that the fee does not cover future commitments. If the connection fee is linked to the
contractual agreement with the customer, the income is recognised over the period of the agreement with
the customer.
Fees paid by the customer when connected to district heating network in Finland were refundable until
2013. These connection fees have not been recognised in the income statement and are included in other
liabilities in the balance sheet.
SALE OF WASTE TREATMENT SERVICES
Revenue from waste treatment services is recognised over time, when the underlying treatment is
5.1 Fortum’s business structure
Fortum has reorganised its operating structure as of 1 April 2016. The business divisions are: Generation
(mainly the former Power and Technology); City Solutions (mainly the former Heat, Electricity Sales
and Solutions); Russia, and Other, which includes the two development units, M&A and Solar & Wind
Development, Technology and New Ventures as well as the shareholding in the associated company
Hafslund ASA and corporate functions.
5.2 Segment structure in Fortum
Fortum discloses segment information in a manner consistent with internal reporting to Fortum’s Board
of Directors and to Fortum Executive Management led by the President and CEO. Fortum has segments
based on type of business operations, combined with one segment based on geographical area. After the
reorganisation of operations, Fortum’s reportable segments under IFRS are the business divisions
Generation, City Solutions and Russia. Because of the minor financial impact of the reorganisation, the
comparable segment information for 2015 has not been restated. Swedish Distribution business was sold
in 2015 and after that the Distribution segment was treated as discontinued operations. As Discontinued
operations are disclosed on one line, the segment information presented in this note relates to the
continuing operations only and thus excludes discontinued operations. That information is presented in
performed.
Note 14 Discontinued operations.
CONTRACT REVENUE
Contract revenue is recognised under the percentage of completion method to determine the appropriate
amount to recognise as revenue and expenses in a given period. The stage of completion is measured by
reference to the contract costs incurred up to the closing date as a percentage of total estimated costs
for each contract.
5.3 Definitions for segment information
Fortum’s segment information discloses the financial measurements used in financial target setting and
forecasting, management’s follow up of financial performance and allocation of resources in the group’s
performance management process. These measurements, such as Comparable operating profit and
Comparable return on net assets, have been used consistently since 2005.
46
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Items affecting comparability are disclosed separately in Fortum’s income statement to support the
understanding of business performance when comparing results between periods. Items classified as
Items affecting comparability include accounting effects from valuation according to IFRS that are not
arising from the performance of the business operations. Such items include fair valuation of financial
derivatives hedging future cash-flows where hedge accounting is not applied according to IAS 39 and
effects from the accounting of Fortum’s part of the Finnish Nuclear Waste Fund where the asset in the
balance sheet cannot exceed the related provisions according to IFRIC interpretation 5.
The business performance of the operations cannot be compared from one period to another without
adjusting for one-time items relating to capital gains, major impairment related items and transaction
costs arising from acquisitions. Therefore such items have also been treated as Items affecting
comparability. From 2016 onwards transaction costs arising from acquisitions are included in capital
gains and other within items affecting comparability. According to IFRS 3 (revised) transaction costs are
recognised in the income statement.
Consolidation by segment is based on the same principles as for the Group as a whole. See definition
of the segment information in Definitions of key figures.
Below is the description of the reportable segments:
Group
Generation
City Solutions
Russia
s
n
o
i
s
i
v
D
i
Generation
City Solutions
Russia
s Generation is responsible for
t
n
Nordic power production. The
e
m
segment comprises nuclear,
g
hydro and thermal power
e
production, portfolio manage-
s
ment, and trading and
industrial intelligence as well as
nuclear services globally.
g
n
i
t
r
o
p
e
R
Russia segment comprises
power and heat generation
and sales in Russia. The
segment also includes Fortum’s
over 29% holding in TGC-1,
which is an associated
company and is accounted for
using the equity method.
City Solutions is responsible for
developing sustainable city
solutions into a growing
business for Fortum. The
segment comprises heating and
cooling, waste-to-energy,
biomass and other circular
economy solutions, as well as
electricity sales and services.
The business operations are
located in the Nordics, the
Baltic countries and Poland. The
segment also includes Fortum’s
50% holding in Fortum Värme,
which is a joint venture and is
accounted for using the equity
method.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
47
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
5.4 Segment information
Income statement
EUR million
External sales
Internal sales
Netting of Nord Pool transactions 2)
Eliminations 2)
IS Sales
Comparable EBITDA
Net release of CSA provision
IS Depreciation and amortisation
IS Comparable operating profit
Impairment charges
Capital gains and other
Changes in fair values of derivatives hedging future cash-flow
Nuclear fund adjustment
IS Items affecting comparability
IS Operating profit
IS Share of profit of associated companies and joint ventures
IS Finance costs - net
IS Income taxes
IS Profit for the year
Note
31
6
6
6, 8
6, 30
6
20, 30
City Solutions 1)
Russia
Other
Total
Generation 1)
2016
1,643
15
2015
1,639
83
2016
1,429
-5
2015
1,200
-13
1,657
527
1,722
680
1,424
238
1,187
209
-110
417
27
1
-96
-11
-79
338
-34
-118
561
-915
18
-76
16
-958
-396
-111
-126
112
0
0
33
33
145
76
-101
108
-3
3
-4
-3
105
59
2016
896
0
896
312
2
-123
191
0
35
0
35
226
38
2015
893
0
893
267
52
-117
201
0
1
1
2
203
32
2016
49
72
121
-61
-15
-76
0
2
-2
0
-76
51
2015
39
75
114
-53
-10
-63
0
0
1
1
-62
40
2016
4,016
82
-384
-82
3,632
1,015
2
-373
644
27
38
-65
-11
-11
633
131
-169
-90
504
2015
3,771
145
-336
-122
3,459
1,102
52
-346
808
-918
22
-78
16
-958
-150
20
-175
78
-228
1) Sales, both internal and external, include effects from realised hedging contracts. Effect on sales can be negative or positive depending on the average contract price and realised spot price.
2) Netting and eliminations include eliminations of internal sales for continuing operations and netting of Nord Pool transactions. Sales and purchases with Nord Pool, EUR -384 million, are netted on Group level on an hourly basis and posted either as revenue or
cost depending on if Fortum is a net seller or net buyer during any particular hour.
48
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Assets and liabilities
EUR million
Non-interest-bearing assets
BS Participations in associated companies and joint ventures
Eliminations
Total segment assets
Interest-bearing receivables
BS Deferred tax assets
Other assets
BS Liquid funds
Total assets
Segment liabilities
Eliminations
Total segment liabilities
BS Deferred tax liabilities
Other liabilities
Total liabilities included in capital employed
Interest-bearing liabilities
BS Total equity
Total equity and liabilities
Investments/Divestments
EUR million
Gross investments in shares
Capital expenditure
of which capitalised borrowing costs
Gross divestments of shares
Comparable return on net assets
Generation
City Solutions
Russia
Other
City Solutions
Russia
Other
Total
Generation
2016
6,206
711
2015
6,391
758
2016
2,948
573
2015
1,929
559
2016
2,967
436
2015
2,347
316
6,917
7,150
3,521
2,488
3,402
2,663
2016
321
392
713
2015
135
346
481
1,102
1,219
469
306
119
102
223
222
2016
12,442
2,112
-28
14,526
1,380
66
838
5,155
21,964
1,913
-28
1,885
616
814
3,315
5,107
13,542
21,964
2015
10,802
1,979
-43
12,738
773
80
974
8,202
22,767
1,849
-43
1,806
483
608
2,898
6,007
13,863
22,767
Note
20, 40
18, 19
40
Generation
2016
7
196
3
0
2015
16
187
3
0
City Solutions
Russia
Other
Total
2016
815
112
1
34
2015
23
105
0
27
2016
0
201
10
127
2015
0
285
41
0
2016
22
83
2
0
2015
4
6
0
0
2016
844
591
16
161
Comparable net assets by segments, EUR million
2015
5,931
2,182
2,561
258
2016
5,815
3,052
3,284
489
Comparable return on net assets, %
2016
6.9
7.5
8.0
-6.4
2015
43
582
44
27
2015
9.5
7.9
8.2
-8.5
Fortum is disclosing Comparable net assets instead of Net assets from 2016 onwards.
49
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Employees
Number of employees 31 Dec
Average number of employees
Generation
2016
979
1,064
2015
1,341
1,389
City Solutions
Russia
Other
Total
2016
2,314
2,043
2015
1,417
1,458
2016
3,745
3,814
2015
4,126
4,180
2016
1,070
1,073
2015
951
983
2016
8,108
7,994
2015
7,835
8,009
5.5 Group-wide disclosures
The Group’s operating segments operate mainly in the Nordic countries, Russia, Poland and other
parts of the Baltic Rim area. Generation operates mainly in Finland and Sweden, whereas City Solutions
operates in all of these geographical areas except Russia. Other countries are mainly Latvia and
Lithuania. The home country is Finland.
The information below is disclosing sales by product area as well as sales by the country in which
the customer is located. Assets, capital expenditure and personnel are reported where the assets and
personnel are located. Participations in associates and joint ventures are not divided by location since the
companies concerned can have business in several geographical areas.
Capital expenditure by location
EUR million
Finland
Sweden
Russia
Poland
Estonia
Other countries
Total
External sales by product area
EUR million
Power sales excluding indirect taxes
Heating sales
Other sales
IS Total
2016
2,587
648
398
3,632
2015
2,582
651
226
3,459
Heating sales include sale of delivered heat and transmission of heat.
Due to the large number of customers and the variety of its business activities, there is no individual
customer whose business volume is material compared with Fortum’s total business volume.
Sales by market area based on customer location
Segment assets by location
EUR million
Finland
Sweden
Russia
Poland
Estonia
Other countries and eliminations
Non-interest bearing assets
BS Participations in associates and joint ventures
Total
EUR million
Nordic
Russia
Poland
Estonia
Other countries
IS Total
2016
2,258
899
355
61
59
3,632
2015
2,172
895
213
75
103
3,459
The Nordic power production is not split by countries since Nordic power production is mainly sold
through Nord Pool.
Number of employees on 31 December by location
Finland
Sweden
Russia
Poland
Estonia
Other countries
Total
50
2016
173
91
201
59
11
56
591
2016
3,958
4,341
2,967
513
196
439
12,414
2,112
14,526
2016
2,029
724
3,745
894
201
515
8,108
2015
156
87
285
37
11
7
582
2015
3,051
4,559
2,347
350
196
256
10,759
1,979
12,738
2015
1,959
618
4,126
586
214
332
7,835
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
6 Items affecting comparability
EUR million
Impairment charges
Capital gains and other
Changes in fair values of derivatives hedging future cash flow
Nuclear fund adjustments
IS Total
2016
27
38
-65
-11
-11
2015
-918
22
-78
16
-958
Items affecting comparability are not included in Comparable operating profit. 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 separately in Fortum’s
income statement as it is deemed necessary for the purposes of understanding the financial performance
when comparing the results.
Impairment charges and capital gains
Fair value changes on derivatives
Changes in the fair values of financial derivative instruments hedging future cash flows that do not
qualify for hedge accounting are recognised in items affecting comparability. This is done to improve the
understanding of the financial performance when comparing results from one period to another.
Nuclear waste management fund adjustment
Nuclear fund adjustment includes effects from the accounting principle of Fortum’s part of the State
Nuclear Waste Management Fund where the assets in the balance sheet cannot exceed the nuclear related
provisions according to IFRIC 5. As long as the Fund is overfunded from an IFRS perspective, the effects
to the operating profit from this adjustment will be positive if the provisions increase more than the Fund
and negative if actual value of the fund increases more than the provisions.
For more information regarding disposals of shares, see Note 40 Acquisitions and disposals.
For more information regarding impact from early closure of units 1 and 2 in OKG AB, see Note 7
EUR million
Impairment charges
Impact from early closure of units 1
and 2 in OKG AB
Teollisuuden Voima Oyj’s decision to
discontinue the Olkiluoto 4 project
Dismantling provision for the Finnish
coal-fired power plant Inkoo and
impairment loss for Fortum’s share of
the Finnish coal-fired power plant Meri-
Pori and other related items
Other impairment charges
Total
Capital gains and other
OOO Tobolsk CHP, subsidiary
AS Eesti Gaas, 51% ownership
Transaction costs from Ekokem
acquisition
Other non-recurring items
Total
Segment
Country
2016
2015
Effects from early closure of nuclear units in Sweden.
Generation
Generation
Generation
City Solutions
Russia
City Solutions
City Solutions
Sweden
Finland
Finland
Russia
Estonia
Finland
For more information regarding fair value changes of derivatives, see Note 8 Fair value changes of
derivatives and underlying items in income statement
22
-794
For more information regarding nuclear waste management, see Note 30 Nuclear related assets
and liabilities.
-15
-106
-3
-918
22
22
5
27
35
11
-12
4
38
51
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
In 2016 OKG updated the provisions made in 2015 resulting a positive impact of EUR 22 million included
in items affecting comparability for 2016.
Items affecting comparability for 2015 included EUR -566 million which mainly relates to write-down
of existing assets in OKG and a provision of EUR -228 million, which relates to additional future costs
due to the early closure of units 1 and 2 as well as to future committed investments. These future costs
and investments will have an impact on Fortum’s net cash when they occur. The total amount of EUR
-794 million was netted against the shareholder loans to OKG. The main part of the netted amount has
already been invoiced to Fortum. The remaining part will be invoiced when the costs occur.
Share of profit/loss in associates and joint ventures includes the impairment of IFRS adjustments
related to units 1 and 2 for OKG in Fortum’s consolidated financial statements, mainly related to write-
down of asset retirement obligations and capitalised borrowing costs. These adjustments are recognised
net of taxes. The asset retirement obligation represents the future costs for decommissioning of the
nuclear power plant. The initial net present value of the provision for decommissioning (at the time of
commissioning the nuclear power plant) has been included in the investment cost and is depreciated over
the estimated operating time of the nuclear power plant.
Income tax expenses relates to the items affecting comparability.
7 Effects from early closure
of nuclear units in Sweden
The financial impacts of the decision made in the Extraordinary shareholder’s meeting of OKG AB (OKG)
on 14 October 2015 to close early units 1 and 2 in Oskarshamn are recognised as Impairment charges,
included in Items affecting comparability. E.ON is the majority owner of OKG and E.ON did unilaterally
decide on the closing of units. The closing process will take several years and Fortum will monitor the
impacts.
OKG is a non-profit making company and sells produced electricity at production costs to its owners
in proportion to the ownership. OKG is funded entirely by its shareholders. Fortum’s part of the funding
is recognised as long-term interest bearing receivables, which are increased when OKG needs additional
funds and decreased when OKG invoices Fortum for the produced electricity.
OKG’s impairment charges in Fortum’s income statement
EUR million
Comparable operating profit
Items affecting comparability - Impairment charges
Operating profit
Share of profit/loss of associates and joint ventures
Profit before income tax
Income tax expenses
Profit for the period from continuing operations
Attributable to:
Owners of the parent
Non-controlling interests
Earnings per share effect was EUR -0.82 per share in 2015.
2016
0
22
22
0
22
-5
17
17
0
2015
0
-794
-794
-116
-910
175
-735
-729
-5
52
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32
33
34
35
36
37
38
39
40
41
42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
8 Fair value changes of
derivatives and underlying
items in income statement
Fair value changes in operating profit presented below are arising from financial derivatives hedging
future cash flows where hedge accounting is not applied according to IAS 39 and the ineffectiveness from
cash flow hedges.
Fair value changes of currency derivatives in net financial expenses are arising mainly from
balance sheet hedges without hedge accounting status according to IAS 39, because they are natural
hedges of loans and receivables. Fair value change of interest rate hedges without hedge accounting is
EUR -9 million (2015: -9). The net effect of fair value changes of hedging derivative and hedged bonds are
EUR 0 million (2015: 0).
EUR million
In operating profit
Fair value changes from derivatives not getting hedge accounting status
2016
2015
Electricity derivatives
Currency derivatives
Coal, gas and CO2 derivatives
Ineffectiveness from cash flow hedges
Total effect in operating profit
In finance costs
Exchange gains and losses on loans and receivables
Fair value changes of derivatives not getting hedge accounting status
Cross currency interest rate derivatives
Foreign currency derivatives
Rate difference on forward contracts
Currency derivatives
Interest rate derivatives
Fair value change of hedging derivatives in fair value hedge
relationship
Fair value change of hedged items in fair value hedge relationship
Total 1)
Total effect in finance costs
Total effect on profit before income tax
-43
2
-2
-23
-65
143
12
-156
7
-137
-9
11
-11
-146
-3
-68
1) Including fair value gains and losses on financial instruments and exchange gains and losses on derivatives.
-69
-6
-5
0
-79
-50
-12
63
-9
42
-9
-13
13
33
-17
-96
53
9 Other income and other expenses
ACCOUNTING POLICIES
OTHER INCOME
Revenue from activities outside normal operations is reported in other income. This includes recurring
items such as rental income and non-recurring items such as insurance compensation.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are recognised as expense as incurred and included in other expenses
in the income statement. If development costs will generate future income, they are capitalised as
intangible assets and depreciated over the period of the income streams.
9.1 Other income
EUR million
Rental income
Insurance compensation
Other items
IS Total
9.2 Other expenses
EUR million
Operation and maintenance costs
Property taxes
IT and telecommunication costs
Other items
IS Total
2016
11
2
22
34
2016
94
145
51
195
485
2015
10
1
26
38
2015
70
150
54
203
477
The major components recorded in other expenses are the external operation and maintenance costs of
power and heat plants. Property taxes include taxes relating to directly owned hydropower production
EUR 118 million (2015: 126). Other items includes expenses relating to properties and other operative
expenses.
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19
20
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39
40
41
42
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Principal auditors fees
EUR million
Audit fees
Audit related assignments
Tax assignments
Total
2016
1.3
0.2
0.0
1.5
2015
1.3
0.3
0.0
1.6
Deloitte & Touche Oy is the appointed auditor until the next Annual General Meeting, to be held in
2017. Audit fees include fees for the audit of the consolidated financial statements, review of the interim
reports as well as the fees for the audit of Fortum Oyj and its subsidiaries. Audit related assignments
include fees for assurance of sustainability reporting and other assurance and associated services related
to the audit. Tax assignments include fees for tax advice services.
10 Materials and services
EUR million
Materials
Materials purchased from associated companies and joint ventures
Transmission costs
External services
IS Total
2016
1,216
540
38
37
1,830
2015
958
513
30
15
1,515
11 Employee benefits
EUR million
Wages and salaries
Pensions
Defined contribution plans
Defined benefit plans
Social security costs
Share-based incentives 1)
Other employee costs
IS Total
2016
248
25
4
38
2
17
334
2015
246
25
5
42
19
15
351
1) Share-based incentives decreased in 2016 due to the lower earnings outcome from settled plans as well as lower RUB rate.
In 2015 share-based incentives included a one-time cost due to shortening of the accounting period over which the LTI costs
are accrued. For more information see 11.2 Share-based long-term incentives below.
The compensation package for Fortum employees consists of salaries, fringe benefits, short-term
incentives, profit sharing paid to the Personnel Fund and share-based long-term incentives.
The remuneration policy is determined by the Board of Directors. The Nomination and Remuneration
Committee of the Board of Directors discusses, assesses and makes recommendations and proposals
to the Board of Directors on the remuneration policy, remuneration of the President and CEO and the
Fortum Executive Management and company-wide incentive arrangements for senior management and
key personnel as well as monitors these plans annually. Additionally, the Committee contributes to
the Group’s nomination issues by proposing to the Board of Directors any nominations regarding the
members of Fortum Executive Management.
Materials consists mainly of coal, gas and nuclear fuels used for producing power and heat.
For further information on pensions see Note 32 Pension obligations.
Materials purchased from associated companies consist of nuclear and hydropower purchased at
production cost (including interest costs and production taxes) and purchased steam.
Total materials and services include production taxes EUR 141 million (2015: 133), of which nuclear
related capacity and property taxes EUR 81 million (2015: 82) and hydro power related property taxes
EUR 15 million (2015: 14). Taxes related to nuclear and hydro production include taxes paid through
purchases from associated companies.
See Note 20 Participations in associated companies and joint ventures.
11.1 Short-term incentives (STI)
Fortum’s STI programme is designed to support the achievement of the company’s financial and other
relevant targets on an annual basis. All employees are covered by the programme or alternatively by a
business specific or a comparable local variable pay arrangement.
The Board of Directors determines the performance criteria and award levels for the Fortum Executive
Management. The target incentive opportunity is 20% and the maximum incentive opportunity is 40%
of the annual base salary. The awards for the members of the Fortum Executive Management are based
on the achievement of divisional targets, Group financial performance as well as individual targets. The
performance criteria used are agreed upon in a performance discussion held at the beginning of the
year. The Board of Directors assesses the performance of the President and CEO and the members of the
Fortum Executive Management on a regular basis.
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37
38
39
40
41
42
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
The increase in the LTI costs for 2015 was mainly caused by an adjustment arising from the
shortening of the accounting period as well as other smaller adjustments. Costs from the total plans
were previously accrued over four or six-year period depending on the participant. In 2015 Fortum
changed the accounting method and the LTI costs are allocated over three years. The terms of the LTI
arrangements were not changed and the total cost for LTI plans was not increased. The change impacts
only the allocation of costs over the years. The shorter accounting period allocates the costs more
appropriately to the earning period.
At present, approximately 120 managers, all of whom have been elected by the Board of Directors, are
participants in at least one of the six on-going annual LTI plans (plans 2011–2016, 2012–2017, 2013–2018,
2014–2019, 2015–2020 and 2016–2021).
Long-term incentive programme
Plans
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2010–2015
1
2011–2016
2012–2017
2013–2018
2014–2019
2015–2020
2016–2021
2
1
3
2
1
4
3
2
1
5
4
3
2
1
6
5
4
3
2
1
6
5
4
3
2
1
6
5
4
3
2
Earnings period
Lock-up period
Additional lock-up period for FEM
Share delivery
Share release
6
5
4
3
6
5
4
6
5
6
Awards for other employees are based on a combination of Group, divisional, functional and personal
targets. The targets are set in annual performance discussions held at the beginning of the year. Awards
under the STI programme are paid solely in cash.
11.2 Share-based long-term incentives (LTI)
The purpose of Fortum’s share-based long-term incentive programme is to support the delivery of
sustainable, long-term performance, align the interests of management with those of shareholders and
assist in committing and retaining key individuals.
Fortum’s LTI programme provides participants with the opportunity to earn company shares. Subject
to the decision of the Board of Directors, a new LTI plan commences annually. The Board of Directors
approves the Fortum management members and key individuals entitled to participate in each annually
commencing LTI plan. Participation in the LTI plan precludes the individual from being a member in the
Fortum Personnel Fund.
Each LTI plan begins with a three-year earnings period, during which participants may earn share
rights if the performance criteria set by the Board of Directors are fulfilled. If the minimum performance
criteria are not exceeded, no shares will be awarded. If performance is exceptionally good and the targets
approved by the Board of Directors are achieved, the combined gross value of all variable compensation
cannot exceed 120% of the person’s annual salary in any calendar year. After the earnings period has
ended and the relevant taxes and other employment-related expenses have been deducted, participants
are paid the net balance in the form of shares.
For LTI plans commencing in 2013 onwards, any shares awarded to Fortum Executive Management
members are subject to a three-year lock-up period. Subject to a decision by the Board of Directors,
the lock-up period can be reduced to one year for those Fortum Executive Management members
whose aggregate ownership of Fortum shares is greater than or equal to their annual salary. For other
participants the lock-up period is one year. For LTI plans commencing prior to 2013, the lock-up period
is three years for all participants. The shares are released from the lock-up after publishing of the
Company’s financial results for the last calendar year of the lock-up period, provided that the participant
remains employed by the Group. If the value of the shares decreases or increases during the lock-up
period, the participant will carry the potential loss or gain.
The share plans under the LTI arrangement are accounted for as partly cash- and partly equity-settled
arrangements. The portion of the earned reward that the participants receive in shares is accounted for
as an equity settled transaction, and the portion of the earned reward settled in cash covering the tax and
other charges, is accounted for as cash settled transaction. For participants receiving cash only, the total
arrangement is accounted for as cash-settled transaction. The reward is recognised as an expense during
the earning period with a corresponding increase in the liabilities and for the transactions settled in
shares in the equity. The social charges related to the arrangement payable by the employer are accrued as a
liability. The LTI liability including social charges at the end of the year 2016 was EUR 19 million (2015: 20),
including EUR 5 million (2015: 5) recorded in equity.
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19
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22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Shares granted
Grant date
Grant price, EUR
Plan
2012–2017
Plan
2013–2018
Plan
2011–2016
12 Feb 2016 13 Feb 2015 14 Feb 2014
16.62
19.96
12.18
Number of shares granted
Number of shares subsequently forfeited or
released from lock-up
Number of shares under lock-up at the end of the year 2016
152,200
126,515
101,753
-9,877
142,323
-35,422
91,093
-51,003
50,750
In addition to the shares granted above, share rights have been granted to participants that will receive
cash payments instead of shares after the lock-up period. The gross amount of share rights outstanding
at the end of the year 2016 for plan 2013–2018 was 117,265, for plan 2012–2017 89,641 and for plan
2011–2016 53,495 share rights.
11.3 Fortum Personnel Fund
The Fortum Personnel Fund (for employees in Finland only) has been in operation since year 2000.
The Board of Directors determines the criteria for the fund’s annual profit-sharing bonus. Persons
included in Fortum’s long-term incentive schemes are not eligible to be members of this fund. Members
of the personnel fund are the permanent and fixed-term employees of the Group. The membership
of employees joining the company starts at the beginning of the next month after the employment
relationship has been ongoing for five months. An employee is entitled to make withdrawals right
from the beginning of the membership. The membership in the fund terminates when the member has
received his/her share of the fund in full.
The profit-sharing received by the fund is distributed equally between the members. Each employee’s
share is divided into a tied amount and an amount available for withdrawal. It is possible to transfer a
maximum of 15% of capital from the tied amount to the amount available for withdrawal each year.
The amount available for withdrawal (maximum 15% of the tied amount) is decided each year by the
council of the fund and it is paid to members who want to exercise their withdrawal rights.
The fund’s latest financial year ended at 30 April 2016 and the fund then had a total of 2,112 members
(2015: 2,170). At the end of April 2016 Fortum contributed EUR 0.6 million (2015: 3.7) to the personnel
fund as an annual profit-sharing bonus based on the financial results of 2015. The combined amount of
members’ shares in the fund was EUR 20 million (2015: 24).
The contribution to the personnel fund is expensed as it is earned.
11.4 The President and CEO and the Fortum Executive Management remuneration
The Fortum Executive Management (FEM) consists of eleven members, including the President and CEO.
The following table presents the total remuneration of the President and CEO and the FEM and takes into
account the changes in FEM during the year. The expenses are shown on accrual basis.
Management remuneration
2016
2015
Pekka
Lundmark,
President
and CEO
2016
982
248
433
209
356
73
2,299
Other FEM
members
3,581
925
886
683
769
331
7,174
Pekka
Lundmark,
President
and CEO
since 7 Sep
2015
305
21
114
55
0
17
513
Timo
Karttinen,
Interim
President
and CEO
until 6 Sep
2015 3)
372
15
282
66
37
20
791
Tapio
Kuula,
President
and CEO
until 31 Jan
2015 4)
279
0
903
47
25
14
1,269
Other FEM
members 5)
3,367
225
4,299
705
841
280
9,717
EUR thousand
Salaries and fringe benefits
Performance bonuses 1)
Share-based incentives 2)
Pensions (statutory)
Pensions (voluntary)
Social security expenses
Total
1) Performance bonuses are based on estimated amounts.
2) Share-based incentives decreased in 2016 due to lower earnings outcome from settled plans. In 2015 share-based
incentives included a one-time cost due to shortening of the accounting period over which the LTI costs are accrued. For more
information see 11.2 Share-based long-term incentives.
3) Includes the compensation CFO Timo Karttinen received during his position as Fortum’s Interim President and CEO during
1 February - 6 September 2015 and as a substitute to the President and CEO in January 2015. Also included is a lump sum
payment of EUR 70 thousand for his success in assuming the responsibilities of Interim President and CEO.
4) Share-based incentives includes the gross payment Tapio Kuula received from the share plans commenced in 2012, 2013
and 2014. Mr Kuula received the net amount of the payment as shares, after deducting the taxes and tax-related charges
arising from the payment. These shares, totalling 30,271 shares, are under lock-up until the spring 2018.
5) Includes remuneration of CFO Timo Karttinen from 7 September 2015 onwards.
The annual contribution for the President and CEO Pekka Lundmark’s pension arrangement is 25% of
the annual salary. The annual salary consists of base salary and fringe benefits. The President and CEO’s
retirement age is 63. In case his assignment is terminated before the retirement age, the President and
CEO is entitled to retain the benefits accrued in the arrangement.
The supplementary pension of Timo Karttinen, who served as substitute to the President and CEO
during January 2015 and as Fortum’s Interim President and CEO during the period from February 1
to September 6 2015, is a defined benefit pension plan, and the final level of pension, together with
statutory pension, is equal to 66% of the pensionable salary. The pensionable salary consists of base
salary, fringe benefits and bonus.
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37
38
39
40
41
42
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Tapio Kuula was Fortum’s President and CEO until his entitlement to disability pension on 1 February
2015. The voluntary pension arrangement of Mr. Kuula was defined contribution plan and annual
contribution for the arrangement was 25% of the annual salary. The annual salary consisted of a base
salary, fringe benefits and bonus.
For the other members of the FEM the retirement age varies between 60 and 65. According to group
policy all new supplementary pension arrangements are defined contribution plans. For the members of
the FEM that have defined contribution arrangements, the maximum pension premium percentage can
be 25% of the salary. Members, who have joined Fortum prior 1 January 2009, are participating in defined
benefit pension arrangements, where the benefit is 60–66% of the final pensionable salary with the
pension provided by an insurance company or Fortum’s Pension Fund.
A pension liability of EUR 2,070 thousand (2015: 2,444) related to the defined benefit plans for
FEM members has been recognised in the balance sheet. The additional pension arrangement for the
President and CEO is a defined contribution pension plan and thus no liability has been recognised in the
balance sheet.
In the event that Fortum decides to give notice of termination to the President and CEO, he is entitled
to the salary for the notice period (6 months) and a severance pay equal to 12 months’ salary. Other FEM
members’ termination compensation is equal to 6 to 12 months’ salary.
Number of shares delivered to the management
The table below shows the number of shares delivered during 2016 and 2015 to the President and CEO
and other FEM members under the LTI arrangements. Shares delivered under the plans are subject to a
lock-up period under which they cannot be sold or transferred to a third party.
FEM members at 31 December 2016
Pekka Lundmark (CEO from 7 September 2015)
Alexander Chuvaev 1)
Timo Karttinen
Kari Kautinen
Per Langer
Risto Penttinen (member of FEM from 1 April 2016) 2)
Markus Rauramo
Matti Ruotsala
Arto Räty (member of FEM from 1 April 2016)
Sirpa-Helena Sormunen
Tiina Tuomela
Former FEM members
Helena Aatinen (member of FEM until 31 March 2016)
Mikael Frisk (member of the FEM until 31 March 2016)
Esa Hyvärinen (member of FEM until 31 March 2016)
Tapio Kuula (CEO until 31 January 2015) 3)
Total
2016 4)
2015 5)
-
27,897
6,399
4,014
4,677
-
7,383
7,443
-
-
3,902
3,188
5,028
3,053
N/A
72,984
-
21,781
4,261
2,956
3,751
N/A
5,029
6,706
N/A
-
2,648
2,352
3,926
2,384
30,271
86,065
1) Share rights will be paid in cash instead of shares after the three-year lock-up period due to local legislation.
2) Shares delivered before the term in the Fortum Executive Management are not disclosed.
3) Includes the shares Tapio Kuula received in 2015 from the share plans commenced in 2012, 2013 and 2014. The shares
are under lock-up until spring 2018.
4) Share delivery based on share plan 2013–2018.
5) Share delivery based on share plan 2012–2017.
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40
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42
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Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
11.5 Board of Directors and management shareholding
On 31 December 2016, the members of the Board of Directors owned a total of 208,940 shares (2015:
205,940), which corresponds to 0.02% (2015: 0.02%) of the company’s shares and voting rights.
Number of shares held by members of the Board of Directors
The President and CEO and other members of the FEM owned a total of 315,653 shares (2015: 347,478)
which corresponds to approximately 0.04% (2015: 0.04%) of the company’s shares and voting rights.
Number of shares held by members of the Fortum Executive Management Team
2016
2015
Board members at 31 December 2016
Sari Baldauf, Chairman
Kim Ignatius, Deputy Chairman
Minoo Akhtarzand
Heinz-Werner Binzel
Eva Hamilton
Tapio Kuula
Veli-Matti Reinikkala
Jyrki Talvitie
Total
2016
2015
2,300
2,400
-
-
40
201,200
3,000
-
208,940
2,300
2,400
-
-
40
201,200
N/A
-
205,940
FEM members at 31 December 2016
Pekka Lundmark
Alexander Chuvaev
Timo Karttinen
Kari Kautinen
Per Langer
Risto Penttinen
Markus Rauramo
Matti Ruotsala
Arto Räty
Sirpa-Helena Sormunen
Tiina Tuomela
Former FEM members
Helena Aatinen
Mikael Frisk
Esa Hyvärinen
Total
56,250
14,713
87,090
29,246
29,212
8,795
27,847
46,509
-
3,000
12,991
N/A
N/A
N/A
315,653
56,250
14,713
80,691
25,232
34,535
N/A
20,464
39,066
N/A
3,000
9,090
3,880
43,017
17,540
347,478
11.6 Board remuneration
The Board of Directors comprises five to eight members who are elected at the Annual General Meeting
for a one-year term of office, which expires at the end of the first Annual General Meeting following the
election. At the 2016 Annual General Meeting eight members were elected.
The Annual General meeting confirms the yearly compensation for the Board of Directors. Board
members are not offered any long-term incentive benefits or participation in other incentive schemes.
There are no pension arrangements for the Board members. Social security costs EUR 25 thousand
(2015: 22) have been recorded for the fees in accordance with local legislation in respective countries.
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Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Fees for the Board of Directors
EUR thousand
Chairman
Deputy Chairman
Chairman of the Audit and Risk Committee 1)
Members
1) If not Chairman or Deputy Chairman simultaneously.
2016
75
57
57
40
2015
75
57
57
40
Every member of the Board of Directors receives a fixed yearly fee and additional fees for each meeting
attended. A meeting fee of EUR 600 is paid for board and committee meetings. For board members living
outside Finland in Europe, the meeting fee is EUR 1,200; for board members living outside Europe,
the meeting fee is EUR 1,800. For board and committee meetings held as a telephone conference, the
meeting fee is paid as EUR 600 to all members. No fee is paid for decisions made without a separate
meeting.
Board members are entitled to travel expense compensation in accordance with the company’s travel
policy.
Compensation for the Board of Directors
EUR thousand
Board members at 31 December 2016
Sari Baldauf, Chairman
Kim Ignatius, Deputy Chairman
Minoo Akhtarzand
Heinz-Werner Binzel
Eva Hamilton (member of the Board from 31 March 2015)
Tapio Kuula (member of the Board from 31 March 2015)
Veli-Matti Reinikkala (member of the board from 5 April 2016)
Jyrki Talvitie
Former Board members
Petteri Taalas (member of the board until 5 April 2016)
Ilona Ervasti-Vaintola (member of the board until 31 March 2015)
Christian Ramm-Schmidt (member of the board until 31 March 2015)
Total
2016
2015
87
70
61
61
56
52
44
70
17
N/A
N/A
518
86
68
61
60
43
38
-
66
51
13
13
499
12 Finance costs - net
EUR million
Interest expense
Borrowings
Other interest expense
Capitalised borrowing costs
Total
Interest income
Loan receivables and deposits
Other interest income
Total
Note
19
Fair value gains and losses on financial instruments
8
Fair value change of interest rate derivatives not getting hedge
accounting status
Fair value change of hedging derivatives in fair value hedge
relationship
Fair value change of hedged items in fair value hedge relationship
Rate difference on forward contracts
Total
Exchange gains and losses
Loans and receivables
Cross currency interest rate derivatives
Foreign currency derivatives
Interest income on share of State Nuclear Waste Management Fund
Unwinding of discount on nuclear provisions
Unwinding of discount on other provisions
Other financial income
Other financial expenses
Total
IS Finance costs - net
8
8
8
30
30
31, 32
2016
-181
-4
16
-169
29
1
30
-9
11
-11
7
-2
143
12
-156
8
-40
-2
12
-6
-29
-169
2015
-247
0
44
-203
49
2
51
-9
-13
13
-9
-18
-50
-12
63
10
-44
-5
38
-5
-4
-175
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
59
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Interest expenses include interest expenses on interest-bearing loans, interest on interest rate and
currency swaps and forward points on forward foreign exchange contracts hedging loans and
receivables.
Interest income includes EUR 15 million (2015: 15) from shareholders’ loans in Finnish and Swedish
nuclear companies, EUR 0 million (2015: 12) from Fortum Värme and EUR 12 million (2015: 20) from
deposits and commercial papers.
Fair value gains and losses on financial instruments include change in clean price of interest rate and
cross currency swaps not getting hedge accounting and fair value changes of interest rate derivatives
in hedge relationship and hedged items. Accrued interest on these derivatives is entered in interest
expenses of borrowings. Fair value gains and losses include also rate difference from forward contracts
hedging loans and receivables without hedge accounting.
Exchange gains and losses includes exchange rate differences arising from valuation of foreign
currency loans and receivables and exchange rate differences from forward foreign exchange contracts
and interest rate and currency swaps.
Other financial income EUR 12 million (2015: 38) includes compensation from early prepayment of
loans by Fortum Värme EUR 0 million (2015: 37).
Fair value changes on interest rate and currency derivatives
EUR million
Interest rate and cross currency swaps
Interest expenses on borrowings
Exchange rate difference from derivatives
Rate difference in fair value gains and losses on financial instruments 1)
Total fair value change of interest rate derivatives in finance costs - net
Forward foreign exchange contracts
Interest expenses on borrowings
Exchange rate difference from derivatives
Rate difference in fair value gains and losses on financial instruments
Total fair value change of currency derivatives in finance costs - net
Total fair value change of interest and currency derivatives in finance costs - net
2016
2015
16
12
2
30
-62
-156
7
-211
-181
4
-12
-22
-30
-79
63
-9
-25
-55
1) Fair value gains and losses on financial instruments include fair value changes from interest rate swaps not getting hedge
accounting amounting to EUR -9 million (2015: -9) and fair value change of hedging derivatives in fair value hedge relationship
EUR 11 million (2015: -13), totalling EUR 2 million (2015: -22).
13 Income tax expense
13.1 Profit before tax
EUR million
Finnish companies
Swedish companies
Russian companies
Other companies
IS Total
2016
59
46
202
289
595
2015
154
-922
173
291
-305
Profit before tax split by country represents the respective countries’ part of the profit before tax for
Fortum Group according to International Financial Reporting Standards (IFRS), i.e. based on the same
accounting principles as for the Consolidated Financial Statements. This means that the respective
country profits include such items as for example share of profits from associates and effects of
accounting for nuclear provisions, which are not included in taxable profits in the local subsidiaries.
13.2 Major components of income tax expense by major countries
EUR million
Current taxes
Finnish companies
Swedish companies
Russian companies
Other companies
Total
Deferred taxes
Finnish companies
Swedish companies
Russian companies
Other companies
Total
Adjustments recognised for current tax of prior periods
Finnish companies
Swedish companies
Russian companies
Other companies
Total
IS Income tax expense
2016
-14
-1
-2
-24
-42
0
10
-36
-17
-42
-6
0
0
0
-6
-90
2015
-64
0
-3
-38
-106
35
193
-30
-15
184
-2
1
0
0
-1
78
60
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2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
tax payments at the start of an asset’s lifetime and higher tax payments at the end of its lifetime. This
difference results in a deferred tax liability.
Taxes for the year 2015 were positive as the group was in loss position. This was mainly due to the
write-down related to early closure of O1 and O2 units in Oskarshamn in Sweden. Deferred tax asset was
recognized on this loss.
When the pre-tax profit is close to null or negative, the total tax rate is not illustrating the tax
contribution in an informative way. Therefore we use “not applicable” for total tax rate in 2015.
Fortum has had several tax audits ongoing during 2016. Fortum has received income tax assessments
in Sweden for the years 2009–2014 and Belgium for the years 2008–2012. Fortum has appealed all
assessments received. Based on legal analysis, no provision has been accounted for in the financial
statements related to these tax audits.
13.4 Total taxes
Taxes borne indicate different taxes that Fortum pays for the period. In 2016 Fortum’s taxes borne were
EUR 365 million (2015: 413). Taxes borne include corporate income taxes (excluding deferred taxes),
production taxes, employment taxes, taxes on property and cost of indirect taxes. Production taxes
include also production taxes and taxes on property paid through purchased electricity from associated
companies. The total tax rate indicates the burden on taxes borne by Fortum from its profit before these
taxes. In 2016 the total tax rate is 47.5% (2015: the total tax rate was not applicable because the group is
in loss position but taxes borne are still a cost).
In addition, Fortum administers and collects different taxes on behalf of governments and
authorities. Such taxes include VAT, and excise taxes on power consumed by customers, payroll taxes and
withholding taxes. The amount of taxes collected by Fortum was EUR 376 million (2015: 352).
See also Note 29 Income taxes in balance sheet and Note 10 Materials and services.
For further information regarding the ongoing tax appeals see Note 38 Legal actions and official
proceedings.
13.3 Income tax rate
The table below explains the difference between the theoretical enacted tax rate in Finland compared to
the tax rate in the consolidated income statement.
EUR million
Profit before tax
Tax calculated at nominal Finnish tax rate
Differences in tax rates and regulations
Income not subject to tax
Tax exempt capital gains
Expenses not deductible for tax purposes
Share of profit of associated companies and joint ventures
Taxes related to dividend distributions
Changes in tax valuation allowance related to not
recognised tax losses
Other items
Adjustments recognised for taxes of prior periods
IS Income tax expense
2016
595
-119
16
0
4
-5
30
-8
-6
0
-2
-90
%
20.0
-2.7
0.0
-0.7
0.8
-5.0
1.4
1.0
0.0
0.3
15.2
2015
-305
61
23
1
2
-2
5
-7
-1
-1
-3
78
%
20.0
7.6
0.2
0.7
-0.6
1.7
-2.2
-0.4
-0.4
-1.1
25.4
Key tax indicators:
• The weighted average applicable income tax rate for 2016 is 20.2% (2015: 20.2%)
• The effective income tax rate in the income statement for 2016 is 15.2% (2015: 25.4%)
• The comparable effective income tax rate (excluding the share of profits from associates and joint
ventures, tax exempt capital gains and tax rate changes) for 2016 is 20.0% (2015: 23.5%)
• The total tax rate and total comparable tax rate (excluding the share of profits from associates and
joint ventures and tax exempt capital gains) for 2016 is 40.0% and 47.5% (2015: not applicable).
Share of profit of associated companies and joint ventures during 2016 reduced the effective income tax
rate with 5%.
During 2016 entities primarily in Russia and Sweden used a portion of the deferred tax asset relating
to tax loss carry forwards.
Other items include tax effects from sales of shares in subsidiaries in Sweden, Russia and in Estonia.
Effective income tax rate and total tax rate are impacted by gains or losses on sale of shares. In
many countries like in Finland, Sweden and Netherlands income on capital gains and losses is treated
as tax exempt. The purpose of this is to tax the operative income of the company and avoid taxing the
same income twice in case of the sale of the shares. Taxation of capital gains or losses is in line with the
taxation of dividend income.
Fortum has a material deferred tax liability owing to its investments in non-current assets. These
assets are depreciated more rapidly for tax than for accounting purposes resulting in lower current
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33
34
35
36
37
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39
40
41
42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
14 Discontinued operations
There were no items classified as Discontinued operations during 2016.
In March 2015 Fortum signed a binding agreement to sell the Swedish Distribution business. The
transaction was completed in June 2015.
After the divestment of the Swedish Distribution business Fortum did not have any distribution
operations and therefore Distribution segment has been treated as discontinued operations in 2015
according to IFRS 5 Non-current Assets held for Sale and Discontinued operations. Discontinued
operations are disclosed on one line, net of tax, in the face of the income statement. In the cash flow
statement the net cash flows attributable to the operating, investing and financing activities of the
discontinued operations are disclosed separately.
Discontinued operations include the distribution operations in Fortum, including sales gains from the
divestment of Swedish operations in June 2015, and effects from internal sales and purchases have also been
included. The net financial costs allocated to discontinued operations are based on the fact that the financing
activities and risk management have been centralised on group level and subsidiaries have been funded with
intra-group loans. No corporate overhead costs have been allocated to the discontinued operations. The assets
relating to Distribution businesses have continued to be depreciated until the businesses were disposed.
Cash flow from discontinued operations include cash flow from distribution operations and allocated
taxes, impact from sale of shares in Distribution companies and proceeds from interest-bearing
receivables from sold subsidiaries.
Results of discontinued operations
EUR million
Sales
Other income
Materials and services
Employee benefits
Depreciation and amortisation
Other expenses
Comparable operating profit
Changes in fair values of derivatives
Capital gains 1)
Operating profit
Share of profit/loss of associates and joint ventures
Finance costs - net
Profit before income tax
Income tax expenses
IS Profit for the year from discontinued operations
1) Including tax exempt gain on sale of shares of Swedish Distribution.
2016
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2015
243
2
-34
-14
-50
-34
114
-1
4,282
4,395
0
-1
4,393
-24
4,369
62
Additional information of discontinued operations
EUR million
Comparable EBITDA
Capital expenditure
Gross divestments of shares
Net cash flows attributable to the discontinued operations
EUR million
Net cash from operating activities
Net cash used in investing activities
Net cash from financing activities
Total net increase in liquid funds
For more information see
Note 40 Acquisitions and disposals.
2016
-
-
-
2016
-
-
-
-
2015
163
44
6,369
2015
154
6,303
0
6,457
15 Earnings and dividend per share
ACCOUNTING POLICIES
EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the net profit attributable to the owners of the parent
company by the weighted average number of ordinary shares in issue during the year, excluding ordinary
shares purchased by the Group and held as treasury shares.
Diluted earnings per share is calculated adjusting the weighted average number of ordinary shares
outstanding to assume conversion of all dilutive potential ordinary shares. For the warrants and stock
options a calculation is done to determine the number of shares that could have been acquired at fair
value (determined as the average annual market share price of the Fortum share) based on the monetary
value of the subscription rights attached to outstanding stock options.
The number of shares calculated as above is deducted from the number of shares that would have
been issued assuming the exercise of the stock options. The incremental shares obtained through the
assumed exercise of the options and warrants are added to the weighted average number of shares
outstanding.
1
2
3
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30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Options and warrants have a dilutive effect only when the average market price of ordinary shares
during the period exceeds the exercise price of the options or warrants. Previously reported earnings per
share are not retroactively adjusted to reflect changes in price of ordinary shares.
16 Financial assets and
liabilities by categories
DIVIDENDS
Dividends proposed by the Board of Directors are not recognised in the financial statements until they
have been approved by the Company’s shareholders at the Annual General Meeting.
ACCOUNTING POLICIES
15.1 Earnings per share
Earnings per share, basic
IS Profit attributable to owners of the parent (EUR million)
Weighted average number of shares (thousand)
Basic earnings per share (EUR)
Total Fortum
Continuing operations
Discontinued operations
2016
496
888,367
2015
4,138
888,367
0.56
0.56
4.92
4.66
-0.26
4.92
As Fortum currently has no dilutive instruments outstanding, diluted earnings per share is the same as
basic earnings per share.
15.2 Dividend per share
Dividends proposed by the Board of Directors are not recognised in the financial statements until they
have been approved by the Company’s shareholders at the Annual General Meeting.
A dividend in respect of 2016 of EUR 1.10 per share, amounting to a total dividend of EUR 977 million
based on the amount of shares registered as at 1 February 2017, is to be proposed at the Annual General
Meeting on 4 April 2017. These Financial statements do not reflect this dividend.
FINANCIAL ASSETS
The Group classifies its investments in the following categories: financial assets at fair value through
profit or loss, loans and receivables and available-for-sale financial assets. The classification depends
on the purpose for which the investments were acquired. Management determines the classification
of its financial assets at initial recognition and re-evaluates this designation at every reporting date.
FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
A financial asset is classified in this category if acquired principally for the purpose of
selling in the short-term. Derivatives are also categorised as held for trading unless they are
designated as hedges. Assets in this category are classified as current assets if they are either
held for trading or are expected to be realised within 12 months of the closing date.
LOANS AND RECEIVABLES
Loans and receivables are non-derivative financial assets with fixed or determinable payments
that are not quoted in an active market. They arise when the Group provides money,
goods or services directly to a debtor. They are included in non-current assets, except for
maturities under 12 months after the closing date. These are classified as current assets.
AVAILABLE-FOR-SALE FINANCIAL ASSETS
Available-for-sale financial assets are non-derivatives that are either designated in this category
or not classified in any of the other categories. They are included in non-current assets unless
there is an intention to dispose of the investment within 12 months of the closing date.
Purchases and sales of investments are recognised on the trade-date – the date on which the Group
A dividend for 2015 of EUR 1.10 per share, amounting to a total of EUR 977 million, was decided in
commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction
the Annual General Meeting on 5 April 2016. The dividend was paid on 14 April 2016.
costs for all financial assets not carried at fair value through profit or loss. Investments are derecognised
A dividend for 2014 of EUR 1.10 per share and an extra dividend of EUR 0.20 per share, amounting to a
total of EUR 1,155 million, was decided at the Annual General Meeting on 31 March 2015. The dividend and
the extra dividend were paid on 14 April 2015.
when the rights to receive cash flows from the investments have expired or have been transferred and
the Group has transferred substantially all risks and rewards of ownership.
Available-for-sale financial assets and financial assets at fair value through profit or loss are
subsequently carried at fair value. Loans are carried at amortised cost using the effective interest method.
Gains and losses arising from changes in the fair value of the ‘financial assets at fair value through
63
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37
38
39
40
41
42
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
profit or loss’ category is included in the income statement in the period in which they arise. Gains and
losses arising from changes in the fair value of securities classified as available-for-sale are recognised in
equity. When securities classified as available-for-sale are sold or impaired, the accumulated fair value
adjustments are included in the income statement.
The fair values of quoted investments are based on current bid prices. If the market for a financial
asset is not active (and for unlisted securities), the Group establishes fair value by using valuation
techniques. These include the use of recent arm’s length transactions, reference to other instruments that
are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the
issuer’s specific circumstances.
The Group assesses at each closing date whether there is objective evidence that a financial asset or
a group of financial assets is impaired. If any such evidence exists for available-for-sale financial assets,
the cumulative loss – measured as the difference between the acquisition cost and the current fair value,
less any impairment loss on that financial asset previously recognised in profit or loss – is removed from
equity and recognised in the income statement.
CASH FLOW HEDGE
The effective portion of changes in the fair value of derivatives that are designated and qualify
as cash flow hedges are recognised in equity. The gain or loss relating to the ineffective portion is
recognised immediately in the income statement. Amounts accumulated in equity are recycled in
the income statement in the periods when the hedged item will affect profit or loss (for instance
when the forecast sale that is hedged takes place). However, when the forecast transaction that
is hedged results in the recognition of a non-financial asset (for example, inventory) or a liability,
the gains and losses previously deferred in equity are transferred from equity and included in
the initial measurement of the cost of the asset or liability. When a hedge no longer meets the
criteria for hedge accounting, any cumulative gain or loss existing in equity is recognised in the
income statement when the forecast transaction is ultimately also recognised in the income
statement. When a forecast transaction is no longer expected to occur, the cumulative gain
or loss that was reported in equity is immediately recognised in the income statement.
ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
Within the ordinary course of business the Group routinely enters into sale and purchase transactions
FAIR VALUE HEDGE
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded
in the income statement, together with any changes in the fair value of the hedged asset or liability that
for commodities. The majority of these transactions take the form of contracts that were entered into
are attributable to the hedged risk.
and continue to be held for the purpose of receipt or delivery of the commodity in accordance with the
If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount
Group’s expected sale, purchase or usage requirements. Such contracts are not within the scope of
of a hedged item for which the effective interest method is used is amortised to profit or loss for the
IAS 39. All other net-settled commodity contracts are measured at fair value with gains and losses taken
period to maturity.
to the income statement.
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and
are subsequently re-measured at their fair value. The method of recognising the resulting gain or loss
NET INVEST MENT HEDGING IN FOREIGN OPERATIONS
Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain
depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the
or loss on the hedging instrument relating to the effective portion of the hedge is recognised in equity;
item being hedged. The Group designates certain derivatives as either: 1) hedges of highly probable
the gain or loss relating to the ineffective portion is recognised immediately in the income statement.
forecast transactions (cash flow hedges); 2) hedges of the fair value of recognised assets or liabilities or
Gains and losses accumulated in equity are included in the income statement when the foreign operation
a firm commitment (fair value hedge); or 3) hedges of net investments in foreign operations. The Group
is disposed off.
documents at the inception of the transaction the relationship between hedging instruments and hedged
items, as well as its risk management objective and strategy for undertaking various hedge transactions.
The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether
DERIVATIVES THAT DO NOT QUALIFY FOR HEDGE ACCOUNTING
Certain derivative instruments hedging future cash flows do not qualify for hedge accounting. Fair value
the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair
changes of these financial derivative instruments are recognised in items affecting comparability in the
values or cash flows of hedged items. Derivatives are divided into non-current and current based on
income statement.
maturity. Only for those electricity derivatives, which have cash flows in different years, the fair values are
split between non-current and current assets or liabilities.
64
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31
32
33
34
35
36
37
38
39
40
41
42
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Financial assets and liabilities in the tables below are split into categories in accordance with IAS 39. The categories are further split into classes which are the basis for valuing a respective asset or liability. Further
information can be found in the Notes mentioned in the table.
Financial assets by categories 2016
EUR million
Financial instruments in non-current assets
Other non-current assets
Derivative financial instruments
Electricity derivatives
Interest rate and currency derivatives
Oil and other futures and forward contracts
Long-term interest-bearing receivables
Financial instruments in current assets
Derivative financial instruments
Electricity derivatives
Interest rate and currency derivatives
Oil and other futures and forward contracts
Trade receivables
Other short-term interest-bearing receivables
Cash and cash equivalents
Total
Financial assets by categories 2015
EUR million
Financial instruments in non-current assets
Other non-current assets
Derivative financial instruments
Electricity derivatives
Interest rate and currency derivatives
Oil and other futures and forward contracts
Long-term interest-bearing receivables
Financial instruments in current assets
Derivative financial instruments
Electricity derivatives
Interest rate and currency derivatives
Oil and other futures and forward contracts
Trade receivables
Other short-term interest-bearing receivables
Cash and cash equivalents
Total
Loans and receivables
Financial assets at fair value through profit and loss
Note
Amortised cost
Hedge accounting, fair
value hedges
Non-hedge accounting
Fair value recognised in
equity, cash flow hedges
Available-for-sale
financial assets
Total financial
assets
21
3
22
3
24
22
25
55
985
562
395
1,444
3,441
179
179
67
103
5
88
7
18
288
1
61
0
16
0
78
58
3,711
3,769
113
68
343
5
985
88
23
18
562
395
5,155
7,755
Loans and receivables
Financial assets at fair value through profit and loss
Note
Amortised cost
Hedge accounting, fair
value hedges
Non-hedge accounting
Fair value recognised in
equity, cash flow hedges
Available-for-sale
financial assets
Total financial
assets
21
3
22
3
24
22
25
50
773
396
0
2,854
4,073
170
170
65
105
115
5
55
114
16
410
30
84
101
67
0
282
43
5,348
5,391
93
135
369
5
773
156
181
16
396
0
8,202
10,326
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Financial liabilities by categories 2016
EUR million
Financial instruments in non-current liabilities
Interest-bearing liabilities
Derivative financial instruments
Electricity derivatives
Interest rate and currency derivatives
Oil and other futures and forward contracts
Financial instruments in current liabilities
Interest-bearing liabilities
Derivative financial instruments
Electricity derivatives
Interest rate and currency derivatives
Oil and other futures and forward contracts
Trade payables
Other liabilities
Total
Financial liabilities by categories 2015
EUR million
Financial instruments in non-current liabilities
Interest-bearing liabilities
Derivative financial instruments
Electricity derivatives
Interest rate and currency derivatives
Oil and other futures and forward contracts
Financial instruments in current liabilities
Interest-bearing liabilities
Derivative financial instruments
Electricity derivatives
Interest rate and currency derivatives
Oil and other futures and forward contracts
Trade payables
Other liabilities
Total
1) Fair valued part of bond in fair value hedge relationship.
Note
28
3
28
3
34
34
Note
28
3
28
3
34
34
Financial liabilities at fair value through profit and loss
Other financial liabilities
Hedge accounting,
fair value hedges Non-hedge accounting
Fair value recognised
in equity, cash flow hedges
Amortised costs
Fair value
Total financial liabilities
32
32
90
51
3
155
130
18
447
48
38
83
10
0
179
3,188
1,280 1)
639
323
86
4,236
1,280
4,468
138
121
3
639
238
140
18
323
86
6,174
Financial liabilities at fair value through profit and loss
Other financial liabilities
Hedge accounting,
fair value hedges Non-hedge accounting
Fair value recognised
in equity, cash flow hedges
Amortised costs
Fair value
Total financial liabilities
3,697
1,268 1)
1,042
249
67
5,055
1,268
4
62
1
4
0
71
4,965
126
153
12
1,042
82
32
6
249
67
6,734
31
31
122
60
12
81
28
6
309
66
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
17 Financial assets and liabilities
by fair value hierarchy
ACCOUNTING POLICIES
Fair value measurements are classified using a fair value hierarchy i.e. Level 1, Level 2 and Level 3 that
FAIR VALUES UNDER LEVEL 3 MEASUREMENT HIERARCHY
Investments in unlisted shares classified as Available-for-sale financial assets, for which the fair value
reflects the significance of the inputs used in making the measurements.
cannot be reliably determined. These assets are measured at cost less any impairments.
FAIR VALUES UNDER LEVEL 1 MEASUREMENT HIERARCHY
The fair value of some commodity derivatives traded in active markets (such as publicly traded electricity
OTHER MEASUREMENTS
The nominal value less estimated credit adjustments of trade receivables and payables are assumed to
options, coal and oil forwards) are market quotes at the closing date.
approximate their fair values.
FAIR VALUES UNDER LEVEL 2 MEASUREMENT HIERARCHY
The fair value of financial instruments including electricity derivatives traded in active markets (such as
publicly traded derivatives, and trading and available-for-sale securities) is based on quoted market prices
at the closing date. Known calculation techniques, such as estimated discounted cash flows, are used
to determine fair value of interest rate and currency financial instruments. The fair value of interest-rate
swaps is calculated as the present value of the estimated future cash flows. The fair value of forward
foreign exchange contracts is determined using forward exchange market rates at the closing date. Fair
values of options are determined by using option valuation models. The fair value of financial liabilities
is estimated by discounting the future contractual cash flows at the current market interest rate that
is available to the Group for similar financial instruments. In fair valuation, credit spread has not been
adjusted, as quoted market prices of the instruments used are believed to be consistent with the objective
of a fair value measurement.
The Group bases the calculation on existing market conditions at each closing date. Financial
instruments used in Fortum are standardised products that are either cleared via exchanges or widely
traded in the market. Commodity derivatives are generally cleared through exchanges such as for
example NASDAQ OMX Commodities Europe and financial derivatives done with creditworthy financial
institutions with investment grade ratings.
67
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Financial assets
EUR million
In non-current assets
Available-for-sale financial assets 1)
Derivative financial instruments
Electricity derivatives
Hedge accounting
Non-hedge accounting
Interest rate and currency derivatives
Hedge accounting
Non-hedge accounting
Oil and other futures and forward contracts
Non-hedge accounting
In current assets
Derivative financial instruments
Electricity derivatives
Hedge accounting
Non-hedge accounting
Interest rate and currency derivatives
Hedge accounting
Non-hedge accounting
Oil and other futures and forward contracts
Non-hedge accounting
Total
Note
21
3
3
Level 1
2016
0
0
7
0
106
113
2015
1
7
1
47
56
Level 2
2016
2015
Level 3
2016
58
2015
42
Netting 2)
2016
2015
Total
2016
4
98
240
103
9
381
16
7
2
860
40
175
254
115
117
251
67
114
-3
-31
-9
-70
-2
-2
-9
-293
-16
-196
1,133
58
42
-90
-428
-31
-324
2015
43
30
105
254
115
5
101
55
67
114
16
907
58
1
67
240
103
5
0
88
16
7
18
603
1) Available-for-sale financial assets, i.e. shares which are not classified as associated companies or joint ventures, consists mainly of shares in unlisted companies of EUR 58 million (Dec 31 2015: 42), for which the fair value cannot be reliably determined. This
includes EUR 18 million (2015: 11) from Fortum’s shareholding in Fennovoima. These assets are measured at cost less any impairments.
Available-for-sale financial assets include listed shares at fair value of EUR 0 million (2015: 1). The cumulative fair value change booked in Fortum’s equity was EUR -3 million (2015: -3).
2) Receivables and liabilities against electricity, oil and other commodity exchanges arising from standard derivative contracts with same delivery period are netted.
68
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Note
28
3
3
Financial liabilities
EUR million
In non-current assets
Interest-bearing liabilities
Derivative financial instruments
Electricity derivatives
Hedge accounting
Non-hedge accounting
Interest rate and currency derivatives
Hedge accounting
Non-hedge accounting
Oil and other futures and forward contracts
Non-hedge accounting
In current assets
Derivative financial instruments
Electricity derivatives
Hedge accounting
Non-hedge accounting
Interest rate and currency derivatives
Hedge accounting
Non-hedge accounting
Oil and other futures and forward contracts
Non-hedge accounting
Total
Level 1
2016
2015
Level 2
2016
2015
Level 3
2016
2015
Netting 2)
2016
2015
Total
2016
2015
1,280 1)
1,268 1)
1,280
1,268
51
121
70
51
92
448
10
130
2
2,255
5
0
106
111
14
1
37
52
13
192
93
60
18
277
4
28
-3
-31
-9
-70
-2
-2
-9
-293
-16
-196
1,953
0
0
-90
-428
-31
-324
48
90
70
51
3
83
155
10
130
18
1,938
4
122
93
60
12
1
81
4
28
6
1,680
1) Fair valued part of bond in fair value hedge relationship.
2) Receivables and liabilities against electricity, oil and other commodity exchanges arising from standard derivative contracts with same delivery period are netted.
Net fair value amount of interest rate and currency derivatives is EUR 105 million, assets EUR 366 million and liabilities EUR 261 million. Fortum has cash collaterals based on Credit Support Annex agreements with
some counterparties. At the end of December 2016 Fortum had received EUR 135 million from Credit Support Annex agreements. The received cash has been booked as short-term liability.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
69
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
18 Intangible assets
ACCOUNTING POLICIES
Intangible assets, except goodwill, are stated at the historical cost less accumulated amortisation and
EMISSION ALLOWANCES
The Group accounts for emission allowances based on currently valid IFRS standards where purchased
impairment losses. They are amortised on a straight-line method over their expected useful lives.
emission allowances are accounted for as intangible assets at cost, whereas emission allowances received
COMPUTER SOFTWARE
Acquired computer software licences are capitalised on the basis of the costs incurred when bringing the
free of charge are accounted for at nominal value. For CO2 emissions from power and heat production, a
provision is recognized. CO2 emission costs is settled by returning emission allowances. To the extent that
the Group already holds allowances to cover emission costs, the provision is measured at the carrying
software into use. Costs associated with developing or maintaining computer software are recognised as
amount of those allowances. Any shortfall of allowances held over the obligation is valued at the current
an expense as incurred. Costs that are directly associated with the production of identifiable and unique
market value of allowances. The emission cost is recognised in the income statement within materials and
software products controlled by the Group, and that will generate economic benefits exceeding costs
services. The sales gains and losses of emission allowances not used for covering the obligation from CO2
beyond one year, are recognised as intangible assets. Direct costs include the software development
emissions, are reported in other income.
employee costs and an appropriate portion of relevant overheads. Computer software costs recognised
as assets are amortised over their estimated useful lives (three to five years).
TRADEMARKS AND LICENSES
Trademarks and licences are shown at historical cost less accumulated amortisation and impairment
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
ASSIGNED VALUES AND USEFUL LIVES IN ACQUISITIONS
In an acquisition acquired intangible and tangible assets are fair valued and their remaining useful lives
are determined. Management believes that the assigned values and useful lives, as well as the underlying
losses, as applicable. Amortisation is calculated using the straight-line method to allocate the cost of
assumptions, are reasonable. Different assumptions and assigned lives could have a significant impact on
trademarks and licences over their estimated useful lives (15–20 years).
the reported amounts.
CONTRACTUAL CUSTOMER RELATIONSHIPS
Contractual customer relationships acquired in a business combination are recognised at fair value on
participations in associated companies and joint ventures which are tested for impairment according to
the accounting policy described in Note 19 Property, plant and equipment.
The Group has significant carrying values in property, plant and equipment, intangible assets and
acquisition date. The contractual customer relations have a finite useful life and are carried at costs less
accumulated amortisation. Amortisation is calculated using the straight-line method over the expected
duration of the customer relationship.
GOODWILL
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share
of net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on
acquisitions of subsidiaries is included in intangible assets and tested yearly for impairment. Goodwill
on acquisition of associates is included in investments in associates and is tested for impairment as part
of the overall balance. Goodwill is tested annually for impairment and carried at cost less accumulated
impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on disposal of an
entity include the carrying amount of goodwill relating to the entity sold.
70
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Other intangible
assets
Total
19 Property, plant and equipment
EUR million
Cost 1 January
Translation differences and other adjustments
Acquisition of subsidiary companies
Capital expenditure
Change in emission rights
Disposals
Sale of subsidiary companies
Reclassifications
Cost 31 December
Goodwill
2016
152
39
163
0
0
0
0
0
353
Accumulated depreciation 1 January
Translation differences and other adjustments
Acquisition of subsidiary companies
Disposals
Sale of subsidiary companies
Reclassifications
Depreciation for the period 1)
Accumulated depreciation 31 December
BS Carrying amount 31 December
0
0
0
0
0
0
0
0
353
2015
170
-18
0
0
0
0
0
0
152
0
0
0
0
0
0
0
0
152
2016
332
-1
59
3
0
-11
0
4
386
262
-2
5
-11
0
0
19
273
113
2015
379
2
1
8
-8
-6
-58
14
332
273
1
0
-6
-28
0
22
262
70
2016
485
37
221
3
0
-11
0
4
739
262
-2
5
-11
0
0
19
273
467
2015
549
-16
1
8
-8
-6
-58
14
485
273
1
0
-6
-28
0
22
262
222
1) 2015 includes depreciations related to discontinued operations (see Note 14 Discontinued operations).
The increase of goodwill arises from the acquisition of Ekokem Corporation and Grupa Duon S.A. in
City Solutions segment during 2016. Total goodwill also includes the goodwill from the acquisition
of OAO Fortum in the Russia segment. The goodwill has been tested for impairment by comparing
recoverable amounts of the net operating assets, including goodwill, with their carrying amounts.
The recoverable amounts were determined on the basis of value in use, applying discounted cash flow
calculations.
See Note 40 Acquisitions and disposals for additional information on the acquisition of Ekokem
Corporation and Grupa Duon S.A.
See also Note 19 Property, plant and equipment for information about impairment testing.
The main items in other intangible assets are customer contracts, costs for software products
and software licenses, bought emission rights and emission rights received free of charge, which are
recognised to the lower of fair value and historical cost.
ACCOUNTING POLICIES
Property, plant and equipment comprise mainly power and heat producing buildings and machinery
buildings, transmission lines, tunnels, waterfall rights, district heating network and buildings and
machinery as well as landfill sites and treatment areas used in waste treatment operations. Property,
plant and equipment are stated at historical cost less accumulated depreciation and accumulated
impairment losses as applicable in the consolidated balance sheet. Historical cost includes expenditure
that is directly attributable to the acquisition of an item and capitalized borrowing costs. Cost may also
include transfers from equity of any gains or losses on qualifying cash flow hedges of foreign currency
purchases of property, plant and equipment. Acquired assets on the acquisition of a new subsidiary are
stated at their fair values at the date of acquisition.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as
appropriate, only when it is probable that future economic benefits associated with the item will flow to
the Group and the cost of the item can be measured reliably. All other repairs and maintenance expenses
are charged to the income statement during the financial period in which they are incurred.
Additionally the cost of an item of property, plant and equipment includes the estimated cost of its
dismantlement, removal or restoration.
See Note 31 Other provisions for information about asset retirement obligations and Note 30
Nuclear related assets and liabilities, for information about provisions for decommissioning nuclear power
plants.
Land, water areas, waterfall rights and tunnels are not depreciated since they have indefinite useful
lives. Depreciation on other assets is calculated using the straight-line method to allocate their cost to
their residual values over their estimated useful lives, as follows:
Hydro power plant buildings, structures and machinery
Thermal power plant buildings, structures and machinery
Nuclear power plant buildings, structures and machinery
CHP power plant buildings, structures and machinery
Substation buildings, structures and machinery
Distribution network (related to discontinued operations)
District heating network
Other buildings and structures
Other tangible assets
Other machinery and equipment
Other non-current investments
40–50 years
25 years
25 years
15–25 years
30–40 years
15–40 years
30–40 years
20–40 years
20–40 years
3–20 years
5–10 years
71
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each closing
date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s
GOVERNMENT GRANTS
Grants from the government are recognised at their fair value when there is a reasonable assurance
carrying amount is greater than its estimated recoverable amount.
that the grant will be received and the Group will comply with all attached conditions. Government grants
IMPAIRMENT OF NON-FINANCIAL ASSETS
The individual assets’ carrying values are reviewed at each closing date to determine whether there is
with the costs that they are intended to compensate. Government grants relating to the purchase of property,
plant and equipment are deducted from the acquisition cost of the asset and are recognised as income by
any indication of impairment. An asset’s carrying amount is written down immediately to its recoverable
reducing the depreciation charge of the asset they relate to.
relating to costs are deferred and recognised in the income statement over the period necessary to match them
amount if it is greater than the estimated recoverable amount.
When considering the need for impairment the Group assesses if events or changes in circumstances
indicate that the carrying amount may not be recoverable. This assessment is documented once a year in
BORROWING COSTS
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are
connection with the long-term forecasting process. Indications for impairment are analysed separately by
added to the cost of those assets, until such time as the assets are substantially ready for their intended
each division as they are different for each business and include risks such as changes in electricity and
use or sale. Qualifying assets are assets that necessarily take a substantial period of time to get ready for
fuel prices, regulatory/political changes relating to energy taxes and price regulations etc. Impairment
their intended use or sale.
testing needs to be performed if any of the impairment indications exists. Assets that have an indefinite
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
useful life and goodwill, are not subject to amortisation and are tested annually for impairment.
An impairment loss is recognised in the income statement for the amount by which the asset’s
carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair
JOINT OPERATIONS
Fortum owns, through its subsidiary Fortum Power and Heat Oy, the coal condensing power plant Meri-
value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at
Pori in Finland. Teollisuuden Voima Oyj (TVO) has the contractual right to participate in the plant with
the lowest levels for which there are separately identifiable cash flows (cash-generating units). Goodwill is
45.45%. The capacity and production is divided between Fortum and TVO. Each owner can decide when
allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those
and how much capacity to use for production. Both Fortum and TVO purchase fuel and emission rights
cash-generating units or groups of cash-generating units that are expected to benefit from the business
independently. Since Fortum and TVO are sharing control of the power plant, Meri-Pori is accounted for
combination in which the goodwill arose.
Value in use is determined by discounting the future cash flows expected to be derived from an asset
or cash-generating unit. Cash flow projections are based on the most recent long-term forecast that has
as a joint operation. Fortum is accounting for its part of the investment, i.e. 54.55%. Fortum is also entitled to
part of the electricity TVO produces in Meri-Pori through its shareholding of 26.58% of TVO C-series shares.
For further information regarding Fortum’s shareholding in TVO, see Note 20 Participations in
been approved by management and the Board of Directors. Cash flows arising from future investments
associated companies and joint ventures.
such as new plants are excluded unless projects have been started. The cash outflow needed to
complete the started projects is included.
The period covered by cash flows is related to the useful lives of the assets reviewed for impairment.
According to IFRS, projections used should cover a maximum period of five years, but a longer period
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
ASSUMPTIONS RELATED TO IMPAIRMENT TESTING
The Group has significant carrying values in property, plant and equipment, intangible assets and
can be justifiable in certain circumstances. The Group uses a longer projection period than normally
participations in associated companies and joint ventures which are tested for impairment according
allowed by IFRS, which reflects the long useful lives of power plants and other major assets. Cash flow
to the accounting policy described in the notes. The recoverable amounts of cash-generating units
projections beyond the period covered by the most recent business plan are estimated by extrapolating
have been determined based on value in use calculations. These calculations are based on estimated
the projections using growth rates estimated by management for subsequent years.
future cash flows from most recent approved long-term forecast. Preparation of these estimates requires
Non-financial assets other than goodwill that suffered an impairment charge are reviewed for
management to make assumptions relating to future expectations. Assumptions vary depending on the
possible reversal of the impairment at each reporting date.
business the tested assets are in. For power and heat generation business the main assumptions relate to
the estimated future operating cash flows and the discount rates used to present value them.
Estimates are also made in an acquisition when determining the fair values and remaining useful lives
of acquired intangible and tangible assets, see Note 18 Intangible assets.
72
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Land, waterfall rights and
tunnels
Buildings, plants
and structures
Machinery
and equipment
Other tangible assets
Advances paid and
construction in progress
Total
EUR million
Cost 1 January
Translation differences and other adjustments
Acquisition of subsidiary companies
Capital expenditure
Nuclear asset retirement cost
Disposals
Sale of subsidiary companies
Reclassifications
Cost 31 December
Accumulated depreciation 1 January
Translation differences and other adjustments
Acquisition of subsidiary companies
Disposals
Sale of subsidiary companies
Depreciation for the period 1)
Reclassifications
Accumulated depreciation 31 December
2016
2,859
-104
3
1
0
-1
0
7
2,765
0
0
0
0
0
0
0
0
2015
2,810
59
0
1
0
0
-11
0
2,859
0
0
0
0
0
0
0
0
2016
3,146
146
211
38
0
-17
-46
142
3,621
1,367
21
97
-14
-20
102
-3
1,550
2015
3,110
-72
1
24
0
-11
-92
187
3,146
1,328
-10
0
-8
-43
100
0
1,367
2016
5,614
325
954
24
-6
-41
-92
371
7,147
2,319
62
333
-40
-28
246
5
2,898
2015
9,728
-124
1
20
0
-54
-4,319
363
5,614
4,054
-16
1
-52
-1,978
312
-1
2,319
BS Carrying amount 31 December
2,764
2,859
2,071
1,779
4,249
3,295
1) 2015 includes depreciations related to discontinued operations (see Note 14 Discontinued operations).
2016
136
-2
0
0
0
0
0
1
135
113
-2
0
-2
0
7
-2
114
21
2015
136
1
0
0
0
0
-2
2
136
111
1
0
0
-2
3
0
113
23
2016
755
66
9
526
0
-4
-2
-525
824
0
0
0
0
0
0
0
0
2015
904
-24
0
575
0
-1
-132
-566
755
0
0
0
0
0
0
0
0
2016
12,510
430
1 178
588
-6
-63
-140
-4
14,492
3,799
82
430
-56
-48
355
0
4,562
2015
16,687
-160
2
619
0
-67
-4,556
-14
12,510
5,492
-25
1
-60
-2,023
416
0
3,799
824
755
9,930
8,710
The increase in property, plant and equipment was mainly resulting from acquisition of Ekokem Corporation and Grupa DUON S.A. in City Solutions segment. The increase was offset by the divestment of Fortum’s
100% owned subsidiary OOO Tobolsk CHP to SIBUR.
See Note 40 Acquisitions and disposals for additional information on the acquisition of Ekokem Corporation and Grupa Duon S.A.
Property, plant and equipment that are subject to restrictions in the form of real estate mortgages amount to EUR 236 million (2015: 255). See Note 37 Pledged assets and contingent liabilities.
19.1 Capitalised borrowing costs
EUR million
1 January
Translation differences and other adjustments
Increases / disposals
Sale of subsidiary companies
Reclassification
Depreciation
31 December
Buildings, plants and structures
Machinery and equipment
2016
43
9
0
-1
5
-2
55
2015
35
-4
0
0
14
-1
43
2016
132
28
6
-6
9
-7
162
2015
125
-13
6
0
21
-6
133
Advances paid and construction
in progress
2016
41
6
2015
42
-4
10
0
-16
0
41
38
0
-36
0
41
Total
2016
217
43
16
-7
-2
-9
258
2015
202
-21
44
0
-1
-7
217
Borrowing costs of EUR 16 million were capitalised in 2016 (2015: 44). The interest rate used for capitalisation varied between 2–13% (2015: 2–19%).
73
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2
3
4
5
6
7
8
9
10
11
12
13
14
15
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17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
19.2 Capital expenditure 1)
EUR million
Generation
Hydropower
Nuclear power
Fossil-based electricity
Renewable-based electricity
Other
Total Generation
City Solutions
Fossil-based heat
Fossil-based electricity
Renewable, of which
waste
biofuels
other
District heat network
Other
Total City Solutions
Russia
Fossil-based electricity
Fossil-based heat
Renewable-based electricity, wind
Total Russia
Other
Renewable-based electricity, wind
Renewable-based electricity, solar
Other
Total Other
Total for continuing operations
Discontinued operations (Distribution)
Total
Finland
Sweden
Russia
Poland
Estonia
Other countries
Total
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
29
90
1
2
122
7
17
9
8
0
9
5
38
13
13
173
173
25
75
2
102
7
26
25
2
12
5
49
5
156
156
74
1
75
2
2
2
11
3
14
91
91
77
8
85
1
1
1
1
87
44
132
14
1
29
29
12
3
58
14
1
11
11
11
0
37
1
1
6
4
11
7
3
11
168
17
15
201
267
18
0
285
201
201
285
285
59
59
37
37
11
11
11
11
103
90
1
1
2
196
21
1
50
42
8
1
27
12
112
168
17
15
201
11
43
29
83
591
591
102
75
8
2
187
21
1
38
12
25
2
31
14
105
267
18
0
285
6
582
44
626
0
0
1
1
1
1
5
7
7
7
2
1
1
43
12
55
56
56
1) Includes capital expenditure to both intangible assets and property, plant and equipment.
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9
10
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13
14
15
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17
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19
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31
32
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34
35
36
37
38
39
40
41
42
74
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Fortum classifies investments in four main categories
(continuing operations, EUR million)
288
289
144
135
89
58
92
78
350
300
250
200
150
100
50
0
Maintenance
investments
Investments
required by
legislation
Investments
increasing
productivity
Growth
investments
2015
2016
19.2.1 Generation
In Finland, Fortum invested EUR 90 million (2015: 75) into the Loviisa nuclear power plant. Fortum
invested additionally EUR 103 million (2015: 102) into hydro production, mainly maintenance,
legislation and productivity investments. The biggest of these were Långströmmen dam safety EUR 11
million and Järpströmmen refurbishment in Sweden EUR 6 million. Investments in CO2 free production
were EUR 193 million (2015: 184).
19.2.2 City Solutions
Growth investments in City Solutions totalled EUR 69 million (2015: 42) in year 2016. Maintenance,
legislation and productivity investments totalled EUR 42 million (2015: 62). This amount consists mainly
of investments in district heat networks and plants as well as the maintenance of existing CHP plants and
measures defined by legal requirements. Larger ongoing projects in 2016 comprised of bio-pellet heat
boiler in Espoo and new CHP plant in Zabrze, Poland. Investments in CO2 free production were EUR 0
million (2015: 39).
19.2.3 Russia
OAO Fortum has completed its extensive investment programme which almost doubles its power
capacity with 2,300 MW. During 2016 EUR 96 million (2015: 161) was invested in this programme. In
February 2016 Fortum commissioned Chelyabinsk GRES 2, which started to receive capacity payments as
of 1 March 2016. Russia has also started building wind park Ulyanovsk and investments in 2016 related
to wind park were EUR 15 million. Investments in CO2 free production were EUR 15 million (2015: 0).
19.2.4 Other
Other Division’s investments contain solar investments in India EUR 43 million and investments in wind
power production EUR 11 million. Wind investments contain Solberg and Blaiken wind parks in Sweden.
Other Division invested also in Charge and Drive EUR 12 million, mainly charging poles in Norway.
Investments in CO2 free production were EUR 54 million (2015: 0).
19.3 Impairment testing of non-financial assets in 2016
Total goodwill in the balance sheet as of 31 December 2016 amounted to EUR 353 million (2015: 152).
The goodwill allocated to Fortum’s power and heat generation and sales in Russia, EUR 191 million, is
included in Russian cash generating unit.
Goodwill arising from acquisition of Ekokem Corporation in August 2016 amounted to EUR 141
million. Acquisition supports Fortum’s vision of creating solutions for sustainable cities. Ekokem is
integrated as a business area into the City Solutions division, however allocation of goodwill to separate
cash generating units is still on-going. Also the purchase price allocation is still preliminary. See more
information in Note 40 Acquisitions and disposals.
The impairment testing for the Russian cash generating unit in 2016 is described below.
Key assumptions used in impairment testing are presented below as well as the basis for determining
the value of each assumption. Assumptions are based on internal and external data that are consistent
with observable market information, when applicable. The assumptions are determined by management
as part of the long-term forecasting process for the Fortum Group.
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14
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19
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31
32
33
34
35
36
37
38
39
40
41
42
75
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Key assumptions
Power market development
Regulation framework
Utilisation of power plants
Forecasted maintenance investments
Discount rate
Basis for determining the value for key assumptions
Historical analysis and prospective forecasting
Current market setup and prospective forecasting (e.g. CSA
mechanism)
Past experience, technical assessment and forecasted market
development
Past experience, technical assessment and planned
maintenance work
Mostly market based information
The cash flows used in determining the value in use for each cash generating unit are based on the most
recent long-term forecasts and are determined in local currency. The period covered by cash flows is related
to the useful lives of the assets being reviewed for impairment. The growth rate used to extrapolate the
cash flow projections until the end of assets’ useful lives is in line with the assumed inflation. In Russia the
generation capacity built after 2007 under the Russian Government’s Capacity Supply Agreements receives
guaranteed capacity payments for a period of 10 years.
The discount rate takes into account the risk profile of the country in which the cash flows are
generated. There have not been any major changes in the discount rate components or in the methods
used to determine them. The long-term pre-tax discount rate used for Russia was 11.1% (2015: 11.1%).
The net operating assets of OAO Fortum, including fair value adjustments and goodwill arising from
the acquisition of the company are tested yearly for possible impairment. As of 31 December 2016, the
recoverable values were greater than their carrying values and therefore no impairments were booked.
The Group has considered the sensitivity of key assumptions as part of the impairment testing. When
doing this any consequential effect of the change on the other variables has also been considered. The
calculations are most sensitive to changes in estimated future EBITDA levels and changes in discount rate.
Management estimates that a reasonably possible change in the discount rate used or in future
earnings would not cause Russian cash generating unit’s carrying amount to exceed its recoverable
amount.
Based on the sensitivity analysis done, if the estimated future EBITDA were 10% lower than
management’s estimates or pre-tax discount rate applied was 10% higher than the one used, the Group
would not need to recognise impairment losses for property plant and equipment or goodwill.
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14
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19
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25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
20 Participations in associated
companies and joint ventures
ACCOUNTING POLICIES
The Group’s interests in associated companies and jointly controlled entities are accounted for using the
equity method of accounting. Assets acquired and liabilities assumed in the investment in associates
or joint ventures are measured initially at their fair values at the acquisition date. 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 associate or joint
venture acquired, the difference is recognised directly in the income statement.
The Group’s share of its associates or joint ventures post-acquisition profits or losses after tax and the
expenses related to the adjustments to the fair values of the assets and liabilities assumed are recognised
in the income statement. The cumulative post-acquisition movements are adjusted against the carrying
amount of the investment. The Group’s share of post-acquisition adjustments to associates or joint
ventures equity that has not been recognised in the associates or joint ventures income statement, is
recognised directly in Group’s shareholder’s equity and against the carrying amount of the investment.
When the Group’s share of losses in an associate or a joint venture equals or exceeds its interest in the
associate or joint venture, including any other unsecured receivables, the Group does not recognise further
losses, unless it has incurred obligations or made payments on behalf of the associate or joint venture.
Unrealised gains on transactions between the Group and its associates or joint ventures are
eliminated to the extent of the Group’s interest in the associate or joint venture. Unrealised losses are
also eliminated unless the transaction provides evidence of an impairment of the asset transferred.
Accounting policies of associates or joint ventures have been changed where necessary to ensure
consistency with the policies adopted by the Group.
If more recent information is not available, the share of the profit of certain associated or joint
venture companies is included in the consolidated accounts based on the latest available information.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Management is required to make significant judgements when assessing the nature of Fortum’s
interest in its investees and when considering the classification of Fortum’s joint arrangements. In
the classification, emphasis has been put on decision-making, legal structure and financing of the
arrangements.
Management judgement is required when testing the carrying amounts for participations in
associated companies and joint ventures for impairment. See Note 19 Property, plant and
equipment for more information.
20.1 Principal associated companies and joint ventures
Forsmarks
Kraftgrupp
AB
Kemijoki
Oy
OKG AB
Power
production
company
Associated
company
Power
production
company
Associated
company
Power
production
company
Associated
company
Hafslund
ASA
Holding
in energy
company
(listed)
Associated
company
TGC-1
Holding
in energy
company
(listed)
Associated
company
TVO
Power
production
company
Joint
venture
Generation Generation Generation
Finland
Sweden
Sweden
Other
Norway
Russia Generation
Finland
Russia
Fortum
Värme
Holding
in power
and heat
company
Joint
venture
City
Solutions
Sweden
46
46
26
26
60
28
34
33
29
29
26
26
50
50
Nature of the
relationship
Classification
Segment
Domicile
Ownership
interest, % 1)
Votes, %
1) Kemijoki and TVO have different series of shares. The ownership interest varies due to the changes in equity assigned to the
different share series. The ownership interests for 2015 for Kemijoki Oy and TVO were 60% and 26% respectively.
Shareholdings in power production companies
Power plants are often built jointly with other power producers. Under the consortium agreements,
each owner is entitled to electricity in proportion to its share of ownership or other agreements and
each owner is liable for an equivalent portion of costs. The production companies are not profit making,
since the owners purchase electricity at production cost including interest cost and production taxes.
The share of profit of these companies is mainly IFRS adjustments (e.g. accounting for nuclear related
assets and liabilities) and depreciations on fair value adjustments from historical acquisitions since the
companies are not profit making under local accounting principles.
Fortum has material shareholdings in such power production companies (mainly nuclear and
hydro) that are consolidated using equity method either as associated companies (OKG AB, Forsmarks
Kraftgrupp AB and Kemijoki Oy) or in some cases as joint ventures (Teollisuuden Voima Oyj (TVO)).
In Sweden nuclear production company shareholdings are 45.5% ownership of the shares in OKG AB
and 25.5% ownership of the shares in Forsmarks Kraftgrupp AB. Excluding non-controlling interests
in the subsidiaries, Fortum’s participation in the companies are 43.4% and 22.2% respectively, which
reflects the share of electricity produced that Fortum can sell further to the market. The minority part
of the electricity purchased is invoiced further to each minority owner according to their respective
shareholding and treated as pass-through. OKG AB and Forsmarks Kraftgrupp AB are accounted for as
associated companies as Fortum has a representation on the Board of Directors and it participates in
policy-making processes of the companies.
In Finland Fortum has an ownership in power production company TVO that has three series of
shares which entitle the shareholders to electricity produced in the different power plants owned by TVO.
77
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25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Shares in series A entitle to electricity produced in nuclear power plants Olkiluoto 1 and 2 and Fortum
2016
owns 26.6% of these shares. Series B entitles to electricity in the nuclear power plant presently being
built, Olkiluoto 3, and Fortum’s ownership in this share series is 25%. Series C entitles to electricity
produced in TVO’s share of the thermal power plant Meri-Pori, and Fortum’s ownership in this share
series is 26.6%. The Meri-Pori power plant is accounted for as a joint operation in Fortum. See also
Associated companies in Note 38 Legal actions and official proceedings.
See also Joint operations in the accounting principles in Note 19 Property, plant and equipment.
The most significant hydro production company shareholding is 63.8% of the hydro shares and 28.27%
of the monetary shares in Kemijoki Oy. Each owner of hydro shares is entitled to the hydropower production
in proportion to its hydro shareholding. Since Fortum has a representation on the Board of Directors and it
participates in the policy-making processes, Kemijoki Oy is accounted for as an associated company.
Other shareholdings accounted for using the equity method
In Sweden Fortum has a 50% ownership in AB Fortum Värme Holding samägt med Stockholms stad
(Fortum Värme) that is co-owned with the City of Stockholm through Stockholms Stadshus AB. Fortum
Värme produces district heating, district cooling and electricity and supplies heat and cooling to customers
in the Stockholm area. Fortum and the City of Stockholm have renewed the shareholders’ agreement which
came into force as of 1 January 2016. Parties also agreed that Fortum Värme’s shareholder loans from
Fortum would be replaced with external financing by the end of 2015. The refinancing was done and as of 31
December 2015 Fortum Värme no longer has interest-bearing liabilities to Fortum.
Previously Fortum owned 90.1% of the shares representing 50.1% of the votes in Fortum Värme and
the City of Stockholm owned 9.9% of the shares as preference shares representing 49.9% of the votes.
The preference shares entitled the City of Stockholm to 50% of the economic output of Fortum Värme. On 1
December 2015 the City of Stockholm exchanged their preference shares to ordinary shares after which the
voting rights are equally divided (50/50) between Fortum and the City of Stockholm. The City of Stockholm
and Fortum have had and will continue to have 50% right to the economic output. The shareholding is accounted
for as a joint venture with the equity method, as according to the shareholders’ agreement control is shared.
Fortum owns shareholdings in listed companies such as Hafslund ASA and Territorial Generating
Company 1 (TGC-1). The shareholdings are accounted for as associated companies as Fortum has
representatives in the Board of Directors of the companies. The share of profit of these companies is accounted
for based on previous quarter information since updated interim information is not normally available.
Summarised financial information of the principal associated companies
Impact of different accounting principles presented in the tables below on the line Fair values on acquisitions
and different accounting principles include mainly IFRS adjustments for Nuclear liabilities and assets and
capitalised borrowing costs in Swedish associates. Fortum records its share of nuclear related assets and
liabilities in its nuclear associated companies according to equity method. The basis for recognition is similar
as for Loviisa power plant, see accounting principles in Note 30 Nuclear related assets and liabilities.
EUR million
Balance sheet
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Equity
Attributable to NCI
Attributable to the owners of the
parent
Statement of comprehensive income
Revenue
Profit or loss from continuing operations
Other comprehensive income
Total comprehensive income
Attributable to NCI
Attributable to the owners of the
parent
Reconciliation to carrying amount in
the Fortum group
Group’s interest in the equity of the
associate at 1 January 2016
Change in share of profit and from OCI
items
Dividends received
Translation differences and other
adjustments
Group’s interest in the equity of the
associate at 31 December 2016
Fair values on acquisitions and different
accounting principles
Carrying amount at 31 December
2016
Market value for listed shares 1)
Forsmarks
Kraftgrupp
Hafslund
ASA
OKG AB
AB Kemijoki Oy
TGC-1
31 Dec 2015 31 Dec 2015 31 Dec 2015 30 Sept 2016 30 Sept 2016
2,113
332
382
332
1,732
134
2,361
440
2,578
186
37
0
2,442
303
1,254
468
1,023
0
645
448
611
469
13
0
465
9
306
88
80
0
13
37
80
1,022
1,598
1 Jan 2015–
31 Dec 2015
1,987
1
0
1
0
1 Jan 2015–
31 Dec 2015
695
1
0
1
0
1 Jan 2015–
31 Dec 2015
60
-3
0
-3
0
1 Oct 2015–
30 Sep 2016
1,393
154
13
167
0
1 Oct 2015–
30 Sep 2016
1,032
116
-2
114
-3
1
-3
167
117
1
6
0
0
0
6
8
10
0
0
0
10
90
46
-1
0
3
48
158
206
297
56
-21
16
349
8
356
693
347
33
-4
95
471
-34
436
265
14
100
1) The market quotation for the TGC-1 share is affected by the low liquidity of the TGC-1 shares in the Russian stock exchanges.
During 2016 trading volumes of TGC-1 shares in relation to the number of shares of the company were approximately 12%
(2015: 10%).
78
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33
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36
37
38
39
40
41
42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
2015
EUR million
Balance sheet
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Equity
Attributable to NCI
Attributable to the owners of the
parent
Statement of comprehensive
income
Revenue
Profit or loss from continuing
operations
Other comprehensive income
Total comprehensive income
Attributable to NCI
Attributable to the owners of the
parent
Reconciliation to carrying amount
in the Fortum group
Group’s interest in the equity of the
associate at 1 January 2015
Change in share of profit and from
OCI items
Dividends received
Translation differences and other
adjustments
Group’s interest in the equity of the
associate at 31 December 2015
Fair values on acquisitions and
different accounting principles
Carrying amount at 31 December
2015
Market value for listed shares
Forsmarks
Kraftgrupp
Hafslund
ASA
OKG AB
AB Kemijoki Oy
TGC-1
31 Dec 2014 31 Dec 2014 31 Dec 2014 30 Sept 2015 30 Sept 2015
1,625
236
417
156
1,288
109
2,301
336
1,268
496
873
2
2,271
475
2,648
85
12
2,261
491
2,601
114
38
449
4
305
71
77
12
38
77
872
1,178
Equity 1)
1 Jan 2014–
31 Dec 2014
542
1 Jan 2014–
31 Dec 2014
707
1 Jan 2014–
31 Dec 2014
55
1 Oct 2014–
30 Sep 2015
1,351
1 Oct 2014–
30 Sep 2015
1,011
0
0
0
6
0
6
39
45
1
1
1
9
1
10
88
97
-10
-10
-10
52
-6
46
160
206
120
8
128
0
128
289
44
-18
-17
297
9
306
411
62
1
63
4
59
374
18
-4
-41
347
-31
316
59
79
Summarised financial information of the principal joint ventures in 2016 and 2015
2016
2015
EUR million
Balance sheet
Non-current assets
Current assets
of which cash and cash equivalents
Non-current liabilities
of which non-current interest-bearing liabilities
Current liabilities
of which current financial liabilities
Attributable to NCI
Attributable to the shareholders of the company
Statement of comprehensive income
Revenue
Depreciation and amortisation
Interest income
Interest expense
Income tax expense or income
Profit or loss from continuing operations
Other comprehensive income
Total comprehensive income
Attributable to NCI
Attributable to the shareholders of the company
Reconciliation to carrying amount in the Fortum group
Group’s interest in the equity of the joint venture
at 1 January
Change in share of profit and from OCI items
Dividends received
Translation differences and other adjustments
Group’s interest in the equity of the joint venture
at 31 December
Fair values on acquisitions and different
accounting principles 2)
Carrying amount at 31 December
TVO
TVO
Fortum
Värme
6,785
521
141
5,201
4,247
578
432
1,528
7,098
413
129
5,280
4,318
659
466
1,573
Fortum
Värme
30 Sept 2016 31 Dec 2016 30 Sept 2015 31 Dec 2015
2,777
308
0
1,645
1,247
305
145
1,135
0
1,135
1 Jan 2015–
31 Dec 2015
661
-127
0
-57
-25
84
-2
82
0
82
2,692
271
13
1,488
1,105
298
164
1,176
0
1,176
1 Jan 2016–
31 Dec 2016
699
-125
0
-13
-33
124
4
128
0
128
1,528
1 Oct 2014–
30 Sep 2015
379
-115
23
-64
0
8
4
12
1,573
1 Oct 2015–
30 Sep 2016
322
-54
17
-44
0
-23
-27
-51
-51
12
294
-14
0
279
-6
274
567
64
-21
-21
588
-81
507
292
2
294
-11
283
535
37
-21
16
567
-88
479
1) The equity of TVO includes subordinated loans of EUR 479 million (2015: 379). Fortum has given part of these loans, pro
rata to the ownership.
2) Impact of different accounting principles include mainly IFRS adjustments for Nuclear liabilities and assets and capitalised borrowing
costs. Fortum records its share of nuclear related assets and liabilities in its nuclear associated companies according to equity method. The
basis for recognition is similar as for Loviisa power plant, see accounting principles in Note 30 Nuclear related assets and liabilities.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
20.2 Participations and shares of profits in associated companies and
joint ventures
EUR million
Principal associates
Principal joint ventures
Other associates
Other joint ventures
BS Carrying amount 31 December
2016
1,111
781
42
178
2,112
2015
970
762
43
184
1,959
Changes in participation during the year
EUR million
Historical cost
1 January
Translation differences and other adjustments
Acquisitions
Reclassifications
Divestments
Historical cost 31 December
Equity adjustments
1 January
Translation differences and other adjustments
Share of profits of associates and joint ventures 1)
Reclassifications
Divestments
Dividends received
OCI items associated companies and joint ventures
Equity adjustments 31 December
Joint
ventures
2016
Associated
companies
2016
Joint
ventures
2015
Associated
companies
2015
558
-8
17
83
-14
636
388
-16
69
-83
-8
-28
1
324
800
64
0
-1
0
864
213
41
62
1
0
-26
-2
289
546
4
22
6
-21
558
366
9
56
-6
-6
-29
-2
388
838
-37
5
-5
0
800
277
-17
-37
5
0
-23
7
213
Carrying amount at 31 December
959
1,153
946
1,013
1) In 2015 including impairment charges of EUR -116 million, see Note 7 Effects from early closure of nuclear units in Sweden.
Share of profit of associates and joint ventures
EUR million
Principal associates
OKG AB 1)
Forsmarks Kraftgrupp AB
Kemijoki Oy
Hafslund ASA
TGC-1
Principal associates, total
Principal joint ventures
Fortum Värme
TVO
Principal joint ventures, total
Other associates
Other joint ventures
IS Total
2016
-30
6
-3
51
38
62
66
-7
59
0
10
131
2015
-107
7
-9
39
32
-38
47
-2
45
1
11
20
1) In 2015 including impairment charges of EUR -116 million, see Note 7 Effects from early closure of nuclear units in Sweden.
The unrecognized share of losses of associated companies and joint ventures (for the reporting period
and cumulatively) is zero.
Share of profits from Teollisuuden Voima Oyj, Forsmarks Kraftgrupp AB and OKG AB includes EUR
-30 million (2015: -37) arising from accounting of nuclear related assets and liabilities.
Share of profits from Värme include compensation paid to Fortum for early prepayment of the
interest-bearing loans from Fortum EUR 0 million (2015: -19).
20.3 Transactions and balances
Associated company transactions
EUR million
Sales to associated companies
Interest on associated company loan receivables
Purchases from associated companies
2016
1
14
385
2015
2
15
418
For information about investments and divestments of shares in associated companies, see Note 40
Acquisitions and disposals.
Purchases from associated companies include mainly purchases of nuclear and hydro power at
production cost including interest costs and production taxes.
80
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Associated company balances
EUR million
Receivables from associated companies
Long-term interest-bearing loan receivables
Trade receivables
Other receivables
Liabilities to associated companies
Long-term loan payables
Trade payables
Other payables
2016
704
1
0
5
1
0
2015
601
0
0
2
4
160
For more info about receivables from associated companies, see Note 22 Interest-bearing receivables.
Joint venture transactions
EUR million
Sales to joint ventures
Interest on joint venture loan receivables
Purchases from joint ventures
Other financial income
2016
104
2
151
0
2015
79
12
91
37
Purchases from joint ventures include mainly purchases of nuclear and hydro power at production cost
including interest costs and production taxes.
Other financial income in 2015 includes compensation from early prepayment of loans by Fortum
Värme.
Joint venture balances
EUR million
Receivables from joint ventures
Long-term interest-bearing loan receivables
Trade receivables
Other receivables
Liabilities to joint ventures
Long-term loan payables
Trade payables
Other payables
2016
182
19
16
273
6
6
For more info about receivables from joint ventures, see Note 22 Interest-bearing receivables.
2015
172
11
14
268
6
6
81
21 Other non-current assets
EUR million
Available-for-sale financial assets
Other
BS Total
2016
58
55
113
2015
43
50
93
Available-for-sale financial assets, i.e. shares which are not classified as associated companies or joint
ventures, consist mainly of shares in unlisted companies of EUR 58 million (2015: 43), for which the fair
value can not be reliably determined. These assets are measured at cost less possible impairment.
Fortum decided in 2015 to participate in the Fennovoima nuclear power project in Finland with a
6.6% share. The participation is carried out through Voimaosakeyhtiö SF and the book value of the shares
is EUR 18 million (2015: 11). The indirect investment in Fennovoima is classified as Available-for-sale
financial assets, measured at cost, since fair value cannot be reliably determined.
22 Interest-bearing receivables
EUR million
Long-term loan receivables from associated companies
Long-term loan receivables from joint ventures
Other long-term interest bearing receivables
BS Total long-term interest-bearing receivables
Other short-term interest-bearing receivables
Total short-term interest-bearing receivables 1)
Total
Carrying
amount
2016
704
182
99
985
395
395
1,380
Fair
value
2016
744
206
99
1,049
395
395
1,444
Carrying
amount
2015
601
172
1
773
0
0
773
Fair
value
2015
616
196
1
813
0
0
813
1) Included in trade and other receivables in the balance sheet, see Note 24 Trade and other receivables.
Long-term loan receivables include receivables from associated companies and joint ventures EUR
886 million (2015: 773). These receivables include EUR 686 million (2015: 582) from Swedish nuclear
companies, OKG AB and Forsmarks Kraftgrupp AB, which are mainly funded with shareholder loans,
pro rata each shareholder’s ownership. The impairment charges in OKG AB during 2015 due to the
decision to close down nuclear power units 1 and 2 will be invoiced from the shareholders when the costs
are incurred. Fortum estimated the impact to be EUR 794 million and netted that against the shareholder
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
loan. The main part of the netted amount has been invoiced to Fortum, the remaining part will be
invoiced when the costs occur.
TVO is building Olkiluoto 3, the nuclear power plant, which is funded through external loans, share
issues and shareholder loans according to shareholders’ agreement between the owners of TVO. At end of
December 2016 Fortum has EUR 120 million (2015: 120) outstanding receivables regarding Olkiluoto 3
and is additionally committed to provide at maximum EUR 75 million.
23 Inventories
ACCOUNTING POLICIES
Inventories mainly consist of fuels consumed in the production process or in the rendering of services.
Inventories are stated at the lower of cost and net realisable value being the estimated selling price for
Interest-bearing receivables includes also EUR 131 million from SIBUR, a Russian gas processing and
the end product, less applicable variable selling expenses and other production costs. Cost is determined
petrochemicals company regarding divested shares of OOO Tobolsk CHP.
using the first-in, first-out (FIFO) method.
Short-term interest-bearing receivables include EUR 360 million restricted cash mainly given as
collateral for commodity exchanges which has increased during 2016 due to new European Market
Infrastructure Regulation (EMIR) requiring fully-backed guarantees. The increase is mainly due to
Nasdaq OMX cash collaterals of EUR 339 million (see Additional cash flow information).
For further information regarding credit risk management, see Note 3.7 Credit risk.
For additional information regarding OKG AB, see Note 7 Effects from early closure of nuclear
units in Sweden.
Interest-bearing receivables
EUR million
Long-term loan receivables
Short-term receivables
Total Interest bearing
receivables
Repricing
Effective
interest
rate, %
3.1
0.6
Carrying
amount
2016
985
395
1–5
years
26
Under
1 year
857
395
Over 5
years
Fair
value
2016
102 1,049
395
Carrying
amount
2015
773
0
Fair
value
2015
813
0
2.4
1,380 1,252
26
102 1,444
773
813
Inventories which are acquired primarily for the purpose of trading are stated at fair value less selling
expenses.
EUR million
Nuclear fuel
Coal
Oil
Biofuels
Materials and spare parts
Other inventories
BS Total
2016
91
51
7
3
67
12
233
2015
98
62
6
5
52
10
231
Write downs in inventories amounted to EUR 1 million (2015: 5), mainly relating to obsolete spare parts.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
82
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
24 Trade and other receivables
ACCOUNTING POLICIES
Trade receivables are recorded at their fair value. A provision for impairment of trade receivables is
established when there is evidence that the Group will not be able to collect all amounts due according
to the original terms of the receivable. Significant financial difficulties of the debtor, probability that the
debtor will enter into bankruptcy or financial reorganisation, and default or delinquency in payments
are considered as indicators that the receivable is impaired. The amount of the impairment charge is
measured as the difference between the asset’s carrying amount and the present value of estimated
future cash flows.
Trade receivables include revenue based on an estimate of electricity, heat and cooling already
delivered but not yet measured and not yet invoiced.
EUR million
Trade receivables
Accrued interest income
Accrued income and prepaid expenses
Other receivables
BS Total
2016
562
1
31
249
844
2015
396
5
29
269
698
The management considers that the carrying amount of trade and other receivables approximates their
fair value. In the end of 2016 Nasdaq’s market making for forwards ended and the trading moved from
forwards with cash collaterals to futures with daily cash settlements.
The Nasdaq futures settlements are included in other receivables amounting to EUR 139 million
in 2016.
24.1 Trade receivables
Ageing analysis of trade receivables
EUR million
Not past due
Past due 1–90 days
Past due 91–180 days
Past due more than 181 days
Total
2016
2015
Gross
471
85
15
85
655
Impaired
2
5
5
80
93
Gross
335
55
8
52
449
Impaired
2
3
2
48
54
Impairment losses recognised in the income statement were EUR 28 million (2015: 11), of which EUR
24 million (2015: 8) are impairment losses recognised in the OAO Fortum Group. On 31 December 2016,
trade receivables of EUR 93 million (2015: 54) are impaired and provided for, of which EUR 79 million
(2015: 47) refers to the OAO Fortum Group.
Trade receivables by currency (Gross)
EUR million
EUR
SEK
RUB
NOK
PLN
Other
Total
2016
251
97
215
11
71
10
655
2015
190
74
142
7
34
4
449
Trade receivables are arising from a large number of customers mainly in EUR, SEK, RUB and PLN
mitigating the concentration of risk.
For further information regarding credit risk management and credit risks, see Counterparty risks
in the Operating and financial review and Note 3.7 Credit risk.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
83
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
25 Liquid funds
26 Share capital
ACCOUNTING POLICIES
Cash and cash equivalents in Liquid funds include cash in hand, deposits held at call with banks and
other short-term, highly liquid investments with maturities of three months or less. Deposits and securities
with maturity more than 3 months include fixed term deposits and commercial papers with maturity more
than three months but less than twelve months. Deposits and securities are classified as available-for-sale
financial assets.
Bank overdrafts are shown within borrowings in current liabilities in the balance sheet. Cash collaterals
or otherwise restricted cash are treated as short-term interest-bearing receivables.
EUR million
Cash at bank and in hand
Deposits and securities with maturity under 3 months
Cash and cash equivalents
Deposits and securities with maturity more than 3 months
BS Total
2016
1,444
235
1,679
3,475
5,155
2015
2,854
435
3,289
4,913
8,202
Liquid funds consists of deposits and cash in bank accounts amounting to EUR 4,544 million and
commercial papers EUR 611 million. The average interest rate on deposits and securities excl. Russian
deposits on 31 December 2016 was -0.01% (2015: 0.1%). Liquid funds held by OAO Fortum amounted
to EUR 105 million (2015: 76) and the average interest rate for this portfolio was 9.0% at the balance
sheet date.
Bank deposits include bank deposits held by OAO Fortum amounting to EUR 103 million (2015: 72).
At the year-end 2016 OAO Fortum’s deposits included EUR 1 million in euros and EUR 102 million in
Russian roubles. The bank deposits in euros held by OAO Fortum are hedging future payments in euros.
Liquid funds totalling EUR 4,663 million (Dec 31 2015: 7,521) are placed with counterparties that
have an investment grade rating. In addition, EUR 377 million (Dec 31 2015: 628) have been placed with
counterparties separately reviewed and approved by the Group’s credit control department.
For further information regarding credit risk management and credit risks, see Counterparty risks
in the Operating and financial review and Note 3.7 Credit risk.
EUR million
Registered shares at 1 January
Registered shares at 31 December
2016
2015
Number of
shares
888,367,045
888,367,045
Number of
Share
capital
shares
3,046 888,367,045
3,046 888,367,045
Share
capital
3,046
3,046
Fortum Oyj has one class of shares. By the end of 2016, a total of 888,367,045 shares had been issued.
Each share entitles the holder to one vote at the Annual General Meeting. All shares entitle holders to an
equal dividend. At the end of 2016 Fortum Corporation’s share capital, paid in its entirety and entered in
the trade register, was EUR 3,046,185,953.00.
Fortum Corporation’s shares are listed on Nasdaq Helsinki. The trading code is FUM1V (FORTUM
as of 25 January 2017). Fortum Corporation’s shares are in the Finnish book entry system maintained by
Euroclear Finland Ltd.
Details on the President and CEO and other members of the Fortum Executive Management Team’s
shareholdings and interest in the equity incentive schemes is presented in Note 11 Employee benefits.
26.1 Authorisations from the Annual General Meeting 2016
On 5 April 2016, the Annual General Meeting decided to authorise the Board of Directors to decide
on the repurchase and disposal of the company’s own shares up to a maximum number of 20,000,000
shares, which corresponds to approximately 2.25% of all the shares in the company. The authorisation is
effective for a period of 18 months from the resolution of the General Meeting. The authorisation had not
been used by the end of 2016.
26.2 Convertible bond loans and bonds with warrants
Fortum Corporation has not issued any convertible bonds or bonds with attached warrants, which would
entitle the bearer to subscribe for Fortum shares. The Board of Directors of Fortum Corporation has
no unused authorisations from the General Meeting of shareholders to issue convertible bond loans or
bonds with warrants or increase the company’s share capital.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
84
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Interest-bearing debt
EUR million
Bonds
Loans from financial institutions
Reborrowing from the Finnish State Nuclear Waste Management Fund
Other long-term interest-bearing debt
BS Total long-term interest-bearing debt
Current portion of long-term bonds
Current portion of loans from financial institutions
Current portion of reborrowing from the Finnish State Nuclear Waste
Management Fund
Current portion of other long-term interest-bearing debt
Other short-term interest-bearing debt
BS Total short-term interest bearing debt
Total interest-bearing debt
2016
2,986
247
1,094
140
4,468
343
145
0
11
140
639
5,107
2015
3,345
411
1,074
135
4,965
750
78
0
10
204
1,042
6,007
27 Non-controlling interests
Principal non-controlling interests
EUR million
OAO Fortum Group
AS Fortum Tartu Group
Other
BS Total
Russia
Estonia
2016
37
30
17
84
2015
27
27
16
69
28 Interest-bearing liabilities
ACCOUNTING POLICIES
Borrowings are recognised initially at fair value less transaction costs incurred. In subsequent periods,
they are stated at amortised cost; any difference between proceeds (net of transaction costs) and the
redemption value is recognised as interest cost over the period of the borrowing using the effective
interest method. Borrowings or portion of borrowings being hedged with a fair value hedge are
recognised at fair value.
Net debt
EUR million
Interest-bearing liabilities
Liquid funds
Net debt
2016
5,107
5,155
-48
2015
6,007
8,202
-2,195
Net debt is calculated as interest-bearing liabilities less liquid funds without deducting interest-bearing
receivables amounting to EUR 1,380 million (Dec 31 2015: 773). Interest-bearing receivables mainly
consist of shareholder loans to partly owned nuclear companies regarded long-term financing. For more
information see Note 22 Interest-bearing receivables.
85
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Interest-bearing debt
EUR million
Bonds
Loans from financial institutions
Reborrowing from the Finnish State Nuclear Waste Management Fund
Other long-term interest-bearing debt 1)
Total long-term interest-bearing debt 2)
Other short-term interest-bearing debt
Total short-term interest-bearing debt
Total interest-bearing debt 3)
Effective
interest rate, %
3.2
2.8
0.5
2.3
2.5
-0.3
-0.3
2.5
Carrying amount
2016
3,329
393
1,094
151
4,967
140
140
5,107
Under 1 year
762
331
1,094
151
2,337
140
140
2,477
Repricing
1–5 years
1,391
62
-
-
1,452
-
-
1,452
Over 5 years
1,177
0
-
-
1,177
-
-
1,177
Fair value
2016
3,609
425
1,156
157
5,348
140
140
5,488
Carrying amount
2015
4,094
490
1,074
145
5,803
204
204
6,007
Fair value
2015
4,375
531
1,132
155
6,193
204
204
6,397
1) Includes loans from Finnish pension institutions EUR 58 million (2015: 68) and other loans EUR 93 million (2015: 77).
2) Including current portion of long-term debt.
3) The average interest rate on loans and derivatives on 31 December 2016 was 3.5% (2015: 3.7%).
The interest-bearing debt decreased in 2016 by EUR 900 million to EUR 5,107 million (2015: 6,007). The amount of short-term financing decreased with EUR 64 million, and at the end of the year the amount of short-
term financing EUR 140 million (2015: 204) included 135 million (2015: 202) from Credit Support Annex agreements.
In March 2016 Fortum increased the amount of re-borrowing from the Finnish nuclear waste fund and Teollisuuden Voima by EUR 20 million to EUR 1,094 million. On June 16th, Fortum Corporation signed a new
EUR 1,750 million syndicated Multicurrency Revolving Facility Agreement at the same time as the previous facility from year 2011 was cancelled. The new committed back-up facility can be used for general corporate
purposes with initial maturity of five years and Fortum may request two one-year extension options. In June Fortum repaid a EUR 750 million bond.
The average interest rate for the portfolio consisting mainly of EUR and SEK loans was 2.1% at the balance sheet date (2015: 2.6%). Part of the external loans EUR 805 million (2015: 641) have been swapped to RUB
and the average interest cost for these loans including cost for hedging the RUB was 11.4% at the balance sheet date (2015: 12.8%). The average interest rate on total loans and derivatives at the balance sheet date was
3.5% (2015: 3.7%).
For more information please see Note 3 Financial risk management and Note 37 Pledged assets and contingent liabilities.
28.1 Bond issues
Issued/Maturity
Fortum Oyj EUR 8,000 million EMTN Programme 1)
2009/2017
2009/2019
2011/2021
2012/2017
2012/2017
2012/2022
2013/2018
2013/2018
2013/2023
2013/2043
Total outstanding carrying amount 31 December 2016
1) EMTN = Euro Medium Term Note
Interest basis
Interest rate,
%
Effective interest,
%
Currency
Nominal value
million
Carrying amount
EUR million
Fixed
Fixed
Fixed
Floating
Fixed
Fixed
Fixed
Floating
Floating
Fixed
6.125
6.000
4.000
Stibor 3M+1.2
3.250
2.250
2.750
Stibor 3M+1.0
Stibor 3M+1.13
3.500
86
6.240
6.095
4.123
3.260
2.344
2.855
3.719
NOK
EUR
EUR
SEK
SEK
EUR
SEK
SEK
SEK
EUR
500
750
500
1,000
1,750
1,000
1,150
3,000
1,000
100
55
748
523
105
183
1,080
120
314
105
96
3,329
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28
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30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
29 Income taxes in balance sheet
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
ASSUMPTIONS AND ESTIMATES REGARDING FUTURE TAX CONSEQUENCES
Fortum has deferred tax assets and liabilities which are expected to be realised through the income
ACCOUNTING POLICIES
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as
statement over the extended periods of time in the future. In calculating the deferred tax items, Fortum is
required to make certain assumptions and estimates regarding the future tax consequences attributable
reported in the consolidated income statement, because of items of income or expense that are taxable
to differences between the carrying amounts of assets and liabilities as recorded in the financial
or deductible in other years and items that are never taxable or deductible. The Group’s liability for
statements and their tax basis.
current tax is calculated using tax rates that have been enacted or substantively enacted by the end of
Assumptions made include the expectation that future operating performance for subsidiaries will be
the reporting period.
consistent with historical levels of operating results, recoverability periods for tax loss carry-forwards will
Deferred tax is provided in full, using the liability method on temporary differences arising between
not change, and that existing tax laws and rates will remain unchanged into foreseeable future. Fortum
the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements.
believes that it has prudent assumptions in developing its deferred tax balances.
However, if the deferred tax arises from initial recognition of an asset or liability in a transaction other
Assumptions and estimates regarding uncertain tax positions are supported by external legal counsel
than a business combination that at the time of the transaction affects neither accounting nor taxable
or expert opinion.
profit or loss, it is not accounted for. Deferred tax is determined using tax rates (and laws) that have
If the actual final outcome (regarding tax disputes) would differ negatively from management’s
been enacted or substantially enacted by the closing date and are expected to apply when the related
deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be
available against which the temporary differences can be utilised. Deferred tax assets are set off against
deferred tax liabilities if they relate to income taxes levied by the same taxation authority.
estimates with 10%, the Group would need to increase the income tax liability by EUR 29 million as of 31
December 2016. For additional information regarding tax disputes, see Note 38 Legal actions and
official proceedings.
Deferred tax is provided on temporary differences arising from investments in subsidiaries, associates
29.1 Deferred income taxes in the balance sheet
and joint ventures, except where the timing of the reversal of the temporary difference is controlled by the
Group, and it is probable that the temporary difference will not be reversed in the foreseeable future.
The Group recognises liabilities for anticipated tax dispute issues based on estimates of whether
additional taxes will be due. No provision will be recognised in the financial statements if Fortum
considers the claims unjustifiable. Therefore, if taxes regarding ongoing tax disputes have to be paid
before final court decisions, they will be booked as a receivable. Where the final outcome of these
matters is different from the amounts that were initially recorded, such differences will impact the income
tax and deferred tax provisions in the period in which such determination is made.
EUR million
BS Deferred tax assets
BS Deferred tax liabilities
Net deferred taxes
2016
1 Jan Change
-14
-133
-146
80
-483
-404
2015
31 Dec
66
-616
-550
1 Jan Change
-18
676
658
98
-1,159
-1,061
31 Dec
80
-483
-404
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset
current tax assets against current tax liabilities and when the deferred income taxes relate to the same
fiscal authority.
1
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30
31
32
33
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35
36
37
38
39
40
41
42
87
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Movement in deferred tax assets and liabilities 2016
Movement in deferred tax assets and liabilities 2015
Property,
plant and
equipment
-1,150
Pension
obligations
28
Derivative
financial
instruments
-40
Provisions
1
Tax losses
and tax
credits
carry-
forward
70
Net
deferred
taxes
-1,061
Other
30
96
3
13
13
71
-12
184
-20
7
496
-551
11
14
-13
2
-5
-42
-32
13
491
-404
4
146
18
EUR million
1 Jan 2015
Charged
to income
statement
Charged
to other
comprehensive
income
Exchange rate
differences,
reclassifications
and other
changes
Acquisitions and
disposals
31 Dec 2015
Deferred tax assets and liabilities from acquisitions and disposals in 2015 relate to the sale of Swedish
electricity distribution business. Also during 2015 Swedish entities released a major part of the deferred
tax liability related to property, plant and equipment. Additionally, deferred tax asset was recognized for
the taxable loss in Sweden, which was mainly due to the write-down related to early closure of O1 and O2
units in Oskarshamn.
51
-40
-115
-550
Property,
plant and
equipment
-551
Pension
obligations
11
Derivative
financial
instruments
-42
Provisions
14
Tax losses
and tax
credits
carry-
forward
146
Net
deferred
taxes
-404
Other
18
-3
27
-49
-11
-42
2
2
49
EUR million
1 Jan 2016
Charged
to income
statement
Charged
to other
comprehensive
income
Exchange rate
differences,
reclassifications
and other
changes
Acquisitions and
disposals
31 Dec 2016
-9
-40
-118
-717
2
3
14
9
20
36
100
-6
-6
-4
Retained earnings when distributed as dividends are subject to withholding tax (Russia) or distribution
tax (Estonia). Provision has been made for these taxes only to extent that it is expected that these
earnings will be remitted in the foreseeable future. Deferred income tax liabilities of EUR 19 million
(2015: 13) have been recognised for the withholding tax and other taxes that would be payable on the
distributions.
Deferred tax assets and liabilities from acquisitions and disposals in 2016 are mainly related to
acquisition of Ekokem and Duon and disposal of Tobolsk. In addition, legal entities, primarily in Russia
and Sweden used a portion of the deferred tax asset relating to tax loss carry forwards.
88
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11
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26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Deferred income tax assets recognised for tax loss carry-forwards
Deferred income tax assets are recognised for tax loss carry-forward to the extent that realisation of the
related tax benefit through future profits is probable. The recognised tax assets relate to losses carry-
forward with no expiration date and partly with expiry date as described below.
30 Nuclear related assets
and liabilities
EUR million
Losses without expiration date
Losses with expiration date
Total
2016
2015
Tax losses
352
108
460
Deferred
tax asset
79
22
100
Tax losses
470
217
687
Deferred
tax asset
97
49
146
ACCOUNTING POLICIES
Fortum owns Loviisa nuclear power plant in Finland. In Fortum’s consolidated balance sheet, Share
in the State Nuclear Waste Management Fund and the Nuclear provisions relate to Loviisa nuclear
power plant. Fortum’s nuclear related provisions and the related part of the State Nuclear Waste
Management Fund are both presented separately in the balance sheet. Fortum’s share in the State
Nuclear Waste Management Fund is accounted for according to IFRIC 5, Rights to interests arising
Deferred tax assets of EUR 56 million (2015: 50) have not been recognised in the consolidated financial
statements, because the realisation is not probable. The major part of the unrecognised tax asset relates
to loss carry-forwards that are unlikely to be used in the foreseeable future.
from decommissioning, restoration and environmental rehabilitation funds which states that the fund
assets are measured at the lower of fair value or the value of the related liabilities since Fortum does
not have control or joint control over the State Nuclear Waste Management Fund. The Nuclear Waste
Tax loss carry-forwards decreased in 2016 mainly because of the use of taxable losses in Sweden and
Management Fund is managed by governmental authorities. The related provisions are the provision for
in Russia.
29.2 Income tax receivables
Sweden
Belgium
Other
Total Income tax receivables
2016
124
114
52
290
2015
0
114
11
124
Income tax receivables reflect payments of corporate income tax done in relation to the year 2016 as well
as payments according to received tax audit assessments in relation to previous years.
Fortum has in previous years received income tax assessments in Sweden for the years 2009–2012.
The additional taxes and interest for 2009–2012 have already been paid in June 2016, in total 1.175 MSEK
(EUR 123 million) and based on supporting legal opinions booked as an income tax receivable.
decommissioning and the provision for disposal of spent fuel.
The fair values of the provisions are calculated according to IAS 37 by discounting the separate future
cash flows, which are based on estimated future costs and actions already taken. The initial net present
value of the provision for decommissioning (at the time of commissioning the nuclear power plant) has been
included in the investment cost and is depreciated over the estimated operating time of the nuclear power
plant. Changes in the technical plans etc., which have an impact on the future cash flow of the estimated
costs for decommissioning, are accounted for by discounting the additional costs to the current point in
time. The increased asset retirement cost due to the increased provision is added to property, plant and
equipment and depreciated over the remaining estimated operating time of the nuclear power plant. For
power plant units taken from use the increase is taken to income statement.
The provision for spent fuel covers the future disposal costs for fuel used until the end of the
accounting period. Costs for disposal of spent fuel are expensed during the operating time based on
fuel usage. The impact of the possible changes in the estimated future cash flow for related costs is
recognised immediately in the income statement based on the accumulated amount of fuel used until
In Belgium has Fortum also in previous years received income tax assessments for the years 2008–
the end of the accounting period. The related interest costs due to unwinding of the provision, for the
2011. The additional taxes have been paid during prior years, in total EUR 114 million and based on
supporting legal opinions booked as an income tax receivable. Legal procedures in Finland concerning
2007–2011 transfer pricing audit have been closed to Fortum’s benefit.
See Note 38 Legal actions and official proceedings.
period during which the spent fuel provision has been accumulated and present point in time, are also
recognised immediately in the income statement.
The timing factor is taken into account by recognising the interest expense related to discounting the
nuclear provisions. The interest on the State Nuclear Waste Management Fund assets is presented as
financial income.
Fortum’s actual share of the State Nuclear Waste Management Fund, related to Loviisa nuclear power
plant, is higher than the carrying value of the Fund in the balance sheet. The legal nuclear liability should,
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27
28
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30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
according to the Finnish Nuclear Energy Act, be fully covered by payments and guarantees to the State
Nuclear Waste Management Fund. The legal liability is not discounted while the provisions are, and since
the future cash flow is spread over 100 years, the difference between the legal liability and the provisions
are material.
The annual fee to the Fund is based on changes in the legal liability, the interest income generated in
the State Nuclear Waste Management Fund and incurred costs of taken actions.
Fortum also has minority interests in nuclear power companies, i.e. Teollisuuden Voima Oyj (TVO) in
Finland and OKG Aktiebolag (OKG) and Forsmarks Kraftgrupp AB (Forsmark) in Sweden. The minority
shareholdings are classified as associated companies and joint ventures and are consolidated with equity
method. Both the Finnish and the Swedish companies are non-profit making, i.e. electricity production is
invoiced to the owners at cost including depreciations, interest costs and production taxes accounted for
according to local GAAP. Accounting policies of the associates regarding nuclear assets and liabilities
have been changed where necessary to ensure consistency with the policies adopted by the Group.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
ASSUMPTIONS MADE WHEN ESTIMATING PROVISIONS RELATED TO NUCLEAR PRODUCTION
The provision for future obligations for nuclear waste management including decommissioning of
Fortum’s nuclear power plant and related spent fuel is based on long-term cash flow forecasts of
estimated future costs. The main assumptions are technical plans, timing, cost estimates and discount
rate. The technical plans, timing and cost estimates are approved by governmental authorities.
Any changes in the assumed discount rate would affect the provision. If the discount rate used would
be lowered, the provision would increase. Fortum has contributed cash to the State Nuclear Waste
Management Fund based on a non-discounted legal liability, which leads to that the increase in provision
would be offset by an increase in the recorded share of Fortum’s part of the State Nuclear Waste
Management Fund in the balance sheet. The total effect on the income statement would be positive since
the decommissioning part of the provision is treated as an asset retirement obligation. This situation will
prevail as long as the legal obligation to contribute cash to the State Nuclear Waste Management Fund is
based on a non-discounted liability and IFRS is limiting the carrying value of the assets to the amount of
the provision since Fortum does not have control or joint control over the fund.
Based on the Nuclear Energy Act in Finland, Fortum has a legal obligation to fully fund the legal
liability decided by the governmental authorities, for decommissioning of the power plant and disposal of
spent fuel through the State Nuclear Waste Management Fund.
Both in Finland and in Sweden nuclear operators are legally obligated for the decommissioning of
the plants and the disposal of spent fuel (nuclear waste management). In both countries the nuclear
operators are obligated to secure the funding of nuclear waste management by paying to government
operated nuclear waste funds. The nuclear operators also have to give securities to guarantee that
sufficient funds exist to cover future expenses of decommissioning of the power plant and disposal of
spent fuel.
30.1 Nuclear related assets and liabilities for 100% owned
nuclear power plant, Loviisa
EUR million
Carrying values in the balance sheet
BS Nuclear provisions
BS Fortum’s share of the State Nuclear Waste Management Fund
Legal liability and actual share of the State Nuclear Waste Management Fund
Liability for nuclear waste management according to the Nuclear Energy Act
Funding obligation target
Fortum’s share of the State Nuclear Waste Management Fund
Share of the fund not recognised in the balance sheet
2016
830
830
1,141
1,125
1,094
264
2015
810
810
1,094
1,094
1,083
273
Legal liability for Loviisa nuclear power plant
The legal liability on 31 December 2016, decided by the Ministry of Economic Affairs and Employment in
December 2016, was EUR 1,141 million.
The legal liability is based on a cost estimate, which is done every year, and a technical plan, which
is made every third year. The current technical plan was updated in 2016. Following the update of the
technical plan in 2016, the liability increased due to updated cost estimates related to interim and final
storage of spent fuel. The legal liability is determined by assuming that the decommissioning would start
at the beginning of the year following the assessment year.
Fortum’s share in the State Nuclear Waste Management Fund
According to Nuclear Energy Act, Fortum is obligated to contribute funds in full to the State Nuclear
Waste Management Fund to cover the legal liability. Fortum contributes funds to the Finnish State
Nuclear Waste Management Fund based on the yearly funding obligation target decided by the
governmental authorities in December in connection with the decision of size of the legal liability. The
current funding obligation target decided in December 2016 is EUR 1,125 million.
Nuclear provisions
EUR million
BS 1 January
Additional provisions
Used during the year
Unwinding of discount
BS 31 December
Fortum’s share in the State Nuclear Waste Management Fund
2016
810
6
-20
34
830
830
2015
774
10
-18
44
810
810
90
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24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Nuclear provision and fund accounted according to IFRS
Nuclear provisions include the provision for decommissioning and the provision for disposal of spent
fuel. The carrying value of the nuclear provisions, calculated according to IAS 37, increased by EUR 20
million compared to 31 December 2015, totalling EUR 830 million on 31 December 2016. The provisions
are based on the same cash flows for future costs as the legal liability, but the legal liability is not
discounted to net present value.
The carrying value of the Fund in the balance sheet cannot exceed the carrying value of the nuclear
provisions according to IFRIC Interpretation 5. The Fund is from an IFRS perspective overfunded with
EUR 264 million, since Fortum’s share of the Fund on 31 December 2016 was EUR 1,094 million and the
carrying value in the balance sheet was EUR 830 million.
Fortum’s share of the Finnish Nuclear Waste Management Fund in Fortum’s balance sheet can in
maximum be equal to the amount of the provisions according to IFRS. As long as the Fund is overfunded
from an IFRS perspective, the effects to operating profit from this adjustment will be positive if the
provisions increase more than the Fund and negative if actual value of the fund increases more than the
provisions. This accounting effect is not included in Comparable operating profit in Fortum financial
reporting. For more information see Note 6 Items affecting comparability.
Borrowing from the State Nuclear Waste Management Fund
Participants in the Finnish State Nuclear Waste Management Fund are allowed to borrow from the fund
according to certain rules. Fortum uses the right to borrow back and has pledged shares in Kemijoki Oy
as security for the loans. The loans are renewed yearly. See Note 28 Interest-bearing liabilities and
Note 37 Pledged assets and contingent liabilities.
30.2 Nuclear power plants in associated companies and joint ventures
OKG, Forsmark and TVO are non-profit making companies, i.e. electricity production is invoiced to the
owners at cost including depreciations, interest costs and production taxes. Invoiced cost is accounted
for according to local GAAP. In addition to the invoiced electricity production cost, Fortum makes IFRS
adjustments to comply with Fortum’s accounting principles. These adjustments include also Fortum’s
share of the companies’ nuclear waste funds and nuclear provisions.
The tables below present the 100% figures relating to nuclear funds and provisions for the companies
as well as Fortum’s net share.
TVO’s total nuclear related assets and liabilities (100%)
EUR million
Carrying values in TVO’s balance sheet
Nuclear provisions
Share of the State Nuclear Waste Management Fund
of which Fortum’s net share consolidated with equity method
TVO’s legal liability and actual share of the State Nuclear Waste
Management Fund
Liability for nuclear waste management according to the Nuclear Energy Act
Share of the State Nuclear Waste Management Fund
Share of the fund not recognised in the balance sheet
2016
955
955
0
2015
971
971
0
1,450
1,380
425
1,369
1,358
387
TVO’s legal liability and contribution to the fund are based on same principles as described above for
Loviisa nuclear power plant.
TVO’s share of the Finnish State Nuclear Waste Management Fund is from an IFRS perspective overfunded
with EUR 425 million (of which Fortum’s share EUR 113 million), since TVO’s share of the Fund on
31 December 2016 was EUR 1,380 million and the carrying value in the balance sheet was EUR 955 million.
Participants in the Finnish State Nuclear Waste Management Fund are allowed to borrow from the
fund according to certain rules. Fortum is using the right to reborrow funds through TVO based on its
ownership. See more information in Note 28 Interest-bearing liabilities.
OKG’s and Forsmark’s total nuclear related assets and liabilities (100%)
2016
EUR million
OKG’s and Forsmark’s nuclear related assets and liabilities 1)
Nuclear provisions
Share in the State Nuclear Waste Management Fund
Net amount
3,297
3,068
-229
2015
3,210
3,025
-185
of which Fortum’s net share consolidated with equity method
-106
-71
1) Accounted for according to Fortum’s accounting principles. Companies’ statutory financial statements are not prepared
according to IFRS.
In Sweden Svensk Kärnbränslehantering AB (SKB), a company owned by the nuclear operators, takes
care of all nuclear waste management related activities on behalf of nuclear operators. SKB receives
its funding from the Swedish State Nuclear Waste Management Fund, which in turn is financed by the
nuclear operators.
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24
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26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
In addition to nuclear waste fees nuclear power companies provide guarantees for any uncovered
Environmental provisions include provisions for obligations to cover landfills and clean-up obligations for
liability and unexpected events.
contaminated land areas. Provisions are determined based on the surface area of the landfill site, remaining
For more information regarding Fortum’s guarantees given on behalf of nuclear associated
land area to be landscaped or otherwise cleaned-up, and the unit cost of conducting the coverage and
companies, see Note 37 Pledged assets and contingent liabilities.
clean-up activities in the future.
Nuclear waste fees and guarantees are updated every third year by governmental decision after a
proposal from Swedish Radiation Safety Authority (SSM). The proposal is based on cost estimates done
by SKB. Currently the fees and guarantees are decided for years 2015–2017. A new technical plan for
nuclear waste management has been decided by SKB during 2016. During 2017 SKB will submit the cost
estimates based on the revised technical plan to SSM, after which the Swedish government will decide
the waste fees and guarantees for years 2018–2020. Nuclear waste fees are currently based on future costs
with the assumed lifetime of 40 years for each unit of a nuclear power plant.
31 Other provisions
Environmental provisions are also booked for aftercare and monitoring obligations arising from landfill
permit holder’s requirement to take into account potential danger to health or the environment posed by
a landfill site for a period of at least 30 (up to 60) years after the coverage. The aftercare and monitoring
provision is determined on the basis of estimated costs and estimated number of years of filling the landfill.
ASSET RETIREMENT OBLIGATIONS
Asset retirement obligation is recognised either when there is a contractual obligation towards a third
party or a legal obligation and the obligation amount can be estimated reliably. Obligating event is e.g.
when a plant is built on a leased land with an obligation to dismantle and remove the asset in the future
or when a legal obligation towards Fortum changes. The asset retirement obligation is recognised as part
of the cost of an item of property, plant and equipment when the asset is put in service. The costs will be
depreciated over the remainder of the asset’s useful life.
ACCOUNTING POLICIES
Provisions for environmental obligations, asset retirement obligations, restructuring costs and legal claims
RESTRUCTURING PROVISIONS
A restructuring provision is recognised when the Group has developed a detailed formal plan for the
restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by
are recognised when the Group has a present legal or constructive obligation as a result of past events
starting to implement the plan or announcing its main features to those affected by it. The measurement
to a third party, it is probable that an outflow of resources will be required to settle the obligation and the
of a restructuring provision includes only the direct expenditures arising from the restructuring, which
amount can be reliably estimated.
are those amounts that are both necessarily entailed by the restructuring and not associated with the
Provisions are measured at the present value of the expenditures expected to be required to settle the
ongoing activities of the entity. Restructuring provisions comprise mainly employee termination payments
obligation using a pre-tax rate that reflects current market assessments of the time value of money and
and lease termination costs.
the risks specific to the obligation. The increase in the provision due to the passage of time is recognised
as interest expense.
ENVIRONMENTAL PROVISIONS
Environmental provisions are recognised, based on current interpretation of environmental laws and
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
ASSUMPTIONS MADE WHEN ESTIMATING PROVISIONS
Provisions for present obligations require management to assess the best estimate of the expenditure
needed to settle the present obligation at the end of the reporting period. The actual amount and timing
regulations, when it is probable that a present obligation has arisen and the amount of such liability can
of the expenditure might differ from estimates made.
be reliably estimated. Environmental expenditures resulting from the remediation of an existing condition
caused by past operations, and which do contribute to current or future revenues, are expensed as
incurred.
92
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
EUR million
1 January
Acquisitions
Provisions for the period
Provisions used
Provisions reversed
Unwinding of discount
Exchange rate differences
31 December
Of which current
provisions 1)
BS Of which non-current
provisions
2016
2015
CSA
pro-
vision
8
0
0
-7
-2
0
1
0
Environ-
mental
2
44
1
0
0
0
0
47
Other
89
4
14
-18
-7
0
1
82
0
0
1
46
11
70
CSA
pro-
vision
56
0
0
0
-50
1
1
8
Environ-
mental
2
0
1
-1
0
0
0
2
Other
24
0
83
-15
-3
0
0
89
8
0
0
2
9
79
Total
98
48
15
-25
-9
0
2
129
13
116
Total
82
0
84
-16
-53
1
1
98
17
81
1) Included in trade and other payables in the balance sheet, see Note 34.
Fortum’s investment programme in Russia was completed in Q1 2016 when Chelyabinsk GRES 2 unit
started its commercial operation and there was no provision for CSA penalties at the end of 2016. Paid
penalties for Chelyabinsk GRES unit 1 and 2 during 2016 amounted to EUR 7 million and the remaining
provision of EUR 2 million was reversed to the income statement.
Environmental provisions include mainly provisions for obligations to cover and monitor landfills
as well as to clean contaminated land areas. Main part of the provisions are estimated to be used within
10–15 years.
The increase in environmental provisions in 2016 is mainly arising from the acquisition of Ekokem
(see Note 40 Acquisitions and disposals). The increase in other provisions during 2015 arises mainly
from a dismantling provision for the Finnish coal-fired power plant Inkoo.
Regarding provisions for decommissioning and provision for disposal of spent fuel for nuclear
production, see Note 30 Nuclear related assets and liabilities.
32 Pension obligations
ACCOUNTING POLICIES
The Group companies have various pension schemes in accordance with the local conditions and
practises in the countries in which they operate. The schemes are generally funded through payments to
insurance companies or the Group’s pension funds as determined by periodic actuarial calculations. The
Group has both defined benefit and defined contribution plans.
The Group’s contributions to defined contribution plans are charged to the income statement in the
period to which the contributions relate.
For defined benefit plans, pension costs are assessed using the projected unit credit method. The cost
of providing pensions is charged to the income statement as to spread the service cost over the service
lives of employees. The net interest is presented in financial items and the rest of the income statement
effect as pension cost.
The defined benefit obligation is calculated annually on the balance sheet date and is measured
as the present value of the estimated future cash flows using interest rates of high-quality corporate
bonds that have terms to maturity approximating to the terms of the related pension liability. In countries
where there is no deep market in such bonds, market yields on government bonds are used instead. The
plan assets for pensions are valued at market value. The liability recognised in the balance sheet is the
defined benefit obligation at the closing date less the fair value of plan assets. Prepaid contributions are
recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit
that relates to past service or the gain or loss related to a curtailment is recognised immediately in profit
or loss. Gains or losses on settlements of defined benefits plans are recognised when the settlement
occurs.
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
ASSUMPTIONS USED TO DETERMINE FUTURE PENSION OBLIGATIONS
The present value of the pension obligations is based on actuarial calculations that use several
assumptions. Any changes in these assumptions will impact the carrying amount of pension obligations.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
93
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Fortum’s pension arrangements
Finland
In Finland the most significant pension plan is the Finnish Statutory Employment Pension Scheme
(TyEL) in which benefits are directly linked to employees’ earnings. These pensions are funded in
insurance companies and treated as defined contribution plans. The benefits provided under TyEL
are old age pensions, disability pensions, unemployment pensions and survivors’ pensions. Certain
Fortum employees in Finland have an additional pension coverage, certain level of benefit promised
after retirement, through the company’s own pension fund (Fortum Pension Fund) or through insurance
companies. The additional pensions through insurance companies provide old age pension and funeral
grant and Fortum Pension Fund is providing old age pension, early old age benefit, disability pension,
survivors’ pension and funeral grant.
The Fortum Pension Fund is a closed fund managed by a Board, consisting of both employers’
and employees’ representatives. The Fund is operating under regulation from Financial Supervisory
Authority (FSA). The liability has to be fully covered according to the regulations. The national benefit
obligation related to the defined benefit plans is calculated so that the promised benefit is fully funded
until retirement. After retirement the benefits payable are indexed yearly with TyEL-index. The promised
benefit is defined in the rules of the Fund, mostly 66% at a maximum of the salary basis. The salary
basis is an average of the ten last years’ salaries, which are indexed with a common salary index to the
accounting year.
Sweden
In Sweden the Group operates several defined benefit and defined contribution plans like the general
ITP-pension plan and the PA-KL and PA-KFS plans that are eligible for employees within companies
formerly owned by municipalities. The defined benefit plans are fully funded and have partly been
financed through Fortum’s own pension fund and partly through insurance premiums. The pension
arrangements comprise normal retirement pension, complementary retirement pensions, survivors’
pension and disability pension. The most significant pension plan is the ITP-plan for white-collar
employees in permanent employment (or temporary employees after a certain waiting period), who
fulfil the age conditions. To qualify for a full pension the employee must have a projected period of
pensionable service, from the date of entry until retirement age, of at least 30 years.
The Swedish pension fund is managed by a Board, consisting of both employers’ and employees’
representatives. The fund is operating under regulation from Swedish Financial Supervisory Authority
and the County Administrative Board and governed by Swedish law (no. 1967:531). The fund constitutes
a security for the employers’ defined benefit pension plan liability and the fund has no obligations in
relation to pension payments. The employer must have a credit insurance from PRI Pensionsgaranti
Mutual Insurance Company for the liability. The liability does not have to be fully covered by the fund
according to the regulations.
94
The part of the ITP multiemployer pension plan that is secured by paying pension premiums to
Alecta, in Fortum’s case the collective family pension, is accounted for as a defined contribution plan due
to that there is no consistent and reliable basis to allocate assets or liabilities to the participating entities
within the ITP insurance. The reason for this is that it is not possible to determine from the terms of the
plan to which extent a surplus or a deficit will affect future contributions.
Pension arrangements in other countries
Pension arrangements in Russia include payments made to the state pension fund. These arrangements
are treated as defined contribution plans. The Russian (in addition to the defined contribution plans) and
Polish companies participate in certain defined benefit plans, defined by collective agreements, which
are unfunded and where the company meets the benefit payment obligation as it falls due. The benefits
provided under these arrangements include, in addition to pension payments, one-time benefits paid
in case of employee mortality or disability as well as lump sum payments for anniversary and financial
support to honoured workers and pensioners.
The Norwegian companies are part of schemes that are common for municipalities in Norway.
These are defined benefit pension plans and provide old age pensions, disability pension and survivor’s
pension, including pension benefits from the National Insurance Scheme (Folketrygden). The schemes
are fully funded within the rules set out in the Norwegian insurance legislation.
In other countries the pension arrangements are done in accordance with the local legislation and
practice, mostly being defined contribution plans.
Main risks relating to defined benefit plans – Sweden and Finland
Overall risks
Finland - If the return of the fund’s assets is not enough to cover the raise in liability and benefit
payments over the financial year then the employer funds the deficit with contributions unless the fund
has sufficient equity.
Sweden - As the pension fund is separated from the funding companies Fortum is not obliged to
make additional contributions to the pension fund in any case of deficit. However if the assets decrease
to a level lower than the liability according to Swedish GAAP, Fortum’s credit insurance cost from PRI
will increase.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Change in discount rate
Finland - The discount rate which is used to calculate the defined benefit obligation (according to IFRS)
depends on the value of corporate bond yields as at reporting date. A decrease in yields increases the
benefit obligation that is offset by increase in the value of fixed income holdings.
Sweden - The discount rate which is used to calculate the defined benefit obligation (according to
IFRS) is derived from market rates on Swedish covered bonds with an equivalent duration to the pension
obligation, and the company therefore has a risk in the development of the bond market. Should the
market rates decrease then the liability increases.
Investment and volatility risk
Finland - The pension fund’s board accepts yearly an Investment Plan, which is based on an external
asset-liability analysis. The assets are allocated to stocks and stock funds, fixed income instruments and
real estate. The investments are diversified into different asset classes and to different asset managers
taking into account the regulation of the Financial Supervisory Authority. The real estate investments
consist mainly of the Fortum headquarters, rented by Fortum Oyj.
Sweden - The pension fund operation is regulated by law and supervised by central administrative
authorities (Finansinspektionen and the County Administrative Board). The pension fund board
decides yearly on a policy for asset allocation and a risk management model that stipulates a maximum
acceptable market value decrease of the assets. The major assets are fixed income instruments, stock
index funds and cash.
Risks relating to assumptions used
Actuarial calculations use assumptions for future inflation and salary levels and longevity. Should the
actual outcome differ from these assumptions, this might lead to higher liability.
Movement in the net defined benefit liability
EUR million
Balance at 1 January
Included in profit or loss
Current service cost
Past service cost 1)
Settlements
Net interest 2)
Included in OCI
Remeasurement gains(-)/losses(+)
Actuarial gains/losses arising from changes
in demographic assumptions 3)
Actuarial gains/losses arising from changes
in financial assumptions
Actuarial gains/losses arising from
experience adjustments
Return on plan assets (excluding amounts
included in net interest expense)
Exchange rate differences
Other
Contributions paid by the employer
Benefits paid
Disposals of subsidiary companies
Balance at 31 December
Present value of funded defined obligation
Fair value of plan assets
Funded status
Present value of unfunded obligation 4)
Net liability arising from defined benefit
obligation
Pension assets included in other non-current
assets in the balance sheet
BS Pension obligations in the balance sheet
Defined benefit
obligation
2016
448
2015
540
Fair value of plan
assets
2016
-384
2015
-400
Net defined
benefit asset(-)/
liability(+)
2016
64
2015
140
8
-4
-6
11
9
15
0
28
-12
-4
11
9
-5
-3
9
10
-65
7
-65
-7
3
-63
-16
0
452
-16
-23
448
0
0
5
-9
-3
-5
0
2
2
-6
-3
-14
-5
4
-1
-1
12
0
-378
-14
-3
-16
-2
13
23
-384
9
-4
-1
2
6
10
0
28
-12
-5
0
10
-1
-4
0
74
447
-378
70
5
9
-3
-1
3
7
-79
7
-65
-7
-14
0
-79
-2
-3
0
64
444
-384
60
4
74
64
1
76
1
65
1) In 2016 including EUR -6 million from the pension reform in Finland.
2) Net interest is presented among financial items in income statement, the rest of costs related to defined benefit plans are
included in staff costs (row defined benefits plans in the staff cost specification in Note 11 Employee benefits).
3) The mortality rates for Finland and Sweden used in the calculations were changed for year 2015.
4) The unfunded obligation relates to arrangements in Russia and Poland.
95
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
At the end of 2016 a total of 864 (2015: 1,103) Fortum employees are included in defined benefit plans
providing pension benefits. During 2016 pensions or related benefits were paid to a total of 2,865
(2015: 2,855) persons.
Contributions expected to be paid during year 2017 are EUR 1 million.
Fair value of plan assets
EUR million
Equity instruments
Debt instruments
Cash and cash equivalents
Real estate, of which EUR 66 million (2015: 65) occupied by the Group
Company’s own ordinary shares
Other assets
Total
2016
120
140
26
69
4
19
378
2015
124
136
33
68
4
18
384
When the pension plan has been financed through an insurance company, a specification of the plan
assets has not been available. In these cases the fair value of plan assets has been included in other assets.
The actual return on plan assets in Finland and Sweden totalled EUR 14 million (2015: 20).
Amounts recognised in the balance sheet by country 2016
EUR million
Present value of funded obligations
Fair value of plan assets
Deficit(+)/surplus(-)
Present value of unfunded obligations
Net asset(-)/liability(+) in the balance sheet
Pension asset included in non-current assets
BS Pension obligations in the balance sheet
Finland Sweden
130
-110
20
308
-262
46
46
0
46
20
1
21
Other
countries
9
-6
3
5
8
1
9
Total
447
-378
70
5
74
1
76
Amounts recognised in the balance sheet by country 2015
EUR million
Present value of funded obligations
Fair value of plan assets
Deficit(+)/surplus(-)
Present value of unfunded obligations
Net asset(-)/liability(+) in the balance sheet
Pension asset included in non-current assets
BS Pension obligations in the balance sheet
The principal actuarial assumptions used
%
Discount rate
Future salary increases
Future pension increases
Rate of inflation
Finland
302
-265
37
Sweden
134
-114
20
37
0
37
20
0
20
Other
countries
8
-5
3
4
7
1
7
Total
444
-384
60
4
64
1
65
2016
2015
Finland
1.50
1.90
2.00
1.70
Sweden
2.80
3.00
1.70
1.70
Finland
2.07
2.20
2.10
2.00
Sweden
3.30
3.00
2.00
2.00
The discount rate in Finland is based on high quality European corporate bonds with maturity that best
reflects the estimated term of the defined benefit pension plans. The discount rate in Sweden is based
on yields on Swedish covered bonds with maturity that best reflects the estimated term of the defined
benefit pension plans. The covered bonds in Sweden are considered high quality bonds as they are
secured with assets.
The basis for the inflation rate assumption in Finland and Sweden has been changed. Until year 2015
the European Central Bank long term inflation target was used, but from year 2016 onwards a market
based inflation assumption with a maturity that reflects the estimated term of the defined benefit
pension plans have been used in the calculations.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
96
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
The life expectancy is the expected number of years of life remaining at a given age
Sweden
Longevity at age 65
23.4
45 – male
25.3
45 – female
21.7
65 – male
24.2
65 – female
Finland
22.0
27.0
21.4
25.4
The discount, inflation and salary growth rates used are the key assumptions used when calculating
defined benefit obligations. Effects of 0.5 percentage point change in the rates to the defined benefit
obligation on 31 December 2016, holding all other assumptions stable, are presented in the table below.
Sensitivity of defined benefit obligation to changes in assumptions
Change in the assumption
0.5% increase in discount rate
0.5% decrease in discount rate
0.5% increase in benefit
0.5% decrease in benefit
0.5% increase in salary growth rate
0.5% decrease in salary growth rate
Impact to the pension obligation
increase(+)/decrease(-)
Finland
-7%
8%
7%
-6%
1%
-1%
Sweden
-10%
11%
10%
-8%
3%
-3%
The methods used in preparing the sensitivity analysis did not change compared to the previous period.
Change in mortality basis so that life expectancy increases by one year would increase the net liability in
Finland and Sweden with EUR 17 million (25.8%).
Maturity profile of the undiscounted defined benefit obligation
for Finland and Sweden as of 31 December 2016
EUR million
Maturity under 1 year
Maturity between 1 and 5 years
Maturity between 5 and 10 years
Maturity between 10 and 20 years
Maturity between 20 and 30 years
Maturity over 30 years
Future benefit payments
16
68
87
161
124
93
The weighted average duration of defined benefit obligation in Finland and Sweden at the end of year
2016 is 15.9 years.
97
33 Other non-current liabilities
EUR million
Connection fees
Other liabilities
BS Total
2016
109
70
179
2015
109
58
168
Connection fees are refundable connection fees to the district heating network in Finland.
34 Trade and other payables
EUR million
Trade payables
Accrued expenses and deferred income
Accrued personnel expenses
Accrued interest expenses
Other accrued expenses and deferred income
Other liabilities
VAT-liability
Current tax liability
Energy taxes
Advances received
Current provisions 1)
Other liabilities
BS Total
1) See also Note 31 Other provisions.
2016
323
61
132
130
43
20
14
19
13
86
841
2015
249
63
175
77
22
20
13
18
17
227
879
The management considers that the amount of trade and other payables approximates fair value.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
35 Lease commitments
ACCOUNTING POLICIES
OPERATING LEASES
Leases of property, plant and equipment, where the Group does not have substantially all of the risks
and rewards of ownership are classified as operating leases. Payments made under operating leases are
recognised in the income statement as costs on a straight-line basis over the lease term.
Payments received under operating leases where the Group leases out fixed assets are recognised as
other income in the income statement.
FINANCE LEASES
Leases of property, plant and equipment, where the Group has substantially all the risks and rewards of
ownership, are classified as finance leases. Finance leases are capitalised at the commencement of the
lease term at the lower of the fair value of the leased property and the present value of the minimum
lease payments determined at the inception of the lease.
36.1 Leases as a lessor
Operating leases
The operating rental income recognised in income statement was EUR 5 million (2015: 3).
Finance leases
Fortum does not have material finance lease arrangements where the Group is acting as a lessor.
36.2 Leases as lessee
Operating leases
Fortum leases office equipment and cars under various non-cancellable operating leases, some of which
contain renewal options. The future costs for non-cancellable operating lease contracts are stated below.
Lease rental expenses amounting to EUR 15 million (2015: 13) are included in the income statement in
other expenses. Future minimum lease payments include land leases with long lease periods.
Future minimum lease payments on operating leases
EUR million
Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years
Total
2016
16
31
27
74
2015
14
23
24
60
Finance leases
Fortum does not have material finance lease arrangements where the Group is acting as a lessee.
36 Capital commitments
EUR million
Property, plant and equipment
Intangible assets
Total
2016
467
0
467
2015
426
2
428
Capital commitments are capital expenditures contracted for at the balance sheet date but not
recognised in the financial statements. Increase in capital commitments compared to previous year
comes mainly from new investments in solar power plants in India. The increase is partly offset by
progressing of the automation investment in Loviisa nuclear power plant and finalisation of the OAO
Fortum investment programme in Russia.
In addition Fortum has committed to provide a maximum of EUR 100 million (2015: 107) to
Voimaosakeyhtiö SF, for its participation in the Fennovoima nuclear power project in Finland.
For more information regarding capital expenditure, see Note 19 Property, plant and equipment.
98
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
37 Pledged assets and
contingent liabilities
ACCOUNTING POLICIES
CONTINGENT LIABILITIES
A contingent liability is disclosed when there is a possible obligation that arises from past events and
whose existence is only confirmed by one or more doubtful future events or when there is an obligation
that is not recognised as a liability or provision because it is not probable that an outflow of resources will
be required or the amount of the obligation cannot be reliably estimated.
EUR million
Pledged assets on own behalf
For debt
Pledges
Real estate mortages
For other commitments
Pledges
Real estate mortages
Contingent liabilities on own behalf
Other contingent liabilities
On behalf of associated companies and joint ventures
Guarantees
2016
2015
291
137
379
99
205
603
294
137
0
118
192
624
37.1 Pledged assets for debt
Finnish participants in the State Nuclear Waste Management Fund are allowed to borrow from the fund.
Fortum has pledged shares in Kemijoki Oy as a security. The value of the pledged shares is unchanged,
EUR 269 million on 31 December 2016 (2015: 269).
Fortum Tartu in Estonia (60% owned by Fortum) has given real estate mortgages for a value of EUR 96
million (2015: 96) as a security for an external loan. Real estate mortgages have also been given for loan
from Fortum’s pension fund for EUR 41 million (2015: 41).
Regarding the relevant interest-bearing liabilities, see Note 28 Interest-bearing liabilities.
37.2 Pledged assets for other commitments
Pledges also include restricted cash given as trading collateral of EUR 345 million (2015: 6) for trading of
electricity and CO2 emission allowances in Nasdaq Commodities Europe, in Intercontinental Exchange
(ICE), European Energy Exchange (EEX) and Polish Power Exchange (TGE) and EUR 21 million (Dec 31
2015: 0) for windfarm construction in Russia. See also Note 22 Interest-bearing receivables.
Fortum has given real estate mortgages in power plants in Finland, total value of EUR 99 million in
December 2016 (Dec 31 2015: 118), as a security to the Finnish State Nuclear Waste Management Fund for
the uncovered part of the legal liability and unexpected events relating to future costs for
decommissioning and disposal of spent fuel in Loviisa nuclear power plant. According to the Nuclear
Energy Act, Fortum is obligated to contribute the funds in full to the State Nuclear Waste Management
Fund to cover the legal liability. Any uncovered legal liability relates to periodising of the payments to the
fund, see more information in Note 30 Nuclear related assets and liabilities. The size of the securities
given is updated yearly in Q2 based on the decisions regarding the legal liabilities and the funding target
which take place around year-end every year. Due to the yearly update, the amount of real estate
mortgages given as a security decreased by EUR 19 million.
See also Note 30 Nuclear related assets and liabilities.
37.3 Contingencies on own behalf
Fortum owns the coal condensing power plant Meri-Pori in Finland. Teollisuuden Voima Oyj (TVO)
has the contractual right to participate in the plant with 45.45%. Based on the participation agreement
Fortum has to give a guarantee to TVO against breach in contract. The amount of the guarantee is set to
EUR 125 million (2015: 125).
37.4 Contingencies on behalf of associated companies
Guarantees and other contingent liabilities on behalf of associated companies and joint ventures mainly
consist of guarantees relating to Fortum’s associated nuclear companies Teollisuuden Voima Oyj (TVO),
Forsmarks Kraftgrupp AB (FKA) and OKG AB (OKG). The guarantees are given in proportion to Fortum’s
respective ownership in each of these companies.
According to law, nuclear companies operating in Finland and Sweden shall give securities to the
Finnish State Nuclear Waste Management Fund and the Swedish Nuclear Waste Fund respectively, to
guarantee that sufficient funds exist to cover future expenses of decommissioning of the power plant and
disposal of spent fuel. In Finland, Fortum has given a guarantee on behalf of TVO to the Finnish State
Nuclear Waste Management Fund to cover Fortum’s part of TVO’s uncovered part of the legal liability and
for unexpected events. The amount of guarantees is updated every year in June based on the legal liability
decided in December the previous year. Due to the yearly update, the amount of guarantees given were
EUR 38 million (2015: 37). The guarantee covers the unpaid legal liability due to periodisation as well as
risks for unexpected future costs.
99
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5
6
7
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34
35
36
37
38
39
40
41
42
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
In Sweden, Fortum has given guarantees on behalf of FKA and OKG to the Swedish Nuclear Waste
Fund to cover Fortum’s part of FKA’s and OKG’s liability. Guarantees for the period of 2015–2017 has
been given on behalf of Forsmarks Kraftgrupp AB and OKG AB amounting to SEK 5,393 million (EUR 565
million) at 31 December 2016 (Dec 31 2015: EUR 587 million). There are two types of guarantees given
on behalf of Forsmark Kraftgrupp AB and OKG AB. The Financing Amount is given to compensate for the
current deficit in the Nuclear Waste Fund, assuming that no further nuclear waste fees are paid in. This
deficit is calculated as the difference between the expected costs and the funds to cover these costs at the
time of the calculation. The Supplementary Amount constitutes a guarantee for deficits that can arise as
a result of unplanned events. The Financing Amount given by Fortum on behalf of Forsmark Kraftgrupp
AB and OKG AB was SEK 3,843 million (EUR 402 million) and the Supplementary Amount was SEK 1,550
million (EUR 162 million) at 31 December 2016.
38 Legal actions and
official proceedings
38.1 Group companies
Tax cases in Finland
Fortum received an income tax assessment in Finland for 2007 in December 2013. Tax authorities
claimed in the transfer pricing audit that detailed business decisions were done by Fortum Oyj and
therefore re-characterized the equity Fortum has injected to its Belgium subsidiary Fortum Project
Finance NV not to be equity, but funds to be available for the subsidiary. Tax authorities’ view was that
the interest income that Fortum Project Finance NV received from its loans should be taxed in Finland,
not Belgium. The tax authorities claimed an additional tax of approximately EUR 136 million for the
year 2007. Fortum considered the claims unjustifiable both for legal grounds and interpretation. Fortum
appealed the decision.
The Board of Adjustment of the Large Taxpayers’ Office approved Fortum’s appeal for the year 2007 on
21 August 2014. The Board of Adjustment’s decision is in line with the principle adopted in the Supreme
Administrative Court’s precedent in June 2014, according to which, under transfer pricing rules, the
nature of business cannot be re-characterized for tax purposes, but can only adjust the pricing of goods
or services. Despite the new precedent, the Tax Recipients’ Legal Services Unit within the tax authorities
appealed this decision to the Administrative Court in Helsinki. In May 2016 the Administrative Court
announced its decision in the case. The court ruled in Fortum’s favour and rejected the appeal of the
100
Tax Recipients’ Legal Services Unit. The Tax Recipient’s Legal Service Unit appealed the Administrative
Court’s decision to the Supreme Administrative Court in July 2016.
In November 2016 the Supreme Administrative Court decided not to grant a permit to appeal. Thus
the decision favourable to Fortum of the Board of Adjustment of the Large Taxpayer’s office from August
2014, remains in force and is final. No additional tax is to be paid for the year 2007 based on the above-
mentioned audit.
In December 2014 Fortum Oyj received a non-taxation decision from the large Taxpayers’ office for
the years 2008–2011 regarding the activities in the Belgian and Dutch financing companies. The decision
was given due to the transfer pricing audit carried out in 2013–2014 and was in line with the Board of
Adjustment’s decision with respect to Fortum for the year 2007. The Tax Recipients’ Legal Services Unit
has appealed the decisions in February 2015 to the Board of Adjustment of the Large Taxpayers’ office.
According to the claim of correction an additional tax of approximately EUR 406 million for the years
2008–2011 was claimed. In December 2016 the Tax Recipients’ Legal Services Unit cancelled its appeals
for the years 2008–2011. In January 2017 the Board of Adjustment of the Large Taxpayers’ office declared
the cases for 2008–2011 annulled. Thus the non-taxation decision from August 2014 from the large
Taxpayers’ office remains in force for the years 2008–2011. No additional tax is to be paid for the years
2008–2011 based on the above-mentioned audit.
Tax cases in Sweden
Fortum received income tax assessments in Sweden for the years 2009, 2010, 2011 and 2012 in December
2011, December 2012, December 2013 and October 2014, respectively. According to the tax authorities,
Fortum would have to pay additional income taxes for the years 2009, 2010, 2011 and 2012 for the
reallocation of loans between the Swedish subsidiaries in 2004–2005, as well as additional income
taxes for the years 2010, 2011 and 2012 for financing of the acquisition of TGC 10 (current OAO Fortum)
in 2008. The claims are based on a change in tax regulation as of 2009. Fortum considered the claims
unjustifiable and appealed the decisions.
In April 2016 the Administrative Court in Stockholm, Sweden, announced its decisions relating to
the income tax assessments for 2009–2012. A part of the decisions were positive. The Court repealed
the income assessments relating to the financing of the acquisition of TGC 10 for the years 2010–2012.
However, with respect to the reallocation of the loans between the Swedish subsidiaries in 2004–2005,
the Court mainly rejected the appeals of Fortum for the years 2009–2012. Fortum disagrees with the
argumentation of the Court in those cases which were ruled in the favour of the Swedish tax authorities.
Fortum has therefore in June 2016 filed an appeal to the Court of Appeal in Stockholm in these cases. The
decisions of the Administrative Court which were favourable to Fortum have become non-appealable and
thus final in July 2016.
In addition Fortum has received income tax assessments in Sweden for the years 2013 and 2014 in
December 2015 and December 2016, respectively. The assessments concern the loans given in 2013 and
2014 by Fortum’s Dutch financing company to Fortum’s subsidiaries in Sweden. The interest income
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23
24
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26
27
28
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30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
for these loans was taxed in the Netherlands. The tax authority considers just over a half of the interest
relating to each loan as deductible, i.e. deriving from business needs. The rest of the interest is seen as
non-deductible. The decision is based on the changes in the Swedish tax regulation in 2013. Fortum
considers the claims unjustifiable and has appealed the decisions. The cases are pending before the
Administrative Court.
Based on legal analysis supporting legal opinions, no provision has been recognised in the financial
statements for the above-mentioned Swedish tax cases. Fortum’s legal view has therefore not changed.
If the decisions by the tax authority remain final despite the appeals processes, the impact on net profit
would be approximately SEK 389 million (EUR 41 million) for the year 2009, approximately SEK 347
million (EUR 36 million) for the year 2010, approximately SEK 301 million (EUR 31 million) for the
year 2011, approximately SEK 69 million (EUR 7 million) for the year 2012, SEK 273 million (EUR 29
million) for the year 2013 and SEK 282 million (EUR 29 million) for the year 2014. Moreover, for the
years 2009–2012 an interest cost would impact the net profit with SEK 69 million (EUR 7 million). The
additional taxes and interest for 2009–2012 have already been paid in June 2016, in total SEK 1,175
million (EUR 123 million) and based on the legal opinion booked as a receivable.
Tax cases in Belgium
Fortum has received income tax assessments in Belgium for the years 2008, 2009, 2010 and 2011.
Tax authorities disagree with the tax treatment of Fortum EIF NV. Fortum finds the tax authorities’
interpretation not to be based on the local regulation and has appealed the decisions. The court of
First instance in Antwerpen rejected Fortum’s appeal for the years 2008 and 2009 in June 2014. Fortum
found the decision unjustifiable and appealed to the Court of Appeal.
In January 2016 Fortum received a favourable decision from the Court of Appeal in which the Court
disagreed with the tax authorities’ interpretation and the tax assessment for 2008 was nullified. The
tax authorities disagreed with the decision and filed an appeal to Hof van Cassatie (Supreme Court) in
March 2016. Fortum appeals concerning 2009–2011 are still pending and Fortum expects the remaining
years to follow the final decision for 2008. Based on legal analysis and a supporting legal opinion, no
provision has been accounted for in the financial statements. The amount of additional tax claimed
is approximately EUR 36 million for the year 2008, approximately EUR 27 million for the year 2009,
approximately EUR 15 million for the year 2010 and approximately EUR 21 million for the year 2011. The
tax has already been paid. If the tax is repaid to Fortum, Fortum will receive a 7% interest on the amount.
In November 2015 Fortum received an income tax assessment from the Belgian tax authorities for
the year 2012. The tax authorities disagree with the tax treatment of Fortum Project Finance NV. Fortum
finds the tax authorities’ interpretation not to be based on the local regulation and has filed an objection
against the tax adjustment. In line with treatment of the cases concerning 2008–2011, no provision has
been accounted for in the financial statements. The amount of additional tax claimed is approximately
EUR 15 million for the year 2012. The tax has already been paid.
For critical accounting estimates regarding uncertain tax positions, see Note 29 Income taxes in
balance sheet. See also Note 13 Income tax expense.
In addition to the litigations described above, some Group companies are involved in other routine
tax and other disputes incidental to their normal conduct of business. Based on the information
currently available, management does not consider the liabilities arising out of such litigations likely to
be material to the Group’s financial position.
38.2 Associated companies
In Finland Fortum is participating in the country’s fifth nuclear power plant unit, Olkiluoto 3 (OL3),
through the shareholding in Teollisuuden Voima Oyj (TVO) with an approximately 25% share
representing some 400 MW in capacity. The civil construction works of the Olkiluoto 3 plant unit have
been mainly completed. The installation of the electrical systems, the instrumentation and control
system (I&C), and mechanical systems is still in progress. Test runs with the I&C commenced in
January 2016. In April TVO submitted to the Ministry of Economic Affairs and Employment (TEM) an
application for an operating licence. The training simulator was completed in October, and the Nuclear
Circuit Cleaning (NCC) was carried out in September–November. The first phase of the turbine plant
commissioning is completed. Some of the systems and components will be kept in operation; the rest
will be preserved in accordance with a separate plan. According to the schedule updated by the AREVA-
Siemens in September 2014, regular electricity production in the unit will commence at the end of 2018.
In December 2008 the OL3 Supplier initiated the International Chamber of Commerce (ICC)
arbitration proceedings and submitted a claim concerning the delay and the ensuing costs incurred at
the Olkiluoto 3 project. The Supplier’s monetary claim, updated in February 2016, is approximately EUR
3.5 billion in total. The sum is based on the supplier’s updated analysis of events that occurred through
September 2014, with certain claims quantified to 31 December 2014.
In 2012, TVO submitted a counter-claim and defence in the matter. In July 2015, TVO updated
its quantification estimate of its costs and losses to amount to approximately EUR 2.6 billion until
December 2018, which is the estimated start of the regular electricity production of OL3.
The companies belonging to the Plant Supplier Consortium (AREVA GmbH, AREVA NP SAS and
Siemens AG) are jointly and severally liable of the Plant Contract obligations.
In November 2016, the ICC Tribunal made a final and binding partial award. In the partial award, the
ICC Tribunal addressed the early period of the project (time schedule, licensing and licensability, and
system design). This comprised many of the facts and matters that TVO relies upon in its main claims
against the supplier, as well as certain key matters that the supplier relies upon in its claims against TVO.
In doing so, the partial award finally resolved the great majority of these facts and matters in favour of
TVO, and conversely rejected the great majority of the supplier’s contentions in this regard. The partial
award did not take a position on the claimed monetary amounts. The arbitration proceeding is still
going on with further partial awards to come before the final award where the Tribunal will declare the
liabilities of the parties to pay compensation.
101
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28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
In 2016, Areva Group announced a restructuring of its business. The restructuring plan involves
a transfer of the operations of Areva NP, excluding the OL3 project and resources necessary for its
completion, to an ad hoc structure which is to be sold to a consortium led by EDF. On November
16, Areva and EDF announced a binding agreement on the restructuring, which was informed to be
completed during the second semester of 2017. The implementation of the restructuring plan is subject
to decisions and clearances, such as those related to the contemplated state aid connected with the
plan. TVO requires that the restructuring respects the completion of the OL3 project within the current
schedule by the end of 2018 and that all liabilities of the plant contract are respected.
39 Events after the balance sheet date
There have been no material events after balance sheet date.
40 Acquisitions and disposals
40.1 Acquisitions
EUR million
Gross investments in shares in subsidiary companies
Gross investments in shares in associated companies and joint ventures
Gross investments in available for sale financial assets
Gross investments in shares, total Fortum
2016
813
17
14
844
2015
1
27
15
43
40.1.1 Acquisitions of subsidiary companies
On 27 May 2016 Fortum signed an agreement with the four biggest owners of the Nordic circular
economy company Ekokem Corporation, representing approximately 81% of the shares, to acquire
their shareholding in the company. The acquisition was finalised on 31 August 2016. Fortum also made
a tender offer valid until the end of September to the remaining shareholders at the same price of 165
EUR per share. By the end of December Fortum’s total shareholding was 98.2%. Fortum has initiated
a redemption process for the remaining shares. The debt and cash-free purchase price for 100% of the
company will be approximately EUR 680 million.
The redemption process for the remaining shares is ongoing and the consideration to be paid upon
completion has been included in the total consideration. The initial goodwill from the purchase price
allocation, prepared based on the 31 August balance sheet, is EUR 141 million and results mainly from
the growth opportunities and synergies. The accounting of the acquisition is still preliminary as all
valuation effects, especially regarding the provisions, have not been finalised.
Ekokem is fully consolidated into the Fortum Group from the end of August 2016. Ekokem has been
integrated as a business area into the City Solutions segment resulting in an increase of EUR 105 million
on sales, EUR 7 million on comparable operating profit and EUR 26 million on comparable EBITDA.
The operating profit was impacted by the transaction costs of EUR 12 million (of which transfer tax
EUR 9 million) recognized in the income statement during 2016 as Items affecting comparability (Capital
gains and other).
On 8 January 2016, Fortum made a public tender offer in Poland to purchase all shares in Grupa
DUON S.A., an electricity and gas sales company listed on the Warsaw Stock Exchange. During the
subscription period that ended on 26 February 2016 Fortum received subscriptions from shareholders
representing altogether 93.35% shares in the company at the offered price PLN 3.85 per share. The
remaining shares were purchased from shareholders under the mandatory squeeze-out procedure at
the same price per share. In April Fortum obtained 100% of shares in Grupa DUON S.A. and in June the
company was delisted.
This financial statement includes the income statement effect of Grupa Duon S.A. group from 1 April
2016 onwards. The consolidated sales included in the City Solutions segment was EUR 155 million,
comparable operating profit EUR 4 million and comparable EBITDA EUR 8 million. The purchase price
allocation is based on the balance sheet as of 31 March 2016. The initial goodwill in the acquired group
is EUR 22 million and represents the future prospects and growth potential. The initial accounting of
the acquisition is still preliminary as all valuation effects have not been finalised, in particular regarding
potential obligations.
Other acquisitions include the shares of Info24 AB and Turebergs Recycling AB. On 1 April 2016
Fortum acquired 100% of the shares in the Swedish IT company Info24, a company specialised in the
development of business solutions within the IoT, Internet of Things. On 21 December 2016 Fortum
acquired 100% of the shares in Turebergs Recycling AB, a Swedish company with main business in
environmental construction, recycling and processing of bottom ash from waste-to-energy plants.
EUR million
Consideration paid in cash
Unpaid consideration
Total consideration
Fair value of the acquired assets
Translation difference
Goodwill
Ekokem
Corporation
570
10
580
440
0
141
Grupa Duon
S.A.
106
106
86
2
22
Other
15
3
17
17
0
0
Fortum total
691
13
703
543
2
163
102
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2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
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26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
EUR million
Fair value of the acquired net identifiable assets
Cash and cash equivalents
Tangible and intangible assets
Other assets
Deferred tax liabilities
Other non-interest bearing liabilities
Interest-bearing liabilities
Net identifiable assets
Non-controlling interests
Total
Gross investment
Purchase consideration settled in cash
Cash and cash equivalents in acquired subsidiaries
Cash outflow in acquisition
Unpaid consideration
Interest-bearing debt in acquired subsidiaries
Total gross investment in acquired subsidiaries
Ekokem Corporation
Acquired
book values
Allocated fair
value
Total fair
value
Acquired
book values
Grupa Duon S.A.
Allocated fair
value
Total fair
value
Acquired
book values
Fortum total 1)
Allocated fair
value
Total fair
value
17
315
67
-34
-117
-117
131
1
131
387
-77
309
309
17
702
67
-112
-117
-117
441
1
440
570
17
553
10 2)
117
680
8
49
37
-1
-16
-19
58
1
58
34
-7
28
28
26
366
108
-35
-135
-136
194
2
192
438
-88
351
351
8
83
37
-7
-16
-19
86
1
86
106
8
98
19
117
26
804
108
-123
-135
-136
545
2
543
691
26
664
13
136
813
1) Including acquired book values and allocated fair values from the acqusition of Info24 AB and Turebergs Recycling AB.
2) Minority shares subject to redemption.
Fortum finalised the acquisition of three wind power projects from the Norwegian company Nordkraft in January 2017. The transaction consists of the Nygårdsfjellet wind farm, which is already operational, as well as
the fully-permitted Ånstadblåheia and Sørfjord projects. Fortum is preparing for the construction of the Ånstadblåheia and Sørfjord projects, expected to be commissioned in 2018 and 2019. When built the installed
capacity of the three wind farms would total approximately 170 MW.
There were no material acquisitions of subsidiary companies during 2015.
40.1.2 Other acquisitions
Fortum decided in 2015 to participate in the Fennovoima nuclear power project in Finland with a 6.6% share. The investment in Fennovoima is classified as Available-for-sale financial assets.
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Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
40.2 Disposals
EUR million
Gross divestments of shares in subsidiary companies 1)
Gross divestments of shares in associated companies
Gross divestments of shares, total Fortum
2016
127
34
161
2015
6,369
27
6,395
1) In 2015 in addition to the proceeds from shares and repayments of interest-bearing debt in sold subsidiary, totalling
approximately EUR 6.4 billion, Swedish distribution business paid group contribution liability net of cash amounting to
approximately EUR 0.1 billion as a part of the total consideration of the divestment of Swedish distribution business.
40.2.1 Disposals of subsidiary companies
Fortum sold its 100% shareholding in its Russian subsidiary OOO Tobolsk CHP to SIBUR, Russia’s
largest integrated gas processing and petrochemicals company in February 2016. OOO Tobolsk CHP
owns and operates the combined heat and power (CHP) plant in the city of Tobolsk in Western Siberia.
Fortum booked a one-time pre-tax sales gain in Russia segment totalling EUR 35 million.
In March 2015 Fortum signed a binding agreement to sell the Swedish Distribution business to a
consortium comprising Swedish national pension funds Första AP-Fonden (12.5%) and Tredje AP-
Fonden (20.0%), Swedish mutual insurance and pension savings company Folksam (17.5%) and the
international infrastructure investor, Borealis Infrastructure Management Inc. (50.0%). The divestment
was completed on 1 June 2015. The total consideration from the divestment was SEK 60.6 billion on a
debt- and cash-free basis corresponding to approximately EUR 6.4 billion. Fortum recognised a one-time
sales gain of approximately EUR 4.3 billion corresponding to EUR 4.82 per share. The sales gain is
reported as part of the 2015 results of the discontinued operations. Distribution segment has been
presented as discontinued operations for 2015. For additional information see Note 14 Discontinued
operations.
Divestments of shares in subsidiaries–Impact on financial position, total Fortum
EUR million
Gross divestments of shares in subsidiary companies 1)
Proceeds from interest-bearing receivables
Sales price for the shares (net of cash)
Liquid funds in sold subsidiaries
Sales price including liquid funds in sold subsidiaries
Intangible assets and property, plant and equipment
Other non-current and current assets
Liquid funds
Interest-bearing loans
Other liabilities and provisions
Net assets divested
Gain on sale, discontinued operations
Gain on sale, continuing operations
Gain on sale, total Fortum
2016
127
0
127
10
137
92
15
10
0
-15
102
-
35
35
2015
6,369
207
6,162
12
6,174
2,577
120
12
-207
-611
1,891
4,282
4,282
1) In 2015 in addition to the proceeds from shares and repayments of interest-bearing debt in sold subsidiary, totalling
approximately EUR 6.4 billion, Swedish distribution business paid group contribution liability net of cash amounting to
approximately EUR 0.1 billion as a part of the total consideration of the divestment of Swedish distribution business.
40.2.2 Other disposals
In March 2016 Fortum concluded the divestment of its 51.4% shareholding in the Estonian natural
gas import, sales and distribution company AS Eesti Gaas. Fortum sold its shareholding to
Trilini Energy OÜ. The sale resulted in a one-time pre-tax sales gain in City Solutions segment totalling
EUR 11 million.
In January 2015 Fortum sold its 51.4% shareholding in the associated company AS Võrguteenus
Valdus to the Estonian electricity transmission system operator Elering AS.
41 Related party transactions
41.1 The Finnish State and companies owned by the Finnish State
At the end of 2016, the Finnish State owned 50.76% of the Company’s shares. The Finnish Parliament has
authorised the Government to reduce the Finnish State’s holding in Fortum Corporation to no less than
50.1% of the share capital and voting rights.
104
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
All transactions between Fortum and other companies owned by the Finnish State are on arm's
length basis.
On 31 August 2016 Fortum finalised the acquisition of Ekokem Corporation with the four biggest
owners, representing approximately 81% of the shares. The Finnish State was among the biggest owners
with a 34%-shareholding in Ekokem. For more information see Note 40 Acquisitions and disposals.
42 Subsidiaries by segment
on 31 December 2016
41.2 Board of Directors and Fortum Executive Management
The key management personnel of the Fortum Group are the members of Fortum Executive Management
and the Board of Directors. Fortum has not been involved in any material transactions with members of
the Board of Directors or Fortum Executive Management. No loans exist to any member of the Board of
Directors or Fortum Executive Management at 31 December 2016. The total compensation (including
pension benefits and social costs) for the key management personnel for 2016 was EUR 10 million (2015: 13).
See Note 11 Employee benefits for further information on the Board of Directors and Fortum
Executive Management remuneration and shareholdings.
41.3 Associated companies and joint ventures
In the ordinary course of business Fortum engages in transactions on commercial terms with associated
companies and other related parties, which are on same terms as they would be for third parties, except
for some associates as discussed later in this note.
Fortum owns shareholdings in associated companies and joint ventures which in turn own hydro
and nuclear power plants. Under the consortium agreements, each owner is entitled to electricity in
proportion to its share of ownership or other agreements. Each owner is liable for an equivalent portion
of costs regardless of output. These associated companies are not profit making, since the owners
purchase electricity at production cost including interest costs and production taxes.
For further information on transactions and balances with associated companies and joint ventures,
see Note 20 Participations in associated companies and joint ventures.
41.4 Pension fund
The Fortum pension funds in Finland and Sweden are stand-alone legal entities which manage pension
assets related to the part of the pension coverage in Sweden and Finland. The assets in the pension
fund in Finland include Fortum shares representing 0.04% (2015: 0.04%) of the company’s outstanding
shares. Real estate and premises owned by the Finnish pension fund have been leased to Fortum. Fortum
has not paid contributions to the pension funds in 2016 nor in 2015. Real estate mortgages have also
been given for loan from Fortum’s pension fund for EUR 41 million (2015: 41).
C = City Solutions
G = Generation
R = Russia
O = Other
1) New company
2) Shares held by the parent company
3) Consolidated in accordance with 100% (Ekopartnerit Turku Oy with 51%)
ownership as minority redemption process is ongoing
Company name
Ekokem Oyj
Ekokem-Palvelu Oy
Ekopartnerit Turku Oy
Fortum Asiakaspalvelu Oy
Fortum Assets Oy
Fortum C&H Oy
Fortum Growth Oy
Fortum Heat and Gas Oy
Fortum Markets Oy
Fortum Norm Oy
Fortum Power and Heat Holding Oy
Fortum Power and Heat Oy
Fortum Real Estate Oy
Kiinteistö Oy Espoon Energiatalo
Koillis-Pohjan Energiantuotanto Oy
Oy Pauken Ab
Oy Tersil Ab
Oy Tertrade Ab
Puhosvoima Oy
Fortum Project Finance N.V.
Ekokem A/S
Ekokem OW A/S
Fortum Energi A/S
AS Anne Soojus
AS Fortum Tartu
AS Tartu Joujaam
AS Tartu Keskkatlamaja
Fortum CFS Eesti OU
Fortum Eesti AS
105
Domicile
1), 2), 3) Finland
1), 3) Finland
1), 3) Finland
2) Finland
Finland
Finland
Finland
2) Finland
2) Finland
2) Finland
Finland
2) Finland
2) Finland
Finland
Finland
Finland
Finland
Finland
1), 3) Finland
2) Belgium
1), 3) Denmark
1), 3) Denmark
Denmark
Estonia
Estonia
Estonia
Estonia
Estonia
Estonia
Segment
C
C
C
C
O
O
O
C, O
C
O
G
C, G, O
O
O
G
O
O
O
C
O
C
C
C
C
C
C
C
O
C
Group
holding, %
98.2
98.2
50.1
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
98.2
100.0
98.2
98.2
100.0
60.0
60.0
60.0
60.0
100.0
100.0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Company name
Fortum France S.A.S
Fortum Service Deutschland GmbH
Fortum Carlisle Limited
Fortum Energy Ltd
Fortum Glasgow Limited
Fortum O&M (UK) Limited
IVO Energy Limited
Fortum Insurance Ltd
Fortum Amrit Energy Private Limited
Fortum FinnSurya Energy Private Limited
Fortum India Private Limited
Fortum Solar India Private Limited
Fortum C&P Unlimited
Fortum Finance Ireland Designated Activity Company
Fortum Jelgava, SIA
Fortum Latvia SIA
UAB Fortum Heat Lietuva
UAB Fortum Klaipeda
UAB Joniskio energija
UAB Svencioniu energija
Fortum Baltic Investments SNC
Fortum Investment SARL
Fortum Luxembourg SARL
Ekokem Norway AS
Fortum Forvaltning AS
Fortum Markets AS
AMB Energia Sprzedaż Sp. z o.o.
DUON Dystrybucja S.A.
DUON Praszka Sp. z o.o.
Fortum Customer Services Polska Sp. z o.o.
Fortum Marketing and Sales Polska S.A.
Fortum Markets Polska S.A.
Fortum Network Częstochowa Sp. z o.o.
Fortum Network Płock Sp. z o.o.
Fortum Network Wrocław Sp. z o.o.
Fortum Power and Heat Polska Sp. z o.o.
Fortum Silesia SA
Fortum Sprzedaż Sp. z o.o.
PGS Sp. z o.o.
Rejonowa Spółka Ciepłownicza Sp. z o.o.
Chelyabinsk Energoremont
LLC Fortum Energy OOO Fortum Energija
Domicile
France
Germany
1) Great Britain
Great Britain
1) Great Britain
Great Britain
Great Britain
Guernsey
India
India
India
India
Ireland
Ireland
Latvia
Latvia
Lithuania
Lithuania
Lithuania
Lithuania
Luxembourg
2) Luxembourg
Luxembourg
2)
1), 3) Norway
Norway
Norway
1) Poland
1) Poland
1) Poland
1) Poland
1) Poland
1) Poland
1) Poland
1) Poland
1) Poland
Poland
Poland
1) Poland
1) Poland
Poland
Russia
Russia
Segment
O
C
C
O
C
C
G
O
O
O
O
O
O
O
C
C
C
C
C
C
C
O
O
C
O
C
C
C
C
C
C
C
C
C
C
C
C
C
C
C
R
R
Group
holding, %
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
95.0
66.2
50.0
100.0
100.0
100.0
98.2
100.0
100.0
100.0
100.0
65.9
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
98.2
100.0
106
Company name
OAO Fortum
Ural Heat Networks Company Joint Stock Company
Blybergs Kraftaktiebolag
Brännälven Kraft AB
Bullerforsens Kraft Aktiebolag
Ekokem AB
Ekokem Sweden Holding AB
Energikundservice Sverige AB
Fortum 1 AB
Fortum Fastigheter AB
Fortum Markets AB
Fortum Nordic AB
Fortum Produktionsnät AB
Fortum Sweden AB
Fortum Sverige AB
Fortum Vind Norr AB
Info24 AB
Mellansvensk Kraftgrupp Aktiebolag
Nordgroup Waste Management AB
Oreälvens Kraftaktiebolag
Turebergs Recycling AB
Uddeholm Kraft Aktiebolag
Värmlandskraft OKG-delägarna Aktiebolag
FB Generation Services B.V.
Fortum 2 B.V.
Fortum 3 B.V.
Fortum 4 B.V.
Fortum Charge & Drive B.V.
Fortum Finance II B.V.
Fortum Holding B.V.
Fortum Hydro B.V.
Fortum India B.V.
Fortum Power Holding B.V.
Fortum Russia B.V.
Fortum Russia Holding B.V.
Fortum SAR B.V.
Fortum Star B.V.
Fortum Sun B.V.
Fortum Wave Power B.V.
PolarSolar B.V.
RPH Investment B.V.
Fortum Enerji ve Ticaret A.Ş.
Domicile
Russia
Russia
Sweden
Sweden
Sweden
1), 3) Sweden
1), 3) Sweden
Sweden
Sweden
Sweden
Sweden
2) Sweden
Sweden
2) Sweden
Sweden
Sweden
1) Sweden
Sweden
1), 3) Sweden
Sweden
1) Sweden
Sweden
Sweden
The Netherlands
The Netherlands
The Netherlands
The Netherlands
The Netherlands
The Netherlands
2) The Netherlands
The Netherlands
The Netherlands
The Netherlands
The Netherlands
The Netherlands
The Netherlands
The Netherlands
The Netherlands
The Netherlands
The Netherlands
The Netherlands
Turkey
Segment
R
R
G
G
G
C
C
O
R
O
C
O
G
O
C, G, O
O
O
G
C
G
C
G
G
O
O
O
O
O
O
C, G, O
O
O
O
R
O
O
O
O
O
O
R
C, O
Group
holding, %
98.2
98.2
66.7
67.0
88.0
98.2
98.2
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
86.9
98.2
65.0
100.0
100.0
73.3
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial key figures
Share key figures
Segment key figures
Definitions of key figures
Financial key figures
Comparability of information presented in tables and graphs
Fortum announced the sale of Swedish Distribution business in March 2015. After the divestment of the Swedish Distribution business Fortum has no electricity distribution operations and therefore Distribution
segment was treated as discontinued operations in 2015, with restatement of year 2014, according to IFRS 5 Non-current Assets held for Sale and Discontinued operations.
Information in the tables and graphs presented for year 2012 or earlier is not restated due to the adoption of IFRS 10 and IFRS 11. Adoption of standards influences treatment of Fortum’s holding in AB Fortum
Värme samägt med Stockholms stad in the the consolidated financial statements.
EUR million or as indicated
Income statement
Sales total Fortum
Sales continuing operations
EBITDA total Fortum 1)
EBITDA continuing operations
Comparable EBITDA total Fortum
Comparable EBITDA continuing operations
Operating profit total Fortum
- of sales %
Operating profit continuing operations
- of sales %
Comparable operating profit total Fortum
Comparable operating profit continuing operations
Profit before income tax total Fortum
- of sales %
Profit before income tax continuing operations
- of sales %
Profit for the period total Fortum
- of which attributable to owners of the parent
Profit for the period continuing operations
- of which attributable to owners of the parent
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
4,479
5,636
5,435
6,296
6,161
6,159
5,309
2,298
2,478
2,292
2,271
3,008
2,538
2,129
2,015
2,360
2,398
2,396
2,374
2,416
1,975
1,847
41.2
1,963
34.8
1,782
32.8
1,708
27.1
2,402
39.0
1,874
30.4
1,508
28.4
1,564
1,845
1,888
1,833
1,802
1,752
1,403
1,934
43.2
1,850
32.8
1,636
30.1
1,615
25.7
2,228
36.2
1,586
25.8
1,398
26.3
1,608
1,552
1,596
1,542
1,351
1,312
1,354
1,300
1,862
1,769
1,512
1,416
1,212
1,204
4,751
4,088
3,954
1,673
1,873
1,457
3,428
72.2
1,296
31.7
1,351
1,085
3,360
70.7
1,232
30.1
3,161
3,154
1,089
1,081
3,702
3,459
4,640
196
1,265
1,102
4,245
114.7
-150
-4.3
922
808
4,088
110.4
-305
-8.8
4,142
4,138
-228
-231
3,632
3,632
1,006
1,006
1,015
1,015
633
17.4
633
17.4
644
644
595
16.4
595
16.4
504
496
504
496
Change
16/15, %
-2
5
-78
413
-20
-8
-85
522
-30
-20
-85
295
-88
-88
321
315
108
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial key figures
Share key figures
Segment key figures
Definitions of key figures
EUR million or as indicated
Financial position and cash flow
Capital employed total Fortum
Interest-bearing net debt
Interest-bearing net debt without Värme financing
Capital expenditure and gross investments in shares total Fortum
- of sales %
Capital expenditure and gross investments in shares continuing operations
Capital expenditure total Fortum
Capital expenditure continuing operations
Net cash from operating activities total Fortum
Net cash from operating activities continuing operations
Key ratios
Return on capital employed total Fortum, %
Return on shareholders’ equity total Fortum, %
Interest coverage total Fortum
Interest coverage including capitalised borrowing costs total Fortum
Funds from operations/interest-bearing net debt total Fortum, %
Funds from operations/interest-bearing net debt without Värme financing
total Fortum, %
Gearing, %
Comparable net debt/EBITDA total Fortum
Comparable net debt/EBITDA without Värme financing
Equity-to-assets ratio, %
Other data
Dividends
Dividends from recurring earnings in 2007
Additional dividends in 2007
Research and development
- of sales %
Average number of employees total Fortum
Average number of employees continuing operations
1) EBITDA is defined as Operating profit + Depreciation and amortisation.
2) Board of Directors’ proposal for the planned Annual General Meeting on 4 April 2017.
See Definitions of key figures.
16.5
19.1
12.8
36.3
52
2.2
49
1,198
683
515
21
0.5
8,304
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
13,544
4,466
15,911
6,179
15,350
5,969
16,124
6,826
17,931
7,023
19,420
7,814
972
21.7
2,624
46.6
929
17.1
1,249
19.8
1,482
24.1
1,574
25.6
19,183
7,793
6,658
1,020
19.2
655
1,108
862
1,222
1,408
1,558
1,005
1,670
2,002
2,264
1,437
1,613
1,382
1,548
15.0
18.7
9.4
8.6
34.1
73
2.6
41
12.1
16.0
12.4
10.3
37.6
70
2.5
43
11.6
15.7
13.7
10.0
20.5
78
2.8
40
14.8
19.7
10.5
8.5
21.5
69
3.0
44
10.2
14.6
7.6
5.7
19.9
73
3.2
43
9.0
12.0
6.7
5.3
18.8
22.1
77
3.9
3.4
43
17,918
4,217
3,664
843
17.7
695
774
626
1,762
1,406
19.5
30.0
19.9
15.7
42.9
49.3
39
2.3
2.0
51
19,870
-2,195
N/A
669
18.1
625
626
582
1,381
1,228
22.7
33.4
27.6
21.5
-59.7
N/A
-16
-1.7
N/A
61
18,649
-48
N/A
1,435
39.5
1,435
591
591
621
621
4.0
3.7
4.6
4.1
-1,503.4
N/A
0
0.0
N/A
62
888
888
888
888
888
977
1,155
977
977 2)
27
0.5
14,077
30
0.5
13,278
30
0.5
11,156
38
0.6
11,010
41
0.7
10,600
49
0.9
9,532
41
1.0
8,821
8,329
47
1.4
8,193
8,009
52
1.4
7,994
7,994
109
Change
16/15, %
-6
98
114
130
-6
2
-55
-49
0
11
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial key figures
Share key figures
Segment key figures
Definitions of key figures
Share key figures
EUR or as indicated
Data per share
Earnings per share total Fortum
Earnings per share continuing operations
Earnings per share discontinued operations
Diluted earnings per share total Fortum
Diluted earnings per share continuing operations
Diluted earnings per share discontinued operations
Cash flow per share total Fortum
Cash flow per share continuing operations
Equity per share
Dividend per share
Extra dividend
Dividend per share continuing operations
Additional dividend per share in 2007
Payout ratio, %
Payout ratio continuing operations, %
Payout ratio additional dividend in 2007, %
Dividend yield, %
Price/earnings ratio (P/E)
Share prices
At the end of the period
Average
Lowest
Highest
Other data
Market capitalisation at the end of the period, EUR million
Trading volumes 3)
Number of shares, 1,000 shares
In relation to weighted average number of shares, %
Number of shares, 1,000 shares
Number of shares excluding own shares, 1,000 shares
Average number of shares, 1,000 shares
Diluted adjusted average number of shares, 1,000 shares
1) Board of Directors’ proposal for the Annual General Meeting on 4 April 2017.
2) Payout ratios for dividends in 2007 are based on the total earnings per share.
2007
2008
2009
1.74
-
1.74
-
1.88
9.43
1.35
0.77
0.58
77.6 2)
44.3 2)
33.3 2)
4.4
17.7
1.74
-
1.74
-
2.26
8.96
1.00
-
-
57.5
-
-
6.6
8.8
1.48
-
1.48
-
2.55
9.04
1.00
-
-
67.6
-
-
5.3
12.8
2010
1.46
-
1.46
-
1.62
9.24
1.00
-
-
68.5
-
-
4.4
15.4
30.81
23.57
20.01
31.44
15.23
24.79
12.77
33.00
18.97
15.91
12.60
19.20
22.53
19.05
17.18
22.69
2011
1.99
-
1.99
-
1.82
2012
1.59
-
1.59
-
1.56
2013
1.36
-
1.36
-
1.74
10.84
1.00
11.30
1.00
11.28
1.10
-
-
50.3
-
-
6.1
8.3
16.49
19.77
15.53
24.09
-
-
62.9
-
-
7.1
8.9
14.15
15.66
12.81
19.36
-
-
80.9
-
-
6.6
12.2
16.63
15.11
13.10
18.18
2014
2015
2016
Change
16/15, %
-88
315
-88
315
-55
-49
-2
0
3.55
1.22
2.33
3.55
1.22
2.33
1.98
1.38
12.23
1.10
0.20
-
-
36.6
-
-
7.2
5.1
17.97
17.89
15.13
20.32
4.66
-0.26
4.92
4.66
-0.26
4.92
1.55
1.38
15.53
1.10
-
-
-
23.6
-
-
7.9
3.0
13.92
16.29
12.92
21.59
0.56
0.56
-
0.56
0.56
-
0.70
0.70
15.15
1.10 1)
-
-
-
196.4 1)
-
-
7.5 1)
26.1
14.57
13.56
10.99
15.74
27,319
13,519
16,852
20,015
14,649
12,570
14,774
15,964
12,366
12,944
787,380
88.5
886,683
N/A
889,997
891,395
628,155
70.8
887,638
N/A
887,256
887,839
580,899
65.4
888,367
N/A
888,230
888,230
493,375
55.5
888,367
N/A
888,367
888,367
524,858
59.1
888,367
N/A
888,367
888,367
494,765
55.7
888,367
N/A
888,367
888,367
465,004
52.3
888,367
N/A
888,367
888,367
454,796
51.2
888,367
N/A
888,367
888,367
541,858
61.0
888,367
N/A
888,367
888,367
611,572
68.8
888,367
N/A
888,367
888,367
3) Trading volumes in the table represent volumes traded on Nasdaq Helsinki. In addition to the Nasdaq Helsinki, Fortum shares were traded on several alternative market places, for example at Boat, BATS Chi-X and Turquoise, and on the OTC market as well. In
2016, approximately 63% (2015: 58%) of Fortum’s traded shares were traded on other markets than Nasdaq Helsinki.
See Definitions of key figures.
110
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial key figures
Share key figures
Segment key figures
Definitions of key figures
Segment key figures
Following the acquisition of the Russian company, OAO Fortum, Fortum changed its segment reporting during 2008. Comparison numbers were restated in 2008.
Fortum renewed its business structure as of 1 March 2014. The reorganisation lead to a change in Fortum’s external financial reporting structure as previously separately reported segments Heat and Electricity
Sales were combined into one segment: Heat, Electricity Sales and Solutions.
Fortum has applied new IFRS 10 Consolidated financial statements and IFRS 11 Joint arrangements from 1 January 2014. The effect of applying the new standards to Fortum Group financial information relates
to AB Fortum Värme samägt med Stockholm Stad (Fortum Värme), that is treated as a joint venture and thus consolidated with equity method from 1 January 2014 onwards. Before the change the company was
consolidated as a subsidiary with 50% minority interest.
Information for 2013 has been restated to reflect both the change in business structure and adoption of new IFRS standards.
Fortum announced the sale of Swedish Distribution business in March 2015. After the divestment of the Swedish Distribution business Fortum does not have any distribution operations and therefore Distribution
segment has been treated as discontinued operations starting from 2015 with restatement of year 2014, according to IFRS 5 Non-current Assets held for Sale and Discontinued operations.
Fortum has reorganised its operating structure as of 1 April 2016. The segments are: Generation (mainly the former Power and Technology); City Solutions (mainly the former Heat, Electricity Sales and Solutions)
and Russia. Because of the minor financial impact, the comparable segment information for 2015 has not been restated.
Sales by segment, EUR million
Generation
- of which internal
City Solutions
- of which internal
Heat
- of which internal
Electricity Sales
- of which internal
Russia
- of which internal
Other
- of which internal
Distribution
- of which internal
Eliminations and Netting of Nord Pool transactions
Total for continuing operations
Discontinued operations
Eliminations 1)
Total
1) Sales to and from discontinued operations.
2007
2,350
323
1,356
38
1,683
155
81
72
769
9
-1,760
4,479
2008
2,892
0
1,466
0
1,922
177
489
-
83
82
789
10
-2,005
5,636
2009
2,531
254
1,399
23
1,449
67
632
-
71
-5
800
13
-1,447
5,435
2010
2,702
-281
1,770
-8
1,798
158
804
-
51
169
963
18
-1,792
6,296
2011
2,481
-24
1,737
8
900
95
920
-
108
115
973
15
-958
6,161
2012
2,415
296
1,628
18
722
55
1,030
-
137
-66
1,070
37
-843
6,159
2013
2,252
69
1,516
87
1,119
-
63
54
1,064
19
-706
5,309
2014
2,156
85
1,332
34
1,055
0
58
44
-513
4,088
751
-89
4,751
2015
1,722
83
1,187
-13
893
0
114
75
-458
3,459
274
-31
3,702
2016
1,657
15
1,424
-5
896
0
121
72
-466
3,632
3,632
111
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial key figures
Share key figures
Segment key figures
Definitions of key figures
Comparable operating profit by segment, EUR million
Generation
City Solutions
Heat
Electricity Sales
Russia
Other
Distribution
Comparable operating profit
Impairment charges
Capital gains and other
Changes in fair values of derivatives hedging future cash flow
Nuclear fund adjustment
Other items affecting comparability 1)
Operating profit, continuing operations
Discontinued operations
Operating profit
2007
1,095
290
-1
-51
231
1,564
2008
1,528
250
-33
-92
-56
248
1,845
2009
1,454
231
22
-20
-61
262
1,888
2010
1,298
275
11
8
-66
307
1,833
2011
1,201
278
27
74
-73
295
1,802
2012
1,146
271
39
68
-92
320
1,752
2013
859
109
156
-54
332
1,403
250
85
29
93
284
155
61
33
1,847
33
1,963
-135
1,782
-218
1,708
316
2,402
-33
1,874
45
1,508
1,847
1,963
1,782
1,708
2,402
1,874
1,508
1) Other items affecting comparability comprise Changes in fair values of derivatives hedging future cash flow and Nuclear fund adjustment.
Comparable EBITDA by segment, EUR million
Generation
City Solutions
Heat
Electricity Sales
Russia
Other
Distribution
Total for continuing operations
Discontinued operations
Total
2007
1,198
453
10
-39
393
2,015
2008
1,625
419
-26
-25
-46
413
2,360
2009
1,547
393
28
55
-51
426
2,398
2010
1,398
462
13
94
-56
485
2,396
2011
1,310
471
29
148
-66
482
2,374
2012
1,260
481
40
189
-83
529
2,416
2013
1,007
211
258
-49
548
1,975
2014
877
104
161
-57
1,085
0
305
-94
1,296
2,132
3,428
2014
998
204
304
-49
1,457
416
1,873
2015
561
108
201
-63
808
-918
22
-62
-150
4,395
4,245
2015
680
209
267
-53
1,102
163
1,265
2016
417
112
191
-76
644
27
38
-65
-11
633
633
2016
527
238
312
-61
1,015
1,015
112
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial key figures
Share key figures
Segment key figures
Definitions of key figures
Depreciation and amortisation, EUR million
Generation
City Solutions
Heat
Electricity Sales
Russia
Other
Distribution
Total for continuing operations
Discontinued operations
Total
Share of profit of associates and joint ventures by segment, EUR million
Generation
City Solutions
Heat
Electricity Sales
Russia
Other
Distribution
Total for continuing operations
Discontinued operations
Total
Capital expenditure by segment, EUR million
Generation
City Solutions
Heat
Electricity Sales
Russia
Other
Distribution
Total for continuing operations
Discontinued operations
Total
2009
93
162
6
75
10
164
510
2009
-35
30
0
20
-4
10
21
2009
96
358
1
215
4
188
862
2010
100
187
2
86
10
178
563
2010
-25
31
1
8
28
19
62
2010
97
304
0
599
9
213
1,222
2011
109
193
2
108
7
187
606
2011
3
19
2
30
23
14
91
2011
131
297
5
670
16
289
1,408
2012
114
210
1
121
9
209
664
2012
-12
20
0
27
-20
8
23
2012
190
464
1
568
11
324
1,558
2013
148
102
150
5
216
621
2013
4
91
46
32
4
178
2013
179
123
435
12
255
1,005
2014
121
100
147
8
377
150
526
2014
-14
88
35
37
146
3
149
2014
197
86
340
3
626
147
774
2015
118
101
117
10
346
50
395
2015
-111
59
32
40
20
0
20
2015
187
105
285
6
582
44
626
2016
110
126
123
15
373
373
2016
-34
76
38
51
131
131
2016
196
112
201
83
591
591
2007
103
163
11
12
162
451
2007
-23
24
0
222
18
241
2007
93
309
3
14
236
655
2008
97
169
7
67
10
165
515
2008
26
12
5
19
48
16
126
2008
134
408
3
256
11
296
1,108
113
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial key figures
Share key figures
Segment key figures
Definitions of key figures
Gross investments in shares by segment, EUR million
Generation
City Solutions
Heat
Electricity Sales
Russia
Other
Distribution
Total for continuing operations
Discontinued operations
Total
Gross divestments of shares by segment, EUR million
Generation
City Solutions
Heat
Electricity Sales
Russia
Other
Distribution
Total for continuing operations
Discontinued operations
Total
Comparable net assets by segment, EUR million
Generation
City Solutions
Russia
Other
Total for continuing operations
2007
52
18
0
245
1
1
317
2008
0
23
0
1,492
1
0
1,516
2009
57
1
-
3
1
5
67
2009
10
1
-
-
2
1
14
2010
25
1
-
-
1
0
27
2010
0
52
-
43
6
46
147
2011
17
32
-
24
1
-
74
2011
3
203
16
23
0
323
568
2012
-
10
-
-
6
-
16
2012
102
269
2
-
0
37
410
2013
2
11
0
2
0
15
2013
79
11
-
-
52
142
2014
2
37
27
4
69
0
69
2014
67
446
0
2
515
2,681
3,196
2007
2008
2009
2010
2011
2012
2013
2014
2015
16
23
0
4
43
0
43
2015
0
27
0
-
27
6,369
6,395
2015
5,931
2,182
2,561
258
10,932
2016
7
815
0
22
844
844
2016
0
34
127
0
161
161
2016
5,815
3,052
3,284
489
12,641
Fortum is disclosing Comparable net assets instead of Net assets from 2016 onwards. Net assets until 2015 are disclosed below.
114
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial key figures
Share key figures
Segment key figures
Definitions of key figures
Net assets by segment, EUR million
Generation
City Solutions
Heat
Electricity Sales
Russia
Other
Distribution
Total for continuing operations
Net assets related to discontinued operations
Total
1) Fortum is disclosing Comparable net assets instead of Net assets from 2016 onwards.
2007
5,599
3,507
247
456
1,237
3,239
14,285
2008
5,331
3,468
188
2,205
796
3,032
15,020
2009
5,494
3,787
125
2,260
382
3,299
15,347
2010
5,806
4,182
210
2,817
29
3,683
16,727
2011
6,247
4,191
11
3,273
208
3,589
17,519
2012
6,389
4,286
51
3,848
158
3,889
18,621
2013
6,355
2,295
3,846
295
3,745
16,537
2014
6,001
2,112
2,597
496
11,206
2,615
13,820
2015 1)
5,913
2,170
2,561
291
10,934
-
10,934
Comparable return on net assets by segment, %
Generation
City Solutions
Heat
Electricity Sales
Russia
Distribution 2)
2) Classified as discontinued operations from 2014 onwards.
Return on net assets by segment, %
Generation
City Solutions
Heat
Electricity Sales
Russia
Distribution 2)
1) Fortum is disclosing Comparable net assets instead of Net assets from 2016 onwards.
2) Classified as discontinued operations from 2014 onwards.
2007
18.9
9.2
-0.6
0.0
7.6
2007
19.2
9.3
6.9
66.3
7.7
2008
28.0
7.3
-15.3
-3.8
8.2
2008
29.6
8.9
-14.0
3.7
8.1
2009
26.4
7.6
18.6
0.0
8.6
2009
24.5
7.9
28.9
0.0
8.7
2010
22.3
7.7
9.3
0.7
9.3
2010
19.5
8.4
38.4
2.4
9.7
2011
19.9
7.4
33.5
3.5
8.6
2011
24.6
9.9
4.2
3.5
13.7
2012
18.5
7.0
203.1
2.7
8.8
2012
18.7
8.8
152.3
3.0
9.1
2013
13.8
8.7
5.2
8.8
2013
14.5
9.7
5.2
9.3
2014
14.2
8.7
5.6
9.3
2014
13.6
19.1
5.6
73.6
2015
9.5
7.9
2016
6.9
7.5
8.2
8.0
2015 1)
-8.5
7.7
8.3
115
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial key figures
Share key figures
Segment key figures
Definitions of key figures
Average number of employees
Generation
City Solutions
Heat
Electricity Sales
Russia
Other
Distribution
Total for continuing operations
Discontinued operations
Total
2007
3,475
2,302
936
531
1,060
8,304
2008
3,591
2,422
766
5,566
510
1,222
14,077
2009
2,068
2,652
629
6,170
593
1,166
13,278
2010
1,891
2,482
538
4,555
592
1,098
11,156
2011
1,873
2,682
510
4,436
607
902
11,010
2012
1,896
2,354
515
4,301
661
873
10,600
2013
1,900
2,051
4,245
550
786
9,532
2015
1,389
1,458
4,180
983
2016
1,064
2,043
3,814
1,073
8,009
7,994
2014
1,685
1,913
4,196
536
8,329
492
8,821
116
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial key figures
Share key figures
Segment key figures
Definitions of key figures
Definitions of key figures
EBITDA (Earnings before
interest, taxes, depreciation and
amortisation)
= Operating profit + depreciation and amortisation
Capital expenditure
Comparable EBITDA
= EBITDA - items affecting comparability - net release of CSA
provision
Items affecting comparability
= Impairment charges + capital gains and other + changes in
fair values of derivatives hedging future cash flow + nuclear
fund adjustment
Comparable operating profit
= Operating profit - items affecting comparability
Impairment charges
= Impairment charges and related provisions (mainly
dismantling)
Capital gains and other
= Capital gains, transaction costs from acquisitions and other
Changes in fair values of
derivatives hedging future cash
flow
Nuclear fund adjustment
= Effects from the accounting of Fortum’s part of the Finnish
Nuclear Waste Fund where the asset in the balance sheet
cannot exceed the related liabilities according to IFRIC
interpretation 5.
Adjustment for Share of profit of
associated companies and joint
ventures
= Adjustment for IAS 39 effects, major sales gains and
impairment charges
Funds from operations (FFO)
= Net cash from operating activities before change in working
capital
= Capitalised investments in property, plant and equipment and
intangible assets including maintenance, productivity, growth
and investments required by legislation including borrowing
costs capitalised during the construction period. Maintenance
investments expand the lifetime of an existing asset, maintain
usage/availability and/or maintains reliability. Productivity
investments improve productivity in an existing asset. Growth
investments’ purpose is to build new assets and/or to increase
customer base within existing businesses. Legislation investments
are done at a certain point of time due to legal requirements.
Gross investments in shares
= Investments in subsidiary shares, shares in associated companies
and other shares in available for sale financial assets.
Investments in subsidiary shares are net of cash and grossed
with interest-bearing liabilities in the acquired company.
Return on shareholders’ equity,
%
= Profit for the year
Total equity average
Return on capital employed
continuing operations, %
= Profit before taxes continuing operations + interest and other
financial expenses continuing operations
Capital employed continuing operations average
Comparable return on net
assets, %
= Comparable operating profit + share of profit (loss) in
associated companies and joint ventures + adjustment for
Share of profit of associated companies and joint ventures
Comparable net assets average
Capital employed
= Total assets - non-interest bearing liabilities - deferred tax
liabilities - provisions
Comparable net assets
= Non-interest bearing assets + interest-bearing assets related
to the Nuclear Waste Fund - non-interest bearing liabilities
- provisions (non-interest bearing assets and liabilities do
not include finance related items, tax and deferred tax and
assets and liabilities from fair valuations of derivatives used for
hedging future cash flows)
117
x 100
x 100
x 100
x 100
= Effects from financial derivatives hedging future cash-flows
where hedge accounting is not applied according to IAS 39.
Return on capital employed, %
= Profit before taxes + interest and other financial expenses
Capital employed average
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financial key figures
Share key figures
Segment key figures
Definitions of key figures
x 100
Interest-bearing net debt
= Interest-bearing liabilities - liquid funds
Dividend yield, %
= Dividend per share
Gearing, %
= Interest-bearing net debt
Total equity
Equity-to-assets ratio, %
= Total equity including non-controlling interests
Total assets
Comparable net debt/EBITDA
= Interest-bearing net debt
Comparable EBITDA
Comparable net debt/EBITDA
continuing operations
= Interest-bearing net debt
Comparable EBITDA continuing operations
Interest coverage
Interest coverage including
capitalised borrowing costs
= Operating profit
Net interest expenses
= Operating profit
Net interest expenses-capitalised borrowing costs
Average number of employees
Based on monthly average for the whole period
Earnings per share (EPS)
= Profit for the period - non-controlling interests
Average number of shares during the period
Cash flow per share
= Net cash from operating activities
Average number of shares during the period
Equity per share
= Shareholders’ equity
Share price at the end of the period
x 100
x 100
Price/earnings (P/E) ratio
= Share price at the end of the period
Earnings per share
Average share price
= Amount traded in euros during the period
Number of shares traded during the period
Market capitalisation
= Number of shares at the end of the period x share price at the
end of the period
Trading volumes
= Number of shares traded during the period in relation to the
weighted average number of shares during the period
Effective income tax rate
= Income tax expense
Profit before income tax
Comparable effective income
tax rate
= Income tax expense - effects from tax rate changes
Profit before income tax decreased by profits from associated
companies and joint ventures and tax exempt capital gains
or losses
Taxes borne
= Taxes that a company is obliged to pay to a government,
directly or indirectly, on that company’s own behalf in respect
of an accounting period. Taxes borne include corporate
income taxes (excluding deferred taxes), production taxes,
employment taxes, taxes on property and cost of indirect
taxes. Production taxes include also taxes paid through
electricity purchased from associated companies.
Number of shares at the end of the period
Total tax rate
= Taxes borne
Payout ratio, %
= Dividend per share
Earnings per share
Payout ratio continuing
operations, %
= Dividend per share continuing operations
Earnings per share continuing operations
x 100
x 100
Profit before income tax increased by taxes borne in operating
profit
Comparable total tax rate
= Taxes borne
Profit before income tax increased by taxes borne in operating
profit and decreased by profits from associated companies
and joint ventures and by tax exempt capital gains or losses
Weighted average applicable
income tax rate
= Sum of the proportionately weighted share of profits before
taxes of each group operating country multiplied with an
applicable nominal tax rate of the respective countries.
118
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Parent company financial statements, Finnish GAAP (FAS)
Income statement
EUR million
Sales
Other income
Employee costs
Depreciation, amortisation and write-downs
Other expenses
Operating profit
Financial income and expenses
Profit after financial items
Group contributions 1)
Profit before income tax
Income tax expense
Profit for the period
1) Taxable profits transferred from Finnish subsidiaries.
Balance sheet
EUR million
ASSETS
Non-current assets
Intangible assets
Property, plant and equipment
Shares in Group companies
Participations in associated companies
Interest-bearing receivables from Group
companies
Interest-bearing receivables from associated
companies
Other non-current assets
Derivative financial instruments
Deferred tax assets
Total non-current assets
Current assets
Other current receivables from Group companies
Other current receivables from associated
companies
Derivative financial instruments
Note
2
3
4
7
5
6
2016
70
8
-31
-6
-67
-26
675
649
145
794
-14
780
2015
71
9
-37
-9
-78
-44
794
750
447
1,198
-64
1,134
Note
31 Dec 2016
31 Dec 2015
restated
31 Dec 2015
7
7
7
7
7
7
7
12, 13
8
8
12, 13
9
7
16,379
6
717
15
0
344
6
17,484
155
0
127
14
4
15,800
6
714
13
1
370
7
16,930
458
0
268
14
4
15,800
6
714
13
1
0
1
16,553
458
0
0
EUR million
Other current receivables
Deposits and securities (maturity over three months)
Cash and cash equivalents
Liquid funds
Total current assets
Total assets
EQUITY
Shareholders’ equity
Share capital
Share premium
Hedging reserve
Retained earnings
Profit for the period
Total shareholders’ equity
Note
8
9
31 Dec 2016
45
3,473
1,463
4,935
5,263
22,746
31 Dec 2015
restated
9
4,706
2,939
7,645
8,380
25,310
31 Dec 2015
263
4,706
2,939
7,645
8,366
24,919
3,046
2,822
-23
4,447
780
11,072
3,046
2,822
-31
4,290
1,134
11,261
3,046
2,822
0
4,284
1,134
11,285
Provisions for liabilities and charges
1
0
0
LIABILITIES
Non-current liabilities
External interest-bearing liabilities
Interest-bearing liabilities to Group companies
Interest-bearing liabilities to associated companies
Derivative financial instruments
Other non-current liabilities
Total non-current liabilities
Current liabilities
External interest-bearing liabilities
Trade and other payables to Group companies
Trade and other payables to associated companies
Derivative financial instruments
Trade and other payables
Total current liabilities
Total liabilities
Total equity and liabilities
10, 12, 13
10
12, 13
10
11
11
12, 13
11
4,018
2,323
273
124
61
6,799
617
4,002
6
149
101
4,875
11,674
22,746
4,516
6,252
268
155
83
11,275
1,014
1,545
4
98
113
2,774
14,049
25,310
4,415
6,252
268
0
5
10,940
1,014
1,545
4
0
131
2,694
13,634
24,919
119
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
EUR million
Cash flow before financing activities
Cash flow from financing activities
Proceeds from long-term liabilities
Payment of long-term liabilities
Change in cashpool liabilities
Change in short-term liabilities
Dividends paid
Net cash used in financing activities
Net increase(+)/decrease(-) in liquid funds
Liquid funds at the beginning of the period
Liquid funds at the end of the period
2016
593
27
-811
-3,940
2,398
-976
-3,302
-2,710
7,645
4,935
2015
2,317
33
-901
3,604
1,429
-1,155
3,010
5,327
2,318
7,645
Cash flow statement
EUR million
Cash flow from operating activities
Profit for the period
Adjustments:
Income tax expense
Group contributions
Finance costs - net
Depreciations, amortisation and write-downs
Operating profit before depreciations (EBITDA)
Non-cash flow items and divesting activities
Interest and other financial income
Interest and other financial expenses paid
Dividend income
Group contribution received
Realised foreign exchange gains and losses
Taxes
Funds from operations
Other short-term receivables increase(-)/decrease(+)
Other short-term payables increase(+)/decrease(-)
Change in working capital
Net cash from operating activities
Cash flow from investing activities
Capital expenditures
Acquisition of shares and capital contributions in subsidiaries
Capital returns from subsidiaries
Acquisition of other shares
Proceeds from sales of fixed assets
Proceeds from sales of shares in subsidiaries
Change in interest-bearing receivables and other non-current assets
Net cash used in investing activities
2016
780
14
-145
-675
6
-20
8
21
-88
756
447
113
-46
1,191
-1
-6
-7
1,184
-5
-583
0
0
2
0
-5
-591
2015
1,134
64
-447
-794
9
-35
0
36
-147
1,060
565
-80
-36
1,363
7
0
7
1,370
-4
-1
97
0
0
0
854
947
120
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Notes to the parent company financial statements, FAS
1 Accounting policies and principles
The financial statements of Fortum Oyj are prepared in accordance with Finnish Accounting Standards (FAS).
Change in the accounting principles of financial derivatives and interest-
bearing liabilities at fair value in the 2016 financial statements
A new requirement issued by Finnish Accounting Board (KILA 1963/2016) relating to accounting for
financial derivatives was published 13 December 2016. The requirements have to be applied in 2016
separate financial statements. Based on this requirement Fortum has chosen to apply IFRS principles for
accounting financial derivatives in Fortum Oyj.
Applying IFRS principles means that financial derivatives are fair valued at each balance sheet date,
which may create volatility in income statement and equity. The changes due to the new requirement had
a minor effect to net profit and equity of Fortum Oyj in 2015 and 2016.
For year 2015 adopted balance sheet and restated balance sheet including the impact from new
accounting principles have been presented. Income statement and notes for 2015 are not restated. New
notes for financial derivatives have been disclosed for year 2016. Additional information regarding
financial instruments for 2015 can be found in Note 3, Note 16 and Note 17 in the Consolidated
financial statements.
Impact of change in accounting principles of financial derivatives and
interest-bearing liabilities at fair value on balance sheet of 2015
EUR million
ASSETS
Derivative financial instruments, non-current assets
Deferred tax assets
Derivative financial instruments, current assets
Other current receivables, current assets
Total
EQUITY AND LIABILITIES
Shareholders’ equity
Share capital
Share premium
Hedging reserve
Retained earnings
Profit for the period
Total shareholder's equity
31 Dec 2015
Change
31 Dec 2015
restated
0
1
0
263
264
3,046
2,822
0
4,284
1,134
11,285
370
6
268
-254
391
0
0
-31
6
0
-25
370
7
268
9
655
3,046
2,822
-31
4,290
1,134
11,261
121
EUR million
LIABILITIES
External interest-bearing liabilities, long-term
Derivative financial instruments, long-term
Other non-current liabilities
Derivative financial instruments, short-term
Trade and other current payables
Total
Total
31 Dec 2015
Change
31 Dec 2015
restated
4,415
0
5
0
131
4,550
15,835
102
155
79
98
-18
415
391
4,516
155
83
98
113
4,965
16,226
1.1 Sales
Sales include sales revenue from actual operations and exchange rate differences on trade receivables,
less discounts and indirect taxes such as value added tax.
1.2 Other income
Other income includes gains on the sales of property, plant and equipment and shareholdings, as well as
all other operating income not related to the sales of products or services, such as rents.
1.3 Foreign currency items and derivative instruments
Transactions denominated in foreign currencies have been valued using the exchange rate at the date
of the transaction. Receivables and liabilities denominated in foreign currencies outstanding on the
balance sheet date have been valued using the exchange rate quoted on the balance sheet date. Exchange
rate differences have been entered in the financial net in the income statement.
Fortum Oyj enters into derivative contracts mainly for hedging foreign exchange and interest rate
exposures in Fortum Group.
Accounting principles of financial derivatives, see Notes 3, Note 16 and Note 17 in the
Consolidated financial statements.
1.4 Income taxes
Income taxes presented in the income statement consist of accrued taxes for the financial year and tax
adjustments for prior years.
1.5 Shares in group companies
The balance sheet value of shares in group companies consists of historical costs less write-downs. If
the estimated future cash flows generated by a non-current asset are expected to be permanently lower
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
than the balance of the carrying amount, an adjustment to the value must be made to write-down the
difference as an expense. If the basis for the write-down can no longer be justified at the balance sheet
date, it must be reversed.
1.6 Property, plant and equipment and depreciation
The balance sheet value of property, plant and equipment consists of historical costs less depreciation
and other deductions. Property, plant and equipment are depreciated using straight-line depreciation
based on the expected useful life of the asset.
The depreciation is based on the following expected useful lives:
Buildings and structures
Machinery and equipment
Other intangible assets
15–40 years
3–15 years
5–10 years
1.7 Pension expenses
Statutory pension obligations are covered through a compulsory pension insurance policy or Group's
own pension fund. Costs for pension fund are recorded in the income statement based on contributions
paid pursuant to the Finnish pension laws and regulations.
1.8 Long-term incentive schemes
Costs related to the Fortum long-term incentive plans are accrued over the vesting period and the related
liability is booked to the balance sheet.
1.9 Provisions
Foreseeable future expenses and losses that have no corresponding revenue to which Fortum is
committed or obliged to settle, and whose monetary value can be reasonably assessed, are entered as
expenses in the income statement and included as provisions in the balance sheet.
1.10 Presentation of the primary statements and notes
Information presented in the notes is given separately for Fortum Group companies and for associated
companies of the Group.
2 Sales by market area
EUR million
Finland
Other countries
Total
2016
43
28
70
2015
50
21
71
122
3 Other income
EUR million
Gain on sales of shareholdings
Rental and other income
Total
4 Employee costs
EUR million
Personnel expenses
Wages, salaries and remunerations
Indirect employee costs
Pension costs
Other indirect employee costs
Other personnel expenses
Total
2016
-
8
8
2015
0
9
9
2016
2015
24
5
1
1
31
30
5
1
1
37
EUR thousand
Compensation for the President and
CEO
Salaries and fringe benefits
Performance bonuses 1)
Share-based incentives
Pensions (statutory)
Pensions (voluntary)
Social security expenses
Total
2016
Pekka
Lundmark,
President and
CEO
Pekka
Lundmark,
President and
CEO from
7 Sep 2015 2)
2015
Timo Karttinen,
Interim
President and
CEO until
6 Sep 2015 2)
Tapio Kuula,
President
and CEO until
31 Jan 2015 3)
982
248
433
209
356
73
2,299
305
21
114
55
0
17
513
372
15
282
66
37
20
791
279
0
903
47
25
14
1,269
1) Performance bonuses are based on estimated amounts.
2) Includes the compensation CFO Timo Karttinen received during his position as Fortum’s Interim President and CEO during
1 February - 6 September 2015 and as a substitute to the President and CEO in January 2015. Also included is a lump sum
payment of EUR 70 thousand for his success in assuming the responsibilities of Interim President and CEO.
3) Share-based incentives includes the gross payment Tapio Kuula received from the share plans commenced in 2012, 2013
and 2014. Mr Kuula received the net amount of the payment as shares, after deducting the taxes and tax-related charges
arising from the payment. These shares, totalling 30,271 shares, are under lock-up until the spring 2018.
EUR thousand
Compensation for the Board of Directors
2016
518
2015
499
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
The compensation above is presented on accrual basis. Paid salaries and remunerations for the President
and CEO Pekka Lundmark were EUR 1,012 thousand (2015:305). In 2015 paid salaries and remunerations
for Interim President and CEO Timo Karttinen were EUR 372 thousand and for former President and CEO
Tapio Kuula EUR 1,595 thousand.
For the President and CEO Pekka Lundmark the retirement age of old-age pension is 63. The pension
obligations for Pekka Lundmark are covered through insurance company and for Timo Karttinen
through pension fund. The pension obligation for Tapio Kuula was covered through insurance company.
Board members are not in an employment relationship or service contract with Fortum, and they are not
given the opportunity to participate in Fortum’s STI or LTI programme, nor does Fortum have a pension plan
that they can opt to take part in. The compensation of the board members is not tied to the sustainability
performance of the Group.
See Note 11 Employee benefits and Note 32 Pension obligations in the Consolidated financial
6 Income tax expense
EUR million
Taxes on regular business operations
Taxes on group contributions
Total
Current taxes for the period
Current taxes for prior periods
Changes in deferred tax
Total
For more information, see Note 14 Contingent liabilities.
2016
-15
29
14
9
7
-1
14
7 Non-current assets
Intangible assets
EUR million
Cost 1 January 2016
Additions
Disposals
Cost 31 December 2016
Accumulated depreciation 1 January 2016
Disposals
Depreciation for the period
Accumulated depreciation 31 December 2016
Carrying amount 31 December 2016
Carrying amount 31 December 2015
statements.
Average number of employees
5 Financial income and expenses
EUR million
Dividend income from group companies
Dividend income from associated companies and other
companies
Interest and other financial income from group companies
Interest and other financial income from associated
companies
Write-downs of participations in group companies
Interest and other financial income
Exchange rate differences
Changes in fair values of derivatives
Interest and other financial expenses to group companies
Interest and other financial expenses
Total
Interest income
Interest expenses
Interest net
2016
272
2016
756
0
8
0
-4
3
41
-11
0
-116
675
11
-113
-102
2015
283
2015
1,060
0
18
7
-160
7
18
0
-1
-155
794
32
-152
-120
Write-downs of participations in group companies are related to shares in Fortum Heat and Gas Oy and
received dividend payments. Interest and other financial income from associated company is related to
AB Fortum Värme samägt med Stockholm Stad.
123
2015
-25
89
64
61
3
1
64
Total
59
1
-12
47
45
-11
5
39
9
14
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Property, plant and equipment
EUR million
Cost 1 January 2016
Additions and transfers between
categories
Disposals
Cost 31 December 2016
Accumulated depreciation
1 January 2016
Disposals
Depreciation for the period
Accumulated depreciation
31 December 2016
Carrying amount 31 December 2016
Carrying amount 31 December 2015
Buildings and
structures
1
Machinery and
equipment
15
Advances
paid and
construction in
progress
1
0
1
1
0
1
0
0
1
-7
9
13
-7
1
6
2
2
3
4
4
1
Investments
EUR million
1 January 2016
Additions 1)
31 December 2016
Accumulated write-
downs 1 January
2016
Impairment charges
Accumulated
write-downs 31
December 2016 2)
Carrying amount
31 December 2016
Shares
in Group
companies
16,884
583
17,467
-1,084
-4
-1,088
16,379
Participation
in
associated
companies
6
6
0
0
6
Receivables
from
Group
companies
714
3
717
Receivables
from
associated
companies
13
2
15
0
0
717
0
0
15
Other
non-current
assets
8
8
-7
-7
0
Total
17
5
-7
14
13
-7
1
7
7
4
Total
17,625
588
18,213
-1,091
-4
-1,095
17,118
1) Additions regarding shares comprise acquisitions of shares and capital contributions and reclassification between other non-
current assets and shares in Group companies.
2) Write-downs of participations in group companies are related to shares in Fortum Heat and Gas Oy due to received
dividend payments.
8 Other current receivables
EUR million
Other current receivables from group companies
Trade receivables
Group contribution and other receivables
Accrued income and prepaid expenses
Total
Other current receivables from associated companies
Accrued income and prepaid expenses
Total
Other current receivables
Trade receivables
Other receivables
Accrued income and prepaid expenses
Total
9 Changes in shareholders’ equity
Share
capital
3,046
EUR million
Total equity 31 December 2015
Change in accounting policy
Total equity 31 December 2015
restated
Cash dividend
Change in hedging reserve
Profit for the period
Total equity 31 December 2016
Total equity 31 December 2014
Cash dividend
Profit for the period
Total equity 31 December 2015
EUR million
Distributable funds
Retained earnings 31 December
Hedging reserve
Distributable funds 31 December
124
Share
premium
2,822
Hedging
reserve
-31
-31
8
-23
3,046
2,822
3,046
2,822
3,046
2,822
3,046
2,822
2016
10
145
0
155
0
0
0
0
44
45
2015
6
447
5
458
0
0
1
3
259
263
Retained
earnings
5,417
6
5,424
Total
11,285
-25
11,261
-977
-977
780
5,226
5,439
-1,155
1,134
5,417
2016
5,226
-23
5,204
780
11,072
11,307
-1,155
1,134
11,285
2015
5,417
0
5,417
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
10 Interest-bearing liabilities
EUR million
External interest-bearing liabilities 1)
Bonds
Loans from financial institutions
Other long-term interest-bearing debt
Total long-term interest-bearing debt
Current portion of long-term bonds
Current portion of loans from financial institutions
Other short-term interest-bearing debt
Total short-term interest-bearing debt
Total external interest-bearing debt
Maturity of external interest-bearing liabilities 1)
EUR million
2017
2018
2019
2020
2021
2022 and later
Total
EUR million
External interest-bearing liabilities due after five years 1)
Bonds
Loans from financial institutions
Other long-term liabilities
Total
EUR million
Other interest-bearing liabilities due after five years
Interest-bearing liabilities to associated companies
Total
1) Does not include liabilities to group and associated companies.
2016
2,986
210
822
4,018
343
139
135
617
4,635
2016
1,282
0
821
2,102
2016
273
273
11 Trade and other payables
EUR million
Trade and other payables to group companies
Trade payables
Deposits from group companies and other liabities
Accruals and deferred income
Total
Trade and other payables to associated companies
Accruals and deferred income
Total
Trade and other payables
Trade payables
Other liabilities
Accruals and deferred income
Total
12 Financial derivatives
2016
0
4,002
0
4,002
6
6
6
4
91
101
Interest rate and currency derivatives by instrument 2016
EUR million
Forward foreign exchange
contracts
Interest rate swaps
Interest rate and currency
swaps
Total
Of which long-term
Short-term
Under 1
year
6,369
259
29
6,657
Notional amount
Remaining lifetimes
Over
5 years
1–5
years
Fair value
Total
Positive Negative
252
2,718
798
3,767
1,105
1,105
6,621
4,081
827
11,529
131
269
71
471
344
127
141
127
5
273
124
149
2015
1
1,544
0
1,545
4
4
9
4
117
131
Net
-11
142
66
198
220
-22
2015
3,243
365
807
4,415
750
63
202
1,014
5,429
2016
617
560
792
30
534
2,102
4,635
2015
1,694
15
805
2,514
2015
268
268
Non-discounted cash flows of interest-bearing liabilities and their maturities, see Note 12 Financial
derivatives.
125
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Derivatives notes for 2015
Derivatives in financial assets
EUR million
Interest rate swaps
Forward foreign exchange contracts 1)
Interest rate and currency swaps
1) Includes also future positions.
Contract or
notional value
5,197
9,073
1,244
2015
Fair value
141
87
157
Not recognised
as income
139
-4
9
Maturity analysis of interest-bearing liabilities and derivatives
Amounts disclosed below are non-discounted expected cash flows (future interest payments and
amortisations) of interest-bearing liabilities and interest rate and currency derivatives.
EUR million
Derivatives in non-current assets
Derivative financial instruments
Interest rate and currency derivatives
Hedge accounting
Non-hedge accounting
Derivatives in current assets
Derivative financial instruments
Interest rate and currency derivatives
Hedge accounting
Non-hedge accounting
2016
Level 1
Level 2
Level 3
Total
240
103
17
110
471
240
103
17
110
471
-
2015
Total
-
EUR million
Interest-bearing liabilities
Interest rate and currency derivatives liabilities
Interest rate and currency derivatives receivables
Total
Under 1 year
6,047
6,669
-6,650
6,067
1–5 years
2,239
1,234
-1,404
2,069
Over
5 years
2,491
20
-27
2,485
Total
10,777
7,924
-8,080
10,621
Interest-bearing liabilities include loans from the State Nuclear Waste Management Fund and
Teollisuuden Voima Oyj of EUR 1,094 million. These loans are renewed yearly and the related interest
payments are calculated for ten years in the table above.
13 Derivatives and liabilities by fair value hierarchy
Fair value measurements are classified using a fair value hierarchy i.e. Level 1, Level 2 and Level 3 that
reflects the significance of the inputs used in making the measurements. For further information see
accounting principles in Note 17 Financial assets and liabilities by fair value hierarchy in the
Consolidated financial statements.
Derivatives and liabilities at fair value in financial liabilities
EUR million
In non-current liabilities
Interest-bearing liabilities 1)
Derivative financial instruments
Interest rate and currency derivatives
Hedge accounting
Non-hedge accounting
In current liabilities
Derivative financial instruments
Interest rate and currency derivatives
Hedge accounting
Non-hedge accounting
Total
1) Fair valued part of bond in the fair value hedge relationship.
2016
Level 1
Level 2
Level 3
Total
1,280
1,280
72
52
72
52
12
137
1,554
-
12
137
1,554
-
126
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
or services. Despite the new precedent, the Tax Recipients’ Legal Services Unit within the tax authorities
appealed this decision to the Administrative Court in Helsinki. In May 2016 the Administrative Court
announced its decision in the case. The court ruled in Fortum’s favour and rejected the appeal of the
Tax Recipients’ Legal Services Unit. The Tax Recipient’s Legal Service Unit appealed the Administrative
Court’s decision to the Supreme Administrative Court in July 2016.
In November 2016 the Supreme Administrative Court decided not to grant a permit to appeal. Thus
the decision favourable to Fortum of the Board of Adjustment of the Large Taxpayer’s office from August
2014, remains in force and is final. No additional tax is to be paid for the year 2007 based on the above-
mentioned audit.
In December 2014 Fortum Oyj received a non-taxation decision from the large Taxpayers’ office for
the years 2008–2011 regarding the activities in the Belgian and Dutch financing companies. The decision
was given due to the transfer pricing audit carried out in 2013–2014 and was in line with the Board of
Adjustment’s decision with respect to Fortum for the year 2007. The Tax Recipients’ Legal Services Unit
has appealed the decisions in February 2015 to the Board of Adjustment of the Large Taxpayers’ office.
According to the claim of correction an additional tax of approximately EUR 406 million for the years
2008–2011 was claimed. In December 2016 the Tax Recipients’ Legal Services Unit cancelled its appeals
for the years 2008–2011. In January 2017 the Board of Adjustment of the Large Taxpayers’ office declared
the cases for 2008–2011 annulled. Thus the non-taxation decision from August 2014 from the large
Taxpayers’ office remains in force for the years 2008–2011. No additional tax is to be paid for the years
2008–2011 based on the above-mentioned audit.
For more information, see Note 38 Legal actions and official proceedings in the Consolidated
financial statements.
15 Related party transactions
See Note 41 Related party transactions in the Consolidated financial statements.
Net fair value amount of interest rate and currency derivatives is EUR 198 million, assets EUR 471
million and liabilities EUR 273 million. Fortum Oyj has cash collaterals based on Credit Support Annex
agreements with some counterparties. At the end of December 2016 Fortum Oyj had received EUR
135 million from Credit Support Annex agreements. The received cash has been booked as short-term
interest-bearing liability.
14 Contingent liabilities
EUR million
On own behalf
Other contingent liabilities
On behalf of group companies
Guarantees
On behalf of associated companies
Guarantees on behalf of Swedish associated companies
Contingent liabilities total
Operating leases
EUR million
Lease payments
Not later than 1 year
Later than 1 year and not later than 5 years
Total
2016
2
135
565
702
2015
2
164
587
753
2016
2015
2
2
5
3
3
6
Fortum received an income tax assessment in Finland for 2007 in December 2013. Tax authorities
claimed in the transfer pricing audit that detailed business decisions were done by Fortum Oyj and
therefore re-characterized the equity Fortum has injected to its Belgium subsidiary Fortum Project
Finance NV not to be equity, but funds to be available for the subsidiary. Tax authorities’ view was that
the interest income that Fortum Project Finance NV received from its loans should be taxed in Finland,
not Belgium. The tax authorities claimed an additional tax of approximately EUR 136 million for the
year 2007. Fortum considered the claims unjustifiable both for legal grounds and interpretation. Fortum
appealed the decision.
The Board of Adjustment of the Large Taxpayers’ Office approved Fortum’s appeal for the year 2007 on
21 August 2014. The Board of Adjustment’s decision is in line with the principle adopted in the Supreme
Administrative Court’s precedent in June 2014, according to which, under transfer pricing rules, the
nature of business cannot be re-characterized for tax purposes, but can only adjust the pricing of goods
127
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Investments in group companies,
associated companies
and other holdings
No. of shares units
Holding %
Investments in group companies
Ekokem Oyj
Fortum Asiakaspalvelu Oy
Fortum Heat and Gas Oy
Fortum Markets Oy
Fortum Norm Oy
Fortum Power and Heat Oy
Fortum Real Estate Oy
Fortum Project Finance N.V.
Fortum India Private Ltd
Fortum Finance Ireland Ltd
Fortum Investment S.A.R.L.
Fortum Nordic AB
Fortum Sweden AB
Fortum Holding B.V.
Finland
Finland
Finland
Finland
Finland
Finland
Finland
Belgium
India
Ireland
Luxembourg
Sweden
Sweden
The Netherlands
Investments in associated companies
AW Energy Oy
Wello Oy
Finland
Finland
Other holdings
Clic Innovation Oy
East Office of Finnish Industries Oy
Prototype Carbon Fund
Finland
Finland
USA
3,458,974
10,010
2,000,000
24,039
250
91,197,543
2,000,000
727,820
1
25,000
990
596,000
1,000
61,062
806
1,508
100
1
N/A
98.24
100.00
100.00
100.00
100.00
100.00
100.00
99.99
0.10
100.00
0.45
100.00
100.00
100.00
13.60
16.18
3.80
5.88
128
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Proposal for the use of the profit shown on the balance sheet
The distributable funds of Fortum Oyj as at 31 December 2016 amounted to EUR 5,203,674,879.03
including the profit of the financial period 2016 of EUR 779,867,542.66. After the end of the financial
period there have been no material changes in the financial position of the Company.
Based on the number of registered shares as at 1 February 2017 the total amount of dividend proposed
to be paid is EUR 977,203,749.50. The Board of Directors proposes, that the remaining part of the
distributable funds be retained in the shareholders’ equity.
The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 1.10 per share be
paid for 2016.
Espoo, 1 February 2017
Sari Baldauf
Kim Ignatius
Minoo Akhtarzand
Heinz-Werner Binzel
Eva Hamilton
Tapio Kuula
Veli-Matti Reinikkala
Jyrki Talvitie
Pekka Lundmark
President and CEO
129
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Auditor’s report
To the Annual General Meeting of Fortum Oyj
Report on the Audit of Financial Statements
Opinion
We have audited the financial statements of Forum Oyj (business identity code 1463611-4) for the year
ended 31 December, 2016. The financial statements comprise the consolidated statement of financial
position, income statement, statement of comprehensive income, statement of changes in equity,
statement of cash flows and notes, including a summary of significant accounting policies, as well as
the parent company’s balance sheet, income statement, cash flow statement and notes to the financial
statements.
In our opinion
•
the consolidated financial statements give a true and fair view of the group’s financial performance
and financial position in accordance with International Financial Reporting Standards (IFRS) as
adopted by the EU and
the financial statements give a true and fair view of the parent company’s financial performance and
financial position in accordance with the laws and regulations governing the preparation of financial
statements in Finland and comply with statutory requirements.
•
Basis for opinion
We conducted our audit in accordance with good auditing practice in Finland. Our responsibilities under
good auditing practice are further described in the Auditor’s Responsibilities for the Audit of Financial
Statements section of our report.
We are independent of the parent company and of the group companies in accordance with the ethical
requirements that are applicable in Finland and are relevant to our audit, and we have fulfilled our other
ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
130
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in
our audit of the financial statements of the current period. These matters were addressed in the context
of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Key audit matter
Valuation of fixed assets and goodwill
Refer to Notes 2, 18 and 19.
• The consolidated balance sheet includes
property, plant and equipment amounting to
EUR 9 930 million and goodwill amounting
to EUR 353 million.
• The main assumptions used in the valuation
of energy production property, plant and
equipment and goodwill relate to the
estimated future operating cash flows and
the discount rates.
• In acquisition the assumptions relates to
determining the fair values and remaining
useful lives of acquired intangible and
tangible assets.
• The potential indicators for impairment are
among other things changes in electricity
and fuel prices, regulatory/political
changes relating to energy taxes and price
regulations.
• The assumptions used in the valuation of the
balances in question require management
judgment.
How our audit addressed the key audit matter
• We have evaluated the process how management
has assessed the indicators for potential impairment.
We have performed audit procedures on impairment
models relating to material cash generating units.
• We obtained entity’s impairment testing
documentation for goodwill and energy production
assets when tested and evaluated the rationale of
key assumptions applied by management, including
commodity price forecasts, profit and cash flow
forecasts, terminal values, foreign exchange rates
and the selection of discount rates.
• We have compared, that the forecasts used in the
impairment testing calculations are based on long
term forecast approved by management.
• We challenged management’s assumptions and
judgments with reference to historical data and,
where applicable, external benchmarks.
• We assessed the models used in the impairment
testing and carried out our testing for the sensitivity
calculations.
• We assessed the adequacy of related disclosures in
the financial statements.
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Key audit matter
Associated companies and joint ventures
Refer to Notes 2, 20 and 38.
• Fortum participates in a number of
associated companies and joint ventures with
a total carrying amount of EUR 2,112 million
in the consolidated financial statements.
How our audit addressed the key audit matter
• We have reviewed and evaluated the management’s
process to monitor and control the significant
associated companies and joint ventures as well as
to follow the related legal cases.
• The assessment of the recoverable value of
• We have assessed and challenged the
the associated companies and joint ventures
incorporates significant management
judgments and estimates.
• The associated companies and joint
ventures are joint contractual arrangements,
which include several complex accounting,
regulatory and legal aspects as described in
note 38. These aspects may have significant
impact on Fortum’s financial reporting.
Key audit matter
Fair value measurement of derivatives and
hedge accounting
Refer to Notes 3, 6, 8, 16 and 17.
• In Fortum’s 2016 consolidated financial
statements total derivative assets amounts to
EUR 545 million and total derivative liabilities
amounts to EUR 658 million. The net effect
of changes in fair values of derivatives
hedging future cash flow amounts to EUR
-65 million in items affecting comparability in
the consolidated income statement and the
cash flow hedges in other equity components
amount to EUR -115 million.
• The fair value of derivative financial
instruments is determined through the
application of valuation techniques which
often involve management judgment.
Fortum’s business is exposed to fluctuations
in prices and availability of commodities
used in the production and sales of energy
products. The main exposure is toward
energy prices and volumes. Electricity price
risk is hedged by entering into electricity
derivative contracts. Fortum uses hedging
instruments to reduce the effect of electricity
price volatility.
management judgment and assumptions used
determining the recoverable amount for associated
companies and joint ventures. We have also
evaluated the accuracy of the calculations prepared
to quantify the recoverable amount.
• We assessed the adequacy of related disclosures in
the financial statements.
How our audit addressed the key audit matter
• Our audit procedures included an assessment
of internal controls over the hedge accounting
documentation and effectiveness testing,
measurement of fair value measures, and evaluating
the methodologies, inputs, judgments made and
assumptions used by management in determining
fair values.
• For Fortum’s fair valuation models, we evaluated
rationale of the models and accounting treatment
applied. We compared observable inputs against
independent sources and externally available
market data.
• We have assessed the existence and completeness
of outstanding derivative contracts as of 31
December 2016 by requesting confirmations from
the counterparties.
• We have assessed that financial instruments
included in hedge relationships are accounted for in
accordance with IAS 39.
• We have assessed the adequacy of the presentation
for derivative financial instruments and hedge
accounting applied in the financial statements.
Key audit matter
Nuclear related assets and liabilities
Refer to Note 30.
• Nuclear related assets and liabilities in
consolidated balance sheet amount to
EUR 830 million.
• Fortum’s nuclear related provisions and the
related part of the Finnish State Nuclear
Waste Management Fund are both
presented separately as disclosed in note 30.
• Fortum’s share in the Finnish State Nuclear
Waste Management Fund is accounted for
according to IFRIC 5 which states that the
fund assets are measured at the lower of fair
value or the value of the related liabilities.
• Due to complexity and materiality,
the accounting treatment for nuclear
decommissioning is complex and requires
application of special accounting practice
and management judgment when forming
estimates for the basis of accounting such as
technical plans, timing, cost estimates and
discount rate.
Key audit matter
Income taxes
Refer to Note 29 and 38.
• Fortum has several tax assessments ongoing.
• The accounting treatment and disclosing
of tax cases require management to make
judgments and estimates in disclosing and
accounting tax contingencies and receivables
as described in note 29.
• Ongoing tax assessments are lengthy
and at various stages from preliminary
discussions with tax authorities through to
court proceedings, where obtaining the final
tax assessments can take a number of years
prior to concluding.
How our audit addressed the key audit matter
• We have assessed Fortum’s accounting manual and
principles for Nuclear Decommissioning Accounting,
whether they are in line with IFRS accounting
principles.
• We have assessed the assumptions and judgments
made and adopted by the management in the
accounting for the nuclear waste provisions and
share in state nuclear waste management fund have
been based on current legislation and decisions set
by Finnish State Nuclear Waste Management Fund.
• We assessed the adequacy of related disclosures in
the financial statements.
How our audit addressed the key audit matter
• We performed testing regarding Fortum’s tax
positions in the significant tax jurisdictions in which
Fortum operates.
• We assessed the rationale of management’s
assumptions and challenged the management
judgment applied in relation to disclosing and
accounting the tax contingencies and receivables
of the tax cases. Together with our tax specialist we
have also assessed the company’s external opinions
which have been used to support the management’s
assumptions.
• We assessed the adequacy of related disclosures in
the financial statements.
131
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Responsibilities of the Board of Directors and the
President and CEO for the financial statements
The Board of Directors and the President and CEO are responsible for the preparation of consolidated
financial statements that give a true and fair view in accordance with International Financial Reporting
Standards (IFRS) as adopted by the EU, and of financial statements that give a true and fair view in
accordance with the laws and regulations governing the preparation of financial statements in Finland
and comply with statutory requirements. The Board of Directors and the President and CEO are also
responsible for such internal control as they determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Board of Directors and the President and CEO are responsible
for assessing the parent company’s and the group’s ability to continue as going concern, disclosing,
as applicable, matters relating to going concern and using the going concern basis of accounting.
The financial statements are prepared using the going concern basis of accounting unless there is
an intention to liquidate the parent company or the group or cease operations, or there is no realistic
alternative but to do so.
Auditor’s responsibilities in the audit of financial statements
Our objectives are to obtain reasonable assurance on whether the financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with good auditing practice will always detect a material misstatement when
it exists. Misstatements can arise from fraud or error and are considered material if, individually or in
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of the financial statements.
As part of an audit in accordance with good auditing practice, we exercise professional judgment and
maintain professional skepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the financial statements, whether due
to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit
evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting
a material misstatement resulting from fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal
control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the parent company’s or the group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
• Conclude on the appropriateness of the Board of Directors’ and the President and CEO use of the
going concern basis of accounting and based on the audit evidence obtained, whether a material
uncertainty exists related to events or conditions that may cast significant doubt on the parent
company’s or the group’s ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures
in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However,
future events or conditions may cause the company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and events
so that the financial statements give a true and fair view.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the group to express an opinion on the consolidated financial statements.
We are responsible for the direction, supervision and performance of the group audit. We remain
solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies in
internal control that we identify during our audit. We also provide those charged with governance with
a statement that we have complied with relevant ethical requirements regarding independence, and
communicate with them all relationships and other matters that may reasonably be thought to bear on
our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the financial statements of the current period and are therefore
the key audit matters. We describe these matters in our auditor’s report unless law or regulation
precludes public disclosure about the matter or when, in extremely rare circumstances, we determine
that a matter should not be communicated in our report because the adverse consequences of doing so
would reasonably be expected to outweigh the public interest benefits of such communication.
Other Reporting Requirements
Other information
The Board of Directors and the President and CEO are responsible for the other information. The
other information comprises information included in the Operating and Financial Review and in the
132
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Financials, but does not include the financial statements and our report thereon. We obtained the
Operating and Financial Review prior to the date of the auditor’s report, and the Financials is expected to
be made available to us after the date of the auditor’s report.
Our opinion on the financial statements does not cover the other information.
In connection with our audit of the financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears
to be materially misstated. With respect to Operating and Financial Review, our responsibility also
includes considering whether the Operating and Financial Review has been prepared in accordance with
the applicable laws and regulations.
In our opinion, the information in the Operating and Financial Review is consistent with the information
in the financial statements and the Operating and Financial Review has been prepared in accordance
with the applicable laws and regulations.
If, based on the work we have performed, we conclude that there is a material misstatement in of the
information included in the Operating and Financial Review, we are required to report this fact. We have
nothing to report in this regard.
Other opinions
We support that the financial statements should be adopted. The proposal by the Board of Directors
regarding the use of the profit shown on the balance sheet is in compliance with the Limited Liability
Companies Act. We support that the Board of Directors of the parent company and the President and
CEO should be discharged from liability for the financial period audited by us.
Espoo, 1 February 2017
Deloitte & Touche Oy
Audit Firm
Jukka Vattulainen
Authorised Public Accountant (KHT)
133
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Operational key figures
Quarterly financial information
Operational key figures
Note: Operational key figures are unaudited.
Comparability of information presented in tables and graphs
Information in the tables and graphs presented for year 2012 or earlier is not restated due to the adoption of IFRS 10 and IFRS 11. Adoption of standards influences treatment of Fortum’s holding in AB Fortum Värme
samägt med Stockholms stad in the the consolidated financial statements.
Generation
Fortum’s total power and heat generation in EU and Norway, TWh
Power generation
Heat generation
Fortum’s total power and heat generation in Russia, TWh
Power generation
Heat generation
Fortum’s own power generation by source, total in the Nordic area, TWh
Hydro and wind power
Nuclear power
Thermal power
Total
Fortum’s own power generation by source, total in the Nordic area, %
Hydro and wind power
Nuclear power
Thermal power
Total
2007
52.2
26.1
2007
-
-
2007
20.0
24.9
6.2
51.1
2007
39
49
12
100
2008
52.6
25.0
2008
11.6
15.3
2008
22.9
23.7
5.0
51.6
2008
44
46
10
100
2009
49.3
23.2
2009
16.0
25.6
2009
22.1
21.4
4.6
48.1
2009
46
44
10
100
2010
53.7
26.1
2010
16.1
26.0
2010
22.0
22.0
8.3
52.3
2010
42
42
16
100
2011
55.3
22.0
2011
17.4
25.4
2011
21.0
24.9
7.2
53.1
2011
40
47
13
100
2012
53.9
18.5
2012
19.2
24.8
2012
25.2
23.4
3.0
51.6
2012
49
45
6
100
2013
47.4
10.4
2013
20.0
24.2
2013
18.1
23.7
3.4
45.2
2013
40
52
8
100
2014
50.1
8.2
2014
23.3
26.4
2014
22.4
23.8
1.8
48.0
2014
46
50
4
100
2015
50.2
6.4
2015
25.7
25.8
2015
25.1
22.7
1.0
48.8
2015
51
47
2
100
2016
47.5
7.1
2016
25.5
20.7
2016
20.8
24.1
1.4
46.2
2016
45
52
3
100
134
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Operational key figures
Quarterly financial information
Capacity
Power generation capacity by segment, MW
Generation 1)
Heat
City Solutions
Russia
Other
Total
2007
9,560
1,360
2008
9,575
1,213
2009
9,709
1,446
2010
9,728
1,600
2011
9,752
1,670
2012
9,702
1,569
-
2,785
2,785
2,785
3,404
3,404
2013
9,475
793
4,250
2014
9,063
803
4,758
2015
8,046
743
4,903
10,920
13,573
13,940
14,113
14,826
14,675
14,518
14,624
13,692
2016
8,039
760
4,482
53
13,334
1) 2015 figure excluding 750MW mothballed capacity of Inkoo power plant of which preparations for permanent dismantling has started.
Heat production capacity by segment, MW
Generation
Heat
City Solutions
Russia
Total
2007
250
10,973
-
11,223
2008
250
10,218
13,796
24,264
2009
250
10,284
13,796
24,330
2010
250
10,448
13,796
24,494
2011
250
10,375
14,107
24,732
2012
250
8,785
13,396
22,431
2013
250
4,317
13,466
18,033
2014
0
3,936
13,466
17,402
2015
2016
3,915
12,696
16,611
3,818
9,920
13,738
Fortum’s power generation capacity by type and area, MW
Hydropower
Nuclear power
Combined heat and power
Condensing power
Other
Total
Finland
Sweden
Russia
Poland
Other
Total
2016
1,535
1,472
456
376
0
3,839
2015
1,535
1,465
438
376
-
3,815
2016
3,117
1,539
9
0
38
4,703
2015
3,088
1,539
0
12
30
4,669
2016
0
0
4,482
0
0
4,482
2015
-
-
4,903
-
-
4,903
2016
0
0
186
0
0
186
2015
-
-
197
-
-
197
2016
0
0
109
0
15
124
2015
-
-
93
-
15
108
2016
4,652
3,011
5,242
376
53
13,334
2015
4,623
3,004
5,631
389
45
13,692
Fortum’s heat production capacity by area, MW
Heat
Finland
2016
2,024
2015
1,974
Sweden
2016
35
Russia
2015
0
2016
9,920
2015
12,696
Poland
2016
961
2015
1,129
Other
2016
798
Total
2015
812
2016
13,738
2015
16,611
135
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Operational key figures
Quarterly financial information
Sales
Fortum’s total power and heat sales in EU and Norway, EUR million
Electricity sales
Heat sales
Fortum’s total power and heat sales in Russia, EUR million
Electricity sales
Heat sales
Fortum’s total power sales by area, TWh
Finland
Sweden
Russia
Other countries
Total
Fortum’s total heat sales by area, TWh
Finland
Russia
Sweden
Poland
Other countries
Total
Volume of distributed electricity in distribution networks, TWh
Finland
Sweden
Norway
Estonia
Total
2007
2,370
1,096
2008
2,959
1,157
2009
2,802
1,095
2010
3,110
1,309
2011
2,868
1,278
2012
2,700
1,201
2013
2,462
538
2014
2,344
468
2015
1,921
423
2016
1,893
449
2009
390
219
2009
26.1
26.9
19.5
3.2
75.7
2009
8.0
25.6
9.8
3.7
3.5
50.6
2009
9.4
14.0
2.3
0.2
25.9
2010
505
287
2010
30.7
28.3
18.7
3.2
80.9
2010
9.6
26.8
10.9
4.0
3.6
54.9
2010
10.0
15.2
2.5
0.2
27.9
2011
590
324
2011
24.6
29.4
20.2
3.6
77.8
2011
8.5
26.7
8.5
4.3
3.4
51.4
2011
9.5
14.2
2.3
0.1
26.1
2012
713
300
2012
21.6
30.1
23.3
3.8
78.8
2012
5.8
26.4
8.5
4.3
2.9
47.9
2012
9.8
14.4
2.4
0.0
26.6
2013
822
290
2013
23.4
23.3
25.6
4.3
76.6
2013
5.5
24.1
-
4.1
3.1
36.8
2013
9.5
14.1
2.5
-
26.1
2014
758
285
2014
21.6
28.2
26.5
3.8
80.1
2014
3.2
26.0
-
3.4
2.8
35.4
2014
2.8
13.7
1.1
-
17.6
2015
661
228
2015
22.3
29.8
29.4
2.8
84.3
2015
3.1
25.4
-
3.4
1.2
33.2
2015
-
6.4
-
-
6.4
2016
691
199
2016
22.8
28.8
29.5
3.6
84.7
2016
3.6
20.7
0.1
3.6
1.4
29.4
2016
-
-
-
-
-
2007
-
-
2007
29.0
27.6
-
3.1
59.7
2007
11.1
-
9.2
3.5
3.3
27.1
2007
9.2
14.3
2.3
0.2
26.0
2008
332
141
2008
28.7
28.5
14.8
3.0
75.0
2008
10.8
15.3
9.1
3.6
3.4
42.2
2008
9.3
14.0
2.3
0.2
25.8
136
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Operational key figures
Quarterly financial information
Quarterly financial information
Note: Quarterly financial information is unaudited.
Selected data based on quarterly consolidated income statement
EUR million
IS Sales
Comparable EBITDA continuing operations
IS Comparable operating profit
IS Operating profit
IS Share of profit/loss of associates and joint ventures
IS Finance costs - net
IS Profit before income tax
IS Income tax expense
IS Profit for the period from continuing operations
IS Profit for the period from discontinued operations
IS Profit for the period
IS Non-controlling interests
IS Profit for the period, owners of the parent
Q1/2015
1,040
396
343
350
58
-57
350
-55
295
63
358
-4
354
Q2/2015
794
228
143
144
22
-24
143
-25
118
4,306
4,424
-1
4,424
Q3/2015
661
163
79
-682
-95
-42
-818
160
-659
-
-659
5
-654
Q4/2015
964
315
243
38
35
-52
20
-2
19
-
19
-5
14
Earnings per share for profit attributable to the equity owners of the company
(EUR per share)
Total Fortum
Continuing operations
Discontinued operations 1)
1) Includes impact from sales gains of the Swedish distribution business amounting to EUR 4.82 in Q2 2015.
0.40
0.33
0.07
4.98
0.13
4.85
-0.74
-0.74
0.00
0.02
0.02
0.00
2015
3,459
1,102
808
-150
20
-175
-305
78
-228
4,369
4,142
-4
4,138
4.66
-0.26
4.92
Q1/2016
989
357
275
369
67
-47
390
-59
331
-
331
-5
326
Q2/2016
768
209
122
67
38
-44
61
-4
57
-
57
-1
57
Q3/2016
732
151
58
-6
11
-44
-40
9
-31
-
-31
0
-31
Q4/2016
1 143
298
188
202
15
-34
184
-37
147
-
147
-3
145
0.37
0.37
-
0.06
0.06
-
-0.03
-0.03
-
0.16
0.16
-
2016
3,632
1,015
644
633
131
-169
595
-90
504
-
504
-8
496
0.56
0.56
-
Sales by quarter, EUR million
Comparable operating profit by quarter, EUR million
2,000
1,500
1,000
500
0
2015
2016
Q1
Q2
Q3
Q4
500
400
300
200
100
0
2015
2016
Q1
Q2
Q3
Q4
137
Investor information Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Operational key figures
Quarterly financial information
Quarterly sales by segment
EUR million
Generation 1)
City Solutions 1)
Russia
Other 1)
Netting of Nord Pool transactions 2)
Eliminations
IS Total for continuing operations
Discontinued operations
Eliminations 3)
Total
Q1/2015
500
406
263
29
-119
-38
1,040
180
-20
1,200
Q2/2015
404
244
211
29
-64
-31
794
95
-11
878
Q3/2015
377
185
154
28
-57
-26
661
0
0
660
Q4/2015
440
352
266
28
-97
-26
964
0
0
964
2015
1,722
1,187
893
114
-336
-122
3,459
274
-31
3,702
Q1/2016
467
397
249
31
-120
-34
989
-
-
989
1) Sales, both internal and external, includes effects from realised hedging contracts. Effect on sales can be negative or positive depending on the average contract price and realised spot price.
2) Sales and purchases with Nord Pool Spot is netted on Group level on an hourly basis and posted either as revenue or cost depending on if Fortum is a net seller or net buyer during any particular hour.
3) Sales to and from discontinued operations.
Quarterly comparable operating profit by segments
EUR million
Generation
City Solutions
Russia
Other
IS Comparable operating profit
Impairment charges
Capital gains and other
Changes in fair values of derivatives hedging future cash flow
Nuclear fund adjustment
IS Operating profit
Q1/2015
203
58
97
-15
343
0
7
-3
3
350
Q2/2015
114
11
35
-17
143
-15
0
13
3
144
Q3/2015
102
-13
0
-10
79
-784
14
5
3
-682
Q4/2015
142
53
69
-21
243
-119
1
-95
7
38
2015
561
108
201
-63
808
-918
22
-78
16
-150
Q1/2016
155
58
79
-16
275
0
44
50
0
369
The first and last quarters of the year are usually the strongest quarters for power and heat businesses.
Q2/2016
384
260
182
30
-69
-20
768
-
-
768
Q2/2016
98
7
34
-18
122
0
2
-57
0
67
Q3/2016
371
237
175
29
-66
-15
732
-
-
732
Q4/2016
435
530
289
31
-129
-13
1 143
-
-
1 143
Q3/2016
77
-16
12
-15
58
0
-10
-57
2
-6
Q4/2016
87
63
66
-28
188
27
2
-1
-14
202
2016
1,657
1,424
896
121
-384
-82
3,632
-
-
3,632
2016
417
112
191
-76
644
27
38
-65
-11
633
138
Investor information
Operating and
financial review
Consolidated
financial statements
Notes
Key figures
2007–2016
Parent company
financial statements
Proposal for the use of the profit
shown on the balance sheet
Auditor’s
report
Operational key figures
Quarterly financial information
Investor
information
Investor information
Fortum's 2016 reporting entity comprises the Online Annual Review, CEO Letter, Financials, Corporate
Governance Statement, Remuneration Statement, Tax Footprint as well as the Sustainability Report.
Our reporting for the year 2016 is based on the integrated reporting principles and includes material
information on aspects we estimate to have a significant effect on Fortum’s ability to create value for its
stakeholders.
Fortum share basics
Listed on Nasdaq Helsinki
Trading ticker: FORTUM
Number of shares, 1 February 2017: 888,367,045.
Sector: Utilities
Annual General Meeting
The Annual General Meeting of Fortum Corporation will be held on Tuesday, 4 April 2017, starting at
2:00 p.m. EET at Finlandia Hall, address: Mannerheimintie 13 e, Helsinki, Finland. The reception of
shareholders who have registered for the meeting will commence at 12.30 p.m. EET.
Payment of dividends
The Board of Directors proposes to the Annual General Meeting that Fortum Corporation pays a dividend of
EUR 1.10 per share for 2016, totalling approximately EUR 977 million based on the registered shares as of
1 February 2017. The possible dividend related dates planned for 2017 are:
•
•
•
the ex-dividend date 5 April 2017,
the record date for dividend payment 6 April 2017 and
the dividend payment date 13 April 2017.
Financial information in 2017
Fortum will publish three interim reports in 2017:
January-March interim report on 27 April
•
January-June half year financial review on 20 July, and
•
January-September on 26 October.
•
The reports are published at approximately 9:00 EET in Finnish and English, and are available on
Fortum’s website at www.fortum.com/investors
Fortum’s management hosts regular press conferences, targeted at analysts and the media. A webcast
of these conferences is available online at www.fortum.com. Management also gives interviews on a
one-on-one and group basis. Fortum observes closed and silent period of 30 days prior to publishing its
results.
Fortum’s activities in capital markets during 2016
Fortum’s Investor Relations (IR) activities cover equity and fixed-income markets to ensure full and
fair valuation of the Company’s shares, access to funding sources and stable bond pricing. Investors
and analysts primarily are met on a regular basis in Europe and North America.
In 2016, Fortum met approximately 200 professional equity investors individually or in group
meetings and at investor conferences, whilst maintaining regular contact with equity research
analysts at investment banks and brokerage firms. In November, Fortum held Capital Markets Day for
institutional investors and analysts that gathered some 80 professionals to the company’s head offices.
Interim Report January–September
2017, October 26th
Financial Statements Bulletin
2017, February 2nd
Financial Statements 2016,
February 16th
Q 4
Q
3
2017
Q
1
Q 2
Interim Report January–June
2017, July 20th
Annual General Meeting,
April 4th
Interim Report January–March
2017, April 27th
139
Investor information
Governance 2016
Corporate Governance Statement
Board of Directors
Executive Management Team
Corporate Governance
Statement 2016
Fortum Corporation (FORTUM) has been listed on Nasdaq Helsinki
since 18 December 1998. Fortum’s industrial sector, according to
the Global Industry Classification Standard, is Electric Utilities.
The State of Finland is the majority owner in Fortum with 50.76% of
the shares as of 31 December 2016.
Corporate governance at Fortum is based on Finnish laws and
the company’s Articles of Association. Fortum complies fully
with and has prepared this corporate governance statement in
accordance with the Finnish Corporate Governance Code 2015.
The corporate governance statement is issued separately from the
operating and financial review, and it has been reviewed by the
Audit and Risk Committee of Fortum’s Board of Directors.
Fortum prepares consolidated financial statements and
interim reports in accordance with the International Financial
Reporting Standards (IFRS), as adopted by the EU, the Finnish
Securities Markets Act as well as the appropriate Financial
Supervision Authority’s regulations and guidelines and Nasdaq
Helsinki’s rules. The company’s operating and financial review
and the parent company financial statements are prepared in
accordance with the Finnish Companies Act, Accounting Act,
Securities Markets Act, and the opinions and guidelines of the
Finnish Accounting Board.
The auditor’s report covers the consolidated financial
statements and the parent company financial statements. The
Finnish Corporate Governance Code 2015 is available on the
website of the Securities Market Association: www.cgfinland.fi
Description of Governance
Governing bodies of Fortum
The decision-making bodies managing and overseeing the
Group’s administration and operations are the General Meeting of
Shareholders, the Board of Directors with its two Committees, the
Audit and Risk Committee and the Nomination and Remuneration
Committee, and the President and CEO, supported by the Fortum
Executive Management.
Fortum also has an informal Advisory Council consisting of
representatives of Fortum’s stakeholder groups as invited by the
Board of Directors. The Advisory Council aims to advance Fortum’s
businesses by facilitating a dialogue and exchange of views
between Fortum and its stakeholders. During 2016, the Advisory
Council consisted of 14 representatives of Fortum’s stakeholder
groups and three employee representatives.
As sustainability is an integral part of Fortum’s strategy, the
highest decision making of these issues falls on the duties of the
Board of Directors, who share joint responsibility on sustainability
matters. Therefore Fortum has not established a specific
Sustainability Committee for decision making on economic,
Governing bodies of Fortum
Governing bodies of Fortum
Shareholders’
Nomination
Board
General Meeting
of Shareholders
External Auditor
Board of
Directors
Nomination
and
Remuneration
Committee
President
and CEO
Audit and
Risk Committee
Fortum Executive
Management
(FEM)
Internal Audit
2
environmental and social issues. The Audit and Risk Committee,
members of the Fortum Executive Management, and other senior
executives support the Board of Directors in the decision-making in
these matters, when necessary.
General Meeting of Shareholders
The General Meeting of Shareholders is the highest decision
making body of Fortum. Every shareholder has the right to
attend the General Meeting, propose items for the agenda of
the General Meeting and exercise his/her power of decision in
matters belonging to the General Meeting by law, as stipulated
in the Finnish Companies Act. Each share is entitled to one
vote. A shareholder who is present at the General Meeting
of Shareholders also has the right to request information on
matters to be considered at the meeting. Before the end of each
financial year Fortum states on the Annual General Meeting
website and in the Investor Relations calendar the date by
which a shareholder must declare his/her proposals to the
General Meeting.
Decisions at the General Meeting of Shareholders are primarily
made by a simple majority of votes. Such decisions include, for
example, resolutions on the adoption of the financial statements,
payment of dividends, discharging the members of the Board of
Directors and the President and CEO from liability, appointment of
the Board of Directors and the external auditors, and deciding on
their remuneration.
In accordance with Fortum’s Articles of Association and the
Finnish Companies Act, a notice to convene the General Meeting
of Shareholders is issued by the Board of Directors. The notice
is delivered no more than three months and no less than three
weeks before the General Meeting of Shareholders by publishing
the notice on the company’s website or in two newspapers
chosen by the Board of Directors. The Annual General Meeting of
Shareholders is to be held once a year, in June at the latest.
An Extraordinary General Meeting of Shareholders shall be
held whenever the Board of Directors finds it necessary or when it is
required by law to convene such a meeting.
Corporate Governance Statement
Board of Directors
Executive Management Team
Main duties of Annual General Meeting
of shareholders Include:
• Adoption of the parent company financial
statements and consolidated financial statements
• Resolution on the use of the earnings shown on
the balance sheet and the payment of dividends
• Resolutions on the discharge from liability of the
members of the Board of Directors and the CEO
• Resolution on the remuneration of the
members of the Board of Directors
• Resolution on the number of members
of the Board of Directors
• Election of the chairman, deputy chairman
and members of the Board of Directors
• Resolution on the remuneration
of the external auditor
• Election of the external auditor
General Meetings in 2016
Fortum’s Annual General Meeting was held at the Finlandia hall
in Helsinki on 5 April. No Extraordinary General Meeting of
Shareholders was held in 2016.
Shareholders’ Nomination Board
The Annual General Meeting on 9 April 2013 established a
permanent Shareholders’ Nomination Board. The purpose and task
of the Shareholders’ Nomination Board is to prepare and present to
the Annual General Meeting, and, if necessary, to an Extraordinary
General Meeting, a proposal on the remuneration, size and
members of the Board of Directors. In addition, the Shareholders’
Nomination Board seeks candidates for potential board members.
The Shareholders’ Nomination Board consists of four
members, three of which are appointed by the company’s three
largest shareholders, who shall appoint one member each. The
Chairman of the Board of Directors serves as the fourth member.
The members are nominated annually and their term of office ends
when new members are nominated to replace them. Fortum’s three
largest shareholders that are entitled to appoint members to the
Shareholders’ Nomination Board are determined on the basis of
the registered holdings as of the first working day in September in
the year concerned. In the event that a shareholder does not wish
to exercise their right to appoint a representative, it shall pass the
right to the next-largest shareholder who would not otherwise
be entitled to appoint a member to the Nomination Board. The
Shareholders’ Nomination Board forwards its proposals for the
Annual General Meeting to the Board of Directors by 31 January
each year.
Diversity Principles for the Board of Directors
In line with the new Corporate Governance Code 2015, the
Shareholders’ Nomination Board has in the fall 2016 adopted
diversity principles for the Board of Directors which are applied
in preparing proposal concerning nomination of board members.
The diversity principles include, among others, that the board
composition shall include expertise from the geographical areas
where Fortum conducts its business, the background profession of
3
the board members shall include such competences that support
realization of Fortum’s strategy and that enable board members
to challenge management decisions and to exercise their role of
having oversight. In addition, the board composition shall include
both genders. Fortum’s target is to comply with the principles
issued in the Government Resolution dated 17 February 2015 on
equal gender representation in the boards of listed companies with
the aim of the board consisting of at least 40% each of women and
men by 2020. The Shareholders Nomination Board reviews the
diversity principles and their implementation annually.
Fortum reports the objectives, actions and progress of the
diversity principles in its corporate governance statement. The
Shareholders’ Nomination Board has applied the diversity
principles in preparing the proposal concerning nomination
of board members for the Annual General Meeting 2017. The
Shareholders’ Nomination Board deems that the current board
composition and the proposed board members for the Annual
General Meeting 2017 include all the competences defined in the
diversity principles in well balanced manner.
The proposal for the board members for the Annual General
Meeting 2017 consists of 3 women and 5 men. The current Board
of Directors consists of 3 women and 5 men, corresponding to a
ratio of 37.5% and 62.5%.
Shareholders’ Nomination Board prior
to the Annual General Meeting 2017
In September 2016, the following members were invited to the
Shareholders’ Nomination Board: the Government Ownership
Steering Department of the Prime Minister’s Office, Ilmarinen
Mutual Pension Insurance Company and the Social Insurance
Institution of Finland (KELA). The following persons were
appointed to the Shareholders’ Nomination Board: Eero Heliövaara,
b. 1956, M.Sc. (Econ.) and M.Sc. (Eng.), Director General of the
Government Ownership Steering Department, Prime Minister’s
Office; Timo Ritakallio, b. 1962, D.Sc. (Tech.), LL.M., MBA,
President and CEO, Ilmarinen Mutual Pension Insurance Company
and Liisa Hyssälä, b. 1948, M.Sc. (Soc.)., D.D.S., Director General,
Social Insurance Institution of Finland (KELA). The Chairman
Corporate Governance Statement
Board of Directors
Executive Management Team
of the Board of Directors, Sari Baldauf, acts as a member of the
Shareholders’ Nomination Board. The Nomination Board convened
3 times and the attendance rate was 100%.
Following the retirement of Liisa Hyssälä, Director General of
KELA, her successor Elli Aaltonen (b. 1953, D.Sc. (Soc.), docent,
Director General) replaced her as a member of the Shareholders’
Nomination Board as of 1 January 2017. Ms Hyssälä participated in
two meetings and Ms Aaltonen in one meeting.
The Shareholders’ Nomination Board will propose to the Annual
General Meeting 2017, which will be held on 4 April 2017, that the
fees to be paid to the members of the Board of Directors are for a term
ending at the end of the Annual General Meeting 2018 as follows:
for the chairman, EUR 75,000 per year; for the deputy chairman,
EUR 57,000 per year; and for each member, EUR 40,000 per year,
as well as for the chairman of the Audit and Risk Committee EUR
57,000 per year if he/she is not at the same time acting as chairman
or deputy chairman of the Board of Directors. In addition, for
each Board of Directors and Board Committee meeting a fee of
EUR 600 is proposed. For Board of Directors members living
outside Finland in Europe, the proposed fee for each meeting will
be doubled, and for Board of Directors members living outside
Europe, the proposed fee for each meeting will be tripled. For Board
of Directors members living in Finland, the proposed fee for each
Board of Directors and Board Committee meeting will be doubled
for meetings held outside Finland and tripled for meetings held
outside Europe. For Board of Directors and Committee meetings
held as a telephone conference, the proposed fee will be paid as
single to all members. No fee will be paid for decisions made
without a separate meeting.
In addition, the Shareholders’ Nomination Board has decided
to propose to the Annual General Meeting 2017 that the Board of
Directors comprise eight members and that the following persons
be elected to the Board of Directors for the upcoming term: Sari
Baldauf (Chairman), Heinz-Werner Binzel, Eva Hamilton, Kim
Ignatius, Tapio Kuula, and Veli-Matti Reinikkala, as well as new
members Matti Lievonen (Deputy chairman), and Anja McAlister.
Shareholders’ Nomination Board prior
to the Annual General Meeting 2016
In September 2015, the following persons were appointed to
the Shareholders’ Nomination Board: Eero Heliövaara, Director
General of the Government Ownership Steering Department,
Prime Minister’s Office; Reima Rytsölä, Executive Vice President,
Investments, Varma Mutual Pension Insurance Company and Liisa
Hyssälä, Director General, Social Insurance Institution of Finland
(KELA). In addition, the Chairman of the Board of Directors, Sari
Baldauf, was a member of the Shareholders’ Nomination Board. Of
the three largest shareholders, The State Pension Fund informed
Fortum that they would not use their right to nominate.
The Shareholders’ Nomination Board convened 5 times and
the attendance rate was 100%. The Shareholders’ Nomination
Board presented its proposal covering the members of the Board
of Directors and the remuneration be paid to them, on 22 January
2016.
Board of Directors
The Board of Directors is responsible for the company’s strategic
development and for supervising and steering the company’s
business and management. Further, under the Articles of
Association and in line with the Companies Act, the Board of
Directors represents the company and is responsible for the
proper arrangement of the control of the company’s accounts and
finances. The Board of Directors is also responsible for defining the
company’s mission and values.
The Board of Directors comprises five to eight members who are
elected at the Annual General Meeting for a one-year term of office
expiring at the end of the first Annual General Meeting following
the election. The Annual General Meeting also elects the Chairman
and the Deputy Chairman of the Board of Directors.
The Board of Directors convenes according to a previously
agreed schedule to discuss specified themes and issues on its
charter. The Chairman of the Board of Directors prepares the
agenda for the Board of Directors meeting based on the proposal by
4
Corporate Governance Statement
Board of Directors
Executive Management Team
Heinz-Werner Binzel, Eva Hamilton, Tapio Kuula, Petteri Taalas
and Jyrki Talvitie.
The Annual General Meeting on 5 April 2016 re-elected
Chairman Sari Baldauf, Deputy Chairman Kim Ignatius, Minoo
Akhtarzand, Heinz-Werner Binzel, Eva Hamilton, Tapio Kuula and
Jyrki Talvitie, and, in addition, Veli-Matti Reinikkala, was elected as
new member to the Board of Directors until the end of the Annual
General Meeting in 2017.
The Chairman, the Deputy Chairman and the members of
the Board of Directors were, with the exception of Tapio Kuula
(Mr. Kuula acted as President and CEO of Fortum until 31 January
2015), independent of the company and all were independent of the
company’s significant shareholders. Three members, including the
Chairman, are female and five members are male.
The Board of Directors met 15 times, and the attendance rate
was 99%.
The Board of Directors focused especially on the development
and implementation of the company’s strategy, including the
reorganisation of the company, investments, acquisitions as
well as people and competence development. Other focus areas
included the market outlook and market development, as well
as Fortum’s competitiveness and growth options in the energy
market transition. Based on the self-assessment conducted during
the previous year, the Board of Directors set certain focus areas
and amended certain processes in an effort to further enhance the
efficiency of the board work.
the President and CEO. The members of the Board of Directors have
the right to suggest specific matters and have them included on
the agenda. More than half of the members must be present at the
meeting to constitute a quorum. Decisions of the Board of Directors
shall be made by a simple majority. The Board of Directors has
approved a written charter for its work, the main content of which is
disclosed herein, including the duties of the Board of Directors.
The President and CEO, the Chief Financial Officer, and the
General Counsel, as secretary to the Board of Directors, attend
the Board meetings on a regular basis. Other Fortum Executive
Management members and senior executives attend as required.
As part of its duties, the Board of Directors conducts an
annual self-assessment in order to further develop its work.
In accordance with the Finnish Corporate Governance Code, the
Board of Directors also annually evaluates which of the directors
are independent of the company and which are independent of its
significant shareholders.
Board of Directors in 2016
Until the Annual General Meeting held on 5 April 2016, the Board
of Directors comprised the following eight members: Chairman
Sari Baldauf, Deputy Chairman Kim Ignatius, Minoo Akhtarzand,
Main duties of the Board of Directors include:
• Ensuring that the administration and operations of the company are properly organised
• Ensuring that the accounting, financial administration and the risk management are arranged appropriately
• Confirming the Group’s business plan on an annual basis
• Reviewing the interim reports and approving the consolidated financial statements, the
parent company financial statements, and the operating and financial review
• Defining the dividend policy
• Strategic development and steering of the company’s business and divisions
• Appointing and dismissing the President and CEO; deciding on his/her remuneration
• Confirming the Group’s organisational structure at the top management level, and
appointing and dismissing the members of the Fortum Executive Management
• Setting and following up the annual performance targets for the company and its management
• Deciding on major investments, divestments and business arrangements
• Confirming the Group’s Code of Conduct, operating principles and Group policies, including
the sustainability policy and risk policy, and overseeing their implementation
• Convening the Annual General Meeting and the Extraordinary General Meeting, when necessary
• Appointing the Chairman and Deputy Chairman as well as members of the Fortum Corporation Advisory Council
• Deciding on donations to charities
5
Corporate Governance Statement
Board of Directors
Executive Management Team
Fortum’s Board of Directors on 31 December 2016
Born
Nationality
Education
Occupation Member since
Attendance
at Board
Meetings
Attendance at
Board Committee Meetings
Share
ownership
(31 Dec 2016)
Ms. Sari Baldauf, Chairman
1955
Finnish
M.Sc. (Econ.)
Mr. Kim Ignatius, Deputy Chairman
1956
Finnish
B.Sc. (Econ.)
Ms. Minoo Akhtarzand
1956
Swedish
M.Sc. (Electrical Engineering)
Mr. Heinz-Werner Binzel
1954
German
Economics and electrical
engineering degree
Ms. Eva Hamilton
1954
Swedish
B.A. Journalism
Mr. Tapio Kuula
1957
Finnish
Mr. Jyrki Talvitie
1966
Finnish
Member of Fortum’s Board of Directors as of 5 April 2016
M.Sc. (Eng.)
M.Sc. (Econ.)
Executive MBA,
LL.M.
Mr. Veli-Matti Reinikkala
1957
Finnish
Executive MBA
Member of Fortum’s Board of Directors until 5 April 2016
Non-executive director
Independent member of Fortum’s
Board of Directors
CFO of Sanoma Corporation
Independent member of Fortum’s
Board of Directors
Governor in the County
of Västmanland
Independent member of Fortum’s
Board of Directors
Independent consultant
Non-executive director
Independent member of Fortum’s
Board of Directors
Non-executive director
Independent member of Fortum’s
Board of Directors
Non-executive director
Independent of the significant
shareholders, not independent of
the company
Sperbank, Vice President,
Strategic Partners and Investors
Independent member of Fortum’s
Board of Directors
Non-executive Director
Independent member of Fortum’s
Board of Directors
2009
15/15
Nomination and Remuneration
Committee, 6/6
2,300
2012
15/15
Audit and Risk Committee, 7/7
2,400
2011
15/15
Audit and Risk Committee, 7/7
2011
15/15
Audit and Risk Committee, 7/7
2015
14/15
Nomination and Remuneration
Committee, 5/ 6
0
0
40
2015
15/15
Nomination and Remuneration
Committee, 6/6
201,200
2014
15/15
Audit and Risk Committee, 7/7
0
2016
10/10
Nomination and Remuneration
Committee, 4/4
3,000
Mr. Petteri Taalas
1961
Finnish
Ph.D. in Meteorology
Director General of the Finnish
Meteorological Institute
2014
5/5
Nomination and Remuneration
Committee, 1/2
-
6
Corporate Governance Statement
Board of Directors
Executive Management Team
Board Committees
The committees of the Board of Directors are the Audit and Risk
Committee and the Nomination and Remuneration Committee.
The committees assist the Board of Directors by preparing and
reviewing in more detail matters falling within the duties of the
Board of Directors.
The Board of Directors appoints members of the Audit and Risk
Committee and the Nomination and Remuneration Committee
from amongst its members. Each committee shall have at least
three members. The members shall have the expertise and
experience required by the duties of the respective committee.
Members are appointed for a one-year term of office expiring at
the end of the first Annual General Meeting following the election.
All the members of the Board of Directors have the right to attend
the committee meetings. The Chairman of the committee reports
on the committee’s work to the Board of Directors regularly after
each meeting, and the committee meeting materials and minutes
are available to all members of the Board of Directors. The Board
of Directors has approved written charters for the committees; the
charters are reviewed regularly and updated as needed.
Audit and Risk Committee
The Audit and Risk Committee assists the Board of Directors in
matters relating to financial reporting and control in accordance
with the duties specified for audit committees in the Finnish
Corporate Governance Code. The Board of Directors regularly
determines the role and duties of the Audit and Risk Committee in
a written charter. The committee monitors the Group’s reporting
process of financial statements and the efficiency of the internal
controls, internal audit and risk management systems. In addition,
the committee monitors and assesses the legal compliance and the
business ethics compliance.
Pursuant to the Finnish Corporate Governance Code, the
members of the Audit and Risk Committee shall have the
qualifications necessary to perform the responsibilities of the
committee, and at least one of the members shall have expertise
specifically in accounting, bookkeeping or auditing. The members
shall be independent of the company, and at least one member shall
be independent of the company’s significant shareholders.
The external auditors, Chief Financial Officer, Head of Internal
Audit, Corporate Controller, and General Counsel, as secretary
to the committee, attend the committee meetings on a regular
basis. Other senior executives attend the meetings as invited by
the committee.
The Audit and Risk Committee carries out a self assessment
of its work and approves the internal audit charter and the
internal audit plan and its budget. The committee evaluates
the independence of the external auditors, reviews the external
auditor’s audit plan and meets with them regularly to discuss the
audit plan, audit reports and findings.
Audit and Risk Committee in 2016
After the Annual General Meeting on 5 April 2016, the Board of
Directors elected from amongst its members Kim Ignatius as the
Chairman and Minoo Akhtarzand, Heinz-Werner Binzel and Jyrki
Talvitie as members of the Audit and Risk Committee. Until the
Annual General Meeting on 5 April 2016, the committee comprised
Kim Ignatius as the Chairman, and Minoo Akhtarzand, Heinz-
Werner Binzel and Jyrki Talvitie as members.
In 2016, the members were all independent of the company and
of its significant shareholders. The Audit and Risk Committee met
7 times in 2016 and the attendance rate was 100%.
Main duties of the Audit
and Risk Committee include:
• Monitoring the financial position of the company
• Supervising the financial reporting process
• Monitoring the reporting process
of financial statements
• Monitoring the statutory audit of the financial
statements and consolidated financial statements
• Preparing for the Board of Directors the proposal
for resolution on the election of the auditor
• Evaluating the independence of the statutory
auditor or audit firm, particularly the provision
of related services to the company to be audited
and pre-approval of non-audit services
• Monitoring the efficiency of the company’s
internal control, internal audit, compliance
and risk management systems
• Reviewing the description in the company’s
Corporate Governance Statement of
the main features of the internal control
and risk management systems in relation
to the financial reporting process
• Reviewing annually the Group risk
policy and risk exposures
• Approving the internal audit charter, the annual
audit plan, the budget of the internal audit
function, and reviewing the internal audit reports
• Monitoring and assessing legal compliance
and business ethics compliance
7
Corporate Governance Statement
Board of Directors
Executive Management Team
Nomination and Remuneration Committee
The Nomination and Remuneration Committee assists the Board
of Directors in issues related to nomination and remuneration of
the company’s management. The committee has a written charter
in which its duties have been defined. Pursuant to the Finnish
Corporate Governance Code, the majority of the members of a
remuneration committee shall be independent of the company.
The regular participants at the committee meetings are the
President and CEO, Senior Vice President of Strategy, People and
Performance, and General Counsel as Secretary to the Committee.
The Nomination and Remuneration Committee conducts
annually a self-evaluation of its work.
Nomination and Remuneration Committee in 2016
After the Annual General Meeting on 5 April 2016, the Board
of Directors elected from amongst its members Sari Baldauf as
the Chairman and Eva Hamilton, Tapio Kuula and Veli-Matti
Reinikkala as members of the Nomination and Remuneration
Committee. Until the Annual General Meeting on 5 April 2016,
the committee comprised Sari Baldauf as the Chairman and Eva
Hamilton, Tapio Kuula and Petteri Taalas as members.
In 2016, the members were all independent of the company,
with the exception of Tapio Kuula (Mr Kuula acted as President
and CEO of Fortum until 31 January 2015), and of its significant
shareholders. The committee met 6 times during 2016 and the
attendance rate was 92%.
President and CEO
Mr. Pekka Lundmark is the President and CEO of Fortum
Corporation. The President and CEO holds the position of
Managing Director under the Companies Act and is the Chairman
of the Fortum Executive Management. The President and CEO is in
charge of the day-to-day management of the Group, in accordance
with the Companies Act and the instructions and orders issued by
the Board of Directors. Under the Companies Act, the President and
CEO is responsible for ensuring that the accounts of the company
comply with the applicable laws and that its financial affairs have
been arranged in a reliable manner.
Main duties of the Nomination
and Remuneration Committee include:
• Preparing nomination and remuneration
issues and proposals to the Board of Directors
concerning the President and CEO, the executives
reporting directly to the President and CEO as
well as the Fortum Executive Management
• Reviewing and preparing succession
plans for the President and CEO
• Evaluating the performance and the remuneration
of the President and CEO, the executives
reporting directly to the President and CEO as
well as the Fortum Executive Management
• Preparing for the Board of Directors
recommendations on the Group’s and
its management’s pay structures and
bonuses and incentive systems
• Monitoring the functioning of the bonus systems to
ensure that the management’s bonus systems will
advance the achievement of the company’s strategic
objectives and that they are based on performance
• Monitoring, planning and promoting
competence development in the Group
based on strategic target setting
deciding on investments, mergers, acquisitions and divestments
within its authorisation.
Financial and sustainability results are reviewed in the monthly
reporting by the Fortum Executive Management. Quarterly
Performance Review meetings with the management are embedded
in the Fortum Performance Management process.
Each member of the Fortum Executive Management is
responsible for the day-to-day operations and the implementation
of operational decisions in their respective organisations. The
Fortum Executive Management meets on a monthly basis.
Fortum Executive Management in 2016
In February 2016, Fortum announced that it will reorganise
its corporate structure as of 1 April 2016. The target of the
new organisation was to enable the implementation of the
company’s new vision and strategy, which were announced on 3
February 2016. The new organisation comprises three business
divisions: Generation, City Solutions and Russia. In addition,
two development units focusing on growing new businesses were
established: M&A and Solar & Wind Development, as well as
Technology and New Ventures. The new organisation has four staff
functions: Finance; Legal; Strategy, People and Performance; as
well as Corporate Affairs and Communications.
Generation
Generation division is responsible for the large scale power
production, physical optimisation and trading activities in the
Nordic area. The division comprises nuclear, hydro and thermal
power production, portfolio management and trading, industrial
intelligence and nuclear services.
Fortum Executive Management
The President and CEO is supported by the Fortum Executive
Management. The Fortum Executive Management assists
the President and CEO in implementing the strategic and
sustainability targets within the framework approved by the
Board of Directors, preparing the Group’s business plans, and
City Solutions
City Solutions division is responsible heating and cooling, waste
to energy, biomass and other circular economy solutions as well
as electricity sales and services. It includes the service business
previously organised in the Power Solutions unit with the exception
of nuclear services.
8
Corporate Governance Statement
Board of Directors
Executive Management Team
Russia
Russia division comprises Fortum’s power and heat generation and
sales activities in Russia.
Technology and New Ventures
Technology and New Ventures unit is responsible for Fortum’s
research and development activities and is the in-house incubator
for start-ups. It is also responsible for direct and indirect
investments in external start-ups as well as cooperation with
universities and research institutions.
M&A and Solar & Wind Development
M&A and Solar&Wind Development is responsible for Fortum’s
mergers and acquisitions activities and developing Fortum’s solar
and wind portfolio.
Fortum Executive Management on 31 December 2016
Pekka Lundmark
Alexander Chuvaev
Timo Karttinen
Kari Kautinen
Per Langer
Risto Penttinen
Markus Rauramo
Matti Ruotsala
Arto Räty
Sirpa-Helena Sormunen
Tiina Tuomela
Position and responsibility area
President and CEO,
Chairman of the Fortum
Executive Management
Executive Vice President,
Russia Division
Chief Financial Officer
Senior Vice President,
M&A and Solar & Wind Development
Senior Vice President,
Technology and New Ventures
Senior Vice President,
Strategy, People and Performance
Executive Vice President,
City Solutions
Deputy CEO
Senior Vice President,
Corporate Affairs and Communications
General Counsel
Executive Vice President, Generation
Born
1963
1960
1965
1964
1969
1968
1968
1956
1955
1959
1966
Education
Member since
Share ownership
(31 December 2015)
M.Sc. (Eng.)
M.Sc. (Eng.)
M.Sc. (Eng.)
LL.M
M.Sc. (Econ.)
2015
2009
2004
2014
2009
M.Sc. (Econ.)
1 April 2016
M.Sc. (Econ. and Pol. Hist.)
M.Sc. (Eng.)
2012
2009
Lieutenant General (Ret.)
LL.M
M.Sc. (Eng.), MBA
1 April 2016
2014
2014
56,250
14,713
87,090
29,246
29,212
8,795
27,847
46,509
0
3,000
12,991
All the members of the Executive Management Team report to the President and CEO, apart from the General Counsel who administratively reports to the CFO.
9
Corporate Governance Statement
Board of Directors
Executive Management Team
The main features of the Internal
Control and Risk Management Systems
The internal control and risk management systems relating to
financial reporting are designed to provide reasonable assurance
regarding the reliability of financial reporting and aim to ensure
compliance with applicable laws and regulations.
Risk management systems
Fortum’s Board of Directors approves the Group Risk Policy
that defines the objective, main principles and division of
responsibilities for risk management. The Group Risk Policy also
includes a description of the main features of the risk management
process which is applicable to all processes including financial
reporting.
Internal controls in relation
to financial reporting
Fortum’s internal control framework includes the main elements
from the framework introduced by the Committee of Sponsoring
Organisations of the Treadway Commission (COSO). The controls
for processes, including financial reporting controls, have been
defined based on the main risks in the process. Internal Controls
are an integral part of Fortum Total Compliance owned by
Group Legal covering key areas of business ethics and regulatory
compliance.
Financial reporting framework in Fortum
Financial reporting framework in Fortum
Steering
Confirming Group principles and policies
Approving external financial reporting
Board of Directors
Monitoring
Supervising external financial reporting process
Reviewing the external and internal audit work and reporting
Audit and Risk Committee
e
c
n
a
n
r
e
v
o
G
Delegate, execute and monitor
Business planning
Management reporting
Performance reporting
Fortum Executive Management
g
n
i
t
r
o
p
e
R
Design, communication and
monitoring of the control framework
Group instructions and Controllers manual
Regular controller meetings and expert forums
Finance and
controlling
Risk
Management
IT & Security
application
controls
Implementing measures and performing the controls
Reporting and analysing
Assessment of operating effectiveness of controls
Divisions, business areas and staff/
service units
10
Corporate Governance Statement
Board of Directors
Executive Management Team
Fortum’s Control Governance
Fortum's Control Governance
Risk
First Line
of Defense
Business and
operational
management
Responsible for defining and implementing operational
processes and related controls within their responsibility
area, including monitoring.
Risk
Second Line
of Defense
Corporate and
business control
functions
Corporate and business control functions; Support
business and operational management in the form
of concept, methodology, design and oversight of
controls
CEO
/
FEM
Board of
Directors
Risk
Third Line
of Defense
Internal
Audit
Independent assessment of compliance
and assurance on internal controls
Audit and Risk Committee
Control environment
The standards, processes and structures in internal control are
set through Group policies, Group instructions and the Fortum
internal control framework. Fortum’s internal control framework
is designed to support regulatory compliance and reliability of
the financial reporting. In the internal control framework, the
key controls and minimum requirements for the controls in
key processes are defined. Corporate Accounting and Control
is responsible for the overall control structure of the financial
reporting process. The control process is based on instructions and
guidelines relating to financial reporting defined in the Fortum
Controllers’ manual which is reviewed and updated regularly.
Fortum’s organisation is decentralised, and a substantial
degree of authority and responsibility is delegated to the
divisions in the form of control responsibilities. Fortum’s
control governance follows the so-called “Three lines of defense”
as illustrated in the graphic.
Risk assessment
Risks are continuously identified and analysed as part of the risk
management process. Material risks and uncertainties, that might, if
realised, have financial impact or lead to non-compliance are reported
at least annually, and the follow-up of actions and improvements are
integrated in operational management. The risk assessment in the
11
Internal Controls Quality Programme and continuous improvement
identify the needs for changes in the internal controls.
Control activities
Control activities are applied in the processes and, from the
financial reporting perspective, they ensure that errors or
deviations are prevented or detected and corrected.
The Corporate Accounting and Control unit determines the
control requirements, the scope and the design of the control
points covering the financial reporting process. Divisions and
units define their controls based on these common requirements.
Responsibilities are assigned for performing the controls and also
for ensuring that the control coverage is in accordance with the
defined requirements and scope.
Control requirements for the financial reporting process include
controls regarding the initiation, recognition, measurement,
approval, accounting and reporting of financial transactions as
well as disclosure of financial information. The general IT controls
support the completeness of financial reporting controls in areas
like access and back-up management.
Responsibilities are assigned to finance functions and business
controllers ensuring that analyses of the business performance,
including analyses on volumes, revenues, costs, working capital,
and asset values are performed in accordance with the control
requirements.
Information and communication
The Controllers’ manual includes the Fortum Accounting
manual, Investment manual and reporting instructions, and
other instructions relating to financial reporting. Regular core
controllers’ meetings, headed by the Corporate Controller, steer
the Group’s development projects within the Finance function. The
regular Accounting Network Forum meetings are to inform about
upcoming changes in IFRS, new accounting policies and other
changes in reporting requirements.
Corporate Governance Statement
Board of Directors
Executive Management Team
Monitoring and follow-up
Financial performance and the key short-term risks and
uncertainties related to business operations are reported monthly
to the Fortum Executive Management.
As part of the Fortum internal control framework, divisions and
units regularly assess the maturity of the controls they are responsible
for including the financial reporting process controls. The Head of
Internal Controls reports the results of the maturity assessments and
improvement actions to the management and to the Audit and Risk
Committee. Internal control design and operating effectiveness are
also assessed as part of the audits by Corporate Internal Audit. Audit
results, including corrective actions and status, are regularly reported
to the management and to the Audit and Risk Committee.
Auditing
Internal Audit
Fortum’s Internal Audit is responsible for assessing and assuring
the adequacy and effectiveness of internal controls in the Group.
Furthermore, it evaluates the effectiveness and adequacy of the
business processes and risk management as well as compliance
with laws, regulations and internal instructions and guidelines.
The Standards for the Professional Practice of Internal Audit form
the basis for the work of Internal Audit.
External Audit
The company and the Group has one external auditor, which shall
be an audit firm certified by the Central Chamber of Commerce.
The external auditor is elected by the Annual General Meeting for
a term of office that expires at the end of the first Annual General
Meeting following the election.
Fortum’s Annual General Meeting on 5 April 2016 elected
Authorised Public Accountant Deloitte & Touche Oy as the
company’s external auditor, with Authorised Public Accountant
Jukka Vattulainen having the principal responsibility. Jukka
Vattulainen has had the principal responsibility since 2010.
The fee paid to the auditor for services rendered and invoiced in
2016 totalled approx. EUR 1,305,000. In addition, the audit firm
was paid a total of approx. EUR 213,000 in fees for non-audit
services rendered and invoiced.
Code of Conduct and Total Compliance Programme
Fortum’s Code of Conduct is based on the shared corporate
values of accountability, creativity, respect and honesty,
which form the ethical basis for all work at Fortum. Fortum’s
updated Code of Conduct was implemented in the fall of 2015
(originally launched in 2007) and is published in ten languages.
The Code of Conduct has been approved by the Board of
Directors. Fortum employees are responsible for reporting
any suspected misconduct to their own supervisors, to other
management members or, if necessary, directly to Internal
Audit. Additionally, Fortum employees and partners can report
suspicions of misconduct can be reported confidentially to the
Fortum Head of Internal Audit via the “raise-a-concern channel”
on Fortum’s internal and external web pages. The report can be
submitted in several languages and anonymously if necessary.
In Russia, Fortum even has a separate compliance organisation
with compliance officers in place.
Prevention of corruption is one of the Code of Conduct’s focus
areas. Fortum has procedures for anti-corruption including
prevention, oversight, reporting and enforcement based on the
requirements prescribed in international legislation. Fortum also
has a country and partner risk evaluation process to support the
understanding and management of compliance needs at the local
business and partner level. These also cover export control and
anti-money laundering aspects.
During 2016, Fortum has launched a Total Compliance
programme which covers key areas of regulatory compliance
and business ethics. It is managed with risk-based prioritisation.
Internal Controls are integral part of the Total Compliance and both
the Group Compliance Officer and the Head of Internal Controls
report to the General Counsel independently of the business.
channels. Alignment is enforced by top management with their full
commitment.
Insider Administration
Fortum complies with the EU regulation No. 596/2014 on market
abuse (MAR) and EU regulation No. 1227/2011 on wholesale Energy
Market Integrity and Transparency (REMIT) and related regulation.
Fortum complies also with the Guidelines for Insiders issued by
Nasdaq Helsinki.
Persons discharging
managerial responsibilities
Persons discharging managerial responsibilities and the persons
associated with them are under a duty to disclose their transactions
with Fortum’s financial instruments. Fortum has defined persons
discharging managerial responsibilities to be the members of the
Board of Directors and Fortum Executive Management.
Duty to disclose and Closed Window
Fortum’s Board of Directors and Executive Management members as
well as persons related to them are under a disclosure duty towards
Fortum and the Finnish Financial Supervision Authority regarding
their transactions with Fortum’s financial instruments. Fortum makes
the said transactions public with a stock exchange release.
Fortum’s Board of Directors and Executive Management members
as well as other Fortum personnel defined to have access to sensitive
financial information of Fortum may not trade in Fortum’s financial
instruments within 30 days prior to the publication of interim reports
and financial statements (Closed Window).
Internal supervision of insider affairs
Fortum’s own internal insider rules are regularly updated and made
available to all employees of Fortum. Fortum arranges training
on insider rules. The coordination and control of insider affairs
are included in the responsibilities of Fortum’s General Counsel.
Fortum regularly monitors the trading of its insiders.
The Annual General Meeting decided on 5 April 2016 that the
auditor’s fee be paid pursuant to invoice approved by the company.
The Code of Conduct and compliance topics and instructions
are communicated through internal and external communication
12
Corporate Governance Statement
Board of Directors
Executive Management Team
Board of Directors 31 December 2016
Sari Baldauf
Chairman
Kim Ignatius
Deputy Chairman
Fortum shares as of
31 December 2016:
2,300 (31 Dec 2015: 2,300)
Born 1956, nationality: Finnish
B.Sc. (Econ.) Helsinki School
of Economics and Business
Administration
Independent member of
Fortum’s Board of Directors
since 2012, Chairman of the
Audit and Risk Committee
Main occupation:
Sanoma Corporation, CFO
Primary work experience:
• TeliaSonera AB, Executive
Vice President and CFO
2003–2008
• Sonera Oyj, Executive
Vice President and CFO
2000–2002
• Tamro Oyj, Group CFO
1997–2000
Fortum shares as of
31 December 2016:
2,400 (31 Dec 2015: 2,400)
Born 1955, nationality: Finnish
M.Sc. Business Administration.
Honorary doctorate degrees
in Technology (Helsinki
University of Technology)
and Business Administration
(Turku School of Economics
and Business Administration,
and Aalto University School of
Business)
Independent member of
Fortum’s Board of Directors
since 2009, Chairman of the
Nomination and Remuneration
Committee
Main occupation:
Non-executive Director
Primary work experience:
• Nokia Corporation, several
senior executive positions.
Member of the Group
Executive Board until 2005.
Key positions of trust:
• Vexve Holding Oy,
Chairman of the Board
• Akzo Nobel N.V., Daimler
AG, and Deutsche Telekom
AG: Member of the
Supervisory Board
• DevCo Partners Oy, Senior
Advisor
• Tukikummit-säätiö,
Kasvuryhmä ry,
Teknologiateollisuuden
100-vuotissäätiö: Member
of the Board
13
Corporate Governance Statement
Board of Directors
Executive Management Team
Minoo Akhtarzand
Heinz-Werner Binzel
Fortum shares as of
31 December 2016:
0 (31 Dec 2015: 0)
Born 1956, nationality:
Swedish
M.Sc. Electrical engineering
Independent member of
Fortum’s Board of Directors
since 2011, Member of the
Audit and Risk Committee
Main occupation:
Governor in the County of
Västmanland as of 1 February
2016
Primary work experience:
• Governor in the County of
Jönköping 2010–01/2016
• Swedish National Rail
Administration, Director-
General 2008–2010
• Regional Labour Agency,
Director 2006–2008
• Vattenfall AB, various
senior executive positions
1984–2006
• Stockholm Energi, various
positions 1980–1984
Key positions of trust:
• Södertörn University,
Chairman of the Board
• The National Society for
Road Safety in the County
of Jönköping, Chairman of
the Board
• The Swedish Export Credit
Agency, Vice Chairman of
the Board 2010–2016
• Stiftelsen SKAPA, Chairman
• Chairman of 20 different
Councils
Born 1954, nationality:
German
Economics and electrical
engineering degree
Independent member of
Fortum’s Board of Directors
since 2011, Member of the
Audit and Risk Committee
Main occupation:
Independent consultant
Primary work experience:
• RWE Energy AG, Member
of the Executive Board,
procurement and sale of
electricity, gas, and water
2003–2005
• RWE Solutions AG, Member
of the Executive Board as
CFO 1999–2002 and as
CEO 2002-2003
14
• NUKEM GmbH, several
senior executive positions
in Germany and the USA
1981–1999
Fortum shares as of
31 December 2016:
0 (31 Dec 2015: 0)
Key positions of trust:
• TÜV Rheinland Holding AG,
Member of the Supervisory
board, Chairman of the
Audit Committee
Corporate Governance Statement
Board of Directors
Executive Management Team
Eva Hamilton
Tapio Kuula
Member of the Board,
Chairman of Näringlivsrådet
• Nobel Center, Member of
the Board
• Arholma Landsort AB,
Member of the Board
Fortum shares as of
31 December 2016:
40 (31 Dec 2015: 40)
Born 1954, nationality:
Swedish
B.A. Journalism. Honorary
doctorate degree at
Mid Sweden University
(Mittuniversitetet)
Independent Member of
Fortum’s Board of Directors
since 2015, Member of the
Nomination and Remuneration
Committee
Main occupation:
Senior Adviser
Primary work experience:
• Sveriges Television (SVT),
CEO, 2006–2014
• Sveriges Television (SVT),
Head of SVT Fiction,
2004–2006
• Sveriges Television (SVT),
Head of News, 2000–2004
• Sveriges Television (SVT),
Foreign Correspondent,
Brussels 1993–1996
• Aftonbladet 1978–1979,
Svenska Dagbladet 1979–
1988, Dagens Industri
1988–1989: news reporter
Key positions of trust:
• Kungliga Dramatiska
Teatern AB, Member of the
Board
• Nexiko Media AB, Chairman
of the Board
• LKAB, Member of the
Board
• Lindex AB, Member of the
Board
• IVA (Royal Swedish
Academy of Engineering),
Born 1957, nationality: Finnish
M.Sc. (Tech.), M.Sc. (Econ.), Dr.
Tech. h.c.
Member of Fortum’s Board
of Directors since 2015,
independent of the significant
shareholders, not independent
of the company (acted as
President and CEO of Fortum
until 31 January 2015),
Member of the Nomination
and Remuneration Committee
Main occupation:
Non-executive Director
Primary work experience:
• Fortum Corporation,
President and CEO 2009–
31 January 2015
• Fortum Corporation, Senior
Vice President 2005–2009
15
• Fortum Corporation, Power
and Heat Sector, President
2000–2005
• Member of the
Fortum shares as of
31 December 2016:
201,200 (31 Dec 2015:
201,200)
Management Team of
Fortum since 1997
• Several managing director
positions in utility companies
in Finland
Key positions of trust:
• Nokian Tyres Plc., Member
of the Board, Chairman
of the Personnel and
Remuneration Committee
• Northern Dimension
Business Council, Co-
Chairman
Corporate Governance Statement
Board of Directors
Executive Management Team
Veli-Matti Reinikkala
Jyrki Talvitie
Fortum shares as of
31 December 2016:
3,000 (31 Dec 2015: n/a)
Born 1957, nationality: Finnish
Executive Master of Business
Administration
Independent Member of
Fortum’s Board of Directors
since 2016
Main occupation:
Non-executive Director
Primary work experience:
• ABB, President of Region
Europe 2015 and Member
of the Group Executive
Committee 2006–2015
• ABB, President of Process
Automation division 2006–
2014, Head of Business
Area Process Automation
2005
• ABB China, Automation
Technologies Division
Manager 2003–2004
• ABB Drives & Power
Electronics, Business Area
Manager 2002
• ABB Drives, Manager,
1996–2002
• ABB Industry Oy, CFO
1994–1996
• Before 1994, various
positions in paper and
packaging companies in
Finland
Key positions of trust:
• UPM-Kymmene
Corporation, Member of the
Board
Fortum shares as of
31 December 2016:
0 (31 Dec 2015: 0)
Born 1966, nationality: Finnish
Executive MBA, LL.M.
Independent Member of
Fortum’s Board of Directors
since 2014, Member of the
Audit and Risk Committee
Main occupation:
Sberbank, Vice President,
Strategic Partners and
Investors
Primary work experience:
• Russian Direct Investment
Fund, Director 2014–2016
• VTB Bank, Moscow, Senior
Vice President 2010–2014
• East Capital, Moscow, Chief
Representative, Senior
Advisor 2005–2010
• URALSIB Financial
Corporation, Moscow, Head
of International Business,
Chief Managing Director
2003–2005
• BNP-Paribas, Securities
Services, Paris, Senior Vice
President 2003
• The Bank of New York,
London, Vice President
1997–2003
Key positions of trust:
• LUT School of Business and
Management, member of
Advisory Board
16
Corporate Governance Statement
Board of Directors
Executive Management Team
Executive Management Team 31 December 2016
Pekka Lundmark
President and CEO
Born 1963, nationality: Finnish
M.Sc. (Eng.)
Member of the Executive
Management Team since
2015, Employed by Fortum
since 2015, President and
CEO since 2015
Previous positions:
• Konecranes Plc, President
and CEO, 2005–2015
• Konecranes Plc, Group
Executive Vice President
2004–2005
• Hackmann Oyj Abp,
President and CEO
2002–2004
• Startupfactory Oy,
Managing Partner
2000–2002
• Nokia Corporation, various
executive positions
1990–2000
Fortum shareholding
31 December 2016:
56,250 (31 Dec 2015: 56,250)
Key positions of trust:
• Finnish Energy, Chairman of
the Board
• Helsinki Metropolitan
Smart & Clean Foundation,
Chairman of the Board
• East Office of Finnish
Industries, Member of the
Board
• Climate Leadership Council,
Member of the Board
• Fortum Foundation,
Chairman of the Board
Alexander Chuvaev
Executive Vice President
Russia Division
Born 1960, nationality: Russian
M.Sc. (Eng.)
Member of the Executive
Management Team since
2009, Employed by Fortum
since 2009, Executive Vice
President, Russia Division and
General Director of OAO
Fortum since 2009
Previous positions:
• GE Oil & Gas, Regional
Executive Director, Russia
and CIS 2009
• SUEK, Investment
Development Director,
Russia 2008–2009
• JSC Power Machines,
Managing Director, Russia
2006–2008
• GE Oil & Gas, Regional
General Manager, Russia
2006
• JSC OMZ, Chief Operations
Officer, Russia 2005–2006
• GE, various positions in the
USA and Canada
1999–2005
• Solar Turbines Europe S.A.,
various positions in Europe
and the USA 1991–1999
Key positions of trust:
• Energy Producers Council,
Deputy Head of the
Supervisory Board
• Russian Union of
Industrialists and
Entrepreneurs, Member of
the Board, Chairman of
Commission on Public Utility
• Territorial Generating
Company No. 1 (TGC-1),
Member of the Board
• Government Commission
on the Development of
the Electric Power Industry,
Member
• Aggreko Aurasia LLC, Non-
executive member of the
Management Board
Fortum shareholding
31 December 2016:
14,713 (31 Dec 2015: 14,713)
17
Corporate Governance Statement
Board of Directors
Executive Management Team
Fortum shareholding
31 December 2016:
87,090 (31 Dec 2015: 80,691)
Timo Karttinen
Chief Financial Officer
Born 1965, nationality: Finnish
M.Sc. (Eng.)
Member of the Executive
Management Team since
2004, Employed by Fortum
since 1991, Chief Financial
Officer since 2014
Previous positions:
• Fortum Corporation,
Interim President and CEO
1 February–6 September
2015
• Fortum Corporation,
substitute to President
and CEO 18 December
2014–31 January 2015
• Fortum Corporation, Senior
Vice President, Corporate
Development 2004–2009
• Fortum Power and Heat
Oy, Business Unit Head,
Portfolio Management and
Trading 2000–2004
• Fortum Power and Heat Oy,
Vice President, Electricity
Procurement and Trading
1999–2000
• Imatran Voima Oy, Vice
President, Electricity
Procurement 1997–1999
Key positions of trust:
• Varma Mutual Pension
Insurance Company,
Member of the Supervisory
Board
Kari Kautinen
Senior Vice President
M&A and Solar & Wind Development
Fortum shareholding
31 December 2016:
29,246 (31 Dec 2015: 25,232)
• Fortum Corporation, Vice
President, Mergers and
Acquisitions 2007–2012
• Fortum, several managerial
positions 1998–2007
Key positions of trust:
• TGC 1, Member of the
Board of Directors
Born 1964, nationality: Finnish
LL.M.
Member of the Executive
Management Team since
2014, Employed by Fortum
since 1998, Senior Vice
President, M&A and Solar &
Wind Development as of 1
April 2016
Previous positions:
• Fortum Corporation, Senior
Vice President, Strategy,
Mergers and Acquisitions
2014–2016
• Fortum Corporation, Vice
President, Strategy, Mergers
and Acquisitions
2012–2014
18
Corporate Governance Statement
Board of Directors
Executive Management Team
Per Langer
Senior Vice President
Technology and New Ventures
Risto Penttinen
Senior Vice President
Strategy, People and Performance
• McKinsey & Company,
Partner 2005–2011
• McKinsey & Company,
Consultant and Project
Leader 1996 and
1997–2005
Fortum shareholding
31 December 2016:
8,795 (31 Dec 2015: n/a)
Fortum shareholding
31 December 2016:
29,212 (31 Dec 2015: 34,535)
Born 1969, nationality:
Swedish
M.Sc. (Econ.)
Member of the Executive
Management Team since
2009, Employed by Fortum
since 1999, Senior Vice
President, Technology and
New Ventures as of 1 April
2016
Previous positions:
• Fortum Corporation,
Executive Vice President,
Hydro Power and
Technology 2014–2016
• Fortum Power and Heat Oy,
Executive Vice President,
Heat Division 2009–2014
• Fortum Power and Heat
Oy, President of Heat
2007–2009
• Fortum Power and Heat
Oy, President of Portfolio
Management and Trading
2004–2007
• Fortum Oyj, managerial
positions 1999–2004
• Gullspång Kraft, managerial
positions 1997–1999
Key positions of trust:
• NIP Nordic Infrastructure
Partners AB, Chairman of
the Board
• EFA AB, Deputy Chairman
• AW-Energy Oy, Member of
the Board
• Hafslund ASA, Member of
the Board
Born in 1968, nationality:
Finnish
M.Sc. (Econ.)
Member of the Executive
Management Team as of
1 April 2016, Employed by
Fortum since 2011, Senior Vice
President, Strategy, People
and Performance as of 1 April
2016
Previous positions:
• Fortum Corporation, Vice
President, Corporate
Strategy 2014–2016
• Fortum Power Division, Vice
President, Strategic Ventures
2011–2014
19
Corporate Governance Statement
Board of Directors
Executive Management Team
Markus Rauramo
Executive Vice President
City Solutions
Matti Ruotsala
Deputy CEO
Fortum shareholding
31 December 2016:
46,509 (31 Dec 2015: 39,066)
Born 1968, nationality: Finnish
M.Sc. (Econ. and Pol. Hist.)
Member of the Executive
Management Team since
2012, Employed by Fortum
since 2012, Executive Vice
President, City Solutions as of
1 April 2016
• Stora Enso Oyj, Helsinki, VP
Strategy and Investments
2001–2004
• Stora Enso Financial
Services, Brussels, VP Head
of Funding 1999–2001
• Enso Oyj, Helsinki, several
financial tasks 1993–1999
Fortum shareholding
31 December 2016:
27,847 (31 Dec 2015: 20,464)
Key positions of trust:
• Wärtsilä Oyj Abp, Member
of the Board
• Teollisuuden Voima Oyj,
Member of the Board
• AB Fortum Värme samägt
med Stockholms stad,
Deputy Chairman of the
Board of Directors
Previous positions:
• Fortum Corporation,
Executive Vice President,
Heat, Electricity Sales and
Solutions 2014–2016
• Fortum Corporation, Chief
Financial Officer 2012–
2014
• Stora Enso Oyj, Helsinki,
CFO and Member of the
GET 2008–2012
• Stora Enso International,
London, SVP Group
Treasurer 2004–2008
Born 1956, nationality: Finnish
M.Sc. (Eng.)
Member of the Executive
Management Team since
2009, Employed by Fortum
since 2007, Deputy CEO as of
1 April 2016
Previous positions:
• Fortum Corporation, Chief
Operating Officer
2014–2016
• Fortum Corporation, Power
Division, Executive Vice
President 2009–2014
• Fortum Power and Heat
Oy, President of Generation
2007–2009
• Valtra Ltd, Managing
Director 2005–2007
• AGCO Corporation, Vice
President 2005–2007
• Konecranes Plc, Chief
Operating Officer (COO)
and Deputy CEO
2001–2005
• Konecranes Plc and Kone
Corporation, several senior
and managerial positions
1982–2001
Key positions of trust:
• Componenta Oyj, Chairman
of the Board
• Kemijoki Oy, Chairman of
the Board
• PKC Group Oyj, Chairman
of the Board
• Teollisuuden Voima Oyj,
Chairman of the Board
• Halton Group Ltd, Member
of the Board
20
Corporate Governance Statement
Board of Directors
Executive Management Team
Arto Räty
Senior Vice President
Corporate Affairs & Communications
Sirpa-Helena Sormunen
General Counsel
Key positions of trust:
• Chairman of the Board at
Destia Oy 2015–
• Member of the Board at
Ahlström Capital Cleantech
Fund I 2011–
Fortum shareholding
31 December 2016:
0 (31 Dec 2015: n/a)
Born 1955, nationality: Finnish
Lieutenant General (Ret.)
Member of the Executive
Management Team as of
1 April 2016, Employed by
Fortum since 2016, Senior Vice
President, Corporate Affairs
& Communications as of 29
February 2016
Previous positions:
• Permanent Secretary at
the Ministry of Defence of
Finland, 2011–2015 and
Director of the National
Defence Policy Unit
2005–2008
• Various positions within
Finnish Defence Forces,
including Deputy Chief of
Staff, Operations at Defence
Command 2009–2010;
Chief of Staff at Army
Command 2008–2009;
Brigade Commander,
Pori Brigade 2000–2002;
Commanding Officer of the
Finnish Battalion in KFOR,
Kosovo 2000; Deputy
Chief of the International
Department, Defence
Command 1997–2000
• Director of the National
Defence Courses of the
Finnish Government
2003–2004
• Finnish Liaison Officer
at NATO HQ and PCC
SHAPE, Brussels, Belgium
1994–1997
21
Fortum shareholding
31 December 2016:
3,000 (31 Dec 2015: 3,000)
Born 1959, nationality: Finnish
LL.M., Trained on the bench
Member of the Executive
Management Team since
2014, Employed by Fortum
since 2014, General Counsel
since 2014
of Legal, Mergers and
Acquisitions and Finance
2003–2004
• Sonera Oyj, Senior Legal
Counsel, Head of Legal,
Merger and Acquisitions
2000–2002
Previous positions:
• Patria Oyj, General Counsel
Key positions of trust:
• Nammo AS, Member of the
2012–2014
• Nokia and Nokia Siemens
Networks, several legal and
managerial positions (NSN)
2004–2012
• TeliaSonera Finland Oyj,
Vice President, Head
Board of Directors
• Association of Finnish Fine
Arts Foundations, Member
of the Board
• Fortum Art Foundation,
Chairman of the Board
Corporate Governance Statement
Board of Directors
Executive Management Team
Tiina Tuomela
Executive Vice President
Generation
Born 1966, nationality: Finnish
M.Sc. (Eng.), MBA
Member of the Executive
Management Team since
2014, Employed by Fortum
since 1990, Executive Vice
President, Generation as of 1
April 2016
Previous positions:
• Fortum Corporation,
Executive Vice President,
Nuclear and Thermal Power
Division 2014–2016
• Fortum Power and Heat Oy,
Vice President, Finance in
Power Division 2009–2014
Fortum shareholding
31 December 2016:
12,991 (31 Dec 2015: 9,090)
• Fortum Power and Heat
Oy, Vice President, Business
Control and Support,
Generation 2005–2009
• Fortum, several managerial
positions 1990–2005
Key positions of trust:
• Teollisuuden Voima Oyj,
Member of the Board
22
Remuneration 2016
Remuneration Statement 2016
Dear Shareholders,
2016 was an intensive year for Fortum. In the beginning of the
year, we redefined the company’s strategy, which continues to
focus on clean and efficient power generation, while securing a
fair remuneration to our shareholders. Fortum also changed the
organisational structure to enable the successful implementation
of the new strategy and to utilise the possibilities the changing
market environment presents.
The whole energy industry is in an exciting development
phase. We are positioning Fortum to be successful also in the
future. To achieve that, we are investing in businesses and
competencies that are needed in the future. The financial
headroom created by the sale of the distribution business in
2014–2015, puts Fortum in a unique position to participate in
the European consolidation and restructuring development. The
redeployment of funds is guided by our strategy with the aim
to maximise cash flow while at the same time safeguarding our
long-term competitiveness and profitability. Fair remuneration of
all employees is an essential part of securing our future success.
We want to ensure that we have the right people with the right
skills in the right places, that our employees are committed and
performing on a high level and that excellent performance is
acknowledged and rewarded.
Our approach is to encourage and reward high performance
delivered in line with the strategy, culture and values of our organization.
We encourage sustainable long-term performance. With our reward and
incentive programmes we seek to attract and retain employees of the
highest calibre and to support creation of shareholder value.
Remuneration for the members of the Fortum Executive
Management is determined by the Nomination and Remuneration
Committee and subject to approval by the Board of Directors.
Remuneration for the Board of Directors is proposed by the
Shareholder’s Nomination Board and approved by the shareholders
at the Annual General Meeting.
Over the year our management and employees have worked hard
on delivering the business strategy. The year was challenging for
the whole industry due to the low market prices. Fortum's results
were further burdened by low hydro production volumes due to
low precipitation. However, the financial targets in the short-term
incentive (STI) plan were reached since our performance under
the prevailing market conditions was good.
Due to satisfactory performance during the earnings period
2013–2015 the 2013–2018 long-term incentive (LTI) plan exceeded
the minimum performance criteria and vested at 42%. This
resulted in approximately 260,000 shares being awarded to eligible
participants in 2016. The performance for the earnings period
2014–2016 was lower but exceeded the minimum performance
criteria and the 2014–2019 LTI plan vested at 27%.
During 2016, the Nomination and Remuneration Committee
reviewed the structure of LTI arrangement for key employees
and executives to ensure that it meets the guidance set out in
the latest Government Resolution on State-Ownership Policy,
European best practices and that it continues to support the
business strategy. As a result of this review an amended LTI
programme was approved by the Board of Directors in December.
In this programme the approach to performance measures,
the release of shares and the share ownership requirement for
the Fortum Executive Management have been updated. These
changes will take effect from the 2017–2019 LTI plan.
We have also made some changes to the presentation of the
Remuneration Statement to improve transparency and usability.
The Statement is presented in three parts: (i) our approach to the
governance of remuneration at Fortum; (ii) the remuneration
policy which sets our remuneration principles and a summary of
the remuneration framework for Fortum Executive Management
2
and (iii) the annual report on remuneration, which sets out how
the Board of Directors and Fortum Executive Management were
remunerated in the year under review. The Remuneration Statement
has been prepared in accordance with the Finnish Corporate
Governance Code and we welcome any feedback that you have and
will continue to develop our reporting procedures further.
Sari Baldauf
Chairman of the Board of Directors
Chairman of the Nomination and Remuneration Committee
Remuneration Governance
Remuneration at Fortum is directed by the Group’s remuneration
principles and Fortum’s general compensation and benefits
practices. This Remuneration Statement has been prepared and
issued in accordance with the Finnish Corporate Governance
Code 2015.
The Shareholders’ Nomination Board, the Annual General
Meeting of Shareholders (AGM), the Board of Directors and the
Nomination and Remuneration Committee are all involved in the
preparations and decision-making regarding remuneration at Fortum.
Remuneration Policy
Remuneration Principles
At Fortum, we strive for a performance-focused culture where our
people understand:
•
• how they as individuals can impact the results,
•
•
the link between business performance and remuneration, and
the importance of delivering sustainable business results.
the company, its strategy and performance targets,
This philosophy underpins our remuneration principles which
are designed to encourage and recognise high performance and
behaviour in line with Fortum’s values.
Terms of employment for President
and CEO Pekka Lundmark
The notice period for both parties is six months. If the company
terminates the contract, the President and CEO is entitled to the
salary for the notice period and a severance pay equal to 12 months’
salary. If the President and CEO’s contract is terminated before
retirement age, he is also entitled to retain the funds that have
accrued in the pension fund.
The current salary of the President and CEO Pekka Lundmark
is EUR 80,000/month including free car allowance and phone
allowance as fringe benefits.
According to the terms of the STI and LTI programmes the
President and CEO participates in the STI programme with a
maximum incentive opportunity of 40% of the annual base salary
and in the LTI programme starting from the 2014–2019 LTI plan.
The LTI awards are calculated on a pro rata basis from 7 September
2015, when Pekka Lundmark started as President and CEO of Fortum.
r i v e n
e d
rem u n e r a ti o n
Perform a n c
Effective p
lead
erf
ers
o
r
m
h
i
p
a
n
c
e
Remuneration
key principles
E
ff
c
o
m
m
u
e
c
n
t
i
i
c
v
a
e
t
i
o
n
Integrity a n d
complia n c e
n
o
i
t
a
r
e
n
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e
v
i
t
i
t
e
p
m
rem
Co
Remuneration Key Principles
Effective performance
leadership
Performance driven
remuneration
We motivate our people by setting challenging targets. We encourage initiative taking, active leadership of own and
team performance as well as collaboration to enable desired behaviour and achieve business success. We emphasise
setting and cascading clear targets aligned with Fortum’s strategy as an essential part of good leadership on all levels.
We emphasise cross-unit and cross-function collaboration in reaching our business objectives, also reflected in target
setting. Rewarding is tightly linked to the overall performance leadership in Fortum.
We reward concrete achievements in implementing Fortum’s strategy and achieving business targets and desired
change. We differentiate performance and pay for real achievement. Both low and high performance have consequences.
General Meeting of
Shareholders
Decides on
the remuneration of
the Board of Directors
Board of Directors
Decides on the remuneration of
the President and CEO and the
Fortum Executive Management
Decides on all companywide
incentive arrangements for senior
management and key personnel
Effective communication
Competitive remuneration We take into consideration relevant market and industry practices as well as different business models and their needs
when defining the level and nature of compensation and benefits, aiming to be an attractive employer for the relevant
persons with needed skills and competences.
To gain full advantage of the compensation and benefits programs, we emphasize clear, transparent and regular
communication about the company’s as well as the individual’s performance, in particular clarifying the link between
performance and variable compensation. We invest in developing managers’ knowledge of performance and reward
practices and programmes.
We run our performance and reward processes and programmes with high integrity and follow local legislation in
each country where we operate. We follow the Corporate Governance Code for Finnish listed companies as well as
the guidelines regarding remuneration for the management of state-owned companies. We don’t accept any kind of
compliance breach.
Integrity and compliance
Shareholders’
Nomination Board
Proposes
the remuneration of
-
the Board of Directors
Nomination and
Remuneration Committee
Proposes the remuneration of the
President and CEO and the
Fortum Executive Management
3
Summary of remuneration of the President and CEO and other
members of the Fortum Executive Management
Base salary
Short-term incentives
Fixed salary including fringe benefits, designed to compensate for the job responsibilities and to reflect the skills,
knowledge and experience of the individual.
Support achievement of the Group’s financial, strategic and sustainability targets.
Long-term incentives
The maximum incentive opportunity is 40% of the executive’s annual base salary calculated as 12 x the salary for
December of the year in question.
Focus performance on what drives business success in the long-term, rewarding long-term, sustainable high
performance and ensuring alignment of interests between management and shareholders.
Awards are made annually under Fortum’s LTI programme with performance measured over a three-year earnings
period. If the minimum performance criteria are exceeded, the resulting award, net of tax, is paid in shares which
are subject to shareholding guidelines.
The combined value, before taxation, of all variable compensation paid in a calendar year cannot exceed 120% of
the participant’s annual base salary.
In addition to the statutory pensions the members of Fortum Executive Management have supplementary pension
arrangements. All supplementary pension arrangements since year 2008, including the pension plan for the President
and CEO, are defined contribution plans with a maximum premium percentage of 25% of the annual salary.
For the members joining the Fortum Executive Management after the end of the year 2016 as well for those current
members to whom the premium has been below 20% of the annual salary, the pension premium is 20% of the
annual base salary as of 1 January 2017.
Members of the Fortum Executive Management (including the President and CEO) are required to build and
maintain a holding in Fortum shares equivalent to 100% of their annual salary.1)
Pensions
Shareholding requirement
1) Measured as the gross annual salary
Short-term incentives (STI)
Fortum’s STI programme is designed to support the achievement
of the company’s financial and other relevant targets on an annual
basis. All employees are covered by the programme or alternatively by
a business specific or a comparable local variable pay arrangement.
The Board of Directors determines the performance criteria
and award levels for the Fortum Executive Management. The
target incentive opportunity is 20% and the maximum incentive
opportunity is 40% of the annual base salary.
The awards for the members of the Fortum Executive
Management are based on the achievement of divisional targets,
Group financial performance as well as individual targets. The
performance criteria used are agreed upon in a performance
discussion held at the beginning of the year. The Board of Directors
assesses the performance of the President and CEO and the
members of the Fortum Executive Management on a regular basis.
Awards for other employees are based on a combination of Group,
divisional, functional and personal targets. The targets are set in
annual performance discussions held at the beginning of the year.
Awards under the STI programme are paid solely in cash.
Long-term incentives (LTI)
The purpose of Fortum’s long-term incentive programme is to
support the delivery of sustainable, long-term performance, align
the interests of management with those of shareholders and assist
in committing and retaining key individuals.
Fortum’s LTI programme provides participants with the
opportunity to earn company shares. Subject to the decision of the
Board of Directors, a new LTI plan commences annually.
The Board of Directors approves the Fortum management
members and key individuals entitled to participate in each
annually commencing LTI plan. Participation in the LTI plan
precludes the individual from being a member in the Fortum
Personnel Fund.
Each LTI plan begins with a three year earnings period, during
which participants may earn share rights if the performance
criteria set by the Board of Directors are fulfilled.
If the minimum performance criteria are not exceeded, no
shares will be awarded. If performance is exceptionally good and
the targets approved by the Board of Directors are achieved, the
combined gross value of all variable compensation cannot exceed
120% of the person’s annual salary in any calendar year.
After the earnings period has ended and the relevant taxes
and other employment-related expenses have been deducted,
participants are paid the net balance in the form of shares.
For LTI plans commencing in 2013 onwards, any shares
awarded to Fortum Executive Management members are subject to
a three-year lock-up period in accordance with the State-Ownership
Guidelines in force at the time the LTI plan was introduced. Subject
to a decision by the Board of Directors, the lock-up period can
be reduced to one year for those Fortum Executive Management
members whose aggregate ownership of Fortum shares is greater
than or equal to their annual salary. For other participants (i.e.
below the Fortum Executive Management), the lock-up period is
one year. For LTI plans commencing prior to 2013, the lock-up
period is three years for all LTI plan participants.
If the value of the shares decreases or increases during the lock-up
or retention period, the participant will carry the potential loss or gain.
To reflect the recent changes in the State-Ownership Guidelines,
for LTI plans commencing in 2017 and beyond, no lock-up period
will be applied for any participants. However, Fortum Executive
Management members whose aggregate ownership of Fortum
shares does not yet fulfil the shareholding requirement are required
to retain at least 50% of the shares received until the required level
of shareholding is met.
4
Remuneration that has been paid out without grounds shall
be reclaimed in accordance with the regulations on returning an
unjust enrichment and remuneration. A payment which has been
influenced by the recipient’s unethical conduct, may be recovered
based on the terms of the LTI Programme.
Aon Hewitt and PCA Corporate Finance acted as advisers for
the Nomination and Remuneration Committee in planning the
amended LTI programme valid from 2017 onward.
Pensions
Members of the Fortum Executive Management in Finland
participate in the Finnish TyEL pension system, which provides
a retirement benefit based on earnings in accordance with the
prescribed statutory system. Under the Finnish pension system
earnings include base pay, annual bonuses and taxable fringe
benefits, but gains realised from the LTI plans are not included in
that definition. Members of the Fortum Executive Management
outside Finland participate in pension systems based on statutory
pension arrangements and market practices in their local countries.
In addition to the statutory pensions, the members of the
Fortum Executive Management have supplementary pension
arrangements. The Group principle is that all new supplementary
pension arrangements for the President and CEO as well as the
Fortum Executive Management are defined contribution plans.
The retirement age for Fortum’s President and CEO is 63, and
for the other members of the Fortum Executive Management the
retirement age varies between 60 and 65. For the President and
CEO and other members of the Fortum Executive Management,
the maximum supplementary pension premium is 25% of the
annual base salary. For the members joining the Fortum Executive
Management after the end of the year 2016 as well as for those
current members to whom the premium has been below 20%
of the annual salary, the pension premium is 20% of the annual
base salary as of 1 January 2017. Members of the Fortum Executive
Management, who joined Fortum prior to 1 January 2009, are
entitled to a supplementary defined benefit pension plan in which
the benefit is 60% or 66% of the final pensionable salary. In these
cases, the pension is provided by an insurance company or Fortum’s
Pension Fund.
Long-term incentive programme
Plans
2010–2015
2011–2016
2012–2017
2013–2018
2014–2019
2015–2020
2016–2021
2017–2019
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
1
2
1
3
2
1
4
3
2
1
5
4
3
2
1
6
5
4
3
2
1
6
5
4
3
2
1
6
5
4
3
2
1
6
5
4
3
2
6
5
4
3
6
5
6
Earnings period
Lock-up period
Additional lock-up period for FEM
Share delivery
Share release
Fees for the Board of Directors
The Annual General Meeting on 5 April 2016 confirmed the
following annual fees for the members of the Board of Directors:
Thousands of euros
Chairman
Deputy Chairman
Chairman of the Audit and Risk Committee 1)
Members
2016
75
57
57
40
2015
75
57
57
40
1) If not Chairman or Deputy Chairman simultaneously
Every member of the Board of Directors receives a fixed yearly fee
and additional fees for each meeting attended. The fees in 2016
were the same as in previous years.
A meeting fee of EUR 600 is paid for board and committee
meetings. For board members living outside Finland in Europe,
the meeting fee is EUR 1,200; for board members living outside
Europe, the meeting fee is EUR 1,800. For board and committee
meetings held as a telephone conference, the meeting fee is paid as
EUR 600 to all members. No fee is paid for decisions made without
a separate meeting.
Board members are not in an employment relationship
or service contract with Fortum, and they are not given the
opportunity to participate in Fortum’s STI or LTI programme, nor
does Fortum have a pension plan that they can opt to take part
in. The compensation for the board members is not tied to the
sustainability performance of the Group.
Board members are entitled to travel expense compensation in
accordance with the company’s travel policy.
5
Annual Remuneration Report 2016
This part of the report sets out the remuneration payable to
the President and CEO and members of the Fortum Executive
Management in 2016.
Remuneration of the President and CEO
and the Fortum Executive Management
The table below includes the salaries and fringe benefits, STI and
LTI programme payments to the President and CEO and to the
Fortum Executive Management during the year. The STI payments
are based on the 2015 targets and achieved results. The LTI
programme includes the shares delivered during the year 2016.
The STI and LTI programme payments to Fortum Executive
Management members, including the President and CEO, amounted
to a total of EUR 1,957 thousand (EUR 3,479 thousand in 2015), which
corresponds to 0.82% (1.32% in 2015) of the total compensation
in the Fortum Group. The figures exclude payments to the employees
of the divested electricity distribution business. The table also
includes payments made to supplementary pension arrangements
for the President and CEO and for Fortum Executive Management.
Salary and Fringe Benefits
The base salary levels are set taking into account the nature of the
role, local and international market conditions and individual
experience and performance. The salary for the President & CEO,
Pekka Lundmark, was EUR 80,000 per month, including free car
allowance and phone allowance as fringe benefits.
Short-term incentives
Short-term incentives for 2015 (paid in 2016)
The STI for 2015 for the members of Fortum Executive Management
was based on:
Weighting Measure *
40%
Comparable Operating
Profit
Free Cash Flow from
operations
Major environmental,
health & safety (EHS)
incidents
Lost workday injury
frequency
Serious accidents
Dow Jones Sustainability
Index development
Outcome
Below threshold
Between threshold and target
Maximum
Maximum
Below threshold
Between target and maximum
40%
5%
5%
5%
5%
*) In addition to these measures a personal multiplier based on the achievement
of personal targets is applied.
The STI payments for the Fortum Executive Management were on
average 7% of the salary (17% of the maximum). The aggregate STI
payment to members of Fortum Executive Management for 2015
performance was EUR 0.26 million (EUR 0.8 million in 2014).
In total, EUR 9.6 million (EUR 13.7 million in 2014) was paid as
short-term incentives across the Group for the financial year 2015.
The amounts reported exclude payments to the personnel of the
divested Swedish electricity distribution business. The amount paid
decreased compared to the previous year, mainly due to the lower
financial performance of the company.
Short-term incentives for 2016 (payable in 2017)
The STI for 2016 for the members of Fortum Executive Management
was based on:
Weighting Measure
40%
Comparable Operating
Profit
Free Cash Flow
20%
5%
5%
30%
Lost workday injury
frequency
Serious accidents
Individual targets
Outcome
Between target and
maximum
Between target and
maximum
On target
Below threshold
Individually assessed
Thousands of euros
2016
Pekka Lundmark
Salaries and fringe benefits
Short-term incentive
Long-term incentive
Supplementary pensions
Total
982
30
-
356
1,368
President & CEO
2015
Pekka Lundmark,
(President and
CEO since 7 Sep
2015)
305
-
-
-
305
Timo Karttinen
(Interim President
and CEO until 6
Sep 2015)
372
n/a
n/a
n/a
372
Tapio Kuula
(President and
CEO until 31 Jan
2015)
279
170
1,146
25
1,620
Other Members of Fortum Executive
Management
2016
2015
3,581
233
1,694
560
6,068
3,367
638
1,526
661
6,192
The outcome of the STI performance measures were above the
set target level regarding Group financial targets. The other Group
level safety target (Lost workday injury frequency) reached the
target level whereas the other one (Serious accidents) did not reach
the threshold level.
The achieved performance based on the individual targets is
evaluated in connection with the individual performance review at
the beginning of the year. The accrued incentives for the year 2016
are paid out in April 2017.
6
Short-term incentives for 2017 (payable in 2018)
As in 2016, the short-term incentive targets for the Fortum
Executive Management in 2017 are based on the achievement
of divisional targets, Group financial performance as well as
individual targets. The STI performance measures and weighting
are: 60% Comparable Operating Profit (for division heads 30%
Group level and 30% own division), 10% lost workday injury
frequency and 30% individual strategic targets.
Long-term incentives
The table sets out the pipeline of recently granted LTI awards,
including details of the shares delivered in the reporting period.
In December 2016, the Board of Directors approved the
amended LTI programme. The share awards will not be subject to
a minimum lock-up period but members of the Fortum Executive
Management will be required to retain 50% of the shares until
they have achieved their required shareholding level of 100% of the
annual salary. For other key employees included in the new LTI plan
no lock-up period will be applied. Under the 2017–2019 LTI plan,
the Board-approved earnings criteria will be based on earnings per
share (50%) and relative total shareholder return (50%) measured
relative to the European Utilities Group.
LTI plan
Earnings period
Share delivery year
Measures
2012–2017
2012–2014
2015
A combination
of EBITDA, EPS
and share price
development
2013–2018
2013–2015
2016
A combination
of EBITDA, EPS
and share price
development
2014–2019
2014–2016
2015–2020
2015–2017
2016–2021
2016–2018
2017
50% EPS, 25% TSR
& 25% Reputation
Index
2018
30% EPS, 30% Return
on Net Assets (Group
or Divisional), 20%
TSR and 20% Group
EBITDA
2019
50% EPS & 50% TSR
42%
262,989
27%
3 years (FEM) (reduced to 1 year if the shareholding requirement is achieved)
48%
213,072
3 years
Payment (% of annual salary)
Total shares delivered *)
Lock-up Period
Shares delivered* to members of Fortum Executive Management:
Pekka Lundmark 1)
Alexander Chuvaev 2)
Timo Karttinen
Kari Kautinen
Per Langer
Risto Penttinen 3)
Markus Rauramo
Matti Ruotsala
Arto Räty 3)
Sirpa-Helena Sormunen
Tiina Tuomela
Former members of the Fortum Executive Management:
Tapio Kuula 5)
Helena Aatinen 6)
Mikael Frisk 6)
Esa Hyvärinen 6)
-
21,781
4,261
2,956
3,751
n/d 4)
5,029
6,706
-
-
2,648
30,271 5)
2,352
3,926
2,384
-
27,897
6,399
4,014
4,677
n/d 4)
7,383
7,443
-
-
3,902
-
3,188
5,028
3,053
*) after deduction of taxes and tax related expenses
1) President and CEO since 7 September 2015. Pekka Lundmark participates in the LTI plans starting from the 2014–2019 LTI plan
2) Share rights will be paid in cash instead of shares after the three-year lock-up period due to local legislation
3) Member of FEM from 1 April 2016
4) Shares delivered before the term in the Fortum Executive Management are not disclosed
5) President and CEO until 31 January 2015. Includes the shares Tapio Kuula received from the LTI plans commenced in 2012, 2013 and 2014. The shares are under lock-
up until the spring 2018
6) Member of FEM until 31 March 2016
7
Shareholdings for Members of the Fortum
Executive Management as of 31 December 2016
The following table shows the shareholdings of the President and
CEO and other members of the Fortum Executive Management as of
31 December 2016. Members of the Fortum Executive Management
are required to build and maintain a shareholding equivalent to
100% of the annual salary.
Pekka Lundmark
Alexander
Chuvaev
Timo Karttinen
Kari Kautinen
Per Langer
Risto Penttinen
Markus Rauramo
Matti Ruotsala
Arto Räty
Sirpa-Helena
Sormunen
Tiina Tuomela
President and CEO
Executive Vice President, Russia
Division
Chief Financial Officer
Senior Vice President, M&A and
Solar & Wind Development
Senior Vice President, Technology
and New Ventures
Senior Vice President, Strategy,
People and Performance
Executive Vice President, City
Solutions
Deputy CEO
Senior Vice President, Corporate
Affairs and Communications
General Counsel
Executive Vice President,
Generation
Shareholding
56,250
14,713
87,090
29,246
29,212
8,795
27,847
46,509
0
3,000
12,991
Fortum Personnel Fund
Fortum employees in Finland, who are not participating in the long-
term incentive programme, belong to the Fortum Personnel Fund.
The amount paid annually to the Personnel Fund is based on the
achievement of annual targets. The payments to the fund in 2016
totalled EUR 0.6 million (2015: EUR 3.7 million).
Remuneration for the Board
of Directors in 2015 and 2016
The following table includes the compensation paid to the Board of
Directors during 2016 and 2015. The amounts include fixed yearly
fees and meeting fees.
Thousands of euros
Board members at 31 December 2016
Sari Baldauf, Chairman
Kim Ignatius, Deputy Chairman
Minoo Akhtarzand
Heinz-Werner Binzel
Eva Hamilton
Tapio Kuula
Veli-Matti Reinikkala
Jyrki Talvitie
Former board members
Ilona Ervasti-Vaintola
Christian Ramm-Schmidt
Petteri Taalas
2016
Board service 2016
2015
Board service 2015
87
70
61
61
56
52
44
70
-
-
17
1 Jan–31 Dec
1 Jan–31 Dec
1 Jan–31 Dec
1 Jan–31 Dec
1 Jan–31 Dec
1 Jan–31 Dec
5 Apr–31 Dec
1 Jan–31 Dec
-
-
1 Jan–5 Apr
86
68
61
60
43
38
-
66
13
13
51
1 Jan–31 Dec
1 Jan–31 Dec
1 Jan–31 Dec
1 Jan–31 Dec
31 Mar–31 Dec
31 Mar–31 Dec
-
1 Jan–31 Dec
1 Jan–31 Mar
1 Jan–31 Mar
1 Jan–31 Dec
The following table shows the shareholdings of the Board of
Directors as of 31 December 2016.
Sari Baldauf, Chairman
Kim Ignatius, Deputy Chairman
Minoo Akhtarzand
Heinz-Werner Binzel
Eva Hamilton
Tapio Kuula
Veli-Matti Reinikkala
Jyrki Talvitie
Shareholding
2,300
2,400
0
0
40
201,200
3,000
0
8
Tax Footprint 2016
Fortum as a tax payer 2016
As set out in our tax policy below, we aim to identify simple and
cost-efficient solutions to manage our taxes in a sustainable
manner. The goal is to allow the business to continue to invest,
to operate flexibly and efficiently, and to safeguard returns to our
shareholders.
The energy sector, including Fortum, is in the middle of a
transition. Global megatrends, such as climate change, emerging
new technologies, changes in consumer behaviour, and questions
regarding resource efficiency, have a major impact on the energy
sector globally. As Fortum is operating in a capital-intensive sector,
it is important to have predictability to be able to operate and
finance our operations in an efficient and safe manner.
Fortum operates in more than 15 countries. Our business is
based mainly on local fuels and energy sources, local production,
local distribution of heat, and sale of energy to customers locally.
Therefore our profits are typically also generated locally.
Taxation is always a consequence of business operations and
is therefore always based on business decisions and needs. For us
this means that our investments with long lifetimes, price levels
set locally and the efficiency of financing always have tax impacts.
Taxes cover the entire value chain
Fortum pays transfer
taxes related to
certain transactions
Fortum pays taxes
based on the use of
natural resources
Fortum pays
insurance premium
taxes included in
insurance payments
Fortum pays property
taxes based on real
estates and buildings
Fortum pays employment
taxes and collects payroll
taxes based on salaries
Fortum pays different
kinds of production-
related taxes
Fortum pays
income taxes
based on taxable
profit
Fuels/Energy
Sources
Energy
Production
Distribution
and Sales
Customers
Fortum pays custom
duties based on
importation
Fortum pays waste
taxes based on
certain by-products
Fortum collects
VAT related
to sales
2
It is important that we can efficiently operate and finance our
businesses, carry out investments and manage financing risks in
all the countries where we operate. Financing, which underpins all
our operations, is one of the very few truly international aspects
of Fortum’s tax profile. Taxes are paid locally on profits that are
generated locally, and this applies to all our operations, including
financing. Therefore predictability and stability of our operating
environment are crucial for us.
The extent and nature of the taxes Fortum pays is shown by our
total tax contribution. In 2016, it was EUR 741 (2015: 765) million
of which EUR 365 (2015: 413) million was related to taxes borne
and EUR 376 (2015: 352) million to taxes collected. Finland,
Sweden and Russia are our biggest production countries. In
2016, the taxes borne in Finland were EUR 101 (2015: 130)
million, in Sweden EUR 201 (2015: 210) million and in Russia
EUR 23 (2015: 23) million.
Taxes borne include corporate income taxes (excluding deferred
taxes), production taxes, employment taxes, taxes on property,
and the cost of indirect taxes. Taxes collected include VAT, payroll
taxes, excise taxes and withholding taxes.
While income taxes are paid on taxable profit, Fortum also pays
other taxes based on, for example, fuel usage, waste, production
capacity, and the value of real estate.
Taxes borne 2016, EUR million and %
EUR
365
million
Corporate income tax,
48; 13.2%
Production taxes, 141; 38.6%
Employment taxes, 19; 5.2%
Taxes on property, 154; 42.2%
Cost of indirect taxes, 3; 0.8%
Taxes borne by country, EUR million
250
200
150
100
50
0
-50
14
15
16
Finland
14
15
16
Sweden
14
16
15
Russia
14
15
16
Other
countries
Corporate income tax
Production taxes
Employment taxes
Taxes on property
Cost of indirect taxes
Fortum has local operations and tax
contribution in more than 15 countries.
As a major part of our taxes are not based on profits, our total
taxes borne in relation to our accounting profit (total tax rate)
will increase if the profit level decreases. With the current low
electricity prices, these non-profit-based taxes account for a more
significant share of costs of operations than before. This was
the actual situation in 2016. Such a large tax burden, which is
unrelated to profitability, can present a real obstacle to operating an
economically viable business.
Demanding and uncertain
tax environment in 2016
The operating environment was affected by the global macro
economic problems and the related challenges to public financing.
In many of the countries in which Fortum operates, taxes on the
energy sector have been increased and tax laws changed faster than
in the past. Energy sector taxes, such as real estate and production
taxes are not based on profits and are one of the biggest costs of
power production. Combined with low electricity prices, significant
increases in these taxes threaten to reduce the profitability of
utilities companies, including Fortum. In some cases, very high
levels of non-profit-based taxes could make some operations
financially unsustainable.
The changing regulation and focus on so-called aggressive
tax planning is decreasing the predictability and stability of
all business operations. For example, the OECD's BEPS work,
the EU Commission’s anti-tax avoidance directive (ATAD), and
the EU Accounting directive work are changing existing rules,
policies and even fundamental aspects of taxation. This creates
challenges, especially for long-term business such as ours, as
there is no clarity on how the rules will be interpreted. Getting
guidance or certainty on the tax treatment of particular items
can, in the worst case scenario, take years. The purpose of much
of the new regulation is not primarily focused on Fortum’s
type of business, with profit generation already by nature being
local. Nevertheless, we are affected by the new rules. Fortum is
managing the challenge of these new rules by further developing
risk identification tools, improving our tax audit readiness already
in the early phase of business processes, and creating better
communication with tax authorities.
Fortum's approach to taxation – our tax policy
Fortum’s tax policy is based on the fact that taxes should be
handled as part of the business process. Therefore, taxes are
managed based on Fortum Group's operating strategy with a focus
especially on the protection of the parent company’s dividend
distribution capability to meet our dividend policy.
Tax planning is managed to support business efficiency and
profitability in order to create shareholder value, but with respect
to existing regulation. This ensures that we appropriately assess,
3
In 2016, more than half of Fortum’s taxes borne (EUR
192 million of the total EUR 365 million) related to the
real-estate tax and nuclear capacity tax in Sweden,
but this will change due to the Swedish government's
budget proposal in September 2016.
The budget proposal included a timetable for
lowering the real-estate tax on hydro assets and for
phasing out the nuclear capacity tax over coming
years. The real-estate tax rate on hydro assets will be
reduced in four steps by 2020 and the nuclear capacity
tax will be reduced starting in July 2017 and totally
abolished as of 2018.
report and pay our taxes to the tax authorities to the benefit of our
stakeholders and wider society.
We always operate within the law and on the basis of being open
and transparent with tax authorities in all the jurisdictions where
we operate. We also follow guidelines set out by the Ownership
Steering Department in the Prime Minister’s Office. Predictability
and transparency of both national and local legislation as well as
interpretations and decisions by tax authorities on all levels are
critical to us, as all our investments have a long lifetime and our
operations are capital intensive. We respect existing regulations,
such as market-based pricing in internal transactions (the arm’s
length principle). We pay taxes in the country where our business
operations are located and where the value added is generated, in
accordance with the local regulations.
Tax risk management – We regularly assess the uncertainties
related to taxation in our business and we report tax risks and
how they are managed and assured annually to the Audit and
Risk Committee. The risk analysis done in 2016 indicated that, in
particular, the new compliance burden around transfer pricing,
developments in the Finnish real-estate tax as well as the internal
controls need more focus in the future. To mitigate risks, we aim to
make tax issues, and especially compliance issues, an integral part
of the business processes, improve communication around taxes,
and raise management’s awareness of them.
Our Corporate Tax Team manages and mitigates tax-related
uncertainties by targeting predictability in the taxes for business
operations in all our operating countries. This means that in
unclear cases we discuss with tax authorities or look for advice from
experts to clarify interpretations. We also pay special attention to
the correctness and transparency of our tax returns, and we discuss
our positions with tax authorities.
Tax governance – The group Head of Tax owns and implements
our tax approach and is responsible for ensuring that policies and
procedures that support the tax approach are in place, maintained
and used in the same manner in all countries. Furthermore,
the Head of Tax is responsible for ensuring that the Corporate
Tax Team has the proficiency and experience to implement it
appropriately.
The Head of Tax reports to the CFO. Furthermore, tax issues,
such as tax strategy, legal processes and tax-related risks are
followed on a regular basis in the Audit and Risk Committee of
Fortum’s Board of Directors. The chart on this page presents the
different tax functions within the Corporate Tax Team.
Transparency and relationships with governments – In Fortum's
tax reporting we are committed to ensuring that stakeholders are
able to understand the important elements of our tax position
and that the information provided is fair and accurate. We have
published our tax footprint as part of our annual reporting since
2012. As the Finnish state is the majority shareholder in Fortum,
we apply in our tax reporting the 2016 guidelines of the Ownership
Steering Department of the Prime Minister’s Office for state-
majority-owned companies. We strive for effective collaboration
with authorities to clarify existing rules, so that we can respond to
potential challenges in a timely manner and avoid surprises.
We believe that transparency is crucial both for our external
and internal stakeholders. Open, transparent and consistent
communication guides our tax footprint reporting. To create the
best possible understanding of us as a tax payer and of the impact
of taxes on our business and on the societies we operate in, we
continue to develop our tax footprint report.
At Fortum, we recognise the demands of our stakeholders
for more information on tax and our disclosures reflect this. We
Audit and Risk
Committee
Board of
Directors
President
and CEO
CFO
Tax manager,
Indirect taxes and
non-income taxes
Vice President,
Taxation
Tax manager,
Planning
Tax manager,
Compliance
Tax manager,
Internal control
Tax manager,
Reporting
Tax manager,
Stakeholder
information
Tax manager,
Controversy
report both our effective tax rate and total tax rate. In line with
the 2016 tax reporting guidelines for state-owned companies
in Finland, we apply the principle of materiality in our
financial reporting, i.e. we publish tax information on the most
significant countries, and we publish more detailed information
about taxation for the majority of the countries in which Fortum
operates in this report. Furthermore, we publish information
about our companies registered in countries that are considered
by the EU, the OECD and the Global Forum to be tax havens.
We disclose all significant tax-related decisions concerning, for
example, tax audits and appeals.
Legal structure and intra-group financing
To support our strategy and dividend policy, Fortum’s legal
structure is designed to mitigate various financial risks in our
operations, ensure sound and efficient financing of operations
and investments, and safeguard the parent company’s financial
strength and dividend distribution capability in accordance with
Fortum’s dividend policy. Financing and holding of our operations
are located in the EU area, in countries where the operating
environment is predictable. Our Finnish operations are owned
through the parent company, our Swedish operations by our
Swedish holding company and our operations in other countries
mainly by our Dutch holding company. The taxes are, however,
paid in the country where the revenue is generated independently
of ownership structure.
We are constantly developing our legal structure to reach
efficiency, certainty and cost savings. As part of this work in
2016 we have or are about to wind up and dissolve companies for
example in Finland, Sweden, Luxembourg, Poland and Ireland.
4
Deferred tax liabilities in 2016 mainly relate to property,
plants and equipment in Finland, Sweden and Russia. During
2016 entities primarily in Sweden and Russia used a portion of the
deferred tax asset relating to tax loss carry forwards. The deferred
tax asset in Sweden was recognised for the taxable loss in 2015,
which was mainly due to the write-down related to the early closure
of the O1 and O2 nuclear units in Oskarshamn.
Financial statement disclosures
Fortum publishes tax information as part of its financial
statements. Income taxes and deferred taxes in the balance
sheet are included and explained in the tax notes of the financial
statements. The most relevant parts of these tax notes are
reproduced below, with some commentary to explain some of the
drivers of the numbers. See Note 13 Income tax expense and Note
29 Income taxes in balance sheet for further information.
The table below explains the difference between the statutory
tax rate in Finland compared to the rate at which Fortum is
effectively taxed as per the tax charge on the income statements.
Income tax expense
EUR million
Profit before tax
Tax calculated at nominal
Finnish tax rate
Differences in tax rates and
regulations
Income not subject to tax
Tax exempt capital gains
Expenses not deductible for
tax purposes
Share of profit of associated
companies and joint ventures
Taxes related to dividend
distributions
Changes in tax valuation
allowance related to not
recognised tax losses
Other items
Adjustments recognised for
taxes of prior periods
Tax charge in the income
statement
2016
595
-119
%
20.0
2015
-305
61
%
20.0
16
-2.7
23
7.6
0
4
-5
0.0
-0.7
0.8
30
-5.0
-8
-6
0
-2
1.4
1.0
0.0
0.3
1
2
-2
5
-7
-1
-1
-3
0.2
0.7
-0.6
1.7
-2.2
-0.4
-0.4
-1.1
-90
15.2
78
25.4
The effective income tax rate according to the income statement
was 15.2% (25.4%). The tax rate used in the income statement is
always impacted by the fact that the share of profits of associates
and joint ventures is recorded based on Fortum’s share of profits
after tax. The share of profit of associated companies and joint
ventures during 2016 reduced the effective income tax rate by 5%.
The comparable effective income tax rate for 2016, excluding
the impact of the share of profits of associated companies and joint
ventures as well as non-taxable capital gains, was 20.0% (2015: 23.5%).
Key tax indicators, %
Effective income tax rate
Weighted average applicable income
tax rate
Comparable effective income tax rate
Total tax rate
Comparable Total tax rate
2016
2014
2015
15.2% 25.4% 11.6%
20.2% 20.2% 21.0%
20.0% 23.5% 18.0%
N/A 30.0%
40.0%
N/A 41.9%
47.5%
The effective income tax rate and comparable effective income
tax rate reflect the income tax expense recognised in the income
statement including changes in deferred taxes. When the pre-
tax profit is close to null or negative, the total tax rate does not
illustrate the tax contribution in an informative way. Therefore, we
use “not applicable” for total tax rate in 2015.
Deferred taxes in the balance sheet
Deferred taxes illustrate timing differences between the treatment
of costs under accounting and tax rules. The timing differences give
rise to deferred tax assets and liabilities, the most significant of
which for Fortum are explained below.
Deferred taxes in the balance sheet
EUR million
Property, plant and equipment
Pension obligations
Provisions
Derivative financial instruments
Tax losses and tax credits carry-forward
Other
Net deferred tax liability
1 Jan
2016
-551
11
14
-42
146
18
-404
Change
2016
-167
4
6
78
-46
-23
-146
31 Dec
2016
-717
14
20
36
100
-4
-550
5
Case:
Timing of income taxes paid
Investments – Tax depreciations. We invest in production assets
and depreciate them for accounting purposes evenly over the
lifetime of the assets, which can be many years. In some countries,
the cost of the asset is deducted for tax purposes over a shorter
time period, or a larger proportion of the cost is deducted in
earlier years and less in the later years of the asset’s life. This
reduces tax costs in the early years of an asset’s life, but increases
them as the asset ages. This acceleration of tax depreciation
provides an incentive for capital expenditure, but matches the
payment of income tax with the long-term investment earnings
over the entire lifetime of the asset. The fact that more tax will be
paid in the later years of an asset’s life is recognised by booking a
deferred tax liability in the balance sheet.
The timing of tax depreciation may lead to certain projects
paying little tax in their early years, but will increase taxable
profits in later years. The tax contribution of capital expenditure
should therefore be considered over the whole life of an asset
rather than over one or a few years.
Tax losses and other impacts. If a company has poor
profitability, it may make tax losses that cannot be utilised in
the period in which they arise, but can be carried forward and
used to offset taxable profits in the future. A concrete example of
tax losses is the one-time write-down of the two reactors at the
nuclear power plant OKG in Sweden during 2015; this gave rise
to significant losses that will only be utilised once the Swedish
operations return to profit. It may take many years to fully utilise
the losses. The future benefit of these losses is booked as a
deferred tax asset (or reduction of deferred tax liability) in the
balance sheet.
In years in which the tax loss is utilised, the company will
have taxable profits, but will pay no tax, as the losses from
previous years are used to offset the taxable profits arising in
the current year.
6
Fortum's tax indicators and
country-by-country taxation
In line with the 2016 guidelines of the Ownership Steering
Department of the Prime Minister’s Office for state-majority-owned
companies, Fortum has selected key indicators that reflect the
nature of its business operations and the related tax. As Fortum’s
operations are capital-intensive and have a long lifetime, the net
assets has been selected as the best determinant of our value
creation in each country. Our operations are not labour-intensive,
nor is revenue the most relevant base for a value creation indicator.
Therefore, for our operations, the table below presents assets used
in operations along with taxes borne and taxes collected for the
nine of the most significant countries of operation. To ensure a
good understanding of our value creation, we also present interest-
bearing loan receivables, as financing is crucial for the success
of our operations. We trust this is the best determinant of value
creation for our operations.
Countries of operations
EUR million
Taxes borne
Corporate income tax
Production taxes
Employment taxes
Taxes on property
Cost of indirect taxes
Total taxes borne
Assets used in operations **) ***)
Interest bearing loan receivables **)
Number of employees
Effective income tax rate
Total tax rate
Taxes collected
Net VAT
Sales VAT
VAT on Purchases
Payroll taxes
Excise taxes
Withholding taxes
Total taxes collected
Finland *)
2015
Sweden ****)
Russia
Poland
Estonia
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
2016
2015
2014
66
46
3
13
2
130
3,051
862
1,959
20.2%
59.9%
15
311
295
43
7
59
125
89
45
3
13
2
152
1
83
8
109
0
201
-1
83
10
118
0
210
9
82
11
124
0
226
3
2
3
15
1
23
3
2
4
13
1
23
3
2
4
15
0
24
4
1
1
6
0
12
2
1
1
5
0
10
1
1
1
5
0
8
1
0
1
0
0
2
2
0
1
0
0
3
2
0
1
0
0
3
3,417
1,648
2,040
13.5%
24.9%
4,341
860
724
-20.9%
81.8%
4,559
775
618
21.1%
N/A
7,005
1,740
1,201
-26.8%
82.4%
2,967
0
3,745
19.1%
10.5%
2,347
0
4,126
18.9%
11.8%
2,444
3
4,213
18.2%
13.9%
513
2
894
15.0%
34.8%
350
0
586
22.1%
43.6%
342
0
603
11.1%
35.5%
196
0
201
28.1%
18.2%
196
0
214
30.9%
30.8%
199
0
206
16.0%
14.5%
11
323
311
44
6
57
118
0
292
309
12
152
0
165
0
344
527
13
151
0
163
0
355
378
16
149
0
164
48
240
192
7
0
0
55
22
244
222
8
0
0
30
9
311
303
9
0
0
18
18
105
87
3
2
0
23
9
51
42
3
0
0
12
11
51
40
3
0
0
15
5
18
13
2
0
0
7
5
19
13
2
0
0
7
2
20
18
2
0
0
4
2016
21
54
3
23
1
101
3,958
522
2,029
34.5%
72.6%
13
351
338
42
4
53
112
*) Taxes on property in Finland 2016 include EUR 9 million asset transfer tax (tax on transfer of shares and real estate).
**) Group internal eliminations are not included
***) From 2016 onwards Fortum is disclosing Comparable net assets instead of Net assets (see Note 5 in Consolidated Financial Statements).
****) Assets used in operations, Interest bearing loan receivables and number of employees for 2014 include Distribution Sweden
7
EUR million
Taxes borne
Corporate income tax
Production taxes
Employment taxes
Taxes on property
Cost of indirect taxes
Total taxes borne
Netherlands
2015
2016
8
0
0
0
1
9
19
0
0
0
0
20
2014
2016
2015
2014
2016
2015
2014
2016
Ireland
Belgium
Luxembourg
2015
Other countries
2014
2016
2015
2014
32
0
0
0
1
33
4
0
0
0
0
4
0
0
0
0
0
0
2
0
0
0
0
2
6
0
0
0
0
6
13
0
0
0
0
13
4
0
0
0
0
4
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Assets used in operations **) ***)
Interest bearing loan receivables **)
Number of employees
Effective income tax rate
Total tax rate
8
9,442
10
46.7%
31.8%
6
9,804
5
30.8%
26.4%
341
11,185
5
24.1%
24.7%
0
9,827
2
1.6%
3.8%
0
6,478
2
-36.6%
0.4%
0
3,580
2
1.8%
1.7%
0
2,069
2
24.8%
9.8%
0
947
2
28.0%
11.1%
0
1,792
1
15.5%
6.1%
0
2
1
155.9%
136.4%
0
3,024
1
50.0%
52.8%
0
7,420
2
45.5%
48.6%
Taxes collected
Net VAT
Sales VAT
VAT on Purchases
Payroll taxes
Excise taxes
Withholding taxes
Total taxes collected
0
0
1
0
0
0
0
0
2
3
0
0
0
0
0
1
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
**) Group internal eliminations are not included
***) From 2016 onwards Fortum is disclosing Comparable net assets instead of Net assets (see Note 5 in Consolidated Financial Statements).
1
1
2
0
0
5
449
60
500
8.0%
8.3%
9
32
25
5
1
0
13
1
0
2
0
0
4
277
53
322
3.0%
7.9%
9
27
18
4
0
0
13
7
1
3
1
1
12
294
40
319
6.4%
8.2%
11
50
40
4
2
0
17
The table above reflects the current challenging power and financial
markets as well as tax environment. The high total tax rates in
Sweden and Finland reflect lower profits in those countries, driven
by the current price of power and the significant amounts of taxes
that are not based on profits. We have organised the financing of
our operations so that it also protects our capability to distribute
dividends. This simultaneously also protects the tax base in
Finland. As some of the markets risks have realised, it results in
lowered taxes for our financing. The tax rates in Luxembourg and
Ireland reflect one-off charges resulting from the reorganisation
of the Group’s financing operations.
Other payments to the public sector
In addition to taxes borne and taxes collected, we make other
compulsory tax-like payments to the public sector, payments that
are not compensation for goods or services received. For example,
in 2016 we paid EUR 38 (2015: 39) million in employer’s statutory
pension contributions.
We are also a significant dividend payer. Fortum’s Board of
Directors proposes to the 2017 Annual General Meeting that a
dividend of EUR 977 (2016: 977) million be paid for 2016. The
Finnish State’s share of this would be about EUR 496 (496) million.
Ongoing tax appeals
As explained in the box below, lack of clarity in tax legislation and
changes in the interpretation of tax rules can result in a long delay
between a transaction taking place and its tax treatment being
agreed with the relevant tax authority.
Fortum had several tax audits ongoing during 2016. Fortum has
received income tax assessments in Sweden for the years 2009–2014,
in Finland for year 2007 and in Belgium for the years 2008–2012.
Fortum has appealed all assessments received. Fortum has in
December 2016 received a positive final decision in Finland in line
with our expectations. Based on legal analyses, no provision has been
accounted for in the financial statements related to the tax audits. See
Note 38 Legal actions and official procedings for more information.
8
Information about companies registered
in countries considered to be tax havens
The EU, the OECD and the Global Forum have established a
blacklist of countries considered to be tax havens. Fortum has a
fully-owned captive insurance company in Guernsey, for insurance
reasons; it also has a stake in Nature Elements Asia Renewable
Energy and Cleantech Fund L.P., which makes research and
development investments and is located in the Cayman Islands.
Fortum’s earnings from both companies are subject to normal
taxation in Finland and the taxes borne on these operations were
EUR 33,000 in 2016 based on 20% tax rate.
Fortum operates internationally and, therefore, our
international financing operations are located in EU countries
with stable operating environments and predictable taxation. We
have financing and leasing companies in Belgium, Netherlands,
Ireland and Luxembourg. In the recent tax management debate,
Luxembourg and Ireland have also been mentioned as tax havens.
We pay taxes in each of these countries of operation based on
local rules and normal tax rates (Netherlands 25%, Luxembourg
29%, Belgium 33.99% and Ireland 12.5%). Fortum's subsidiary
companies are listed by country in the Note 42, Subsidiaries by
segment, of the consolidated financial statement.
Case:
Investments – controversy costs and tax deductibility of interest expense
For Fortum to operate efficiently and minimise its financing risks, it needs to have certainty as to how its investments and
related financing will be taxed. The international, long-term and capital-intensive nature of Fortum’s operations can make
this certainty harder to achieve, particularly as regards the tax treatment of interest on loans used to finance investments.
In recent years, the tax treatment of interest costs has received much attention both locally and internationally. This has
led to uncertainty in defining the correct tax treatment for interest, even in traditional businesses and investments.
These unclear and changing rules, combined with even less clear interpretations and a lack of advance rulings on tax
treatment, result in an increased likelihood of tax assessments and costly controversy processes. The final position may be
agreed only 8 to 9 years after deciding on the investment or filing the tax return to which the uncertainty relates. The risk of
double taxation is increasing. Ideally, a business needs to be able to have predictability in applying tax rules when initially
planning an investment.
Uncertainty over the tax treatment regarding investments can take ten years.
Investment
decision
Year 1
Construction
of power plant
Year 2–3
Tax Authority
denies interest
deduction
Year 4
Appeal in
first court
Year 5–6
Appeal
second court
Year 6–7
Final decicion
if deductible or
not deductible
Year 8–9
9
Fortum tax footprint – Key terms
Term
Corporate income tax
Current tax
Deferred tax
Effective income tax rate
Comparable effective income tax rate
Weighted average applicable income tax rate
The Group / Fortum Group
Indirect tax
Profit before tax
Tax
Tax borne
Tax collected
Total tax rate
Comparable total tax rate
Definition
All taxes that are based on the taxable profits of a company and temporary differences between
accounting values and tax bases, as defined in the International Financial Reporting Standard
IAS12.
The corporate income tax due in respect of taxable profits of an accounting period, as defined in
the International Financial Reporting Standard IAS12.
The corporate income tax due in respect of temporary differences between accounting values and
tax bases, as defined in the International Financial Reporting Standard IAS12.
Income tax expense divided by Profit before income tax.
Income tax expense minus effects from tax rate changes divided by Profit before income tax
decreased by profits from associated companies and joint ventures and by tax exempt capital
gains or losses.
Sum of the proportionately weighted share of profits before taxes of each group operating country
multiplied with an applicable nominal tax rate of the respective countries.
Fortum Oyj and its subsidiaries and Fortum Group associated companies and joint ventures.
Tax that is required to be paid to a government by one person or company at the expense of
another person or company.
Accounting profit for a period before deducting a charge for corporate income taxes.
Any amount of money required to be paid to a government without receive any services,
whether by law or by agreement, including without limitation corporate income tax, production
taxes, property taxes, employment taxes, sales taxes, asset transfer tax, and any other required
payments.
Taxes that a company is obliged to pay to a government, directly or indirectly, on that company's
own behalf in respect of an accounting period. Taxes borne include corporate income taxes
(excluding deferred taxes), production taxes, employment taxes, taxes on property and cost
of indirect taxes. Production taxes include also taxes paid through electricity purchased from
associated companies.
Tax that a company is obliged to pay to a government on behalf of another person or a
company. Taxes collected include VAT, and excise taxes on power consumed by customers, payroll
taxes and withholding taxes.
Taxes borne divided by profit before tax increased by taxes borne in operating profit.
Taxes borne divided by profit before tax increased by taxes borne in operating profit and
decreased by profits from associated companies and joint ventures and by tax exempt capital
gains or losses.
Other payments to and from the public sector Other compulsory tax-like payments to the public sector, payments that are not compensation for
Assets used in operations
goods or services received.
Non-interest bearing assets plus interest bearing assets related to the Nuclear Waste Fund (non-
interest bearing assets do not include finance related items, taxes and assets from fair valuations
of derivatives used for hedging future cash flows)
10
Sustainability 2016
On the move
for a cleaner world
Watch a video about our strategy implementation from this link.
2
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibility Sustainability 2016
Sustainability management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Our contribution to the Sustainable Development Goals . . . . . . . . . . 5
Key sustainability topics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Governance and management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Policies and commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Business ethics and compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Stakeholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Sustainability indexes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
Economic responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Economic impacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
Customer satisfaction and reputation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Supply chain management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Fortum's 2016 reporting entity
Environmental responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Sustainable energy production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Climate change mitigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
Improving energy efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Circular economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Biodiversity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Emissions into air . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Water use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Waste and by-products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Environmental non-compliances and incidents . . . . . . . . . . . . . . . . . . . . . 43
Social responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Security of supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Safety and security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Corporate citizenship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Human rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Product responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Reporting principles and assurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Reporting principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Reported GRI indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Assurance report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Appendices
1. Sustainability management by topic
2. Fortum's internal policies and instructions
Glossary and contact information
Online Annual Review
CEO Letter
Financials
Governance
Remuneration
Tax Footprint
Sustainability
3
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibility Financials 2016 Governance 2016 Tax Footprint 2016 CEO Letter 2016 Remuneration 2016 Sustainability 2016 Sustainability management
The entire energy sector is undergoing a transformation.
Four megatrends are shaping this change: Climate
change and resource efficiency, Urbanisation,
Digitalisation and new technologies, and Active
customers. These megatrends have a major impact on
how energy is produced, sold and used.
Our role is to accelerate this change by reshaping the
energy system, improving resource efficiency and
providing smart solutions. This way we deliver excellent
shareholder value. Our values – accountability, creativity,
respect and honesty – form the foundation for all our
activities.
Sustainability is an integral part of Fortum’s strategy.
Business and responsibility are tightly linked,
underlining the role of sustainable solutions as a
competitive advantage. In our operations, we give
balanced consideration to economic, social and
environmental responsibility.
Fortum's vision, mission and strategy
Fortum's values
4
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilitySustainability management Our contribution to the Sustainable Development Goals
The Sustainable Development Goals (SDGs) adopted by
the United Nations in 2015 define international sustainable
development focus areas and goals to 2030 . We want to do our part
to promote the achievement of the goals in our value chain . The
Sustainable Development Goals offer business opportunities as
well and the opportunity to create value for our stakeholder groups .
As a producer of energy and circular economy solutions, Fortum
impacts most of the Sustainable Development Goals and their
specific targets . The SDGs which we impact most are presented
in the picture . In line with our strategy, we are driving the change
towards a cleaner world .
Fortum supports the Sustainable Development Goals.
Our contribution to the Sustainable Development Goals (SDGs)
Fortum’s strategy
SDG
Drive
productivity
and industry
transformation
Create
solutions for
sustainable
cities
Grow in solar
and wind
Build new
energy ventures
5
Fortum takes care of the working conditions and safety of its own
and its contractors’ employees, and it requires service and goods
suppliers to respect labour rights. Fortum generates economic
added value to its investors, suppliers and the public sector.
• Group targets in safety and sickness-related absences
Fortum offers urban waste and circular economy solutions and
impacts urban air quality by developing charging solutions for
electric vehicles and by aiming to reduce power plant emissions
into the air.
Fortum offers and develops new energy services for customers,
improves the energy efficiency of its production, and invests
in renewable energy, e.g. solar power in India.
• Group target in security of supply
Fortum invests in CO2-free energy production, improves
the energy efficiency of its production, and develops new
climate-benign energy innovations.
• Group target in specific CO2 emissions and in energy efficiency
We advance innovations related to energy, the circular economy,
digitalisation and electricity storage solutions, and we invest
in startups. We develop district heating and cooling solutions.
All energy production has environmental impacts.
Fortum aims to reduce the environmental impacts
of its energy production on aquatic and terrestrial
ecosystems and biodiversity.
• Group target in major EHS incidents
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilitySustainability managementOur contribution to the SDGsPolicies and commitmentsGovernance and managementSustainability indexesKey sustainability topicsStakeholdersBusiness ethics and compliance Examples of measures we implemented in 2016 that promote the achievement of the Sustainable Development Goals
Sustainable Development Goal (SDG)
7. Ensure access to affordable, reliable, sustainable
and modern energy for all
13. Take urgent action to combat climate change and its impacts
8. Promote inclusive and sustainable economic growth,
employment, and decent work for all
9. Build resilient infrastructure, promote sustainable
industrialisation and foster innovation
11. Make cities and human settlements inclusive,
safe, resilient and sustainable
Measure
• We invested in renewable energy production: wind, solar and hydropower
• We started construction of two solar power plants with a total capacity of 170 MW in India
• We invested in wind power in Sweden, Norway and Russia
• We invested in energy efficiency, e.g. at a CHP plant in Russia, at the Loviisa nuclear power plant in Finland and
at hydropower plants in Sweden and Finland
• We reduced specific CO2 emissions in Espoo, Finland, with flexible heat production: we utilise wood-based fuels,
waste heat, and, in the future, also geothermal heat
• We increased the use of horse bedding-manure mixture as a fuel
• Our energy efficiency investments totalled 245 GWh
• We organised an innovation competition to develop solar energy solutions from the customer perspective
• We audited 13 suppliers on work conditions and other issues
• We renewed the process for the supplier pre-selection
• We determined the divisions’ level of compliance with safety instructions and took corrective measures
• We updated the safety handbook and compiled online training on work safety
• We initiated development of a virtual power plant for balancing electricity demand
• We launched a pilot project for the Nordic countries’ biggest electricity storage
• We commissioned new district cooling in Tartu, Estonia
• We invested in Exeger, a company developing solar power technology
• We invested in the biorefining technology supplier Chempolis
• We engaged in collaboration with universities in our operating countries, and Fortum Foundation awarded
EUR 675 000 in grants
• We used EUR 52 million in research and development
• We acquired Ekokem Corporation in Finland and started offering sustainable city solutions, like waste and circular
economy services to customers
• We developed charging solutions for electric vehicles in the Nordic countries: We acquired Info24 in Sweden,
a developer of EV charging systems, we developed charging systems in collaboration with some 50 partners
already, we participated in construction of the world’s largest charging station and an electricity-storing
charging station in Norway
• We started collaboration in the Helsinki metropolitan area Smart & Clean fund
• We participate in the Smart Energy City research programme in Stockholm
• We supplied emissions-reducing combustion solutions to Estonian, Swedish, Romanian and Polish customers
14. Conserve and sustainably use the oceans, seas
and marine resources for sustainable development
• We implemented environmental measures valued at EUR 3.2 million for our hydropower
• We started construction of equipment to trap and transport fish over the dam at the Montta hydropower plant in
15. Protect, restore and promote sustainable use of terrestrial
ecosystems, sustainably manage forests, combat desertification,
and halt and reverse land degradation and halt biodiversity loss
• A record number of salmon migrated up to the River Klarälven in Sweden, thanks to the trap and transport of fish
• We installed scrubbers at the Argayash power plant in Russia to reduce flue-gas emissions
• We studied the sustainability criteria of wood-based biomass, and in 2017 we will examine the opportunity to
apply for Chain of Custody certification for the Fortum’s wood-based biomass purchases
Finland
6
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilitySustainability managementOur contribution to the SDGsPolicies and commitmentsGovernance and managementSustainability indexesKey sustainability topicsStakeholdersBusiness ethics and compliance Key sustainability topics
Economic responsibility
Social responsibility
Secure supply of heat
and electricity
Environmental responsibility
Customer
satisfaction
Personnel
well-being
Long-term value
and growth
Sustainable
supply chain
Business ethics
and compliance
Energy and
resource efficiency
Operational and
occupational safety
Solutions for
sustainable
cities
Reduction of
environmental impacts
Climate benign
energy production
and systems
Economic
benefits to our
stakeholders
We have defined our most important sustainability focus areas in
the areas of economic, social and environmental responsibility .
Our focus areas are based on Fortum’s and our stakeholders’
views of the significance of the impacts on the company and its
ability to create value for its stakeholders and on the environment .
Our understanding of stakeholder views is based on the results of
the extensive stakeholder survey, One Fortum survey, conducted
annually as well as on information gained through other
stakeholder collaboration .
In 2015, a total of 2,133 stakeholder representatives, more than
60% of them representing personnel, participated in our latest
separate sustainability survey . In the 2015 sustainability survey for
stakeholders, decision makers, organisations, employees and the
general public put special emphasis on the significance of security
of supply of heat and electricity, management of sustainability-
related risks, and sustainable ways of operating . Our personnel
emphasised the safety of operations . The general public considered
the use of renewable energy sources as important .
Sustainability targets affect every Fortum employee
Sustainability targets affect every Fortum employee and are part of
Fortum’s short-term incentive scheme . In addition to the Group-
level targets, divisions have their own targets . Fortum’s Board
of Directors annually decides on the sustainability targets to be
included in the incentive scheme . In 2016 the incentive scheme
included the injury frequency for Fortum employees and for
contractors and the number of serious occupational accidents .
The injury frequency for Fortum employees and for contractors
will be included in the 2017 incentive scheme . The weight of the
sustainability target in the incentive scheme is 10% (2016: 10%) .
7
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilitySustainability managementOur contribution to the SDGsPolicies and commitmentsGovernance and managementSustainability indexesKey sustainability topicsStakeholdersBusiness ethics and compliance Group sustainability targets and performance in 2016
Reputation index, based on One Fortum Survey
Customer satisfaction index (CSI), based on One Fortum Survey
Environmental responsibility
Specific CO2 emissions
Total energy production, g/kWh, 5-year average
Energy efficiency
Energy efficiency improvement by year 2020, base line year 2012, GWh/a
Major EHS incidents 1)
Social responsibility
Security of supply
CHP plant energy availability, %
Occupational safety
Total recordable injury frequency (TRIF) 2), own personnel
Lost workday injury frequency (LWIF) 3), own personnel
Lost workday injury frequency (LWIF) 3), contractors
Number of serious occupational accidents 4)
Sickness related absences, %
Target for the
year 2016
72.0
CSI divisional
scores at level
“good” (70–74)
Status at the
end of 2016
72.5
67–79
Status at the
end of 2015
71.75
68–79
< 200
> 1,400*
≤ 23
> 95
≤ 2.5
≤ 1.0
≤ 3.0
≤ 8
≤ 2.4
188
1,372
22
97.4
1.9
1.0
3.0
13
2.3***
191
1,127**
18
96.4
1.6
1.1
2.7
14**
2.4
1) Fires, leaks, explosions, INES events exceeding level 0, dam safety incidents, environmental non-compliances. INES = International Nuclear Event Scale
2) TRIF = Total recordable injury frequency, injuries per million working hours
3) LWIF = Lost workday injury frequency, injuries per million working hours
4) Fatality or an accident leading to permanent disability or a sick-leave of more than 30 days
* By the year 2020
** The figure revised for reporting in 2015
*** The figure has become more defined from the one presented in the interim report and the operating and financial review (2.4%).
Successes and development needs:
• Our reputation amongst the most important stakeholder groups
in the One Fortum survey improved in 2016 and exceeded the
target . The target for customer satisfaction was achieved in all
business areas, except in electricity sales to business customers .
• We achieved our target in specific carbon dioxide emissions .
In 2016, specific emissions from total energy production were
184 gCO2/kWh .
• The replacement of the Loviisa nuclear power plant’s two high-
pressure turbines and the Suomenoja power plant’s new district
heat storage improved the energy efficiency of our production
in Finland . Refurbishment of the Chelyabinsk CHP-3 unit’s
gas turbine improved energy efficiency in Russia . Through
the projects implemented, an annual energy savings of about
245 GWh was achieved .
• We strive to be a safe workplace for own and our contractors’
employees . In 2016, we achieved the lost workday injury
frequency target for our own and our contractors’ employees,
but there were still too many serious accidents . There were no
injuries leading to a fatality during the year .
In 2016 we signed an agreement for an external service provider
to conduct supplier audits; the first audit performed by an
external actor was carried out in December . In 2016 we focused
on auditing fuel suppliers in particular . We audited a total of
13 suppliers in seven countries .
•
8
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilitySustainability managementOur contribution to the SDGsPolicies and commitmentsGovernance and managementSustainability indexesKey sustainability topicsStakeholdersBusiness ethics and compliance
Our targets for 2017
Our sustainability targets are based on continuous operational
improvement . In our target-setting for 2017 we have taken into
consideration the potential occupational safety impacts of Fortum’s
growth strategy and business acquisitions . It is likely that, until
Fortum’s occupational safety practices have been integrated in the
new functions, the acquisitions will temporarily weaken Fortum’s
current good level of occupational safety .
There are still too many serious injuries occurring in our
operations . Starting in 2017 the focus of our monitoring is on
accidents that have serious consequences, rather than on the length
of the sick-leave . These include accidents leading to a fatality or
permanent disability and accidents that could have caused serious
consequences .
A new indicator we will track in 2017 is the quality of the
investigations of occupational accidents, serious EHS incidents,
and near misses . The goal is that the investigation of each incident
is done in accordance with guidelines, and more than 90% of
the corrective actions are implemented on schedule (target level
1 .0) . By 2020 the goal is for 100% of the corrective actions to be
implemented on schedule, the investigations to use experts from
across division boundaries and the lessons learned from the
incidents to be actively shared (target level 1 .5) .
Group sustainability targets in 2017
Reputation index, based on One Fortum Survey
Customer satisfaction index (CSI), based on One Fortum Survey
Environmental responsibility
Specific CO2 emissions
Total energy production, g/kWh, 5-year average
Energy efficiency
Energy efficiency improvement by year 2020, base line year 2012, GWh/a
Major EHS incidents 1)
Social responsibility
Security of supply
CHP plant energy availability, %
Occupational safety
Total recordable injury frequency (TRIF) 2), own personnel
Lost workday injury frequency (LWIF) 3), own personnel
Lost workday injury frequency (LWIF) 3), contractors
Number of severe occupational accidents 4)
Quality of occupational accidents, major EHS incident and near misses investigation process
Sickness related absences, %
Target 2017
70.7
CSI divisional scores
at level "good"
(70–74)
Target 2020
Not defined
CSI divisional scores
at level "good"
(70–74)
< 200
< 200
Target only for year
2020
≤ 21
> 95
≤ 2.5
≤ 1.0
≤ 3.5
≤ 5
Level 1.0
≤ 2.3
> 1,400
≤ 15
> 95
≤ 2.0
≤ 1.0
≤ 2.0
0
Level 1.5
≤ 2.3
1) Fires, leaks, explosions, INES events exceeding level 0, dam safety incidents, environmental non-compliances. INES = International Nuclear Event Scale
2) TRIF = Total recordable injury frequency, injuries per million working hours
3) LWIF = Lost workday injury frequency, injuries per million working hours
4) Accidents leading to a fatality or permanent disability and accidents that could have caused serious consequences
9
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilitySustainability managementOur contribution to the SDGsPolicies and commitmentsGovernance and managementSustainability indexesKey sustainability topicsStakeholdersBusiness ethics and compliance
Governance and management
Sustainability management at Fortum is strategy-driven and is based on the company’s values, the
Code of Conduct, the Supplier Code of Conduct and the policies and their specifying instructions
defined at the Group level . We comply with laws and regulations . All of our operations are guided by good
governance, effective risk management, adequate controls and the internal audit principles supporting
them .
Fortum’s goal is a high level of environmental and safety management in all business activities .
Calculated in terms of sales, 99 .9% of Fortum’s electricity and heat production operations at the end of 2016
were ISO 14001 and OHSAS 18001 certified . The divisions and sites develop their operations with internal
and external audits required by environmental, occupational safety and quality management systems .
Responsibilities
Sustainability is an integral part of Fortum’s strategy and the highest decision-making authority in these
issues is with the Board of Directors, which has joint responsibility in matters related to sustainability . For
this reason, Fortum has not designated a Sustainability Committee for decision-making on economic,
environmental and social issues . The Audit and Risk Committee, members of the Fortum Executive
Management, and other senior executives support the Board of Directors in the decision-making in these
matters, when necessary .
The Fortum Executive Management decides on the sustainability approach and Group-level
sustainability targets that guide annual planning . The targets are ultimately approved by Fortum’s
Board of Directors . Fortum Executive Management monitors the achievement of the targets in its
monthly meetings and in quarterly performance reviews . The achievement of the targets is regularly
reported also to Fortum’s Board of Directors .
Fortum’s line management is responsible for sustainability management, and realisation of the
safety targets is part of Fortum’s incentive system . Fortum’s Corporate Sustainability unit is responsible
for coordination and development of sustainability at the Group level and for maintaining an adequate
situation awareness regarding sustainability .
Sustainability management by topic
Sustainability management in the areas of economic responsibility, environmental responsibility
and social responsibility is described in more detail in the Appendix 1 . Additionally, more detailed
information about the management of different aspects and impacts is presented by topic in this
Sustainability Report .
Corporate Governance Statement 2016
Remuneration Statement 2016
10
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilitySustainability managementOur contribution to the SDGsPolicies and commitmentsGovernance and managementSustainability indexesKey sustainability topicsStakeholdersBusiness ethics and compliance Policies and commitments
International and national initiatives, commitments and guidelines
Fortum is a member of the UN Global Compact initiative and the UN Caring for Climate initiative .
Fortum supports and respects the international initiatives and commitments, and national and
international guidelines listed in the table, and they guide our operations in the areas of economic,
environmental and social responsibility .
In December 2016, Fortum's sustainability policy was updated to be in line with our new strategy .
Group-level EHS instructions and minimum requirements set requirements for all the operations for
which we have operative responsibility . In 2016 we updated these requirements and published a revised
version of the Corporate Safety and Security handbook together with an e-learning .
We report on the training related to the updated instructions in the sections Business ethics and
compliance, Occupational and operational safety and Supply chain management .
The company’s Group-level policies are approved by Fortum’s Board of Directors . The Group-level
instructions are approved by either the President and CEO or the Fortum Executive Management .
Fortum’s main internal policies and instructions guiding sustainability are listed in the
Appendix 2 .
Economic
responsi-
bility
Environ-
mental
responsi-
bility
Social
responsi-
bility:
Labour
practices
and decent
work
x
Social
responsi-
bility:
Human
rights
x
Social
responsi-
bility:
Product
responsi-
bility
Social
responsi-
bility:
Society
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
The UN Universal
Declaration of Human
Rights
International Covenant
on Economic, Social
and Cultural Rights
International Covenant
on Civil and Political
Rights
The UN Convention on
the Rights of the Child
The core conventions
of the International
Labour Organisation
The UN Global
Compact initiative
The UN Caring for
Climate initiative
The UN Guiding
Principles on Business
and Human Rights
The OECD Guidelines
for Multinational
Enterprises
The International
Chamber of
Commerce’s
anti-bribery and
anti-corruption
guidelines
The Bettercoal
initiative’s Code on
responsible coal
mining
Responsible
advertising and
marketing guidelines
Environmental
marketing guidelines
11
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilitySustainability managementOur contribution to the SDGsPolicies and commitmentsGovernance and managementSustainability indexesKey sustainability topicsStakeholdersBusiness ethics and compliance
Business ethics and compliance
We believe there is a clear connection between high standards of
ethical business practices and excellent financial results . As an
industry leader, we obey the law, we embrace the spirit of integrity,
and we uphold ethical business conduct wherever we operate .
Code of Conduct sets the basic requirements
The Fortum Code of Conduct and Fortum Supplier Code of Conduct
define how we treat others, engage in business, safeguard our
corporate assets, and how we expect our suppliers and business
partners to operate .
Fortum’s Board of Directors is responsible for the company’s
mission and values and has approved the Fortum Code of Conduct .
The online training on the Code of Conduct is part of the induction
programme for new employees . The Supplier Code of Conduct is
based on the 10 principles of the UN Global Compact and has been
approved by the Head of Procurement in collaboration with the
purchasing steering group .
About 95% of Fortum’s total purchasing volume, excluding
purchases by Ekokem and DUON, is purchased from suppliers with
a purchasing volume of EUR 50,000 or more . Geographically they
target mainly suppliers in Finland, Sweden, Russia and Poland .
The Supplier Code of Conduct is part of purchase agreements
exceeding EUR 50,000 .
In line with the Code of Conduct, Fortum has zero tolerance
for corruption and fraud and does not award donations to political
parties or political activities, religious organisations, authorities,
municipalities or local administrations .
Compliance risks
The compliance risks related to our business operations include the
potential risk of bribery or corruption, fraud and embezzlement,
non-compliance with legislation or company rules, conflicts of
interest, improper use of company assets, and working under the
influence of alcohol or drugs .
Compliance risk management is an integrated part of business
operations, and key compliance risks, including action plans, are
identified, assessed and reported annually . This applies also to the
management of risks related to sustainability . During 2016, Fortum
has launched a Total Compliance programme which covers key
areas of regulatory compliance and business ethics .
Training
As part of the Total Compliance programme, an training plan is
developed annually .
In 2016, training on compliance with regulations was provided
in Russia and India . The new Fortum employees acquired through
an acquisition in Poland received Fortum’s Code of Conduct
training related to business ethics .
Training on the new Market Abuse Regulation and insider
regulations was provided for certain management teams .
Training on internal controls was also arranged for division-
level management teams . Training on competition law issues
was provided for the functions responsible for sales and for the
individuals joining Fortum through acquisitions .
The pre-selection process for Fortum’s goods and service
suppliers was renewed in spring 2016 . Related training was
provided for procurement personnel in all countries, except Poland
and Russia . The training will be arranged in Poland during spring
2017 . The pre-selection process will be taken into use in Ekokem’s
procurements during autumn 2017 .
Reporting misconduct
In addition to internal reporting channels, Fortum has an external
“Raise a concern” channel . The same mechanism is used for
reporting any suspected misconduct relating to the environment,
labour practices or human rights violations, and it is available to
all stakeholders . In Russia, Fortum has a separate compliance
organisation in place and employees there are encouraged to use
the channels provided by the compliance organisation . They may,
however, also use the “Raise a concern” channel should they
so wish .
Suspected misconduct and measures related to ethical business
practices and compliance with regulations are regularly reported
to the Fortum Executive Management and to the Board’s Audit and
Risk Committee .
Suspected cases of misconduct
A total of 149 reports of suspected misconduct were made . Of
these cases, 72 led to an investigation; at the end of the year,
there were four ongoing investigations . About one third of the
investigated cases were related to non-compliance either with
laws and regulations or with company rules which constituted
majority of the cases . In these cases, corrective action was taken by
reviewing and developing existing processes and instructions and
by providing training for employees .
Fortum has zero tolerance towards alcohol and drug use . About
a fifth of the cases were related to alcohol abuse by either Fortum’s
or contractors’ employees during working hours .
As a result of the investigations, four employment contracts
were terminated either by immediate dismissal or by mutual
agreement, and four written warnings were given . There were
13 cases of misconduct reported to the police . There was no cause
for action to be taken in 16 of the cases investigated .
Three cases of suspected corruption or bribery related to
Fortum’s operations were investigated in 2016 . Misconduct was not
detected in the investigations .
Fortum also requires its goods and service suppliers as well as
its business partners to comply with a zero tolerance policy towards
corruption and bribery . As part of supply chain management, we
requested a report from the goods and service suppliers we had
knowledge of possible cases of misconduct . We requested the
reports to include information about e .g . the corrective measures
12
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilitySustainability managementOur contribution to the SDGsPolicies and commitmentsGovernance and managementSustainability indexesKey sustainability topicsStakeholdersBusiness ethics and compliance taken related to the supplier’s own operations . The reports
were considered sufficient and didn’t lead to the termination of
a contract . Other misconduct led to the termination of a contract
with one goods and service supplier .
We deal with potential cases of corruption in a professional
manner, in accordance with the defined compliance investigation
process, in line with applicable laws and with respect to the rights
and personal integrity of all parties involved .
Restricting competition
There were three ongoing investigation cases in Russia in 2016,
one of which was completed during the year . The court found no
violation of competition law .
During the year Fortum was not subject to any significant
monetary fines for competition law violations .
Other significant fines
There were no other significant fines .
Fortum Code of Conduct
Fortum Supplier Code of Conduct
Environmental grievances
Labour practices and human rights grievances
Incidents of discrimination
Fines related to environmental non-compliances
13
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilitySustainability managementOur contribution to the SDGsPolicies and commitmentsGovernance and managementSustainability indexesKey sustainability topicsStakeholdersBusiness ethics and compliance Stakeholders
Our way of operating responsibly includes continuously identifying
the views of our stakeholders and finding a balance between the
different expectations our stakeholders have . Dialogue, feedback
and good collaboration are the key ways to promote a mutual
understanding with our stakeholders .
Stakeholder collaboration
Collaboration with different stakeholder groups helps Fortum to
assess and meet the expectations that stakeholder groups have
towards the company . We engage in an active dialogue with the
different stakeholders associated with our operations . We conduct
annual stakeholder surveys . We monitor and assess the public
dialogue in the countries where we operate, and we have increased
the dialogue with our stakeholders also through social media
channels . Feedback from customers drives the development of our
products and services . Additionally, our activities in national and
international organisations help to deepen our understanding of
global sustainability issues and their connections to our business .
Management of stakeholder collaboration at Fortum is assigned
particularly to communications, corporate relations, human
resources, the sustainability unit, the functions responsible for
electricity and heat sales and energy production, as well as many of
our experts . Responsibilities for managing stakeholder collaboration
are primarily determined by stakeholder group or interaction
theme . Key interaction areas, e .g . public affairs, and corporate
communications, have annual plans that guide the activities .
Fortum has an informal Advisory Council consisting of
representatives of Fortum’s stakeholder groups as invited by the
Board of Directors . The Advisory Council aims to increase the
dialogue and the exchange of views between the company and its
stakeholders .
Information through surveys
In collaboration with third parties, we annually conduct surveys
regarding stakeholder collaboration . The aim of these surveys is
to help Fortum assess and respond to the important stakeholder
groups’ expectations of the company . The surveys also measure
the success of our stakeholder collaboration . Additionally, the
surveys provide information about emerging sustainability trends
and risks we should acknowledge . We use the survey results in
business planning and development and in identifying material
aspects in corporate responsibility .
The One Fortum survey and its results in terms of customer
satisfaction and reputation are presented in the section
Customer satisfaction and reputation . As part of the One
Fortum survey, we regularly survey what our stakeholders consider
to be the most important areas of sustainability .
Our stakeholder surveys
Survey
One Fortum Survey
Media tracking
Brand tracking
Target groups
Customers
General public
Public administration
Capital markets
NGOs
Opinion leaders
Personnel
Media
Media
General public and customers
Fortum Sound personnel survey
Own personnel
14
Feedback from customers
drives the development
of our products and services.
Target countries
Finland, Sweden, Norway, Poland,
Baltic countries, Russia, India
Frequency
Customer satisfaction is measured
semi-annually
Reputation is measured annually
All operating countries
Finland, Sweden, Norway, Poland,
Baltic countries
All operating countries
Daily
Continuously in Finland and
Sweden, annually in other countries
Every second year
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilitySustainability managementOur contribution to the SDGsPolicies and commitmentsGovernance and managementSustainability indexesKey sustainability topicsStakeholdersBusiness ethics and compliance Stakeholder expectations and responses to them
Stakeholders
Lenders and
shareholders
Stakeholder expectations
• Long-term value creation
• High-yield share
• Responsible operations
Customers
Personnel
Service
and goods
suppliers
Authorities
and decision
makers
• Competitively priced products
• Useful additional services and advice
• Reliability
• Equal treatment and open interaction
• Job security and incentivising compensation
• Opportunities for professional development
• Occupational safety and work wellbeing
• Good financial position and the ability to take care
of the agreed obligations
• Fair and equal treatment of suppliers
• Long-term business relations and development
of business and products/services
• Responsible operations
• Compliance
• Integration of sustainability with strategy and business, risk
management
• Transparency and reliable reporting
• Maintaining dialogue
Media
• Relevant, reliable and transparent communication
Energy sector
organisations
• Advocating on behalf of shared interests
• Dialogue and expertise
Non-
governmental
organisations
• Responsibility of operations and risk management
• Promoting renewable energy production
• Reliable and open reporting
Local
communities
• Operational safety
• Developing employment, infrastructure and recreational use
• Reducing emissions, noise and other inconveniences
Fortum’s actions
• We updated our growth strategy in 2016 and its realisation is ongoing
• We are committed to achieving our financial targets
• Our goal is to pay a stable, sustainable and over time increasing dividend of 50-80% of earnings per share excluding one-off items
• We take economic, social and environmental responsibility into consideration in our business
• With efficient operations and high-quality products, we ensure that we are competitive and our customers feel they get their money’s worth
• We develop new products and services in collaboration with customers so that we can serve them better in the evolving markets: In 2016
‘Customer in the centre’ programme
• We deliver what we promise to our customers, and we offer constantly better customer service through different channels
• We operate in line with Fortum’s Code of Conduct and values
• Our employee compensation is based on standardised principles: We renewed our compensation scheme in 2016
• We promote job rotation, career development and supervisory skills
• We improve occupational safety and work wellbeing: In 2016 we launched the Energise Your Day work wellbeing programme
• We comply with Fortum’s Code of Conduct, and with agreements, legislation and practices that are consistent with good procurement
principles
• We renewed the
supplier pre-selection process in 2016
• We manage supplier relationships in a systematic manner
• We train contractors in work safety
• We comply with laws, regulations and permits
• We develop our business and the management of environmental and safety risks: Sustainability policy and EHS instructions were
renewed in 2016
• We report ESG factors as part of the company’s value creation, and we publish our tax footprint: Fortum’s 2015 Annual Report was
awarded as the winner in the Taxpaying category and as the best in sustainability reporting in Finland according to investors
• We communicate openly and we actively engage in a dialogue with authorities and decision makers about key issues in the energy sector:
In 2016, we actively participated in the renewal work of EU’s emissions trading directive both at the EU level and nationally
• In line with our Disclosure policy, we communicate proactively and openly
• We communicate about issues of topical and media interest through multiple channels
• We meet regularly with media representatives
• We are easily accessible through the media desk and through social media
• We continuously improve our crisis communication preparedness
• We advocate our shareholders’ and the sector’s shared interests and actively participate in organisational activities in our sector:
in 2016 a favourable solution for the energy sector was achieved in Sweden in nuclear and hydropower taxation
• We publish position papers and views on energy-sector development, and we actively communicate them through multiple channels:
In 2016, we published two Fortum Energy Reviews
• We develop environmental and safety risk management
• We invest in renewable energy: In 2016, a total of EUR 223 million
• We collaborate with Finnish and Swedish nature conservation associations regarding our environmentally benign electricity products
• We communicate actively and we report openly
• We invest in infrastructure and operational safety
• We collaborate with local communities in all our operating countries: Examples of our activities in 2016
• We aim to reduce emissions and local environmental impacts
15
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilitySustainability managementOur contribution to the SDGsPolicies and commitmentsGovernance and managementSustainability indexesKey sustainability topicsStakeholdersBusiness ethics and compliance Most important concerns of stakeholders in 2016
Coal use
With the Paris Agreement on climate change, the use of coal has
become a topic of active discussion . Several countries (including
Finland) have announced their discontinuation of coal use for
energy production in the upcoming decades . Implementation of
this, however, is challenging, and a total ban may lead to claims for
compensation . The energy sector considers a ban on use as negative
for competition and for the sector’s business operations, and it
sees emissions trading as the primary mechanism for steering
energy choice .
An increasing number of investors are paying attention also
to the carbon risk of their investment targets and have initiated
actions to reduce it by, e .g ., announcing that they will divest their
holding in companies in which sales of coal-based production
exceed the investor-defined limit . Discontinuing the use of coal has
long been on the agenda of environmental and non-governmental
organisations . 4% of Fortum’s electricity production and 17% of its
heat production was based on coal in 2016 .
Biomass fuel use
Increasing the use of biomass fuels plays a central role in
achieving the EU’s climate and energy targets . The sustainability
of biomass fuels has been actively discussed in the energy
sector in recent years . In November 2016 the EU Commission
published its proposal on legislation that would extend the
current regulations on liquid biofuels to cover also solid biomass .
Fortum’s position, whereby common, binding sustainability
criteria are needed for all biomass fuels, aligns with the
Commission’s view .
Environmental organisations have expressed their concern
related to increasing the use of biomass fuels . The organisations
have put particular emphasis on the threat of forest biodiversity
degradation and the diminishing carbon sinks .
Taxes
The country-specific reporting of taxes has become an important
topic in international and national public and political
discussions . The aim of public, country-specific tax reporting is
to impact primarily so-called aggressive tax planning . Fortum has
published its tax footprint since 2012 . Our tax report has received
both praise and criticism . Our tax report has been criticised for
not containing information about all the companies in line with
the principle of materiality we apply and for including also other
taxes beyond income taxes . Fortum’s taxation has been discussed
publically also in terms of Fortum’s various tax processes .
It is important for us that our tax reporting creates an
understandable, comprehensive picture of Fortum as a tax payer .
This requires the reporting of material income taxes and also the
reporting of other non-income taxes as well as the publishing
of taxation-related principles . For the sake of transparency,
information about various tax processes of significance must
also be disclosed . We engage in dialogue with non-governmental
organisations and continuously develop reporting to improve
understandability .
16
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilitySustainability managementOur contribution to the SDGsPolicies and commitmentsGovernance and managementSustainability indexesKey sustainability topicsStakeholdersBusiness ethics and compliance Sustainability indexes
Fortum was ranked as the top company in the utilities sector
in the annual CDP (formerly Carbon Disclosure Project) Nordic
rating 2016 . Fortum scored A- (scale from D to A, A being the
highest score) . CDP represents 827 institutional investors .
Fortum is included in the STOXX Global ESG Leaders indices which
list global leaders in terms of environmental, social and governance
(ESG) criteria . The family of indices is made up of three specialised
indexes for the categories mentioned and one broad index which
sums up the specialized indexes .
Fortum is included in the ECPI® Indices . These indices are
used for benchmarking, thematic investments, risk management
purposes and to create index-tracking investment strategies or
ETF’s (Exchange-traded funds) . ECPI is a leading rating and index
company dedicated to ESG Research (Environmental, Social and
Governance) since 1997 .
German oekom research AG has awarded Fortum a Prime
Status (B-) rating . Prime Status means that Fortum is among
the best companies in its sector and fulfils industry-specific
best-in-class requirements . Oekom research AG annually
assesses about 3,000 companies .
Fortum has been included in the NASDAQ OMX and GES
Investment Service’s OMX GES Sustainability Finland index .
It provides investors with reliable and objective information about
company performance in sustainability . GES Investment Services
compares leading companies listed on NASDAQ OMX Helsinki
and their responsibility in environmental, social and governance
issues . The 40 top-ranking companies in the assessment are
included in the index .
Fortum has been integrated into the Euronext Vigeo Eurozone
120 index as of December 2016 . This index distinguishes the
120 companies in the Eurozone region achieving the most
advanced environmental, social and governance performances .
The assessment is based on a review of up to 330 indicators .
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Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilitySustainability managementOur contribution to the SDGsPolicies and commitmentsGovernance and managementSustainability indexesKey sustainability topicsStakeholdersBusiness ethics and compliance
Economic responsibility
For Fortum, economic responsibility means
competiveness, performance excellence and market-
driven production that create long-term value for our
stakeholders and enable sustainable growth. Satisfied
customers are key to our success and active consumers
will have a crucial role in the future energy system.
Fortum has indirect responsibility for its supply chain.
We conduct business with viable companies that act
responsibly and comply with the Fortum Code of
Conduct and the Supplier Code of Conduct.
18
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityEconomic responsibility Economic impacts
Fortum is a significant economic actor in Finland, Sweden,
Russia, Poland and the Baltic countries . We continuously
monitor the impact and well-being generated by our operations
to our stakeholders . The key stakeholders include lenders and
shareholders, customers, personnel, suppliers of goods and
services, and the public sector .
The most significant direct monetary flows of Fortum’s
operations come from sales revenue from customers, procurements
from suppliers of goods and services, compensation to lenders and
dividend to shareholders, growth and maintenance investments,
employee wages and salaries, and taxes paid .
Our operations also have indirect economic impacts . The
Finnish State owns 50 .8% of Fortum’s shares, and we contribute
to a functioning society by, among other things, paying taxes and
dividends . These secure society’s basic functions and build well-
being . Investments and the procurement of goods and services
provide employment both locally and outside our operating areas .
New investment proposals are assessed against sustainability
criteria . In terms of suppliers of goods and services, we also assess
the global impacts, paying particular attention to suppliers of
goods and services operating in risk countries . The wages and taxes
paid have a positive impact on local communities .
Distribution of added value
Customers
EUR 3,705 million
2015: EUR 3,517 million
Divestments
EUR 49 million
2015: EUR 55 million
Discontinued operations
EUR 0 million
2015: EUR 6,457 million
Personnel
EUR 334 million
2015: EUR 351 million
Public sector
EUR 514 million
2015: EUR 351 million
Suppliers
EUR 2,128 million
2015: EUR 1,623 million
Lenders and shareholders
EUR 1,086 million
2015: EUR 1,119 million
Capital expenditures
EUR 599 million
2015: EUR 527 million
Acquisitions of shares
EUR 695 million
2015: EUR 43 million
The discontinued operations include the total net cash flow from the divestment of the Swedish electricity distribution business in 2015,
including the proceeds from the divestment.
19
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityEconomic responsibilityEconomic impactsSupply chain managementCustomer satisfaction and reputation Monetary flows by stakeholder group in 2014–2016 (GRI G4-EC1)
EUR million
Generation of added value
Income from customers
Divestments
Purchases from suppliers
Fortum produced added value
Distribution of added value
Employees compensations
Lenders and shareholders compensations
Public sector
Distributed to stakeholders, total
Surplus/deficit cash
Capital expenditures
Acquisitions of shares
Discontinued operations 1)
Surplus/deficit including investments
and discontinued operations
Income from customers on the basis of products and services sold
and financial income.
Income from divestment of shares, business activities or plants
Payments to suppliers of raw materials, goods and services
Wages, salaries and remunerations and other indirect employee costs
Dividents paid to lenders, interest, realised foreign exchange gains
and losses and other financial expenses
Income and production taxes paid, support for society and donations
2016
2015
2014
3,705
3,517
4,309
49
-2,128
1,627
-334
-1,086
-514
-1,934
-307
-599
-695
-1,601
55
-1,623
1,950
-351
-1,119
-351
-1,821
128
-527
-43
6,457
6,015
499
-2,105
2,703
-369
-951
-455
-1,776
928
-622
-69
2,911
3,148
1) Includes the electricity distribution business divested in 2014 and 2015.
In 2016, the difference between added value generated
and distributed to stakeholders was negative,
EUR -307 (2015: 128) million .
The distribution of the economic added value generated by our
operations to the most significant operating areas is reported in
the following parts of the annual reporting:
Sales by market area based on customer location:
Financial Statements, Note 5
Employee costs by country
Tax footprint
by production type is presented in the Financial Statements,
Note 19 .2 Capital Expenditure .
Provisions related to nuclear power are covered in the Financial
statements, Note 30 Nuclear related assets and liabilities . Financial
implications and other risks and opportunities due to climate
change, as well as emissions trading are reported in the section
Climate change mitigation . Our pension arrangements conform
to the local regulations and practices in each operating country;
the arrangements are discussed in the Financial Statements,
Note 32 Pension obligations .
In 2016 we received financial support from the public sector
We have included investments in our own assessment of economic
impacts, as their annual volume and impact on the society is
significant . In 2016 we invested EUR 262 (2015: 223) million in
CO2 free energy production . Capital expenditure by country and
in the form of investments, R&D and other significant grants
totalling EUR 4 (2015: 6) million . The figure excludes free emission
allowances and electricity certificates as well as electricity and heat
price related subsidies .
20
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityEconomic responsibilityEconomic impactsSupply chain managementCustomer satisfaction and reputation Customer satisfaction and reputation
For Fortum, customer satisfaction and reputation are a top priority
in implementing the company’s strategy and in growing the
business . We have set Group-wide targets for customer satisfaction
and for our reputation .
Customer in the centre
The Group-wide Customer in the centre development programme
was launched in 2015 with the aim of promoting a customer-centric
culture in our company . The programme continued in 2016 . Our
new strategy, published in February and further defined in autumn,
also put customers in sharper focus . In conjunction with the
publication of the strategy, we launched five must-win battle (MWB)
development programmes, one of which is “Put the customer in
the centre” . The programme contains specific projects to improve
the customer experience and our offering, e .g ., by utilising the
opportunities brought by digitalisation . In our development efforts,
we are engaging in increasingly closer collaboration with our
customers .
One Fortum survey provides information
about all stakeholder groups
We use the extensive One Fortum survey to annually measure
customer and stakeholder satisfaction as well as changes in
the company’s reputation and the factors that impact it . The survey
covers customers, public administrations, capital markets, non-
governmental organisations and opinion makers as well as Fortum’s
personnel . In Finland and Sweden, we also survey the views of
the general public and media .
We conducted the survey in 2016 in Finland, Sweden, Norway,
Poland, the Baltic countries, Russia and India . Over 4,000
customers and nearly 3,300 other stakeholders were interviewed
for the One Fortum survey . In addition, we added a new component
to our research side: in autumn we conducted a follow-up survey
among customers so that we can indentify our customers’ changing
needs even faster . We also monitor other publically available
research sources, but we define Group targets and our identified
development areas on the basis of the One Fortum survey results .
Customer satisfaction
In the annual survey conducted in spring 2016, our customer
satisfaction remained very stable in virtually all customer segments .
The autumn follow-up survey brought slightly more changes, as
satisfaction among electricity sales customers in Sweden, particularly
in the consumer side, was clearly slipping . However, at the same
time, we succeeded in increasing the satisfaction among district
heat business customers in several countries – and in Finland and
Lithuania we achieved our best-ever result . Our customer satisfaction
is at a good level in most countries and customer segments .
Our Group-level target for all business areas is to achieve a
Fortum survey . Customer satisfaction in 2016 was at a good level
in all business areas, except electricity sales to business customers .
The results of the One Fortum survey clearly indicate that these
days customers are looking for advice and additional services
related to their energy use .
Other public customer satisfaction results
The international and independent EPSI Rating annually surveys
the level of satisfaction of electricity retail company customers in
Finland, Sweden and Norway . Our customer satisfaction dropped
in all three countries, particularly in Sweden .
In 2016 a customer satisfaction survey using the same format
was conducted for the first time in Ekokem in all operating
countries . Ekokem’s overall rating in the survey was 4 .1 on a scale
of one to five; this result is considered as good .
Customer satisfaction 1) in 2014–2016 (GRI G4-PR5)
Finland
Sweden
Norway
2016
73
53
73
2015
75
64
76
2014
74
63
70
customer satisfaction rating of “good”, i .e . 70–74, in the One
1) EPSI research method in Finland and Norway; Svenskt Kvalitetsindex in Sweden
21
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityEconomic responsibilityEconomic impactsSupply chain managementCustomer satisfaction and reputation
Reputation
Our reputation is strongest among public administration, opinion
makers and nongovernmental organisations . Among the latter
group, our reputation index grew significantly compared to the
previous year . The biggest drop occurred in the capital markets
stakeholder group, where our reputation index fell to the same
level as the rating given by media . Our reputation continues to be
weakest among the general public . Based on the survey results,
we should continue our efforts to improve social responsibility and
customer centricity .
The Group-level target for our reputation in 2016 was a rating of
72 .0 in the One Fortum survey, measured as the average rating
given by public administration, opinion makers, nongovernmental
organisations, and personnel . In 2016, we achieved a rating of
72 .5 among these stakeholder groups . The target set for 2017
(70 .7) includes the above-mentioned stakeholder groups as well as
the opinions of representatives of media, capital markets and the
general public . The reference value is the reputation index (69 .7)
given by these stakeholder groups for 2016 . Rankings given by
customers are not included in the reputation index calculation,
because we treat customer satisfaction as a separate entity .
Brand
In addition to our reputation, we also monitor brand development,
i .e . what impression the general public has about our brand . The
survey includes the measurement of e .g ., recognition, preference
and brand attributes . Fortum is very well recognised in Finland,
but less so in our other operating countries; we are working to
boost our recognition . At the same time, our aim is to change our
brand image and to enhance our attractiveness among various
stakeholder groups .
Stakeholders
67–79
Customer satisfaction
Target: good (70–74)
72.5
Reputation
Target: 72.0
22
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityEconomic responsibilityEconomic impactsSupply chain managementCustomer satisfaction and reputation Supply chain management
Fortum is a significant purchaser of goods and services . We
actively strive to reduce the environmental impacts caused by our
operations and to improve economic and social wellbeing . We also
manage risks related to our supply chain . The aim is that open and
efficient collaboration creates value for both parties .
Fuel purchases and investments in a significant role
Fortum’s purchasing volume in 2016 was EUR 2 .5 (2015: 2 .2)
billion . Fuel purchases, investments, and electricity purchased
by the Electricity Sales business area from the Nordic wholesale
electricity market for retail sales accounted for the majority of
Fortum’s purchases .
Fortum’s fuel purchases in 2016 totalled EUR 531 (2015: 567)
million . We purchase fuels from international and local suppliers .
Our fossil fuel purchases totalled about EUR 454 (2015: 482)
million, biomass fuels about EUR 39 (2015: 46) million, and nuclear
fuel about EUR 38 (2015: 39) million .
Of our purchases, EUR 599 (2015: 527) million targeted various
investments . The biggest investments, EUR 214 million, were made
in Russia . A large share of the investments are contracted out in full
with materials, installation and other service as well as contractor
work included in the total purchase .
The rest of our purchases, EUR 1 .4 (2015: 1 .1) billion, consist of
other goods and services . The figure includes electricity purchased
by the Electricity Sales business area from the Nordic wholesale
electricity market for retail sales . The other goods and services
purchases were related to operation and maintenance as well as to
other functions, such as IT solutions, marketing and travel .
Purchases, EUR million
Purchases 1) excluding investments in 2014–2016
Investments, 599
Fuels, 531
Other purchases, 1,412
EUR million
Nordic countries
Russia
Poland
Estonia
Other countries
Total
2016
1,106
505
279
26
27
1,943
2015
935
546
138
26
32
1,677
2014
1,017
670
141
29
123
1,980
1) Includes purchases of fuel, power and other materials and services.
Half of purchases from Europe
About half, i .e . 52%, of the purchasing volume was purchased
from suppliers operating in Europe, mostly in Finland, Sweden and
Poland . This does not include electricity purchases from the Nordic
wholesale market . 46% of Fortum’s purchases were from risk
countries . The majority of these purchases were from Russia .
Violations related to work conditions and human rights are
more likely in risk countries than in non-risk countries . Fortum’s
risk-country classification is based on the ILO’s Decent Work
Agenda, the UN's Human Development index and Transparency
International's Corruption Perceptions index .
In 2016 we had about 15,000 (2015: 9,700) suppliers of goods
and services . The increase in the number of suppliers was impacted
by Fortum’s acquisition of Ekokem and DUON . About 1,600 of the
suppliers were in risk countries . Excluding the Russia Division’s
local suppliers, there were about 270 suppliers in risk countries .
Sustainable fuel purchasing
The most significant environmental impacts of our supply chain
are related mainly to fuels, particularly to coal and biomasses .
There are significant environmental aspects associated with open-
pit coal mining, including natural resource efficiency, emissions
to air, water and soil, and impacts on biodiversity . Significant
occupational health and safety risks can be related to working
in underground mines . The sustainability aspects of biomass
sourcing are related primarily to biodiversity, but risks particularly
outside the EU can also include, for instance, illegal logging or
human rights violations .
In fuel purchasing, special attention is paid to the origin of the
fuel and to responsible production . In 2016 we had 170 suppliers in
our fuel supply chain, 6% of them operated in risk countries .
23
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityEconomic responsibilityEconomic impactsSupply chain managementCustomer satisfaction and reputation
Origin of fuels used at Fortum in 2016 1)
Fuel
Biomass
Coal
Natural gas
Uranium
Oil
Peat
Country of origin
Finland, Russia, the Baltic countries, Poland
Russia, Kazakhstan, Poland
Russia, Poland
Russia
Russia
Finland, Estonia
1) The biggest countries of origin in 2016
Natural gas
The natural gas used in Russia, the Baltic countries and Finland
originated from several suppliers in Russia . The natural gas used in
Poland was purchased mainly from Poland .
Coal
The coal used in Finland originated from Russia . The coal used in
Poland originated mainly from Poland . The power plants in Russia
used coal originating from Russia and Kazakhstan .
In Finland, we have a legal obligation to have an amount of
fuels in reserve equivalent to three months of average electricity
production . There are no similar legal obligations in other
countries, but we do maintain sufficient reserves for uninterrupted
energy production in all countries where we operate .
Fortum is a member of the Bettercoal initiative, and uses the
Bettercoal Code and tools in assessing the sustainability of the coal
supply chain .
Biomass
The biomass we used consisted mainly of forest residue chips, chips
from roundwood and industrial wood residues that originated from
Finland, Russia, the Baltic countries and Poland . About 60% of the
forest biomass used by Fortum in 2016 originated from certified,
sustainably managed forests or from the sphere of the FSC
Controlled Wood system . The share was over 80% in Finland .
Our goal in 2016 was to define minimum requirements related
to legality and traceability for wood-based biomass and to set a
target for increasing the share of certified forest biomass . As the
work advanced, we decided to combine these two goals, and in
2017 we will examine the opportunity to apply for Chain of Custody
certification for the Fortum’s wood-based biomass purchases .
The bio-oil plant integrated with Fortum’s Joensuu power
plant has a sustainability system approved by The Finnish Energy
Authority . The system is used to prove compliance with nationally
legislated sustainability criteria for bio-oil .
Uranium
The fuel assemblies used at the Loviisa power plant in Finland
are completely of Russian origin . The fuel supplier acquires
the uranium used in the fuel assemblies from Russian mines
in accordance with Fortum’s agreement . In 2016, the uranium
originated from the Krasnokamensk, Khiagda and Dalur mines .
Both ARMZ Uranium Holding Co ., a uranium producer,
and TVEL, which is responsible for refining and manufacturing
uranium, have environmental and occupational safety systems in
place in all their plants . All three uranium mines have ISO 14001
environmental certification . The Khiagda mine has also an
OHSAS 18001 certified occupational health and safety management
system . The zirconium material manufacturing plant and the plant
responsible for manufacturing uranium oxide pellets and fuel
assemblies have ISO 14001 environmental management system
certification and OHSAS 18001 occupational health and safety
management system certifications .
We regularly assess the quality, environmental, and occupational
health and safety management systems of our nuclear fuel suppliers
and the manufacturing of nuclear fuel assemblies . In summer
2016 Fortum’s representatives assessed the operations of Fortum’s
Russian fuel supplier’s uranium enrichment plant . The plant was
in good condition technically, and its quality, environmental,
occupational health and safety management systems were certified .
Fuel consumption 2016
Sustainable supply chain
We expect our business partners to act responsibly and to comply
with the Fortum Code of Conduct and the Supplier Code of
Conduct . Fortum’s key tools in supply chain management are
country and counterparty risk assessments, pre-selection of
suppliers and supplier audits .
Codes of conduct cover basic requirements
The Fortum Code of Conduct forms the foundation for ethical
business conduct and defines how we treat others, engage in
business, and safeguard our corporate assets .
The Supplier Code of Conduct includes the sustainability
requirements for suppliers of services and goods . The Supplier
Code of Conduct is based on the principles of the United Nations
Global Compact initiative and is divided into four sections: business
practices, human rights, labour standards, and the environment .
The country and counterparty risk assessment follows the same basic
structure with regards to sustainability, and addresses issues like the
implementation of the guiding principles of human rights .
The Supplier Code of Conduct is used in all our countries of
operation and is included in all purchase agreements exceeding
EUR 50,000 . The Supplier Code of Conduct was updated at the end
of 2014; by publication date of this report, the training related to
the updated Supplier Code of Conduct had been held in all our
operating countries, except Norway and Russia .
24
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityEconomic responsibilityEconomic impactsSupply chain managementCustomer satisfaction and reputation Pre-selection of suppliers
We assess the level of operations of our business partners through
pre-selection and supplier audits . The pre-selection process was
renewed during the spring 2016 . The related training has been
arranged in all our operating countries, except Poland and Russia .
In Poland the training will be held in spring 2017 . The pre-selection
process will be taken into use in Ekokem’s procurements during
autumn 2017 .
The pre-selection is made whenever the purchase volume
exceeds EUR 50,000 . During the first phase of the pre-selection,
the credit check is made, and the supplier is sent a short written
questionnaire . The questionnaire surveys the supplier’s possible
operations in risk countries, certified management systems, and
the occupational safety level of the contractors . We pay special
attention also to anti-corruption practices .
If potential risks in the supplier’s operations are identified
through the questionnaire, a more extensive self-assessment
questionnaire may be sent or a supplier audit is conducted . The
extensive self-assessment questionnaire is always sent to fuel
suppliers and the suppliers of Fortum India .
The Russia Division uses its own supplier pre-selection process .
Pre-selection is done in accordance with Russian procurement law,
and bidding is open to all companies . In the Russian operations, we
set supplier requirements for business principles and ethics .
Supplier audits support assessments
In supplier audits, we assess the supplier’s compliance with the
requirements in Fortum’s Supplier Code of Conduct . Audits are
always done on-site, and they include production inspections,
employee interviews, and reviews of documents . If non-
compliances are found, the supplier makes a plan for corrective
actions and we monitor the implementation of them .
In 2016 we signed an agreement for an external service provider
to conduct supplier audits; the first audit performed by an external
actor was carried out in December . By collaborating with an
international auditing company, we aim to utilise the expertise of
the local auditors and, if necessary, increase the number of audits .
Fortum’s personnel will also continue to conduct supplier audits,
especially in Fortum’s own operating countries .
During the year we audited a total of 13 (2015: 9) suppliers in
China, India, Russia, Poland, Latvia, Lithuania and Finland . Our
goal in 2017 is to audit 20 suppliers .
In 2016, most of the non-compliances identified in the audits
were related to occupational safety, overtime hours, remuneration,
and management of the suppliers’ own subcontractors . The audits
conducted did not reveal non-compliances related to freedom
of association, discrimination, or child or forced labour, but we
issued a recommendation to a Chinese supplier to strengthen its
practices to prevent the potential use of child labour and to ensure
the non-discrimination of employees in the recruiting process .
Recommendations given in environmental issues are related to
the establishment of environmental systems and the defining of
environmental targets .
Fortum uses the Bettercoal Code and tools in assessing the
sustainability of the coal supply chain . Bettercoal audits are always
conducted by a third, accredited party . In 2016, one of Fortum’s
Polish coal supplier was audited . One of Fortum's Russian coal
suppliers was audited in 2015 .
Suppliers audited in 2016 by supplier type
Fuels, 6
Materials, 4
Contractors, 2
Services, 1
Suppliers audited in 2016 by country
India, 4
Russia, 3
China, 2
Poland, 1
Latvia, 1
Lithuania, 1
Finland, 1
25
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityEconomic responsibilityEconomic impactsSupply chain managementCustomer satisfaction and reputation Environmental responsibility
Fortum's aim is to provide our customers with
environmentally benign products and services.
We strive to continuously reduce the environmental
impacts of our operations by using best available
practices and technologies. We emphasise a circular
economy, resource and energy efficiency, the use of
waste and biomass, and climate change mitigation in
environmental responsibility.
Our company's know-how in carbon dioxide-free hydro
and nuclear power production and in energy-efficient
combined heat and power production, investments in
solar and wind power, as well as solutions for sustainable
cities play a key role in environmental responsibility.
26
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityEnvironmentalresponsibility Environmental impacts
Some of the environmental impacts of energy production are global
or wide-reaching, some are regional or local . In terms of Fortum’s
operations, the key environmental aspects include:
• Climate change
• Use of renewable energy sources
• Circular economy
• Flue-gas emissions
• Hydropower’s environmental impacts and biodiversity
• Fuel procurement
Climate change mitigation
We can reduce our greenhouse gas emissions by increasing carbon
dioxide-free energy production and the use of renewable energy
sources, and improving energy efficiency of production . 62% of the
total electricity we produced in 2016 was carbon dioxide-free . We
made several investment decisions that will significantly grow our
wind and solar power production in the years ahead .
Circular economy boosts resource efficiency
We recycle significant amounts of waste and energy production
by-products generated in our operations . Additionally, our
circular economy services separate from municipal waste streams
substances that can be utilised as materials and for energy
production .
The continuous improvement of resource and energy efficiency
is important in terms of the sufficiency of natural resources and
climate change mitigation . In improving the energy efficiency
of our own production, we have gained expertise that we have
put to use in providing energy efficiency services to other energy
companies .
Advanced combustion technology
Fuel use generates sulphur dioxide, nitrogen oxide and particle
emissions that degrade air quality and cause acidification of soil
and water systems . These emissions can be effectively reduced
with various flue-gas cleaning technologies . Special expertise
in combustion technology is one of Fortum’s strengths, and
we have supplied our own power plants and many other energy
companies with combustion technology solutions to reduce
nitrogen oxide .
Mitigation of hydropower’s environmental impacts
Damming rivers and regulating water systems change the natural
water levels and discharges and cause changes in aquatic habitats .
We actively take part in research activities in the sector and
implement voluntary and permit-based measures to develop the
biodiversity, fish populations and the multi-use of water systems
where we produce hydro power .
Environmental impacts by production form
New combined heat and power plant in Zabrze, Poland
2016 marked the beginning of an intensive construction phase for Fortum's new combined
heat and power (CHP) plant in Zabrze, Poland. The plant is planned to start commercial
operations by the end of 2018, providing district heating to some 70,000 households in
Zabrze and Bytom. The new plant has a capacity of max 75 MW electricity and 145 MW
heat and will replace two coal-fired units from the 1950s.
The plant will be primarily fuelled by refuse-derived fuel (RDF) and coal, but it can also
use a mixture of fuels and, with a small additional investment, biomass. The amount of
RDF can be up to 40% of the total fuel usage. The investment is expected to significantly
improve the efficiency of operations and to reduce carbon dioxide and other emissions,
such as nitrogen and sulphur oxide emissions. The new power plant complies with high
environmental standards and with principles of best available techniques.
New technical solutions significantly reduce the workers’ exposure to harmful conditions
and decrease the probability of accidents at work for own personnel and contractors.
More than 300 contractors’ employees work at the construction site every day. About
2,000 workers have received safety training. Thanks to the high safety standards and
excellent cooperation between Fortum and the contractors, there has been only one
minor accident over the course of 420,000 working hours.
27
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityEnvironmentalresponsibility Environmental key figures
The table and graphs present our key targets
and figures for environmental responsibility .
Specific carbon dioxide emissions of Fortum’s total
energy production in 2014–2016
g/kWh
220
200
180
160
140
120
100
80
60
40
20
0
Key figures for environmental responsibility
Carbon dioxide emissions (Scope 1), million tonnes
Sulphur dioxide emissions, tonnes
Nitrogen oxide emissions, tonnes
Particle emissions, tonnes
Specific CO2 emissions of power generation, g/kWh
Specific CO2 emissions of power generation in the EU, g/kWh
Specific CO2 emissions of total energy production, g/kWh
5-year average, g/kWh
Share of CO2-free energy in power generation, %
Share of renewable energy in power generation, %
Share of renewable energy in heat production, %
Energy efficiency improvement, GWh/a
Utlisation of gypsum originated from energy production, %
Uilisation of ash originated from energy production, %
Waste reused as material, t
Water withdrawal, million m3
of which cooling water, million m3
Major EHS incidents, pcs
of which environmental permit violations, pcs
ISO14001-certified operations in power and heat production, % of sales
* Figures revised for reporting in 2015.
2016
18.6
22,500
26,000
16,800
173
28
184
188
62
30
7
245
100
37
66,000
2,322
2,228
22
11
99.9
2015
19.2
19,900
26,800
17,800
166
21
181
191
64
34
8
479*
100
33
2,138
2,060
18
14
99.9
2014
20.3
20,400
28,700
21,300
177
39
189
198
64
32
6
559*
100
34
2,186
2,094
27
15
99.9
Annual energy savings achieved in 2014–2016
Number of major EHS incidents in 2014–2016
GWh/a
1,600
1,400
1,200
1,000
800
600
400
200
0
pcs
40
35
30
25
20
15
10
5
0
2014
2015
2016
2017
2014
2015
2016
2017
2014
2015
2016
2017
Annual specific emissions
Specific emission (5-year average)
Target (5-year average)
Cumulative energy savings
Target (year 2020)
Number of major EHS incidents
Target
28
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityEnvironmentalresponsibility Sustainable energy production
Our energy production is based primarily on carbon dioxide-free
hydro and nuclear power and on energy-efficient combined heat
and power production . In line with our strategy, we are targeting a
gigawatt-scale solar and wind portfolio .
Fortum’s power generation in 2016 was 73 .1 (2015: 75 .9) TWh
and heat production 27 .8 (2015: 32 .2) TWh . 62% (2015: 64%) of our
power generation was carbon dioxide-free and 30% (2015: 34%)
was produced from renewable energy sources . About 7% (2015: 8%)
of our heat production was produced from renewable, carbon-free
energy sources .
Power generation and heat production by energy source are
presented in the accompanying tables . The tables have been
consolidated in accordance with the boundaries applied in
financial reporting . The figures for power generation include also
production shares in the hydro, wind and nuclear power plants of
associated companies .
New, energy-efficient production capacity
In Russia, the second new CHP unit at the Chelyabinsk GRES
power plant was completed in March 2016 . Fuelled by natural gas,
its electricity production capacity is 248 MW and heat production
capacity 174 MW . The first power plant unit of the same size was
completed in late 2015 .
In Russia, the modernisations of the Nyagan GRES power
plant’s second unit increased production capacity by about 30 MW
in autumn 2016 . Similar modernisations of the first unit were
completed in autumn 2015 .
Construction of the new multi-fuel CHP plant in Zabrze, Poland
continued, and the plant is scheduled for completion in 2018 .
In Russia and Poland, investments will improve the efficiency of
electricity and heat production and reduce carbon dioxide and other
emissions into the environment with relation to produced energy .
Refurbishments of hydropower plants in Sweden and Finland
introduced 9 .5 MW of new, renewable electricity production
capacity . Two high-pressure turbines at the Loviisa nuclear power
plant were replaced during the 2016 annual outage and, together
with smaller improvements made, increased the electricity capacity
by 12 MW .
The 13-MW district cooling project was started in Tartu,
Estonia .
Power generation by energy source
in 2014–2016 (GRI G4-EN3)
Heat production by energy source
in 2014–2016 (GRI G4-EN3)
TWh
Hydropower
Nuclear power
Natural gas
Coal
Biomass fuels
Waste-derived fuel
Other 1)
Total
1) Wind, solar, peat, other
2016
20.7
24.1
24.3
2.8
0.8
0.2
0.2
73.1
2015
25.0
22.7
24.1
2.9
0.8
0.1
0.3
75.9
2014
22.3
23.8
22.5
3.6
0.9
0.0
0.3
73.4
TWh
Natural gas
Coal
Biomass fuels
Waste-derived fuel
Heat pumps, electricity
Peat
Fuel oil
Total
2016
19.7
4.7
1.9
0.8
0.3
0.4
0.0
27.8
2015
24.2
5.0
2.0
0.4
0.3
0.3
0.1
32.2
2014
26.7
5.1
2.0
0.3
0.1
0.3
0.1
34.6
29
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityEnvironmental responsibilityImproving energy efficiencyClimate change mitigationWater useEnvironmental non-compliances and incidentsWaste and by-productsSustainable energy productionEmissions into airBiodiversityCircular economy Energy production from waste
Fortum acquired the Nordic circular economy company Ekokem Corporation in August 2016 .
The circular economy business is specialised in waste and material treatment, recycling and combustion,
final disposal solutions, soil remediation and environmental construction services .
Fortum’s new circular economy business operates hazardous waste treatment and combustion
facilities in Finland, Sweden and Denmark . The waste-to-electricity capacity in Riihimäki, Finland, is
18 MW and heat production capacity 90 MW, in Kumla, Sweden, 9 MW and 35 MW, respectively, and in
Nyborg, Denmark, 16 MW and 19 MW .
More solar energy
Fortum currently has 15 MW of solar capacity in India . Two solar energy projects were launched in India
in 2016: the 70-MW Bhadla solar power plant in Rajasthan and the 100-MW Pavagada solar power plant
in Karnataka . The projects are expected to be completed in 2017 . In addition to the large-scale solar
energy plants in India, Fortum offers its customers solar energy kits in the Nordic countries .
More wind power
Fortum invested actively in wind power in 2016 . At the Blaiken wind farm, 22 .5 MW of capacity was
commissioned, and Fortum's share of ownership was 3 .4 MW .
Energy production (on our website)
Decided investments in wind power
Wind farm
Blaiken
Solberg
Nygårdsfjellet
Ånstadblåheia
Sørfjord
Ulyanovsk
Country
Sweden
Sweden
Norway
Norway
Norway
Russia
Capacity, MW
247.5
75
32
ca. 50
ca. 90
35
Share of
ownership, %
15
50
100
100
100
100
Commissioned
2012-2016
2018 expected
2006, 2011
2018 expected
2019 expected
2017 expected
Solar power is proceeding in India
Fortum is targeting a gigawatt-scale wind and solar power portfolio. India is the first
country we have decided to enter in solar power, as the country offers one of the best
solar resources and sound government support for the development of the solar sector.
Fortum's ongoing projects will generate about 370 GWh annually and in total will reduce
carbon dioxide emissions by 350,000 tonnes.
The 70-MW project in Bhadla, Rajasthan, is being executed by Tata Power Solar, which
was selected following Fortum’s supplier pre-selection process. Both a desk review of
Tata’s practises as well an audit of its ongoing construction site were carried out to see
how Tata would comply with Fortum’s requirements. After the work was awarded, both
Tata Power Solar’s and Fortum’s top management participated in person at the project’s
kick-off meeting in India to emphasise the importance of safety and good working
conditions for Fortum.
This project has set an example for good working and living conditions in India: proper
employee facilities with kitchen and hygiene stations are provided to the construction
employees as well as drinking water and shelters from the sun and heat during employee
breaks. The site’s EHS procedures are very robust with good access control and training,
visual materials and safety talks, as well as supervision and observations with safety walks.
30
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityEnvironmental responsibilityImproving energy efficiencyClimate change mitigationWater useEnvironmental non-compliances and incidentsWaste and by-productsSustainable energy productionEmissions into airBiodiversityCircular economy based on gas turbine technology, which represents the best
available technology in natural gas combustion . 62% (2015: 64%)
of our total electricity production was carbon dioxide-free .
The following projects, among others, directly or indirectly
reducing carbon dioxide emissions were completed in 2016:
• Refurbishment of Chelyabinsk CHP-3 unit’s gas turbine in Russia
• Replacement of two high-pressure turbines at Loviisa nuclear
mixture for combustion . In 2016, bedding-manure mixture was
collected from about 80 horse stables in southern Finland . Fortum
combusts the bedding-manure mixture at the Järvenpää CHP plant,
and it was delivered also to other energy companies .
The Joensuu bio-oil plant produced bio-oil, of which majority
was used in a heat plant at Joensuu power plant area and at the
Vermo heat plant in Espoo, Finland .
Climate change mitigation
Our vision – For a cleaner world – defines our ambition to move
towards a low-emission energy system and optimal resource
efficiency . Our main tools in climate change mitigation are
increasing renewable energy production, improving energy
efficiency and providing smart energy solutions for our customers .
Climate change is a threat and an opportunity
We believe that our know-how in carbon dioxide-free hydro,
nuclear, wind and solar energy, and in energy-efficient CHP
production will prove to be a competitive advantage for the
company . We expect the concern about climate change to increase
the demand for low-carbon and energy-efficient energy products
and solutions . Our developing circular economy services also
meet this demand, as the use of non-recyclable waste in energy
production replaces fossil fuel and reduces the formation of
greenhouse gases at landfills .
power plant in Finland
• Refurbishments of hydropower plants in Sweden and Finland
• Optimisation of energy production and a new thermal energy
storage at Suomenoja power plant in Finland
• Replacement of the heavy fuel oil with wood pellets at the
Kivenlahti heat plant in Espoo, Finland
•
Implementation of new district cooling in Tartu, Estonia
We have calculated that these projects will reduce annual carbon
dioxide emissions by about 48,000 tonnes .
Our operations are exposed to physical risks caused by climate
Sustainable energy production section describes the power
change, including changes in weather patterns that could alter
energy demand and, for instance, hydropower production volumes .
Higher precipitation and temperatures may affect hydropower
production, dam safety, and bioenergy supply and availability .
In addition to climate change mitigation, we are also adapting our
operations to the changing climate and taking it into consideration,
for example, in production planning and in evaluating growth
projects .
Towards low-emissions production
In Europe, we produce carbon dioxide-free electricity with hydro,
nuclear and wind power and at combined heat and power (CHP)
plants that utilise biomass, bio liquids and waste-derived fuels .
In the EU area, 96% (2015: 97%) of our electricity production was
carbon-free in 2016 . The rest of the electricity was produced mainly
with coal . We produce solar power in India .
Our electricity production in Russia is based entirely on fossil
fuels, mainly on natural gas . Our new plant units in Russia are
plants under construction and the decided new power plant
projects .
Climate-benign products and services
We offer our customers a range of energy products and services to
help them improve their energy efficiency and reduce their carbon
footprint:
• CO2-free electricity products
• Real-time monitoring and optimisation of electricity consumption
• Solar panel kits
• Electric vehicle charging systems
We are expanding our offering also by investing in startups that
are developing new technologies . For example, in 2016 we invested
in Chempolis, a company developing biorefining technology in
Finland, and Exeger, a company developing innovative solar cell
solutions in Sweden .
Fortum HorsePower is a service concept in which Fortum
delivers bedding to horse stables and picks up the bedding-manure
31
Emissions trading
Over 88% of carbon dioxide emissions from our energy production
in Finland, Poland and the Baltic countries is within the sphere of
the EU’s emissions trading scheme . We had a total of 45 (2015: 48)
plants in four member countries within the EU’s emissions trading
scheme in 2016 . Fortum was granted free emission allowances
corresponding to 1 .0 (2015: 1 .3) million tonnes in 2016 . Our carbon
dioxide emissions within the EU’s emissions trading scheme
were 2 .7 (2015: 2 .1) million tonnes . So, in terms of the emissions
allowances, we had a deficit and had to purchase the shortfall of
emissions allowances from the markets .
Fortum’s view is that emissions trading is the most cost-efficient
way to achieve emissions targets . In our view, the Emissions
Trading Scheme (ETS) as a mechanism has functioned as planned,
and it should be the key means for realising the EU climate targets
also in the future . A revision of the EU’s emissions trading directive
for 2021-2030 was reviewed by the Parliament and the Commission
in 2016, and the directive is expected to be approved during 2017 .
We also want to promote the establishment of a global carbon
pricing and carbon market . Fortum has signed the Carbon Price
Communiqué, an international business statement for setting
a price on carbon emissions . We also participate in several
international business initiatives promoting the role of business in
climate change mitigation . These include the UN Global Compact’s
Caring for Climate initiative and the World Bank’s Carbon Pricing
Leadership Coalition initiative . In Finland, Fortum is a member
of the Climate Leadership Council .
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityEnvironmental responsibilityImproving energy efficiencyClimate change mitigationWater useEnvironmental non-compliances and incidentsWaste and by-productsSustainable energy productionEmissions into airBiodiversityCircular economy Carbon funds
Fortum is a participant in the international Prototype Carbon Fund
(PCF) climate fund . In 2016, we received a total of about 10,000 CER
emission reduction units from this fund . So far, we have received
a total of 1,250,000 emission reduction units, and we estimate
that we will still receive about 145,000 units during the PCF’s
operating period .
Fortum’s position on the development of the EU climate policy
Greenhouse gas emissions
Our greenhouse gas emissions in 2016 totalled 23 .6 (2015: 24 .1)
million tonnes . Scope 1 emissions were 18 .8 million tonnes, Scope
2 emissions 0 .1 million tonnes, and Scope 3 emissions 4 .7 million
tonnes .
Greenhouse gas emissions are reported on a pro forma basis and
the figures of the comparison years have not been adjusted because
of partially insufficient data . We have estimated that, taking
the divestment of the Tobolsk power plant into consideration,
greenhouse gas emissions from continuing operations increased in
2016 by about 2 .5 million tonnes as a result of the commissioning
of the Chelyabinsk GRES power plant’s new units, the Meri-Pori
power plant’s increased condensation power production, and the
acquisition of Ekokem .
Direct greenhouse gas emissions – Scope 1
The majority of our greenhouse gas emissions was generated from
the use of fossil fuels in electricity and heat production . A small
amount of emissions is generated from the use of company vehicles
and leaks related to the natural gas distribution .
Our direct greenhouse emissions were 18 .8 (2015: 19 .3) million
CO2-equivalent tonnes . The share of carbon dioxide from our direct
greenhouse gas emissions was 99% . The share of direct greenhouse
gas emissions from our total greenhouse gas emissions was 79% .
Of the direct carbon dioxide emissions, 83% (2015: 89%)
originated from the Russian operations and 10% (2015: 7%) from
Finland . Fortum’s direct biogenic carbon dioxide emissions were
1 .3 (2015: 1 .3) million tonnes .
The calculation of greenhouse gas emissions covers carbon
dioxide (CO2), methane (CH4), nitrous oxide (N2O), fluorinated
hydrocarbons (HFCs) and SF6 . Carbon dioxide emissions as well
as methane and nitrous oxide emissions have been calculated
on the basis of plant-specific fuel data . The amounts of HFC
compounds and SF6 are reported on the basis of the amounts of
gas added to the equipment . Specific emission factors of gases are
based on IPCC publications .
Indirect greenhouse gas emissions – Scope 2
Greenhouse gas emissions from the production of electricity
purchased for our own use were 95,500 (2015: 85,400) tonnes of
carbon dioxide-equivalent . Carbon dioxide emissions accounted
for 99 .5% of this . The share of Scope 2 greenhouse gas emissions of
our total greenhouse gas emissions was 0 .4% .
estimated on the basis of country-specific breakdowns of electricity
production because electricity supplier-specific greenhouse gas
emissions data was not received from Russia in particular .
Other indirect greenhouse gas emissions – Scope 3
The majority of our Scope 3 emissions are caused by the production
and transportation of fuels, the purchases of goods and services,
and investments . The transportation of customer waste also creates
greenhouse gas emissions . Other activities (e .g . employee travel
and waste management) account for less than 1% .
Our Scope 3 greenhouse gas emissions in 2016 were an estimated
4 .7 (2015: 4 .7) million tonnes . The share of Scope 3 emissions was
20 .1% of our total greenhouse gas emissions . We estimate that all
our Scope 3 greenhouse gases come from fossil energy sources .
We report Scope 3 greenhouse gas emissions in accordance
57% of Scope 2 emissions have been estimated on the basis of
information received from electricity suppliers . The rest has been
with the requirements of the Corporate Value Chain (Scope 3)
Accounting and Reporting standard . The volumes describing
Direct greenhouse gas emissions
in 2014–2016 (GRI G4-EN15)
Indirect greenhouse gas emissions
(Scope 2) in 2014–2016 (GRI G4-EN16)
Mt CO2-eq
CO2
CH4
N2O
HFCs
Total
2016
18.6
0.01
0.17
0.00
18.8
Direct carbon dioxide emissions by
country in 2014–2016 (GRI G4-EN15)
million t
Finland
Russia
Poland
Other countries
Total
2016
2.0
15.5
0.8
0.3
18.6
32
2015
19.2
0.01
0.14
0.00
19.3
2015
1.3
17.0
0.8
0.1
19.2
2014
20.3
0.01
0.15
0.00
20.5
2014
2.2
16.7
0.8
0.6
20.3
2015
2014
85,003 135,505
57
389
85,400 136,000
52
344
t CO2-eq
CO2
CH4
N2O
Total
2016
95,000
76
375
95,500
Indirect greenhouse gas emissions
(Scope 3) in 2014–2016 (GRI G4-EN17)
t CO2-eq
Fuel procurement
Purchased goods and
services
Capital goods
Other activities
Total
2016
2014
4,347,900 4,557,000 4,800,000
112,000
233,700
83,000
2015
142,700
17,500
51,000
21,000
4,741,800 4,708,000 4,984,000
50,000
18,000
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityEnvironmental responsibilityImproving energy efficiencyClimate change mitigationWater useEnvironmental non-compliances and incidentsWaste and by-productsSustainable energy productionEmissions into airBiodiversityCircular economy the scope of the various activities have been obtained from our
monitoring and reporting system .
About 20% (2015: 37%) of the purchases were excluded from the
purchasing categories defined by Fortum’s Procurement function,
due to insufficient reporting . The emissions for these are estimated
with the average emissions factor of the specified purchasing
categories . The specific emission factors used in calculating the
greenhouse gas emissions are based on different literature sources .
Specific carbon dioxide emissions
Our specific carbon dioxide emissions (Scope 1) from total energy
production were 184 (2015: 181) g/kWh . The five-year average,
including 2016, was 188 (2015: 191) g/kWh, which is below the
target of 200 g/kWh .
Our specific carbon dioxide emissions (Scope 1) from power
production in the EU were 28 (2015: 21) g/kWh . The specific
carbon dioxide emissions from our power production, measured as
gCO2/kWh, are low compared to other European power producers .
Our specific emissions in 2015 were about 7% of the 311 g/kWh
average specific emissions of major European utilities .
Including our Russian power production, our specific emissions
in 2016 were 173 (2015: 166) g/kWh . Our specific emissions in 2015
were about 54% of the average level of European utilities . European
reference data for 2016 is not yet available .
188 g/kWh
Specific CO2 emissions,
5-year average
Target: <200 g/kWh
The boundary for electricity production’s specific carbon
dioxide emissions differs from other environmental reporting .
Fortum’s production shares in associated companies are also
included . This production is based on hydro, wind and nuclear
power and doesn’t cause direct carbon dioxide emissions .
In the calculation of electricity production’s specific emissions,
CHP plant emissions have been allocated for electricity and
heat using the efficiency method presented in the Greenhouse
Gas Protocol guidelines, with heat production efficiency of 90%
and electricity production efficiency of 40% .
Specific carbon dioxide emissions of Fortum’s total
energy production in 2014–2016 (GRI G4-EN18)
g/kWh
220
200
180
160
140
120
100
80
60
40
20
0
2014
2015
2016
2017
Annual specific emissions
Specific emission (5-year average)
Target (5-year average)
Specific CO2 emissions of major utilities in Europe, g CO2/kWh electricity, 2015
1 200
1 000
800
600
400
200
0
I
E
D
E
W
R
x
a
r
D
E
S
S
Z
E
C
N
O
E
.
Average 311 g/kWh
P
D
E
l
e
n
E
l
l
a
f
n
e
t
t
a
V
W
B
n
E
r
e
w
o
p
d
E
i
I
E
G
N
E
a
s
o
n
e
F
l
a
r
u
t
a
N
s
a
G
y
g
r
e
n
E
g
n
o
D
l
a
o
r
d
r
e
b
I
166
l
a
t
o
t
m
u
t
r
o
F
O
V
P
F
D
E
d
n
u
b
r
e
V
21
U
E
m
u
t
r
o
F
t
f
a
r
k
t
a
t
S
Note: All figures, except Fortum total, include only European generation. In 2016 most of E.ON’s generation was transferred to Uniper.
Fortum’s specific emissions of the power generation in 2016 in the EU were 28 g/kWh and in total 173 g/kWh.
Source: PWC, November 2016, Climate Change and Electricity, Fortum
33
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityEnvironmental responsibilityImproving energy efficiencyClimate change mitigationWater useEnvironmental non-compliances and incidentsWaste and by-productsSustainable energy productionEmissions into airBiodiversityCircular economy
Improving energy efficiency
Energy efficiency is a key factor in energy production – from both
an economic and environmental perspective . Improving energy
efficiency at power plants refers to measures we implement to
increase the efficiency of production processes or reduce the energy
consumption of plants or equipment . This enables us to produce
more electricity or heat for our customers without increasing fuel
consumption .
The energy efficiency of power plants can be increased through
investments and technical improvements, preventive maintenance,
and by training personnel in the optimal operation of the plant and
in monitoring the plant’s operating economy . Improving power
plant availability also increases energy efficiency, as unplanned
plant start-ups are reduced .
Energy-efficiency investments
In fuel-based energy production, we aim to utilise the fuel’s energy
as efficiently as possible . Our most important means to improve the
energy efficiency of fuel use is to increase combined heat and power
(CHP) production . In CHP production, up to 90% of the energy
content of the fuels can be utilised . Separate electricity production’s
efficiency is about 60% at best .
In March 2016, we commissioned a second natural gas-powered
CHP unit at our Chelyabinsk GRES power plant in Russia .
Also several new projects have been implemented at the Loviisa
nuclear power plant after 2012 to increase the efficiency of the plant
units . The most recent and most significant was the replacement
of two high-pressure turbines . With these replacements and other
smaller improvements, the Loviisa power plant can produce about
98 GWh more electrical energy in an average year .
In addition, other projects to improve energy efficiency were
completed in 2016, among them:
• Refurbishment of Chelyabinsk CHP-3 unit’s gas turbine in
Russia, 50 GWh
• Refurbishments of hydropower plants in Sweden and Finland,
30 GWh
• Optimisation of energy production and a new thermal energy
storage at Suomenoja power plant in Finland, 40 GWh
The energy-efficiency improvement projects are calculated to yield
an annual energy savings of about 245 GWh .
Energy efficiency services for businesses
Fortum’s operation and maintenance services have been improving
the energy efficiency of our customers’ power plants already for
decades . Our energy-efficiency services and expertise also bring
our customers financial benefits and save the environment .
We made advancements to the service in 2016, such as instead of
an individual power plant, we can examine the development of a
broader area, such as power and heat plants of a city or a company,
and the profitability and environmental impacts of investments
related to them .
Target within reach
Fortum is participating in the European electricity sector’s Energy
Wisdom programme . We report to the programme on significant
projects that improve energy efficiency and reduce greenhouse gases .
Fortum’s target is to achieve an annual energy savings of more than
1,400 GWh by 2020 compared to 2012 . By the end of 2016, about
1,372 GWh or 98% of the target set for 2020, had been reached .
In 2015, we reported 1,240 GWh for achieved energy savings .
The corrected energy savings in 2015 was 1,127 GWh, because
some of the energy efficiency projects planned for years 2014 and
2015 in Russia were postponed for implementation at a later date .
Energy-efficiency services for homes
Fortum has introduced energy-efficiency services for private
customers in Finland and Sweden . Fortum’s customers can, for
instance, control and optimise the heating of their homes based
on electricity price and demand or they can monitor energy
consumption with an in-home display .
Energy-efficiency services for homes
Energy-efficiency services for businesses
1,372 GWh/a
Energy efficiency improvement
Target: >1,400 GWh/a by 2020
34
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityEnvironmental responsibilityImproving energy efficiencyClimate change mitigationWater useEnvironmental non-compliances and incidentsWaste and by-productsSustainable energy productionEmissions into airBiodiversityCircular economy Energy intensity
In 2016, our fuel consumption in electricity and heat production was 111 (2015: 116) TWh, or
398 (2015: 417) PJ . Additionally, we acquired 460 (2015: 398) GWh of electricity from external electricity
suppliers . With these energy resources, we produced 35,970 GWh of electricity, 27,185 GWh of heat,
20 GWh of cooling, and 5 GWh of bio-oil . The total energy consumption, calculated as the difference
between the procured energy resources and net production, was 47,900 GWh, or 172 (2015: 178) PJ .
In combustion-based energy production, we aim to utilise the fuel as efficiently as possible . In 2016,
our average fuel use efficiency was 64% (2015: 64%) . The efficiency has been calculated by dividing
the electricity and heat energy produced with the fuel by the energy content of the fuel used in the
production .
The energy intensity of our own production was 1 .40 (2015: 1 .33) . The intensity figure has been
calculated by dividing the amount of used energy resources by the total net production of energy
products, including hydropower, wind power and solar power .
Fuel consumption
The most significant fuel was natural gas, which accounted for 62% (2015: 65%) of the total fuel
consumption . The next highest fuel use was uranium 23% (2015: 22%) and coal 10% (2015: 9%) .
Russia’s share of our total fuel use was about 66% . Russia accounted for 98% of our use of natural gas
and 51% of our use of coal .
Biomass and bioliquids accounted for 2 .6% (2015: 2 .7%) of our total fuel consumption and waste-
derived fuels accounted for 1 .5% (2015: 0 .6%) . The share of waste-derived fuels grew due to the
acquisition of Ekokem . In the implementation of our new strategy, we will maximise the added value
from waste and biomass .
The energy-specific fuel consumption has been calculated based on the usage volumes and fuel-
specific caloric values measured at the power plants . Uranium consumption has been calculated as the
thermal heat generation in the reactors .
Fuel use in 2014–2016, energy (GRI G4-EN3)
petajoules
Natural gas
Nuclear fuel
Coal
Waste-derived fuel, fossil
Peat
Other fossil
Non-renewable fuels total
Biomass fuels
Waste-derived fuel, renewable
Renewable fuels total
Fuels total
Fuel use in 2014–2016, mass/volume (GRI G4-EN1)
2016
247.6
91.1
40.6
3.6
1.8
0.6
385.4
10.2
2.5
12.7
398.1
2015
272.0
90.5
38.8
1.0
1.4
0.8
404.4
11.4
1.7
13.1
417.5
2014
276.1
81.6
46.8
0.8
1.6
0.6
407.5
12.5
1.5
14.0
422.0
2016
2015
2014
Non-renewable fuels
Natural gas, million m3
Coal, 1,000 t
Waste-derived fuel, fossil, 1,000 t
Peat, 1,000 t
Fuel oil, 1,000 t
Nuclear fuel, t
Renewable fuels
Biomass fuels, 1,000 t
Waste-derived fuel, renewable, 1,000 t
6,710
2,208
344
178
21
20
1,041
225
8,023
2,062
97
135
20
22
1,126
198
Our fuels
Fuel use by country in 2016 (GRI G4-EN1)
Natural gas, million m3
Coal, 1,000 t
Biomass fuels, 1,000 t
Waste-derived fuel, 1,000 t
Peat, 1,000 t
Fuel oil, 1,000 t
Nuclear fuel, t
Russia
6,588
1,364
Poland
4
370
139
7
Estonia
6
Other
countries
12
439
72
186
356
4
Finland
99
474
277
213
106
10
20
35
8,148
2,539
87
161
13
23
1,264
177
Total
6,710
2,208
1,041
569
178
21
20
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityEnvironmental responsibilityImproving energy efficiencyClimate change mitigationWater useEnvironmental non-compliances and incidentsWaste and by-productsSustainable energy productionEmissions into airBiodiversityCircular economy
Circular economy
Climate change, urbanisation, population growth, and limited natural resources are examples
of megatrends shaping the world . These megatrends are pushing us to maximise the efficient use of
resources, such as waste and biomass . Fortum has long experience in the recycling and reuse of waste
Received and processed waste from our customers in 2016
f
R e c o v e r y o
m a t e r i a ls: 66 kt (ash, plastic, oil,
E n e rgy recovery: 569 kt
F i n a l disposal: 191 kt
m
e
t
a
l
,
o
t
h
e
r
s
)
and by-products from power and heat production . As a part of our new strategy, we have expanded our
business portfolio to include also circular economy services for our customers . For us, the circular
economy means that materials are recycled as much as possible and hazardous substances are removed
from circulation .
In August 2016, we acquired the Nordic circular economy company Ekokem Corporation, which
provides environmental management and material efficiency services . In December 2016, we also
acquired the Swedish waste management company Turebergs Recycling AB, which has long experience
in the treatment and recycling of incinerated bottom ash from waste-to-energy plants .
Waste management services
Efficient and reliable waste management is important in a society based on sustainability . Fortum’s aim
is to promote the transition towards a more extensive circular economy . We offer waste management
services for customers in Finland, Sweden, Denmark and Lithuania .
In 2016, we received a total of 396,300 tonnes of non-hazardous waste and 239,000 tonnes of hazardous
waste from our customers . As much of the waste stream as possible is recycled, recovered or reused . Waste
that is unsuitable for recycling or reuse as a material is incinerated in waste-to-energy plants .
For additional information about our energy production, see the section Sustainable energy
production .
Recovery of materials
Various types of waste can be reused as raw materials . In 2016, of the waste and by-products received
from our customers, we recovered as materials about 65,900 tonnes; ash accounted for 28,000 tonnes of
that amount and processed new raw materials and products 17,700 tonnes . In addition, Fortum recycled
about 244,800 tonnes of materials originating from its own energy production plants .
Received and processed waste from our customers in 2016 1)
N
o
C
H
Received waste
azardous waste: 239 k t
n-hazardous waste: 396 k t
ontaminated soil: 99 kt
Society
Received waste and by-products (t)
Non-hazardous waste
Hazardous waste
Contaminated soil
Recovery and disposal (t)
Recovery of materials
Energy recovery (amount of waste)
Final disposal
Finland
Sweden Denmark Lithuania
Total
123,200
54,700
52,800
16,100
38,400 145,900
46,500
257,000 396,300
239,000
99,400
46,800
213,200
92,900
7,700
35,200
10,100
8,900
65,900
2,500
63,800 257,000 569,200
81,100 191,200
7,000
1) Ekokem operations in Finland, Sweden and Denmark are included in all figures from 1 September 2016.
36
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityEnvironmental responsibilityImproving energy efficiencyClimate change mitigationWater useEnvironmental non-compliances and incidentsWaste and by-productsSustainable energy productionEmissions into airBiodiversityCircular economy
We are continuously developing activities that increase
the proportion of waste materials kept in circulation:
• We refine new plastic out of waste plastic received from
customers . In October 2016, we launched CIRCO, our recycled
plastic product family .
• We pick up and process our customers’ waste oils to be refined
and reused as industrial lubricants
• We recycle scrap metals generated in the maintenance activities
of our power plants and other facilities . We also recover and
separate metals from customers’ municipal waste and slag .
• We process ash, sand, sludge, dredging masses and slurries
from energy production and other industries for reuse in various
types of environmental construction and earthwork .
Hazardous waste treatment
We take hazardous waste out of circulation in a sustainable manner
by offering solutions to treat hazardous waste while also producing
clean energy and ensuring a safe final disposal . High-temperature
incineration ensures the best available solution for the destruction
of unwanted substances .
We have three high-temperature incineration plants in the
Nordics . These plants for hazardous waste are located in Riihimäki,
Finland; Kumla, Sweden; and Nyborg, Denmark . At these facilities,
we incinerated 114,200 tonnes of hazardous waste and 198,000 of
non-hazardous waste in 2016, producing electricity and district
heating for the surrounding areas .
Contaminated soil
In 2016, we received about 99,400 tonnes of contaminated soil
from our customers . We directed metal, rocks, concrete and
wood, sieved from the soil for reuse as raw materials . Soil that is
suitable for construction is used at our own construction sites and
industrial waste reception centres . In addition, we treated about
161,000 tonnes of contaminated soil at customer sites .
Sustainable energy production
Waste and by-products (of own energy production plants)
The Circular Economy Village
In June 2016, the Circular Economy Village was
inaugurated in Riihimäki, Finland. The Circular
Economy Village is a refinery complex developed by
Ekokem, which Fortum acquired in 2016.
In the village, municipal waste is processed through
the Eco Refinery, an automated sorting plant, the
Plastic Refinery, the first in Finland to produce recycled
plastic, and the Bio Refinery, which produces biogas
and is owned by our partner Gasum. The concept of
the Circular Economy Village is unique, both nationally
and internationally.
Once fully operational, the Eco Refinery of the
Circular Economy Village will annually receive around
100,000 tonnes of municipal waste, from which the
refinery will separate biowaste (about 30% of the
waste), plastic (4%), metal (3%) and recovered fuel
suitable for industrial use (50%). The remaining amount
is reject, which is not suitable for recovery.
The biowaste will be turned into biogas and fertilisers,
and the plastic and metal into recycled raw material for
industry. The reject will be used to generate electricity
and district heat in our waste-to-energy plants in
Riihimäki.
The Circular Economy Village is a pioneer in future
waste management. The principle is that waste should
be utilized as a raw material when it is economically
viable. The strict targets of the Circular Economy
Package adopted by the European Commission will
not be achieved without recycling solutions like these.
37
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityEnvironmental responsibilityImproving energy efficiencyClimate change mitigationWater useEnvironmental non-compliances and incidentsWaste and by-productsSustainable energy productionEmissions into airBiodiversityCircular economy Biodiversity
The degradation of biodiversity is one of the biggest environmental
problems globally . We need to know our impacts and dependencies
on biodiversity and ecosystem services to be able to assess the
related risks and opportunities .
Fortum is a member of the Bettercoal initiative and uses the
Bettercoal Code and tools in assessing the sustainability of the
coal supply chain . Biodiversity aspects related to coal mining are
covered in Bettercoal assessments .
Our impacts on biodiversity
Fortum’s impacts on biodiversity are primarily related to its
hydropower production operations in Finland and Sweden .
Hydropower construction and the related water regulation alter
the conditions in water systems and thus impact the diversity
of the aquatic habitat and, in particular, the fish population .
Emissions from fossil fuel-based energy production may decrease
local biodiversity, especially in Russia . In addition, our fuel
procurement may have a negative impact on biodiversity . However,
our production of CO2-free energy replaces fossil fuel-based energy
production and thus mitigates climate change, which is globally
one of the greatest threats to biodiversity .
Fortum’s biodiversity engagement
Fortum’s Biodiversity guidelines set the principles for taking
biodiversity into consideration and for managing the biodiversity
impacts of the company’s operations . Since 2014, we have
participated in the activities of the Finnish Business & Society’s
(FiBS) Business and Biodiversity programme .
Sustainable use of biomass fuels has been actively debated in
recent years . Fortum’s position is that EU-wide, harmonised and
binding sustainability criteria for all bioenergy is needed . The
EU Commission’s proposal to extend the existing sustainability
criteria for bioliquids to cover also solid biomass and biogas is
in line with Fortum’s position . The proposal is included in the
EU Commission’s legislative “Smart and Clean Energy Package”
published on 30 November 2016 .
We aim to minimise our negative impact on biodiversity, and
we assess the impacts of our new projects . We offset and reduce the
impacts of hydropower production on biodiversity by stocking and
over-dam transferring fish and through voluntary environmental
projects . In Sweden, we carry out biodiversity-related projects with
the financing from our eco-labelled (Bra Miljöval) electricity .
Habitat restoration and other projects
Most of our habitat restorations and other projects improving
biodiversity are related to hydropower production . The listing and
additional information of hydropower-related projects supporting
biodiversity is available on our website .
Restoring river stretches by tearing down dams
In Sweden, we have mapped out the old dams that have low value
for hydropower production, but have environmental impacts
on riverine ecosystems . The aim is to restore habitats and river
continuum in places with benefits for biodiversity . In 2016, two
such projects were initiated . Our application to tear down the
Acksjön dam in a tributary of the River Klarälven is pending in
environmental court . Our application for the Kolsjön dam removal
is under preparation .
Enhancing natural reproduction
of migratory fish populations
In Finland, a migratory fish project continued in 2016 in
cooperation with local stakeholders at River Oulujoki . Fortum has
hydropower production on the River Oulujoki . We transported
salmon spawners to the reproduction areas at tributaries,
we supported the salmon and sea trout population with releases of
young fish, and we followed up the migratory fish population . We
also started construction of a permanent structure for trapping fish
by the Montta hydropower plant in order to transport them to the
reproduction areas upstream .
Restoring a wetland
In the River Dalälven area in Sweden, we took part in financing the
restoration of a rich wetland, Ambrick, which is partly on Fortum’s
property . The area is 23 hectares . The area was opened up by
clearing small trees and bushes, and the restoration will continue
in 2017 . The area hosts different kinds of endangered species of
plants, like orchids, and birds, like curlew .
Biomass fuels actions
Existing forest certification schemes will continue to play a strong
role in verifying sustainability of woody biomass . We annually
collect data on the volume of certified wood-based biomass
fuel used in our power plants in Finland, Sweden, Poland and
the Baltics . Certified wood-based biomass fuel originates from
sustainably managed forests in which special attention is paid to
biodiversity . In 2017, Fortum will assess the possibility to obtain
a Chain of Custody certificate for its wood-based biomass fuel
purchasing .
Environmental impacts of hydropower production
Bra Miljöval eco-labelled energy projects (in Swedish)
38
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityEnvironmental responsibilityImproving energy efficiencyClimate change mitigationWater useEnvironmental non-compliances and incidentsWaste and by-productsSustainable energy productionEmissions into airBiodiversityCircular economy Emissions into air
Fortum’s activities cause various emissions into air . Greenhouse
gases that accelerate global climate change are generated primarily
from the use of fossil fuels and the combustion of waste of a fossil
origin . Possible gas leaks during the transport of liquid natural gas
and the piping of natural gas also impact climate change .
Flue-gas emissions causing local environmental and health
effects are generated from all incineration . Nitrogen oxides are
generated from the nitrogen contained in the fuel and in the
combustion air . Sulphur dioxide, in turn, is generated from the
sulphur that is an impurity in, e .g ., coal, peat and oil . Particle
emissions are fine-grained ash generated primarily in the
combustion of solid fuels and waste . Depending on the origin of
the fuel and waste, the particles contain various heavy metals .
World-class air pollution control
It is possible to decrease nitrogen oxide, sulphur dioxide and
particle emissions through fuel selections and various flue-gas
cleaning technologies . Fortum has world-class know-how in
combustion technology, and we have delivered combustion
technology solutions to reduce nitrogen oxide emissions to many
other power utilities . During 2016 we supplied burner projects to
Estonian, Swedish, Romanian and Polish customers .
Our Meri-Pori and Suomenoja power plants are equipped with
a desulphurisation plant . The scrubber and bag filter that we are
constructing for the new Zabrze CHP plant in Poland will reduce
emissions into air .
Our plants incinerating hazardous waste are located in
Riihimäki Finland, Kumla Sweden, and Nyborg Denmark, and
are equipped with efficient flue-gas cleaning systems . Harmful
emissions to air are minimised with various filters and scrubbers
selected on the basis of the waste to be incinerated .
because three boilers at the Argayash power plant were equipped
with a scrubber to reduce flue-gas emissions .
The reporting of sulphur dioxide, nitrogen oxide and
particle emissions from our European power plants is based on
continuous measurement . Other flue-gas emissions data is based
on discontinuous measurements or are calculated using fuel
consumption data and specific emission factors . Specific emission
factors are based on measurements taken at regular intervals, on
information from the equipment supplier, or on regulatory norms .
We are reporting heavy metals more extensively for 2016, due to
the new waste incineration business . Carbon dioxide emissions are
reported in the section Greenhouse gas emissions
Flue-gas emissions in 2014–2016 (GRI G4-EN21)
SO2 , t
NOx, t
Particles, t
HCl, t
Lead, kg
Mercury, kg
Cadmium, kg
Dioxins, mg
2015
19,900
26,800
17,800
2014
20,400
28,700
21,300
105
126
2016
22,500
26,000
16,800
1,180
4,140
151
116
504
Stricter standards
The EU has set very strict limits for flue-gas emissions; meeting
the requirements necessitates the use of best available technology
(BAT) . Our nitrogen oxide, sulphur dioxide and particle emissions
have, in fact, decreased significantly in our European production
over the past decades . Emissions limits became even stricter when
the Industrial Emissions Directive came into force in 2016 .
All Fortum power plants operate in compliance with the terms
of their environmental permits, and the plants meet the new
emissions requirements, for the most part . Investments in flue-gas
cleaning processes and systems will be made in upcoming years at
the Suomenoja power plant in Finland and the Rejtana heat plant in
Poland .
At Russian power plants, emissions are limited in accordance
with Russian legislation . The new legislation currently being
drafted in Russia will bring stricter emissions standards in the
future .
Flue-gas emissions
Our sulphur dioxide (SO2) emissions were 22,500 (2015: 19,900) t,
nitrogen oxide (NOx) emissions 26,000 (2015: 26,800) t and particle
emissions 16,800 (17,800) t . 81% (2015: 77%) of sulphur dioxide,
82% (2015: 84%) of nitrogen oxide and 98% (2015: 98%) of particle
emissions originated from Russian power plants . In 2016, the most
significant source of particle emissions, 9,100 (2015: 12,700) t, was
the Argayash power plant in Russia . Particle emissions decreased,
39
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityEnvironmental responsibilityImproving energy efficiencyClimate change mitigationWater useEnvironmental non-compliances and incidentsWaste and by-productsSustainable energy productionEmissions into airBiodiversityCircular economy
Water use
Fortum uses large volumes of water at various types of power plants
and in district heat networks . In most cases, our power plants do
not consume water, but the water is discharged back to the same
water system from where it was withdrawn . The properties of
the water may change in the process, but the volume of the water
generally remains unchanged . In some cases, water is transferred
to another recipient, e .g . through evaporation into the air from
cooling towers, leaks into the ground from district heat piping, or
through the discharge of wastewater to a municipal sewage system .
Hydropower production is a special case of water use . Water
flowing in a river is conducted through a turbine to generate
electricity . No water is consumed nor are the properties of the
water altered in the process . However, the water system is often
regulated for hydropower production, and the regulation changes
the water flow and level patterns compared to their natural state .
Fortum does not report water flows in rivers as water use related to
hydropower production .
Cooling water
Condensing power production requires large volumes of cooling
water . Cooling water accounts over 90% of Fortum’s total water
withdrawal annually .
Fortum’s condensing power plants in Finland, the Loviisa
nuclear power plant and the Meri-Pori power plant, are located
in coastal areas and use direct seawater cooling . No water is
consumed in the process and the water withdrawn is discharged
back into the sea . The only change is an approximately 10 °C
increase in the temperature of the cooling water .
Condensing power is occasionally produced also at our CHP
plants . In most cases, the cooling water is withdrawn from a local
water system . In Russia and Poland, cooling towers are used,
so some of the cooling water evaporates into the atmosphere .
District heating network
Fortum is a major supplier of district heating in Finland, Russia,
Poland and the Baltic countries . Fortum has a total of about
2,800 kilometres of district heat pipes in these countries . Water is
used as the heat transfer media in the district heat networks . Some
water is lost through leaks that occur in the pipes, so occasionally
water must be added to the district heating network .
Process water and other water uses
A thermal power plant needs water in the water-steam cycle when
electricity is generated with a steam turbine . Because of leaks in
the pipes, occasionally water must be added to the water-steam
cycle . Water is also needed in some auxiliary processes, for example
in flue-gas desulphurisation with wet scrubber technology,
and in liquid radioactive waste handling and storage at nuclear
power plants .
Water withdrawal
The majority of Fortum’s power and heat production capacity is
located in Finland, Sweden, Russia and Poland . Our thermal power
plants and hydropower plants are not located in a water critical area
in any of our operating countries . The Baltic Sea and local fresh
water systems are the most important water sources for our plants .
Municipal tap water is used mainly at CHP plants in major cities . In
some cases, water is acquired from a near-by industrial facility of
another company .
Water is used to clean solar panels at our Indian solar power
plants . Even though the water volumes are relatively small,
alternative water sources and purification methods are being
explored in India .
We withdrew a total of 2,322 (2015: 2,138) million m3 of water in
2016 . Seawater accounted for about 66% of this amount .
Of the water we withdrew, we used the majority, 2,228
(2015: 2,060) million m3, as cooling water . The Loviisa nuclear
power plant withdrew from and discharged to the sea 1,339 million
m3 of cooling water .
Water withdrawal in 2014–2016 (GRI G4-EN8)
Water use in 2014–2016 (GRI G4-EN8)
million m3
Seawater
Fresh surface water
Tap water
Other source
Total
2016
1,533
787
2
0.4
2,322
2015
1,487
643
4
5
2,138
2014
1,573
602
6
6
2,186
million m3
Cooling water
Process and auxiliary water
Make-up water for district heat
networks
Water recycling
* Figures revised for reporting in 2015.
2016
2,228
82
12
2015
2,060
73*
14
2014
2,094
77*
15
13
12
14
40
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityEnvironmental responsibilityImproving energy efficiencyClimate change mitigationWater useEnvironmental non-compliances and incidentsWaste and by-productsSustainable energy productionEmissions into airBiodiversityCircular economy The reported water withdrawal and water use volumes are based
on measurements and on calculations of water consumption .
Wastewater
Wastewater generated at our power plants is either treated at the
power plants’ own wastewater treatment plant and discharged into
a water system or it is piped to a municipal wastewater system for
further processing . In Russia, the wet method is used to pump ash
from power plants into ash ponds . Part of the water from the ponds
is recycled back to the power plant and part is released into a water
system after sedimentation .
Wastewater contains solids and nutrients, like nitrogen,
phosphor, and heavy metals . Wastewater effluents can impact local
water quality as well as the nutrient and oxygen balance of the water
system .
Our plants generated a total of 46 (2015: 34) million m3 of
wastewater, of which 97% was released into the environment after
being treated and 3% was piped to municipal wastewater treatment
plants .
About 0 .9 (2015: 1 .2) tonnes of oil was released into water
systems with wastewater . In addition, 0 .63 tonnes of oil was
released into rivers from hydropower plants . Hydropower plant
reporting was further defined in 2016 .
The thermal load discharged into water systems with cooling
water was 17 (2015: 17) TWh . The Loviisa nuclear power plant’s
share of this was 16 TWh . Temperature measurements indicate
that the cooling water has increased the temperature of surface
water by 1–2 °C within a 1-2 kilometre radius from the discharge
point . The reported wastewater is based on measurements and
calculations .
NURES products for purifying radioactive waters
Initially developed for the needs of the Loviisa nuclear power plant,
the NURES products are a unique solution for purifying radioactive
waters . A selective ion exchange material purifies liquid waste more
efficiently than any other alternative on the market . In 2016, we
continued NURES deliveries to our customers around the world,
including Finland, Japan, North America and Great Britain .
Wastewater emissions by recipient
in 2014–2016 (GRI G4-EN22)
million m3
Sea
Fresh water system
Municipal sewage
Other recipient
Total
2016
22.2
22.8
1.3
0.1
46.4
2015
9.3
22.9
1.3
0.5
34.0
2014
9.0
22.4
1.2
0.5
33.1
41
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityEnvironmental responsibilityImproving energy efficiencyClimate change mitigationWater useEnvironmental non-compliances and incidentsWaste and by-productsSustainable energy productionEmissions into airBiodiversityCircular economy Waste and by-products
Ash is a by-product of the use of fuels, and gypsum and other
desulphurisation products are by-products of flue-gas
desulphurisation . Ash and desulphurisation products account
for a more than 90% share, on average, of the by-products and
waste from our energy production .
of other desulphurisation product were generated . The growth in
volumes of ash and gypsum was a result of increased coal use in
Finland and Russia . About 52% of the ash was generated at Russian
plants, 19% in Finland and 12% in Poland . The ash recycling rate was
37% (2015: 33%) and the gypsum recycling rate 100% (2015: 100%) .
2 .5 (2015: 2 .7) g/MWh of spent fuel was generated per produced
energy unit . Fortum and Teollisuuden Voima have established
Posiva Oy to handle the technical implementation of the final
disposal of the spent fuel, and final disposal is scheduled to begin
at Olkiluoto in Eurajoki in the first half of the 2020s .
Power plant maintenance generates scrap metal and other
Any remaining by-products that cannot be utilised are
conventional industrial waste and, to a smaller extent, waste oil and
other hazardous waste . We aim to recycle by-products and waste,
whenever possible . The waste management service providers we use
are properly licensed and reliable waste management companies .
In addition to conventional industrial waste, the Loviisa nuclear
power plant also generates radioactive waste, which we treat
in accordance with the requirements of Finnish nuclear energy
legislation . The volume of radioactive waste generated is small, but
special solutions are needed in their treatment and final disposal .
The total volume of by-products and waste generated at Fortum’s
power and heat plants in 2016 was about 735,000 (2015: 601,000)
tonnes . Of this volume, 37% was recycled or reused .
Ash and gypsum
Ash is created in the combustion of all solid fuels . Over half of
the ash from our plants operating in Europe is utilised as a raw
material, e .g . for the construction industry, road construction and
soil improvement, and as backfill . Ash from the power plants in
Russia is stored in ash basins, because there is no demand for wet
ash sludge in Russia .
Coal-fired power plants generate either a wet or semi-dry
desulphurisation by-product . Gypsum created as a by-product
in the wet desulphurisation process at the Meri-Pori power
plant in Finland is suitable for use as raw material for the
construction industry, and in 2016 all the gypsum was utilised .
The desulphurisation product created at the Suomenoja power plant
is not suitable for utilisation .
In 2016, about 695,000 (2015: 570,000) tonnes of ash, 8,500
(2015: 2,300) tonnes of gypsum, and 12,700 (2015: 8,800) tonnes
transported to the appropriate final disposal areas for landfilling .
In 2016, about 453,000 (2015: 390,000) tonnes of by-products were
transported for landfilling, or in Russia for ash basins .
The reported volumes of ash and gypsum from our European
power plants are based on the weighing of the truckloads . Ash
volumes at our Russian power plants are calculated on the basis of
the ash content of the coal .
Radioactive waste
At the Loviisa nuclear power plant, low-level radioactive maintenance
waste and intermediate-level radioactive waste are stored in
Loviisa’s final repository . In 2016, 13 .9 (2015: 10 .5) tonnes of low-
level radioactive waste went into final disposal . Intermediate-level
radioactive liquid is generated mainly from spent ion exchange resins
and wastewater from the controlled area . Liquid waste is processed
to solid form before final disposal . In 2016, a new solidification plant
for liquid radioactive waste started operation .
High-level spent nuclear fuel is stored in interim storage at the
Loviisa power plant site . In 2016, 19 .6 (2015: 21 .8) tonnes of spent
nuclear fuel was removed from Loviisa power plant’s reactors .
Other waste
Other, conventional waste generated during the operation and
maintenance of power and heat plants is sorted, and waste that can
be recycled, such as metal, is sent for further processing . Hazardous
waste is delivered to licensed hazardous waste treatment facilities .
Our operations in power and heat plants generated a total of
31,900 (2015: 27,200) tonnes of other waste, approximately 2,700
(2015: 1,700) tonnes of which was hazardous waste . In addition,
about 20 tonnes of contaminated soil was removed . The reported
volumes of other waste are based mainly on the information
provided by the waste management companies .
Waste reception, recycling and reuse
Fortum’s new circular economy business receives, processes and
reuses customer waste for material recycling and energy production
in Finland, Sweden and Denmark . Waste recycling services are
reviewed in more detail in the section Circular economy .
Loviisa power plant’s waste management
Final disposal of spent nuclear fuel
Ash and gypsum handling
in 2014–2016 (GRI G4-EN23)
Waste handling in power and heat
plants in 2014–2016 (GRI G4-EN23)
tonnes
Ash utilisation
Ash disposal
Gypsum utilisation
Gypsum disposal
42
2015
2016
2014
255,000 189,000 226,000
440,000 381,000 434,000
9,800
0
2,300
0
8,500
0
tonnes
Recycling and recovery
Landfill
Hazardous waste recovery
Hazardous waste disposal
Total
2016
8,300
20,900
400
2,300
31,900
2015
8,000
17,400
90
1,700
27,200
2014
7,700
17,500
100
2,400
27,700
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityEnvironmental responsibilityImproving energy efficiencyClimate change mitigationWater useEnvironmental non-compliances and incidentsWaste and by-productsSustainable energy productionEmissions into airBiodiversityCircular economy Environmental non-compliances and incidents
At the Group level, we monitor the number of major EHS incidents,
which, in part, reflects the quality of environmental management .
In 2016, there were 22 (2015: 18) major EHS incidents . 12 of these
were significant environmental incidents, including spills of over
100 litres into the environment, significant environmental permit
violations, and other environmental non-compliances having a
significant impact on environment .
Spills and other significant
environmental non-compliances
In 2016, there was one (2015: 2) spill of more than 100 litres into
the environment . The spill occurred in autumn 2016 . The incident
involved a spill of hydraulic oil into the River Klarälven at a
hydropower plant in Sweden . The incident did not have significant
environmental impacts .
Significant environmental permit violations
There were 11 (2015: 14) environmental permit violations in 2016,
and 9 of them occurred in Russia . Eight permit violations at the
Russian power plants involved exceeding the wastewater emission
limits . One permit violation involved exceeding the annual licence
of heavy oil at the Tyumen power plant in Russia . At the waste
combustion plant in Denmark, there was one wastewater discharge
limit violation and one environmental permit violation related to
the storage of waste .
Environmental enquiries and grievances
Power plants receive environmental enquiries and other contacts
every year, and they are mainly handled locally . The aim is to
communicate in advance about upcoming measures with possible
environmental impacts e .g . through local media and at public events .
Fortum’s website also has a grievance channel that our
stakeholders can use to report problems possibly caused by our
operations . No new environment-related grievances were reported
to us through this channel in 2016 .
Fines
In 2016, Fortum paid fines totalling RUB 1 .782 million
(EUR 24,120) for permit violations involving exceeding the
wastewater emission limits and RUB 136,000 (EUR 1,840) for
permit violations involving heavy oil use in Russia .
22
Major EHS incidents
Target: ≤23
Business ethics and compliance
Occupational and operational safety
43
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityEnvironmental responsibilityImproving energy efficiencyClimate change mitigationWater useEnvironmental non-compliances and incidentsWaste and by-productsSustainable energy productionEmissions into airBiodiversityCircular economy Social responsibility
Fortum impacts the daily lives of millions of people
through its businesses. Fortum’s social responsibility
emphasises operational and occupational safety,
employee wellbeing, the secure supply of electricity
and heat, creating sustainable solutions for cities, as
well as ethical business operations and compliance
with regulations. We engage in an active dialogue with
different stakeholder groups and we strive to find a
balance between their various expectations.
44
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilitySocial responsibility Social impacts
We strive to be a safe workplace for our employees . We promote operational and occupational safety and
wellbeing in the work community, which are prerequisites for efficient and interruption-free production .
Our innovations and the secure supply of power and heat support the development of society and
increase wellbeing . We want to offer sustainable city solutions that promote a circular economy .
Ethical business practices and respecting internationally recognised human rights are the foundation
of Fortum’s Code of Conduct . Fortum’s sustainability approach also includes being a good corporate
citizen and taking care of the surrounding communities . We want to support responsible operations in
Fortum’s supply chain and in society .
Key figures for social responsibility
Our key figures for social responsibility are presented in the table and graphs .
Business ethics and compliance
Key figures for social responsibility
CHP plant energy availability, %
Average number of employees
Number of employees, 31 December
Departure turnover, %
Female employees, %
Females in management, %
Health care expenditure, EUR/person 1)
Sickness absence rate, %
Total recordable injury frequency (TRIF) 2), Fortum’s personnel
Lost workday injury frequency (LWIF) 3), Fortum’s personnel
Lost workday injury frequency (LWIF) 3), contractors
Serious 4) occupational accidents
Fatalities
OHSAS 18001-certified operations in power and heat
production, % of sales
Supplier audits, number
Support for society, EUR million
2016
97.4
7,994
8,108
13.0
29
25
460
2.3*
1.9
1.0
3.0
13
0
99.9
13
3.6
2015
96.4
8,009
7,835
8.6
29
33
509
2.4
1.6
1.1
2.7
14**
0
99.9
9
3.6
2014
94.7
8,821
8,592
8.1
28
33
542
2.4
2.0
1.0
3.2
16
3
75
14
3.3
1) Only in Finland, before the share reimbursed by Kela (The Social Insurance Institution of Finland)
2) TRIF = Total recordable injury frequency per million working hours
3) LWIF = Lost workday injury frequency per million working hours
4) Fatality or an accident leading to permanent disability or at least 30 days of absence
* The figure has become more defined from the one presented in the interim report and the operating and financial review (2.4%).
** The figure revised for reporting 2015.
Total recordable injury frequency (TRIF),
Fortum’s personnel
Personnel by country, 31 December 2016
Fortum’s support to society in 2016 by target, %
3.0
2.5
2.0
1.5
1.0
0.5
0
TRIF
Target
2014
2015
2016
2017
Russia, 3,745
Finland, 2,029
Poland, 894
Sweden, 724
Estonia, 201
Other countries, 515
45
Environment, 35
Culture, 28
Children and youth, 20
Sports, 11
Other, 7
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilitySocial responsibility
Security of supply
An uninterrupted and reliable energy supply is critical for society to function . With planned preventive
maintenance and condition monitoring, we ensure that our power plants operate reliably to produce the
electricity and heat customers need .
Power plant availability
We measure the availability of our CHP and hydropower plants with an energy availability indicator .
Energy availability is calculated by dividing the power plant’s actual production in the period under
review by the theoretical maximum production . Planned maintenance outages are not included in the
calculation . If the outage at a CHP plant is longer than planned, it is considered an interruption, which
decreases the energy availability . The energy availability of our CHP plants in 2016 was, on average,
97 .4% (2015: 96 .4%); the target was 95% .
For hydropower plants, outages due to a failure and unplanned or prolonged outages decrease the
availability factor only if they lead to spillage . The energy availability of our hydropower plants was 98 .7%
(2015: 99 .2%) .
The load factor describing the availability of the Loviisa nuclear power plant is among the highest in
the world for VVER–440 type nuclear power plants . The Loviisa nuclear power plant’s load factor in 2016
was 91 .1% (2015: 92 .9%) .
Interruptions in gas and heat distribution
In spring 2016 Fortum acquired DUON, a company specialising in electricity and gas distribution .
Through this acquisition, we own about 480 km of gas distribution networks and 20 regasification
stations in Poland .
Fortum also has about 2,800 km of district heating networks in Finland, Russia, Poland and the Baltic
countries . The aim is to keep interruptions in gas and district heat distribution as short as possible by
carrying out planned and preventive refurbishment and maintenance activities .
46
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilitySocial responsibilitySafety and securityCorporate citizenshipHuman rightsProduct responsibilityEmployeesSecurity of supply Employees
We are a significant employer in the regions where we have
operations . We strive to be a responsible employer that invests
in the development and wellbeing of personnel .
In 2016, an average of 7,994 (2015: 8,009) employees worked
at Fortum . The highest number of employees was in Russia,
3,814 (2015: 4,180) on average . The average and the year-end total
personnel figures include 332 employees who joined Fortum in 2016
mainly through corporate acquisitions, but are not included in the
other figures and tables presented in this report . These individuals
include the civil contractors working in the Polish DUON Group
and the entire personnel of the Swedish Info24 company .
Personnel statistics from 2016, by country of operation
Personnel at year-end
male
female
Personnel, average
Personnel expenses, 1,000 euros
Personnel expenses per person, 1,000 euros
Finland
2,029
1,429
600
2,139
167,467
78.3
Sweden
724
420
304
613
56,385
92.0
Russia
3,745
2,770
975
3,814
63,959
16.8
Poland
894
561
333
879
16,991
19.3
Estonia
201
110
91
207
6,069
29.4
Other
countries
515
378
137
342
23,065
67.4
Total
8,108
5,668
2,440
7,994
333,935
41.8
The number of Fortum’s permanent employees on 31 December
Number of employees, 31 December
2016 was 7,473 (2015: 7,522), i .e . 96 .1% (2015: 96 .0%) of the
personnel . Of these, 7,362 (2015: 7,395) were full-time employees
and 111 (2015: 127) were part-time employees .
During the year 476 (2015: 375) new employees joined Fortum,
and 968 (2015: 650) employment relationships were terminated,
805 of which by the employer . The number of employment
relationships terminated due to production and financial reasons
was 120 . Departure turnover in 2016 was 13 .0% (2015: 8 .6%) .
Voluntary departure turnover was 5 .6% .
With the acquisition of Ekokem and DUON, 755 new
employees joined Fortum . Fortum signed a partnership agreement
on the operation and maintenance of power plants and district
heating networks with Maintpartner in Finland and Poland .
Under the agreement, 341 individuals transferred as existing
employees from Fortum to Maintpartner . Other acquisitions and
outsourcings decreased the number of personnel by a total of
248 (2015: 184) people .
Contractor employees worked at Fortum sites for a total of
approximately 1,113,000 (2015: 1,327,000) days during the year .
The figure is based on contractors’ hourly logs and on estimates
made on the basis of job costs and average hourly rates . The figure
has been calculated on the basis of an 8-hour work day .
12,000
10,000
8,000
6,000
4,000
2,000
0
2012
2013
2014
2015
2016
Workforce by employment contract and employment type, broken down by region and gender (GRI G4-10)
Employment contract
Permanent
Fixed-term
Employment type (permanently employed)
Full-time
Part-time
Finland
F
M
Sweden
F
M
Russia
F
M
Poland
F
M
Other
countries
F
M
Total
F
M
1,404
25
1,392
12
563
39
531
30
385
25
374
11
283 2,703
67
20
263 2,696
7
22
915
57
911
4
345
15
343
2
188
36
187
1
473
12
469
4
214 5,310 2,163
159
144
7
196 5,274 2,088
75
36
18
47
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilitySocial responsibilitySafety and securityCorporate citizenshipHuman rightsProduct responsibilityEmployeesSecurity of supply
Diversity and equal opportunity
We promote equal treatment and opportunities in the recruiting,
remuneration, development and career advancement of personnel,
regardless of the employee’s race, religion, political views, gender,
age, nationality, language, sexual orientation, marital status or
disabilities .
The average age of our permanent employees was 44 .2
(2015: 44 .5) years . The share of employees over 50 years old was
32% . Females accounted for 29% (2015: 29%) of our total personnel .
Females accounted for 25% (2015: 33%) of the Group- and division-
level management . The Board of Directors comprised eight
members, three of them, including the Chairman, were women .
Any form of harassment is forbidden and addressed
immediately . In Finland, Sweden, and India there are separate
guidelines in place for workplace harassment and discrimination .
There were no incidents of discrimination reported in 2016 .
Total number and rate of new employee hires and employee turnover (GRI G4-LA1)
New employee hires
age group
below 30
30–50
over 50
New recruits, %
Employees leaving
age group
below 30
30–50
over 50
Departure turnover, %
Finland
F
no.
1
12
1
2.5
M
no.
17
44
6
4.8
Sweden
F
no.
1
5
1
2.5
M
no.
9
15
4
7.3
Russia
F
no.
19
48
8
8.2
M
no.
81
111
24
8.0
M
no.
5
6
0
3.2
Finland
F
no.
3
29
19
9.1
M
no.
15
128
110
18.0
Sweden
F
no.
3
17
2
7.8
M
no.
4
22
13
10.1
Russia
F
no.
11
51
34
10.5
M
no.
31
98
140
10.0
M
no.
4
75
85
47.5*
* Departure turnover was affected by the outsourcing of district heating network maintenance.
Employees leaving, employee's initiative
age group
below 30
30–50
over 50
Voluntary departure turnover, %
Finland
F
no.
3
18
3
4.3
M
no.
4
28
4
2.6
Sweden
F
no.
3
17
1
7.4
M
no.
2
20
3
6.5
Russia
F
no.
10
25
27
6.8
M
no.
24
56
97
6.5
M
no.
2
14
1
4.9
Service years of the permanent employees in 2014–2016, %
Poland Other countries
F
no.
2
7
0
4.2
F
no.
7
5
0
6.4
M
no.
9
26
2
7.8
Poland Other countries
F
no.
5
13
5
10.7
F
no.
7
13
9
15.4
M
no.
2
11
9
4.7
Poland Other countries
F
no.
3
11
2
7.5
F
no.
9
10
1
10.6
M
no.
2
9
8
4.0
Years
0–5
6–10
11–15
16–20
21–26
27–30
31+
2015
32
23
9
9
10
9
8
2014
32
20
10
10
11
9
9
2016
33
21
10
10
9
8
8
48
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilitySocial responsibilitySafety and securityCorporate citizenshipHuman rightsProduct responsibilityEmployeesSecurity of supply
Personnel age distribution of permanent employees by age group, gender and personnel group (GRI G4-LA12)
age group
under 30
30–50
over 50
b = blue-collar, w = white-collar
Group and division-level management,
by age and gender, persons (GRI G4-LA12)
age group
under 30
30–50
over 50
Men Women
0
6
10
0
28
20
Equal remuneration
Salary levels at Fortum are compliant with established industry
practices in each country, local legislation and labour market
agreements . Remuneration is based on the achievement of strategic
business targets and the successful implementation of changes .
The total remuneration level is based on competence requirements,
job performance, and the local market practices with respect to the
needs of the different business models .
In 2016 the short-term incentive scheme was renewed with the
aim of emphasising in a new way the impacts the operation’s and
team’s or individual’s performance have on the variable salary
component . In the renewed incentive scheme, the short-term
changing salary component depends on the individual’s job, and
the amount of the final incentive pay depends on the job-based
salary level and the combined result of the business unit’s and the
individual’s goals . For the above-mentioned reasons, a male/female
comparison of the short-term incentive pay is not expedient .
However, the global human resources data system and
the harmonised job grade classification system enables
Male
w
68
646
358
b
38
174
120
Finland
Female
w
33
339
180
b
2
7
2
Male
w
35
173
126
b
4
23
24
Sweden
Female
w
28
167
85
b
1
1
1
Male
w
92
685
272
b
286
871
497
Russia
Female
w
89
400
125
b
16
147
138
Male
w
41
95
88
b
0
63
58
Poland
Female
w
74
76
36
b
0
0
2
b
26
124
120
Other countries
Female
w
17
123
55
b
1
7
11
Male
w
15
125
63
the examination and reporting of pay equality for the base salary
in all our operating countries . Besides the centralised HR data
management system, a separate, local, data system is also used in
Russia, and therefore the data on Russia’s pay equality is reported
separately . With the corporate acquisitions made in 2016, the
companies merged with Fortum – and for which the job grade
classification and the integration of the personnel system has just
started – are not included in the figures .
Our reporting covers all personnel groups except blue-collar
workers . A male/female comparison in this group is not done
because of the small group sizes . In countries where the number
of personnel is small, we have reported these countries collectively
under “Other countries” so that the data are not identifiable .
The figures presented are not comparable with last year's figures
because the method of calculation has been changed .
In our operating countries, total number of personnel included
in the comparison was 2,431, of which 861 (35%) were female . The
base salaries of female employees in 2016 were, on average, 17%
less than the male base salaries in all personnel groups . Taking
the job grade levels into consideration reduces the gap between
female and male salaries . Additionally, the years of service of the
individuals also contribute to the differences .
In Russia, the difference between female and male salaries was
-15% for comparable job grade levels (1,662 individuals) .
Basic salary and service years of women compared to men (GRI G4-LA13) 1)
Difference between basic salaries
Roles until middle
management and
specialists, %
-13
-20
-7
-4
-17
-9
-16
-4
10
-9
Jobs with tactical
or strategical role, %
-3
0
8
-16
-4
Difference between
service years
Average service
years, %
-9
10
-30
0
-12
Country
Finland
Sweden
Poland
Other countries 2)
Total 2)
All roles, %
1) Includes only white-collars, does not include Ekokem, DUON, and Info24
2) Excluding Russia
49
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilitySocial responsibilitySafety and securityCorporate citizenshipHuman rightsProduct responsibilityEmployeesSecurity of supply
Employee-employer relations
Fortum’s business operations are developed and strengthened in
good collaboration with employees . We believe that the successful
management of business is built on relationships of trust between
management and employees and on the free flow of information .
Fortum respects employees’ freedom of association and the right to
collective bargaining .
In our operating countries, freedom of association and
collective bargaining are guaranteed by law . The exception to
this is India, which has not ratified the International Labour
Organisation’s (ILO) Convention on the right to freedom of
association and collective bargaining . In India, we comply with the
same practices as in other countries of operation, and we do not
limit or prohibit the right to freedom of association .
We apply local collective bargaining agreements in compliance
with the scope of each respective agreement in all our operating
countries . Collective bargaining agreements cover about 85% of
Fortum’s employees in our main operating countries .
Share of personnel within collective bargaining agreements,
by operating country:
• Sweden and Russia: 100%
• Finland: 100% (except top management)
• Estonia: 26%
In Latvia, the collective bargaining agreements cover less than 10%
of the personnel . There are no collective bargaining agreements
in Lithuania and Poland . Employment contracts are based on local
legislation and on the company’s human resources policy .
Fortum European Council
Fortum European Council (FEC) convenes, as a rule, once a year .
FEC is a Europe-level cooperational function in which personnel
and employer representatives meet to discuss matters related
to Fortum . In 2016, the Fortum European Council (FEC) held a
meeting in June in Finland, and personnel representatives from
Finland, Sweden, Poland, and Estonia participated . The Council’s
themed workshops focused on, among other topics, Fortum's new
strategy, the future outlook for the energy industry, occupational
safety, management of work-related stress and wellbeing .
In addition to Fortum European Council meetings, local level
meetings are held several times a year in different countries based
on need .
Restructuring situations
In situations of organisational restructuring, we negotiate with
personnel representatives in compliance with each country’s local
legislation and contractual procedures . In situations involving
personnel reductions, we want to primarily support the re-
employment of the personnel .
In restructuring situations, the length of the obligatory
negotiation period depends on the scale of upcoming changes
and varies in Fortum’s different operating countries . The shortest
period for obligatory negotiations is three weeks (Finland) and
the longest is 90 days (India) . There is no statutory obligatory
negotiation period in Sweden, Norway and Lithuania .
The minimum notice period is based on local legislation,
collective agreements or employment contracts, which are in
harmony with the local legislation and agreements .
In situations involving personnel reductions, we offer
outplacement services and, case by case, investigate the
possibilities to arrange vocational training in cooperation with
local unemployment authorities or service providers . Retraining
for employees who continue working is arranged based on
organisational and individual needs .
In situations involving personnel reductions, the content of the
support package that we offer is decided based on local needs . The
financial compensation of the package is usually based on the years
of employment at Fortum .
Employee wellbeing
The energy sector is in transition and this reflects also on Fortum’s
business . We want to support our personnel in the change also by
paying special attention to work wellbeing . Personnel wellbeing is
a prerequisite for successful and efficient business operations .
50
ForCARE work wellbeing model
The goal of the work wellbeing model, ForCARE, is to promote
the health and occupational safety of our employees by developing
the work and work environment and by promoting the functionality
of the work community .
The ForCare wellbeing themes in 2016 were “recovery and sleep”
and “activeness and energy” . The themes were on the agenda at
team meetings, and lectures, wellbeing events and activity contests
related to these themes were held .
We began using the HeiaHeia online and mobile app in nearly
all our operating countries at the beginning of 2016 . HeiaHeia
offers a wealth of wellness content to motivate users to live
a healthier lifestyle, to record physical and wellness activities, to
encourage colleagues, and to participate in team-spirit initiatives .
Targeted work wellbeing projects were carried out in the Power
Solutions unit, among others . These projects, too, utilised digital
health and wellbeing technology, including Firstbeat wellbeing
analyses, activity wristbands and the HeiaHeia app .
Energise Your Day got under way
As part of ForCare activities, the Energise Your Day wellbeing
programme was launched in autumn 2016 . It aims to support and
encourage all Fortum employees to maintain and improve their
overall wellbeing . Energise Your Day offers ideas and tools for self-
management, stress management, recovery, nutrition and physical
activity . The programme effectively and flexibly utilises modern
coaching methods and tools .
The Energise Your Day programme started with a wellbeing
survey . Based on the results of the survey, everyone is offered
wellbeing services, such as lectures and coaching clinics .
Additionally, occupational healthcare offers employees survey-
based, targeted support and services based on individual needs .
The Energise Your Day work wellbeing programme is being
piloted in Finland and will later be expanded to our other operating
countries .
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilitySocial responsibilitySafety and securityCorporate citizenshipHuman rightsProduct responsibilityEmployeesSecurity of supply Early-support model
We promote wellbeing at the workplace also through what is
called an early-support model . We increase open communication
between employees and supervisors by discussing and mapping
the reasons for absences . Managerial knowhow in working capacity
management is strengthened through Manage Working Capacity
MASTER training .
Occupational safety committee
and workplace wellbeing
Workplace wellbeing and occupational safety are organised in our
operating countries in line with local legislative requirements .
The occupational safety committees represent all personnel
groups, and they regularly address issues related to work safety and
workplace wellbeing .
All our employees are within the sphere of occupational health
care . We emphasise the significance of preventive activities in
promoting wellbeing in the company . The occupational health
care costs per person in Finland, before the share reimbursed
by Kela (The Social Insurance Institution of Finland), were
EUR 460 (2015: 509) .
Fortum conducts regular examinations of its personnel in
accordance with local laws . Employees who in their work are
exposed to e .g . noise, dust, radiation or who perform shift work
are within the sphere of the examinations . Occupational health
care also participates in various discussions and assessments in
the work community . The occupational health care professionals
support supervisors by providing information on preventive
actions as well as alternatives when the ability to work decreases .
Occupational health care also offers methods and tools for these
situations .
Sick-leave absences, occupational
diseases and average age of retirement
At Fortum the rate of absence due to sickness was 2 .3%
(2015: 2 .4%), which is lower than the average in the energy sector .
This figure has become more defined from the one presented in
the interim report and the operating and financial review (2 .4%) .
For males, the rate of absence due to sickness was 2 .1% (2015: 2 .2%)
and for females 3 .0% (2015: 3 .0%) . The sickness absence rate is
calculated based on the reported working hours of the permanent
employees .
In 2016 the rate of absence due to sickness (2 .4%) was adopted
as a new Group-level indicator to measure employee wellbeing .
The management of sick-leave absences and particularly the
early-support for managers in the management of illness-related
absences and other working capacity challenges were among our
focus areas in 2016 . The goal for 2017 is to keep the sicness absence
rate at the previous year's level .
There were 8 (2015: 8) cases of suspected occupational
diseases in Finland; five were related to noise and three were
related to asbestos . Four of the suspected noise-related cases were
determined to be non-occupational and investigations are still
underway for one case . All three suspected asbestos-related cases
were determined to be occupational diseases and compensated
as such . All the cases of suspected occupational diseases
involved males .
An indication of the good management level of working
capacity and work wellbeing at Fortum is the average retirement
2.3%
Sick-leave absences
Target: ≤2.4%
51
age, which was 62 (2015: 62) years . In 2016, the average effective
retirement age in the earnings-related pension scheme in Finland
was 61 .1 years (Source: Finnish Centre for Pensions) .
Sickness absence rate of permanent
employees in 2014–2016 (GRI G4-LA6), %
2016
2015
2014
Male
Female Male
Female Male
2.4
2.6
1.8
2.6
2.2
3.5
6.3
1.6
3.8
3.5
2.3
3.1
1.7
4.1
1.8
3.5
5.3
2.0
6.5
3.2
2.3
2.0
2.0
3.6
2.0
Female
3.7
4.1
2.0
4.7
2.2
Finland
Sweden
Russia
Poland
Other
countries
Employee development
Fortum encourages its employees to continuously develop
their knowledge, skills and competencies . To support this,
we have focused on developing leadership and organisational
culture through a coaching approach . The coaching approach
increases participative management, which encourages employee
accountability in their work . One of the key elements in the
coaching approach is the giving and receiving of feedback .
Leadership coaching and induction
There were three programmes under way in 2016 to develop the
leadership and organisational culture of managers:
• Leadership Impact coaching
• MASTER Growing Leader training
• Fortum Navigator development programme
A total of 113 managers took part in these programmes in 2016 .
New employees go through an induction programme, part of
which is Fortum Passport, the online on-boarding programme .
In 2016 there were 100 (2015: 131) employees who learned about
Fortum’s operations through the Fortum Passport programme .
The sustainability online training targeting all personnel was
updated in 2016 . The online training is also part of the Fortum
Passport programme .
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilitySocial responsibilitySafety and securityCorporate citizenshipHuman rightsProduct responsibilityEmployeesSecurity of supply Fortum Sound personnel survey
The Fortum Sound personnel survey is conducted every other year .
The response rate to the survey conducted in October 2016 climbed
to 87% (2014: 84%) . The results indicate that 70% of the employees
feel a commitment to the company (2014: 70%) .
Based on the survey results, the personnel feel that overall
wellbeing is at a good level and sustainability is an integral part of
Fortum’s operations . Also the level of leadership was considered
good, although the results in this area varied greatly by unit .
The most important development targets emerging from
the survey were communications, customer insight, agility and
innovation . These areas were a focus in 2016 through the launch
of the so-called must-win battle development programmes to
increase customer-centricity, speed and agility . Additionally, the
Fortum Dialogue events between management and employees were
continued .
Training hours and costs
In 2016 the total number of training hours was 39,129 (2015: 50,466) . Courses and licenses are, for the time being, registered in Finland,
Sweden, and Poland . Training costs in 2016 totalled approximately EUR 3 .1 (2015: 3 .5) million .
Training hours 2016 (GRI G4-LA9) 1)
Total number of
training hours for
employees
35,655
7,287
Average training
hours per
employee
22
30
Total number of
training hours for
females
6,345
59
Average training
hours per female
13
15
Total number of
training hours for
males
29,310
7,228
Average training
hours per male
25
30
28,368
3,475
1,960
1,515
39,129
20
4
15
2
15
6,286
428
8
420
6,772
13
1
4
1
7
22,082
3,047
1,952
1,095
32,357
24
5
25
2
18
Finland
Blue-collar
White-collar
Other countries 2)
Blue-collar
White-collar
Grand Total
1) Excluding Ekokem, DUON, Info24
2) Other countries: Sweden, Poland
Level of education of the permanent
employees in 2014–2016, %
Level of education
Doctorate
University
Lower university
College
Vocational
Compulsory
Not indicated
2016
1
43
7
24
17
3
5
2015
1
41
6
27
21
4
0
2014
1
41
6
26
22
4
0
Performance and development discussions support
the achievement of targets and professional growth
Employee development is supported through the annual
performance and development discussions; all employees are
within the scope of the annual discussions . The main target of
the performance and development discussion is to ensure that the
employee has clear targets that align with the business as well as
the competencies supporting the achievement of the targets and
professional growth .
The achievement of the targets forms the basis for payment
of incentives . All employees who have a minimum of three months
of employment in Fortum are within the scope of Fortum’s
incentive plan .
52
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilitySocial responsibilitySafety and securityCorporate citizenshipHuman rightsProduct responsibilityEmployeesSecurity of supply Safety and security
For Fortum, excellence in safety is the foundation of our business
and safe performance is a sign of professionalism .
Occupational and operational safety
We strive to be a safe workplace for our employees and for the
contractors and service providers who work for us . We believe that
all work injuries are preventable when competence and the right
attitude prevails, when potential risks are addressed and when
measures are taken to safeguard against them . Good operational
safety is an absolute prerequisite for safe and efficient operations in
terms of the employees and the environment .
We have set Group-level targets for the following key indicators:
Injury frequency (TRIF* and LWIF**) for own employees and
•
(LWIF) for contractors
• Number of serious*** accidents, as of 1 January 2017 number of
severe**** accidents
• Major environmental, health and safety (EHS) incidents
• Quality of occupational accidents, major EHS incidents and near
misses investigation process
The safety targets apply to all Fortum employees and are part of
the Group’s short-term incentive plan .
Safety of own employees at a good level
Fortum’s safety performance in 2016 was impacted by the
completion of the Russian investment programme with good
safety performance and the integration of Ekokem Corporation
(as of 1 September 2016) and Grupa DUON S .A . (as of 1 April 2016) .
In particular, Ekokem Corporation’s higher LWIF levels compared
to Fortum’s impacted the overall statistics .
Our good safety performance with our own employees
continued . The lost workday injury frequency (LWIF) per million
working hours was 1 .0 (2015: 1 .1) . The total recordable injury
frequency (TRIF), however, worsened to 1 .9 (2015: 1 .6) .
The lost workday injury frequency (LWIF) for contractors is
going to be our main challenge in 2017 . The lost workday injury
frequency (LWIF) per million working hours for contractors in
2016 was 3 .0 (2015: 2 .7) . We successfully achieved our target (3 .0),
but we recognise that the LWIF of many contractors working for us
is higher than our target level . Robust safety management actions
are needed from us in 2017 to reach the set target . A contractor safety
performance assessment is also part of our supplier pre-selection
process .
In 2016, as in 2015, there were no accidents leading to a fatality
in Fortum’s operations .
Unfortunately, there were still too many serious accidents to
our own and our contractors’ employees, and we did not achieve
our target for serious accidents (2016: ≤8) . In total, there were
Key safety figures in 2014–2016 (GRI G4-LA6)
Lost workday injury frequency (LWIF) 1), own personnel
Lost workday injuries, own personnel
Lost workday injury frequency (LWIF) 1), contractors
Lost workday injuries, contractors
Total recordable injury frequency (TRIF) 2), own personnel
Serious 3) occupational accidents
Severe 4) occupational accidents
Fatalities, own personnel
Fatalities, contractors
Major EHS incidents
1) LWIF = Lost workday injury frequency per million working hours
2) TRIF = Total recordable injury frequency per million working hours
Target
2020
≤ 1.0
Target
2017
≤ 1.0
Target
2016
≤ 1.0
≤ 2.0
≤ 3.5
≤ 3.0
≤ 2.0
≤ 2.5
0
0
0
≤ 15
≤ 5
0
0
≤ 21
≤ 2.5
≤ 8
0
0
≤ 23
2016
1.0
14
3.0
27
1.9
13
5
0
0
22
2015
1.1
15
2.7
29*
1.6
14**
0
0
18
2014
1.0
15
3.2
35
2.0
16
0
3
27
3) Fatality or an accident leading to permanent disability or a sick-leave of more than 30 days
4) Fatality or an accident leading to permanent disability or an accident that could have caused serious consequences
* Including contractor injuries of the divested Distribution business
** The figure revised for reporting 2015.
* TRIF: Total recordable injury frequency, injuries per million working hours
** LWIF: Lost workday injury frequency, injuries per million working hours, absence of one or more working days or shift excluding the day the accident happened
*** Serious accident: fatality or an accident leading to permanent disability or a sick-leave of more than 30 days
**** Severe accident: fatality or an accident leading to permanent disability or accident that could have caused serious consequences
53
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilitySocial responsibilitySafety and securityCorporate citizenshipHuman rightsProduct responsibilityEmployeesSecurity of supply
13 (2015: 14) serious work-related accidents . Falls and injuries in
connection with the use of tools were the main causes of the serious
accidents . We have investigated all the injuries and launched
measures to prevent similar injuries .
As of 1 January 2017, Fortum has changed the definition of
the severity of the work-related accidents and is now focusing on
accidents leading to serious consequences or potential serious
consequences rather than the length of the sick-leave . We believe
that this change will assist us in focusing and removing the root
causes behind severe accidents and in allocating our resources
more effectively . In 2016, there were five severe accidents for both
own and contractors’ employees . The Group target for 2017 is ≤5
severe accidents . Our target is to reduce severe accident to zero
by 2020 .
In reporting accidents, we comply with the principles of the
United States Occupational Safety & Health Administration (OSHA)
and ILO’s Practices on Recording and Notification of Occupational
Accidents and Diseases to the extent that they conform with the
legislation in Fortum’s countries of operation .
Operational safety
We track major environmental, health and safety (EHS) incidents
as a Group target, which covers fires, leaks >100 litres into the
environment, explosions, nuclear and dam safety incidents,
and environmental non-compliances . There were 22 (2015: 18)
EHS incidents in 2016; the target was ≤23 . The incidents did not
cause significant harm to operations, people or the environment .
The majority (8) of the incidents were wastewater permit violations
in Russia .
Common guidelines steer our operations
Fortum has Group-level EHS instructions and minimum
requirements that set requirements for all the operations for which
we have operative responsibility .
Occupational accidents, accident frequencies and absence days due to
occupational accidents in 2016 by region and gender (GRI G4-LA6)
Own personnel
Occupational accidents causing absence, men
Occupational accidents causing absence, women
LWIF, men
LWIF, women
Absence from work due to occupational accidents for men, days
Absence from work due to occupational accidents for women, days
Contractors
Occupational accidents causing absence, men
Occupational accidents causing absence, women
LWIF, men
LWIF, women
Absence from work due to occupational accidents for men, days
Absence from work due to occupational accidents for women, days
Finland Sweden
Russia Poland Others
9
0
3.5
0
254
0
17
0
11.7
0
316
0
0
0
0
0
0
0
3
0
3.6
0
38
0
2
0
0.4
0
61
0
4
0
0.8
0
250
0
2
0
2.2
0
22
0
1
0
0.8
0
14
0
1
0
1.4
0
2
0
2
0
6.3
0
273
0
54
In 2016 we continued to update these requirements and, as part
of the implementation, we assessed the divisions’ performance in
complying with the revised requirements in their operations . The
shortcomings were recorded and the corrective measures were
mostly implemented by all divisions during 2016 . The remaining
actions will be completed during 2017 . The progress of this
assessment of implementation is reported quarterly to the Fortum
Executive Management .
A revised version of the Corporate Safety and Security handbook
together with an e-learning module was published in eight
languages . Completion of the e-learning is compulsory for all
personnel . The training for the Fortum Executive Management took
place in January 2017 .
In 2017 Fortum will introduce two key control points for the
EHS process: the assessment of compliance with Fortum’s EHS
minimum requirements and the quality of occupational accidents,
major EHS incidents and near misses investigation process .
A revised corporate incident management system, launched
in December 2016, will help to ensure the effective root cause
assessment, reporting and sharing of learnings .
We will continue our efforts to improve safety
Our goal is to continuously improve the safety of our operations .
Our target for contactor safety in 2017 is LWIF ≤ 3 .5 (2016: ≤3 .0) .
Setting a higher numeric target than in the previous year might
seem controversial, but achieving the 2017 targets set by Fortum's
Board of Directors is very challenging in a situation in which
acquisitions are resulting in new companies being integrated
with Fortum . Achieving the targets requires EHS processes to be
integrated and significant safety improvements .
Excellent occupational safety continues to be a promise we want
to keep also in the coming years . We are committed to achieving
the contractor safety level (LWIF ≤2 .0) by 2020 .
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilitySocial responsibilitySafety and securityCorporate citizenshipHuman rightsProduct responsibilityEmployeesSecurity of supply
Fortum’s crisis and emergency management instructions
are prepared for Group, division and site levels . The testing and
updating of the crisis management and continuity plans are
the responsibility of each division and line organisation . Crises
impacting Group operations more broadly are managed at the
Group level . Crisis communication instructions have been prepared
for e .g . power and heat outages and for the Loviisa nuclear power
plant . Corporate Security is responsible for crisis management
development, e .g ., for organising rehearsals and supporting
planning . Group Communications is responsible for crisis
communication .
In 2016, the annual emergency exercise related to a nuclear
power accident was held at the Loviisa power plant . Additionally, in
September 2016, a major accident drill was carried out at Ekokem’s
Riihimäki plant in compliance with the requirements of the Seveso
II directive .
1.9
TRIF own employees
Target: ≤2.5
22
Major EHS incidents
Target: ≤23
Corporate security
Through corporate security, we strive to ensure the uninterrupted
continuity of business and the safety of people, information,
our assets and processes in normal and exceptional situations .
Uninterrupted energy production and distribution is important
both for Fortum’s business operations and for an energy-dependent
society .
Securing personnel and business safety
Our Corporate Security unit is responsible at the Group level for
security and for providing guidelines and support to the business
units . Compliance with the minimum safety requirements
improves our operational ability to withstand and recover from
disruptions and thus reduces unplanned maintenance outages and
improves productivity .
Fortum’s new strategy was published in February 2016 . In 2016
we analysed the company’s security risks related to potential new
business areas, services and products . We assessed risks related
to people, business and information in all geographical areas
where Fortum has potential operations and business travel . Risks
impacting the company and business operations may be related
to political situations, terrorism, crime, conflicts and business
partners .
Corporate security is improved also by gaining a deeper
understanding of the security situation so that we can anticipate
and prevent risks before they materialise .
Cyber security
Security with the information we handle and with our IT
systems ensures that we can meet society’s and our customers’
expectations . The aim of cyber security is to ensure the production
and distribution of power and heat and the functioning of new
digital services, like Internet of Things applications .
In IT security, we aim to ensure the accessibility, integrity
and confidentiality of critical information . We also take seriously
and are uncompromising in our compliance with the regulations
related to the protection of personal data .
We actively engage in collaboration with authorities and other
stakeholders to understand and prevent new and growing cyber
threats . We launch campaigns to increase employee awareness of
security risks . We promote ways of operating that take employee
information security into consideration by providing guidelines
and, e .g ., online training .
Contingency planning
The main disaster and emergency situations we prepare for are
related to our critical operations, such as power plant and dam
safety and securing other operations .
For dam and nuclear safety, emergency preparedness
obligations in Finland and Sweden are based on regulatory
provisions; likewise, there are terrorism-related preparedness
obligations in Russia . Otherwise, emergency preparedness
obligations prescribed by authorities are of a general nature .
Based on its own risk assessments, Fortum independently defines
the crisis and exceptional situations it prepares for and drafts
action plans for .
55
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilitySocial responsibilitySafety and securityCorporate citizenshipHuman rightsProduct responsibilityEmployeesSecurity of supply Corporate citizenship
Social responsibility is a cornerstone of Fortum’s operations .
Our operations impact the local communities where our power
plants are located, and we engage in many kinds of collaboration
with local stakeholders .
We support activities promoting the common good in society,
for example the work of organisations and communities in our
operating countries . Our sponsorship programme focuses on the
future – on children, young people, the environment and society .
Fortum also does significant collaboration with different research
and development projects, particularly with Nordic universities .
We actively participate in national and international
organisations . Public affairs and collaboration with authorities are
a priority in the energy sector .
Local impacts and collaboration
with local communities
We are an important employer and significant tax payer in our
operating areas . In addition, our investments improve the local
infrastructure . Of our energy production forms, hydropower has
impacts on local communities and local
the most significant
forms of land use . Hydropower construction and use may alter the
fluctuation range and rhythm in the discharge and water level in
waterways as well as the fish fauna . These changes impact fishing,
recreational use, and boating . We mitigate and compensate the
adversities caused by hydropower production through numerous
measures, such as stocking fish and building boat launch ramps .
We communicate openly, honestly and proactively, and we
engage in a dialogue with the stakeholder groups located in the
vicinity of our power plants . We carry out collaboration projects
with local communities . We conduct environmental impact
assessments (EIA) for our projects in accordance with legislative
requirements . The hearing of stakeholders is part of the EIA
process . In addition, relevant stakeholders are heard in all permit
procedures .
Examples of our activities with local communities in 2016:
• Customer panels and meetings were organised in Finland,
Sweden, Estonia, Latvia and Poland . Meeting with customers is
one way to get direct feedback and development ideas . We want
to accommodate customer needs even better in the future .
• Open-house events were arranged at power plants in different
countries of operation; thousands of locals attended the events .
For example, in Jelgava, Latvia, an open-house event is
organised annually during the Jelgava City Festival, and the
power plant offers recreational activities to local families .
The Ekokem production plant’s open-house event offered the
opportunity to tour the new Circular Economy Village .
• Fortum continued publishing the Naapurina ydinvoimala
(Nuclear power plant as a neighbour) magazine in Loviisa
and maintained an active dialogue with local residents and
representatives of the city of Loviisa .
•
Projects aiming to mitigate the adverse environmental
impacts of hydropower were under way in Finland and Sweden
in collaboration with municipalities, research facilities,
fishermen, universities and environmental organisations . For
example, every year Fortum partners with other actors to
improve the environmental conditions and recreational use of
the River Oulujoki through River Oulujoki restoration and
multi-use framework agreement projects .
• The fourth National Clean River Championships was held
for students in Sweden . More than 2,300 young people raised
money for recreational activities by collecting 31 tons of trash
along the banks of four rivers (Dalälven, Klarälven, Ljusnan and
Gullspångälven) where Fortum has hydropower plants .
• District cooling production was started in Tartu, Estonia, after
• Fortum continued supporting local communities with several
projects in the vicinity of the Kapeli and Amrit solar power
plants in India . Among other things, Fortum has improved
water service as well as lighting and cooling with fans for health
care centre and schools . A new classroom was built in a school
near the Amrit power plant .
• Fortum supports the communities in power plant areas through
various donations . Support in 2016 went to e .g . workshops and
scholarships for talented children raised in difficult conditions
in Poland, a day-care centre for special needs children in Latvia,
as well as a sports school for children, a hockey team, and
cultural and residential events in Russia .
In Finland we installed free-to-use, lockable cell phone charging
stations in public areas, like libraries, hospitals and shopping
centres .
•
Support for society
In 2016, our support for activities promoting the common good
totalled about EUR 3 .6 (2015: 3 .6) million . The share of grants
awarded by the Fortum Foundation was about EUR 675,000
(2015: 706,000) of the support . Fortum Foundation supports
research, education and development in the natural, technical and
economical sciences within the energy industry .
In 2017, Ekokem will award EUR 150,000 in grants for
environmental and waste management sector research . The purpose
of the fund is to promote and support innovative research and
expertise to benefit the environmental management sector,
especially with regard to waste management, material recycling,
the utilisation of waste, the treatment of hazardous waste, and the
restoration of soil and waters in the Nordic countries .
active collaboration with the City of Tartu and other stakeholder
groups . Fortum is participating in the SmartEnCity project,
which aims to develop smart solutions for transport, energy
conservation and ICT to improve the quality of life for citizens .
The goal of the collaboration with universities and colleges
is to develop Fortum’s business, promote energy-sector research
and development, and foster Fortum’s recruiting and training
opportunities .
56
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilitySocial responsibilitySafety and securityCorporate citizenshipHuman rightsProduct responsibilityEmployeesSecurity of supply Fortum’s support to society in 2016 by target, %
Environment, 35
Culture, 28
Children and youth, 20
Sports, 11
Other, 7
Fortum’s support to society in 2016 by country, %
Russia, 60
Sweden, 18
Finland, 16
Poland, 4
Other countries, 2
Examples of our collaboration with universities and colleges in
different operating countries:
•
In Finland, we are funding a solar economy professorship
(75% funding for a five-year period, i .e . until 2017) at
Lappeenranta University of Technology .
In Sweden, the research with the University of Karlstad on
improving the downstream migration of fish was concluded .
Additionally, there is a multi-year project under way that aims
to offer sustainability-related training to more than 4,000
educators . Fortum’s collaboration partners in the project
are Pedagog Värmland, Karlstad municipality, engineering
and consulting company ÅF and Chalmers University of
Technology .
In Poland, Fortum is collaborating with the Wroclaw
University of Technology on district cooling solutions and
with the Czestochowa University of Technology’s Faculty of
Environmental Engineering and Biotechnology . Fortum also
has a collaboration agreement with the Silesia and the Krakow
University of Technology .
In Russia, we are participating in the AboutEnergy training
programme, which supports educators in providing training
related to energy conservation . For university students, we also
offer internships and information visits at our power plants .
•
•
•
•
•
In Estonia and Lithuania, Fortum is a member of the Baltic
Innovative Research and Technology Infrastructure (BIRTI),
which coordinates collaboration between universities, scientific
institutes and entrepreneurs .
In Latvia, we are cooperating with Riga Technical University,
the Latvia University of Agriculture, and the Jelgava Technical
School, and, in Lithuania, with the Klaipeda Technical School,
Klaipeda University and Kaunas University of Technology . We
arrange internships and information visits for students, and we
support energy sector-related conferences and seminars .
Sponsorship projects
In 2016, we continued sponsoring the coaching of children and
youth in football, volleyball, basketball, and track and field .
Through the Fortum Tutor programme, we offer tutors to support
coaches in their daily work as well as financial support for teams
to train new coaches . Fortum Tutor operates in Finland and in the
Baltic cities where Fortum has power plants .
The Fortum Honorary Energy Donor mobile app has been
in use in Poland and Russia . It encourages people to engage in
physical activity . The distance covered during a physical activity
can be converted into energy, for which Fortum makes a financial
donation to selected charities .
57
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilitySocial responsibilitySafety and securityCorporate citizenshipHuman rightsProduct responsibilityEmployeesSecurity of supply Human rights
Fortum supports and respects internationally recognised human
rights, which are included in the key human rights agreements .
Our own operations have a direct or indirect impact on the
realisation of the human rights of our own personnel, those
working in the supply chain, and members of local communities .
with the requirements . Those who have completed the internal
training are advised to complete auditor training also on the Social
Accountability (SA8000) standard . Internal trainings were not
organised in 2016 but three Fortum employees participated in
SA8000 auditor course during the year .
Management of human rights issues
Our goal is to operate in accordance with the UN Guiding Principles
on Business and Human Rights, and to apply these principles in our
own operations as well as in country and partner risk assessments
and supplier audits . Fortum’s approach to the management of
human rights issues is described in more detail in the Appendix 1:
Sustainability management by topic, Human rights .
Fortum’s Corporate Sustainability unit is responsible for
coordinating and developing sustainability, including human
rights issues, at the Group level .
Personnel training in human rights issues
The online course for Fortum’s Code of Conduct includes training
in human rights-related issues . The course is part of the induction
programme for new employees . Fortum employees conducting
supplier audits receive internal training, during which they review
the requirements of the Supplier Code of Conduct, the sub-areas
to be audited, and the tools to be used to verify compliance
Assessment of human rights impacts
A sustainability assessment is carried out for our investment
projects and takes into consideration the environmental,
occupational health and safety, and social impacts of the project .
The sustainability assessment includes a human rights evaluation,
especially in new operating areas . A human rights assessment is
also part of the systematic assessment of country and counterparty
risks when planning a project .
The process has two parts: a light and a deep assessment . A light
assessment is done for all new countries in where our business unit
is planning the sales of operation and maintenance services, for
example, and it is based on publically available sources . In 2016,
28 of these assessments were made . Deep assessments were not
done during the year .
Fortum’s supplier audits cover the most important human rights
aspects related to purchases . The supplier audits conducted in 2016
and their results are described in more detail in the section
Sustainable supply chain .
Identified impacts on human rights,
corrective measures and grievances
All forms of child and forced labour are strictly prohibited and in
violation of Fortum’s Code of Conduct . Of our operating countries,
India has not ratified the International Labour Organisation’s (ILO)
Convention on the minimum age and the worst forms of child
labour . Our functions in India require job applicants to be of adult
age . We have not identified risks related to the use of forced labour
in our own operations . Support of employees’ right to freedom of
association and collective bargaining are discussed in the section
Employee-employer relations .
Internal reporting channels used for reporting any suspected
misconduct relating to the labour practices or human rights
violations are instructed in Fortum's Code of Conduct . In addition
to internal reporting channels, Fortum has an external “Raise a
concern” channel which is available to all stakeholders .
In 2016, there were no grievances related to human rights,
labour rights or discrimination filed through formal grievance
channels, nor were there any grievances carried over from the
previous year .
58
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilitySocial responsibilitySafety and securityCorporate citizenshipHuman rightsProduct responsibilityEmployeesSecurity of supply
Product responsibility
Fortum is a clean energy company that provides customers with electricity, heating and cooling as well
as smart solutions to improve resource efficiency . Our ambition is to engage our customers and society to
drive the change towards a low-emission energy system and optimal resource efficiency .
We are one of the leading electricity sales companies in the Nordic countries, and we sell electricity
to private and business customers in Sweden, Finland and Norway . Fortum is one of the world’s biggest
producers and sellers of heat . We sell heat to companies, the public sector and private customers in
Finland, Poland, all the Baltic countries, and especially in Russia . Additionally, we sell district cooling in
Finland and in Estonia, where the first customers started using district cooling in 2016 . In Poland, we sell
electricity, natural gas, and liquefied natural gas . Fortum Charge & Drive is the Nordic countries’ largest
electric vehicle charging network, which operates in Norway, Iceland, Sweden and Finland .
With the acquisition of Ekokem, Fortum became one of the leading Nordic circular economy
companies offering environmental management and material efficiency services . The range of
services includes recycling, reutilisation and final disposal solutions, as well as soil remediation and
environmental construction services . Operations are in Finland, Sweden and Denmark .
Innovative charging facility for electric vehicles in Oslo, Norway
Fortum Charge & Drive opened an innovative electric car charging facility at
the Vulkan parking garage in central Oslo in December 2016. It has over 100 charging
stations available for customers.
The battery reserve installed in the garage balances power loads in order to avoid
putting strain on the power grid during times of high usage. The solution makes it
possible for parking garages to set up large EV charging facilities without having to make
expensive and time-consuming upgrades to the power grid. The installation is prepared
for “vehicle to grid,” meaning that power can be transferred both to and from the
batteries of the charging cars. The charging facility will be further developed in the first
half of 2017 to enable a choice in charging speed – from 3.6 to 22 kW – and to pre-book
a charging slot.
The new charging facility was built in cooperation with the property owner and the city
of Oslo. The facility is helping Oslo to reach its ambitious climate goals, which include
cutting greenhouse gas emissions by 50% by 2020 and 95% by 2030, compared to
1990 levels.
Fortum Charge & Drive is a pioneer in electric vehicle charging. In total, the network
consists of 1,200 affiliated smart chargers. The Charge & Drive cloud-based business
system is already used by about 50 partners in the Nordic countries and nearly
40,000 end customers.
59
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilitySocial responsibilitySafety and securityCorporate citizenshipHuman rightsProduct responsibilityEmployeesSecurity of supply Guarantee-of-origin-labelled
and renewable electricity
Fortum is one of the Nordic countries’ leading sellers of carbon
dioxide-free and guarantee-of-origin-labelled electricity and can
offer more and more customers an electricity agreement that
comes with electricity produced with renewable energy . All the
electricity we sold to private customers in Finland and Sweden in
2016 was renewable and carbon dioxide-free hydro-, wind or solar
power . The origin of the electricity was guaranteed with European
Guarantees of Origin . Some of the production was guaranteed also
with the pan-European EKOenergy label granted by environmental
organisations and in Sweden with the Bra Miljöval label .
Services to customers
In recent years Fortum has introduced many new solutions that
improve energy efficiency for customers and reduce environmental
impacts . We want to offer growing urban areas sustainable
solutions that support a circular economy . Smart solutions
give customers better opportunities to control their electricity
consumption and costs . Fortum is continuously developing
its products and services to meet the needs of customers . The
new solutions are related to, e .g ., energy efficiency and demand
response, electric vehicles, solar power, and open district heating .
We offer power plant owners and industrial customers a variety
of expert services for operation and maintenance . Additionally,
we offer products and consulting services related to hydropower,
nuclear safety and nuclear waste handling .
Marketing communications
and customer data protection
Our goal is to present products and services truthfully in all our
marketing and communication materials . We do not present
misleading statements and we strictly follow responsible
marketing communication guidelines . In statements
regarding environmental issues, we follow the regulations
for environmental marketing . No violations of regulatory or
voluntary principles were observed in Fortum’s marketing
communications in 2016 .
Data protection legislation has been amended in recent years .
New personal data protection legislation in Russia took effect in
2015, and in 2016 the EU published the Data Protection Regulation,
which will take effect in May 2018 .
Fortum assumes responsibility for customer data protection . We
have launched a project to ensure that we fulfil the requirements of
the regulation by the deadline . Any changes needed in the handling
of customer data, among other things, will be implemented
during 2017 .
Customer satisfaction and reputation
Products and services
60
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilitySocial responsibilitySafety and securityCorporate citizenshipHuman rightsProduct responsibilityEmployeesSecurity of supply Reporting principles
We report on sustainability in this Sustainability Report and in
the Online Annual Review . Additionally, we describe sustainability-
related governance practices in the Corporate Governance
Statement and strategy and the CEO’s view in the CEO Letter .
Tax footprint 2016 is also a part of our reporting entity .
In our sustainability reporting, we comply with
integrated reporting principles, and we apply the Global
Reporting Initiative (GRI) G4 Guidelines’ specific standard
disclosure indicators we have identified as material . We apply
the requirements of the Electric Utilities Sector Disclosures
where we have deemed the information to be material to our
stakeholders .
We gain information about our stakeholders’ views through
the One Fortum survey, the stakeholder sustainability survey and
other stakeholder collaboration . Our selection of material aspects
is based on Fortum’s own and our stakeholders’ views regarding
the materiality of the impacts .
We report sustainability information annually in Finnish and
English . In our annual reporting we describe Fortum’s operations
in 2016 as well as some information from January–February 2017 .
The previous reporting was published in February 2016, and
our next reporting will be published in February/March 2018 .
In addition to the annual reporting, we report on our sustainability
activities in Fortum’s interim reports .
Reporting scope and boundaries
Reporting related to operations and management covers all
functions under Fortum’s control, including subsidiaries in all
countries of operation . Possible deviations to this principle are
reported in conjunction with information applying different
boundaries . A list of Fortum’s subsidiaries is in Notes to the
Financial Statements, Note 42 Subsidiaries by segment .
Information from previous years is mainly presented as pro
forma information, i .e . on the basis of the organisation and
the functions of each year; the impacts of ownership changes
in production facilities, for example, have not been updated
afterwards in the previous figures .
The company AB Fortum Värme samägt med Stockholms stad
(Fortum Värme) is classified in the Financial Statements as a joint
venture and is consolidated with the equity method as of 1 .1 .2014 .
Fortum Värme is not included in Fortum’s sustainability targets
and indicators nor in the descriptions of management practices .
Fortum Värme’s sustainability information is available in Fortum
Värme’s sustainability report .
Fortum completed the divestment of its Distribution business on
1 June 2015 . In this report, the information for 2016 and, as a general
rule, also for 2015 does not include the Distribution business . The
Distribution business is included in the figures for 2014 .
Fortum completed the acquisition of Ekokem Corporation on
31 August 2016 . Ekokem is included in Fortum’s sustainability
reporting starting from 1 September 2016 . Fortum acquired 100%
of the shares in the electricity and gas sales company Grupa DUON
S .A . on 8 April 2016 . DUON is included in Fortum’s sustainability
reporting starting from 1 April 2016 .
Exceptions to the accounting practice are presented in
conjunction with each figure .
Capacity changes
Fortum commissioned unit 2 (248 MW electricity and 174 MW
heat) of its Chelyabinsk GRES combined heat and power (CHP)
plant in Russia in March 2016 . With the acquisition of Ekokem
Corporation, 43 MW of electricity production capacity and 144 MW
heat production capacity was transferred to Fortum’s ownership .
The acquisition of Grupa DUON S .A . bought Fortum 12 MW of heat
production capacity . The new capacity constructed during the year
and the new plants commissioned are included in the reporting
starting from their commissioning .
Fortum divested the Tobolsk 665-MW CHP plant on 5 February
2016 . The divested capacities are included in the reporting until the
divestment date .
61
Greenhouse gas emissions are reported on a pro forma basis and
the figures of the comparison years have not been adjusted in terms
of new or commissioned or divested capacity because of partially
insufficient data .
Measurement and calculation principles
Data for economic performance indicators is collected from the
audited Financial Statements and from financial accounting and
consolidation systems .
The environmental information of the report covers the plants
for which Fortum is the legal holder of the environmental permit .
In such cases, the plant information is reported in its entirety . The
only exception is the calculation of specific CO2 emissions from the
Meri-Pori power plant, where the calculation covers only Fortum’s
share of production and emissions as specified in the operation
agreement between Fortum and Teollisuuden Voima Oy . In the
specific emissions calculation, the production shares of minority
holdings are also included in the total production .
Fortum utilises a Group-wide database with instructions for
collecting site-level environmental data . Sites are responsible
for data input, emissions calculations and the accuracy of the
information provided . The Corporate Sustainability unit compiles
the data at the Group level and is responsible for the disclosed
sustainability information .
Fortum’s CO2 emissions subject to the EU Emissions Trading
Scheme are annually verified at the site-level by external verifiers .
Direct and indirect greenhouse gas emissions have been reported in
accordance with the Greenhouse Gas (GHG) Protocol on the basis of
the Greenhouse Gas Analysis performed by an external consultant .
The average and the year-end total personnel figures presented
in this report include 332 employees who joined Fortum in 2016
mainly through corporate acquisitions, but are not included in the
other personnel figures and tables presented in the report . These
individuals include the civil contractors working in the Polish DUON
Group and the entire personnel of the Swedish Info24 company .
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityReporting principles and assuranceReporting principlesAssurance reportReported GRI indicators Fortum’s human resources (HR) management system is used
in all Fortum’s operating countries and is the main system for
employee-related personal and job data . In Russia, the employee
data system covers mainly superiors . In addition, Russian
operations have their own, local data system . Other social
responsibility data, such as occupational health-related data,
originates from various data systems .
Designated individuals collect the information and deliver
it to the Corporate Sustainability unit primarily in the format
recommended by GRI (Global Reporting Initiative) .
Assurance
Deloitte & Touche Oy has provided limited assurance for the
1 January 2016 to 31 December 2016 reporting period for emissions
calculations (Scope 1-3) based on the GHG protocol according to
the requirements published by CDP (Verification of Climate Data) .
Global Compact and Caring for climate reporting
Fortum has been a member of the United Nations Global Compact
initiative since 2010 . In our sustainability report, in conjunction
with the description of environmental responsibility, social
responsibility and business ethics, we describe the realisation
of the Ten Principles of the Global Compact initiative in our
operations in 2016 . We use the GRI G4 indicators to measure
compliance with the principles of human rights, labour standards,
the environment and anti-corruption .
Fortum joined the UN Caring for Climate initiative in 2013 .
Fortum meets the reporting requirements of the Caring for Climate
initiative by annually participating in the assessment in the CDP’s
climate change survey and by publishing its response on the
CDP website .
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Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityReporting principles and assuranceReporting principlesAssurance reportReported GRI indicators
Reported GRI indicators
In our sustainability report 2016 we apply the Global Reporting Initiative (GRI) G4 Guidelines' specific standard disclosure indicators presented in the table .
DESCRIPTION
CODE
DISCLOSURES OF MANAGEMENT APPROACH
G4-DMA Management approach
ECONOMIC RESPONSIBILITY
G4-DMA
Management approach to economic
responsibility
SECTION
Sustainability management / Governance
and management
Appendix 1, Sustainability management by
topic
Appendix 1, Sustainability management by
topic
CODE
Energy
G4-EN3
DESCRIPTION
SECTION
Energy consumption within the organisation
Environmental responsibility / Improving
Economic performance
G4-EC1
Direct economic value generated and
distributed
Financial implications and other risks and
opportunities due to climate change
G4-EC2
G4-EC3
Coverage of the organisation's benefit plan
obligations
Financial assistance received from government
G4-EC4
Plant decommissioning
G4-DMA
Management approach
System efficiency
EU11
Average generation efficiency of thermal
plants
ENVIRONMENTAL RESPONSIBILITY
G4-DMA Management approach to environmental
responsibility
Materials
G4-EN1
Use of materials
G4-EN2
Recycled materials used
G4-EN5
Energy intensity
Economic responsibility / Economic impacts
G4-EN6
Reduction of energy consumption
Environmental responsibility /
Climate change mitigation
Financials / Operating and financial review
/ Risk management
Financials / Notes to the consolidated
financial statements / 32 Pension obligations
Economic responsibility / Economic impacts
Financials / Notes to the consolidated
financial statements / 30 Nuclear related
assets and liabilities
Total water withdrawal by source
Water
G4-EN8
Biodiversity
G4-EN13 Habitats protected or restored
Emissions
G4-EN15
Direct greenhouse gas (GHG) emissions
(Scope 1)
G4-EN16 Indirect greenhouse gas (GHG) emissions
(Scope 2)
Environmental responsibility / Improving
energy efficiency / Energy intensity
G4-EN17 Other indirect greenhouse gas (GHG) emissions
(Scope 3)
G4-EN18 Greenhouse gas (GHG) emissions intensity
Appendix 1, Sustainability management by
topic
Environmental responsibility / Improving
energy efficiency / Fuel consumption
Environmental responsibility / Improving
energy efficiency / Fuel consumption
Environmental responsibility /
Circular economy
63
G4-EN21 NOx and SO2 and other significant air emissions
Environmental responsibility /
Emissions into air
Effluents and waste
G4-EN22 Total water discharge by quality and destination
G4-EN23 Total weight of waste by type and disposal
method
Environmental responsibility / Water use
Environmental responsibility /
Waste and by-products
energy efficiency / Fuel consumption
(consumption)
Environmental responsibility / Sustainable
energy production (production)
Environmental responsibility / Improving
energy efficiency / Energy intensity
Environmental responsibility / Improving
energy efficiency / Energy intensity
Environmental responsibility / Improving
energy efficiency
Environmental responsibility / Water use
Environmental responsibility / Biodiversity
Environmental responsibility / Climate
change mitigation / Greenhouse gas
emissions
Environmental responsibility / Climate
change mitigation / Greenhouse gas
emissions
Environmental responsibility / Climate
change mitigation / Greenhouse gas
emissions
Environmental responsibility / Climate
change mitigation / Greenhouse gas
emissions
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityReporting principles and assuranceReporting principlesAssurance reportReported GRI indicators
CODE
G4-EN24 Total number and volume of significant spills
DESCRIPTION
Compliance
G4-EN29 Significant fines and non-monetary sanctions
for noncompliance with environmental laws
and regulations
Supplier environmental assessment
G4-EN33 Significant actual and potential negative
environmental impacts in the supply chain and
actions taken
Environmental grievance mechanisms
G4-EN34
Number of grievances about environmental
impacts filed, addressed, and resolved through
formal grievance mechanisms
SECTION
Environmental responsibility /
Environmental non-compliances and
incidents
Environmental responsibility /
Environmental non-compliances and
incidents
Economic responsibility / Supply chain
management / Sustainable supply chain
Environmental responsibility /
Environmental non-compliances and
incidents
Sustainability management / Business
ethics and compliance
SOCIAL RESPONSIBILITY: LABOUR PRACTICES AND DECENT WORK
G4-DMA Management approach to social responsibility,
labour practices and decent work
Workforce
Coverage of collective bargaining agreements
G4-10
G4-11
topic
Employment
G4-LA1
Occupational health and safety
G4-LA6
New employee hires and employee turnover
Type of injury and rates of injury, occupational
diseases, lost days, and absenteeism, and total
number of work related fatalities
Training and education
G4-LA9
Average hours of training per employee
Appendix 1, Sustainability management by
Social responsibility / Employees
Social responsibility / Employees /
Employee-employer relations
Social responsibility / Employees
Social responsibility / Safety and security /
Occupational and operational safety
Social responsibility / Employees /
Employee wellbeing
Social responsibility / Employees /
Employee development
G4-LA10 Programmes for skills management and
Social responsibility / Employees /
G4-LA11
lifelong learning
Percentage of employees receiving regular
performance and career reviews
Employee development
Social responsibility / Employees /
Employee development
Diversity and equal opportunity
G4-LA12 Composition of governance bodies and
breakdown of employees
Social responsibility / Employees / Diversity
and equal opportunity
Corporate governance statement /
Governing bodies of Fortum / Board of
directors
64
DESCRIPTION
CODE
Equal remuneration for women and men
G4-LA13 Ratio of basic salary and remuneration of
women to men
Supplier assessment for labour practices
G4-LA15 Significant actual and potential negative
impacts for labour practices in the supply chain
and actions taken
Labour practices grievance mechanisms
G4-LA16
Number of grievances about labour practices
filed, addressed, and resolved through formal
grievance mechanisms
SOCIAL RESPONSIBILITY: HUMAN RIGHTS
G4-DMA Management approach to social responsibility,
SECTION
Social responsibility / Employees / Diversity
and equal opportunity
Economic responsibility / Supply chain
management / Sustainable supply chain
Social responsibility / Human rights
Sustainability management / Business
ethics and compliance
Appendix 1, Sustainability management by
human rights
topic
Investments
G4-HR1
G4-HR2
Human rights screening or clauses included in
significant investment agreements
Employee training on human rights policies or
procedures
Social responsibility / Human rights
Social responsibility / Human rights
Non-discrimination
G4-HR3
Incidents of discrimination and corrective
actions taken
Freedom of association and collective bargaining
G4-HR4
Supporting the right to freedom of association
and collective bargaining in risk areas
Social responsibility / Employees / Diversity
and equal opportunity
Social responsibility / Employees /
Employee-employer relations
Child labour
G4-HR5
Measures taken to eliminate child labour in risk
areas and in operations of significant suppliers
Social responsibility / Human rights
Economic responsibility / Supply chain
management / Sustainable supply chain
Forced or compulsory labour
G4-HR6
Measures taken to eliminate forced and
compulsory labour in risk areas and in
operations of significant suppliers
Assessment
G4-HR9 Operations that have been subject to human
rights reviews or impact assessments
Supplier human rights assessment
G4-HR11 Significant actual and potential negative human
rights impacts in the supply chain and actions
taken
Human rights grievance mechanisms
G4-HR12 Number of grievances about human rights
impacts filed, addressed, and resolved through
formal grievance mechanisms
Social responsibility / Human rights
Economic responsibility / Supply chain
management / Sustainable supply chain
Social responsibility / Human rights
Economic responsibility / Supply chain
management / Sustainable supply chain
Social responsibility / Human rights
Sustainability management /
Business ethics and compliance
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityReporting principles and assuranceReporting principlesAssurance reportReported GRI indicators DESCRIPTION
CODE
SOCIAL RESPONSIBILITY: SOCIETY
G4-DMA Management approach to social responsibility,
society
Local communities
G4-SO2
Operations with significant actual and potential
negative impacts on local communities
Anti-corruption
G4-SO3
G4-SO4
G4-SO5
Operations assessed for risks related to
corruption and the significant risks identified
Communication and training on anti-corruption
policies and procedures
Confirmed incidents of corruption and actions
taken
Public policy
G4-SO6
Total value of political contributions
Anti-competitive behaviour
G4-SO7
Total number of legal actions for
anticompetitive behavior, anti-trust, and
monopoly practices and their outcomes
SECTION
Appendix 1, Sustainability management
by topic
DESCRIPTION
CODE
SOCIAL RESPONSIBILITY: PRODUCT RESPONSIBILITY
G4-DMA Management approach to social responsibility,
SECTION
Appendix 1, Sustainability management
product responsibility
by topic
Product and service labelling
G4-PR5
Results of surveys measuring customer
satisfaction
Marketing communications
G4-PR7
Total number of incidents of non-compliance
with regulations and voluntary codes
concerning marketing communications
Economic responsibility /
Customer satisfaction and reputation
Social responsibility /
Product responsibility
Access
EU30
Average plant availability factor
Social responsibility / Security of supply
Social responsibility /
Corporate citizenship
Sustainability management /
Business ethics and compliance
Sustainability management /
Business ethics and compliance
Sustainability management /
Business ethics and compliance
Sustainability management /
Business ethics and compliance
Sustainability management /
Business ethics and compliance
Compliance
G4-SO8
Significant fines and non-monetary sanctions
for non-compliance with laws and regulations
Sustainability management /
Business ethics and compliance
Disaster/Emergency planning and response
G4-DMA
Management approach
Social responsibility / Safety and security
/ Security
65
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityReporting principles and assuranceReporting principlesAssurance reportReported GRI indicators Independent limited assurance report
on Fortum’s Greenhouse Gas Emissions 2016
To the Management of Fortum Corporation
We have been engaged by Fortum Corporation (hereafter: Fortum)
to provide a limited assurance on Fortum’s Greenhouse Gas
Emissions (hereafter: GHG Emissions) broken down by scope 1, 2
and 3 for the reporting period of January 1, 2016 to December 31,
2016 (hereafter: GHG Emissions Disclosures) . The information
subject to the assurance engagement is presented in the section
“Greenhouse gas emissions” of Fortum’s sustainability reporting
2016 (hereafter: GHG Reporting) .
Management’s responsibility
Management is responsible for the preparation of the GHG
Reporting in accordance with the reporting criteria as set out in
Fortum’s reporting principles and the Greenhouse Gas Protocol
(hereafter: GHG Protocol) . This responsibility includes: designing,
implementing and maintaining internal control relevant to the
preparation and fair presentation of the GHG Reporting that are
free from material misstatement, whether due to fraud or error,
selecting and applying appropriate criteria and making estimates
that are reasonable in the circumstances .
Assurance provider’s responsibility
Our responsibility is to express a limited assurance conclusion on
the reported GHG Emissions Disclosures within Fortum’s GHG
Reporting based on our engagement . Our assurance report is made
in accordance with the terms of our engagement with Fortum . We
do not accept or assume responsibility to anyone other than Fortum
for our work, for this assurance report, or for the conclusions we
have reached .
We conducted our assurance engagement in accordance with
International Standard on Assurance Engagements (ISAE) 3410 to
provide a limited assurance on performance data . This Standard
requires that we comply with ethical requirements and plan and
perform the assurance engagement to obtain a limited assurance
whether any matters come to our attention that cause us to believe
that the GHG Emissions Disclosures have not been presented, in all
material respects, in accordance with the reporting criteria .
We did not perform any assurance procedures on the prospective
information, such as targets, expectations and ambitions, disclosed
in the GHG Reporting . Consequently, we draw no conclusion on the
prospective information .
A limited assurance engagement with respect to the GHG
Emissions Disclosures involves performing procedures to obtain
evidence about the reported GHG Emissions . The procedures
performed depend on the practitioner’s judgment, but their
nature is different from, and their extent is less than, a reasonable
assurance engagement . It does not include detailed testing of
source data or the operating effectiveness of processes and internal
controls and consequently they do not enable us to obtain the
assurance necessary to become aware of all significant matters that
might be identified in a reasonable assurance engagement .
Our procedures on this engagement included:
• A review of management systems, reporting and data
compilation processes
• Selected interviews of persons conducting scope 1, 2 and 3
analysis and data owners
• Review of assumptions and emission factors used in calculations
• Analytical testing of consolidated data
• Testing of source data on spot check basis
We believe that the evidence we have obtained is sufficient and
appropriate to provide a basis for our conclusion .
Our independence, quality control and competences
We complied with Deloitte’s independence policies which address
and, in certain cases, exceed the requirements of the International
Federation of Accountants Code of Ethics for Professional
Accountants in their role as independent assurance providers
and in particular preclude us from taking financial, commercial,
governance and ownership positions which might affect, or be
perceived to affect, our independence and impartiality and from any
involvement in the preparation of the report . We have maintained
our independence and objectivity throughout the year and there
were no events or prohibited services provided which could impair
our independence and objectivity .
Deloitte & Touche Oy applies International Standard on
Quality Control 1 and accordingly maintains a comprehensive
system of quality control including documented policies and
procedures regarding compliance with ethical requirements,
professional standards and applicable legal and regulatory
requirements . This engagement was conducted by a multidisciplinary
team including assurance and sustainability expertise with
professional qualifications . Our team is experienced in providing
sustainability reporting assurance .
Conclusion
On the basis of the procedures we have performed, nothing has
come to our attention that causes us to believe that the information
subject to the assurance engagement is not prepared, in all material
respects, in accordance with the GHG Protocol or that the GHG
Emissions Disclosures are not reliable, in all material respects, with
regard to the reporting criteria .
Our assurance statement should be read in conjunction with
the inherent limitations of accuracy and completeness of the GHG
Reporting .
Helsinki 27 February 2017
Deloitte & Touche Oy
Jukka Vattulainen
Authorized Public Accountant
Lasse Ingström
Authorized Public Accountant
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Appendix 1 Sustainability management by topic
Sustainability management in the areas of economic responsibility, environmental responsibility and
social responsibility is described in more detail in the accompanying tables . Additionally, more detailed
information about the management of different aspects and impacts is presented by topic in this report .
Management of economic responsibility
Targets and approach
Policies
Responsibilities
Monitoring and
follow-up
Description
For Fortum economic responsibility means competitiveness, performance excellence
and market-driven production that creates long-term value for our stakeholders and
enables sustainable growth. Satisfied customers are key to our success and active
consumers will have a crucial role in the future energy system. Fortum has indirect
responsibility for its supply chain. We conduct business with viable companies that
act responsibly.
Each new research and development project is assessed against the criteria
of carbon dioxide emissions reduction and resource efficiency. Likewise, new
investment proposals are assessed against sustainability criteria as part of
Fortum’s investment assessment and approval process. In our investments we
seek economically profitable alternatives that provide the opportunity to increase
capacity and reduce emissions.
We measure financial performance with the return on capital employed
(target: at least 10%) and capital structure (target: comparable net debt/EBITDA
around 2.5).
The realisation of financial targets in 2016 is reported in the Financial
performance and position section of the Financials.
The financial management system is based on Group-level policies and their
specifying instructions, and on good governance, effective risk management,
sufficient controls and the internal audit principles supporting them. Other key
elements steering financial management are presented in the section
Policies and commitments and the Appendix 2.
The CFO and the Group’s Financial unit, division management, and ultimately the
CEO and the Board of Directors, are responsible for issues related to finances and
financial statements and for broader financial responsibility issues.
Our sustainability responsibilities are presented in the section
Governance and management.
The Board decides on the company’s financial targets as a part of the annual
business planning process. Realisation of the targets is monitored on monthly
basis both at the division level and by Fortum Executive Management. Fortum’s
management monitors the realisation of financial targets quarterly as part of the
business performance assessment, and key indicators are regularly reported to
Fortum’s Board of Directors. Financial key indicators related to investments are
monitored in divisions' investment forums and by Fortum Executive Management.
We report regularly on the direct and indirect financial impacts on our most
important stakeholder groups. Fortum also uses the applicable Global Reporting
Initiative (GRI) indicators to measure economic responsibility.
Management of environmental responsibility
Targets and approach
Policies
Description
Fortum's aim is to provide our customers with environmentally benign products
and services. We strive to continuously reduce the environmental impacts of our
operations by using best available practices and technologies. We emphasise a
circular economy, resource and energy efficiency, the use of waste and biomass,
and climate change mitigation in our environmental responsibility.
Our company's know-how in carbon dioxide-free hydro and nuclear power
production and in energy-efficient combined heat and power production,
investments in solar and wind power, as well as solutions for sustainable cities play
a key role in environmental responsibility.
We measure the realisation of the environmental responsibility with the
following indicators, for which we have set Group-level targets (targets for 2016
and 2017):
• Specific CO2 emissions
• Energy efficiency
• Major EHS incidents
Additionally, we have a Group-level target for the number of supplier audits.
Environmental management is based on Fortum's sustainability policy. Other key
elements steering environmental management are presented in the section
Policies and commitments and the Appendix 2.
We assess environmental risks as part of the Group's risk assessment process
Financials/Operating and financial review/Risk management.
Responsibilities
Our sustainability responsibilities are presented in the section
Governance and management.
Monitoring and
follow-up
EHS non-compliances are reported monthly and specific carbon dioxide emissions
are reported quarterly and energy efficiency improvements annually to the Fortum
Executive Management. The Group's key indicators are reported regularly to
Fortum's Board of Directors and are published in Fortum's Interim Reports.
The divisions and sites follow and develop their operations with audits required
by environmental management systems. Internal and external auditors regularly
audit our ISO 14001 standard-compliant management system. The CO2 emissions
of plants within the sphere of the EU’s emissions trading scheme are audited
annually on a per plant basis by an external verifier accredited by the emissions
trading authority. The verification addresses the reliability, credibility and accuracy
of the monitoring system and the reported data and information relating to
emissions. The plants must annually submit to the authorities a verified emissions
report of the previous calendar year’s carbon dioxide emissions.
We assess the level of operations of our business partners through supplier
pre-selection and audits.
For coal, we use the Bettercoal Code and tools in assessing the sustainability of
the supply chain. The Bettercoal audits are always conducted by third parties.
We map our stakeholders' views annually with the One Fortum survey and with
separate sustainability surveys.
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Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityAppendices Management of social responsibility: labour practices and decent work
Targets and approach
Policies
Responsibilities
Monitoring and follow-up
Description
We aspire to be a desired and safe workplace for our employees and for contractors and service providers working for us. We believe that all accidents can be avoided. Our social responsibility
targets are related to employee well-being and competence development, occupational and operational safety, responsible business practices and responsible operations in our supply chain, and
good corporate citizenship.
We measure the realisation of the social responsibility with the following indicators, for which we have set Group-level targets (targets for 2016 and 2017):
• Total recordable injury frequency (TRIF), own personnel
• Lost Workday Injury Frequency (LWIF), own personnel and contractors
• Number of serious occupational accidents, as of January 2017 severe accidents
• Quality of occupational accidents, serious EHS incidents, and near misses investigation process, as of January 2017
• Percentage of sickness-related absences
Additionally, we have a Group-level target for the number of supplier audits.
Safety management is based on Fortum’s sustainability policy. Other key elements steering labour practices and safety management are presented in the section Policies and commitments and
the Appendix 2.
We assess safety risks as part of the Group’s risk assessment process. Everyday safety management is guided with about 20 Group-level Environment, Health and Safety (EHS) instructions and
EHS training events. The Group-level instructions are supported by local-level instructions, which address in more detail the material safety issues and local special requirements. They include, e.g.,
nuclear power plant safety and dam safety. The instructions cover Fortum employees and contractor employees.
Personnel management is based on Fortum’s human resources policy and the supporting Group-level HR processes: strategic planning, recruiting, personnel development, performance
management, remuneration, and employment and workforce administration.
Our sustainability responsibilities are presented in the section Governance and management.
Fortum employee and contractor injury frequencies and the number of serious occupational accidents are reported monthly to Fortum Executive Management. The Group’s key indicators are
reported regularly to Fortum’s Board of Directors and are published in Fortum’s Interim Reports. The divisions and sites follow and develop their operations with audits required by safety and quality
management systems. Internal and external auditors regularly audit our OHSAS 18001 standard-compliant management system.
Work wellbeing, indicated as a percentage of sickness absence rate is reported to the Fortum Executive Management every quarter. Work wellbeing is also monitored through other Group-level
indicators, such as the ratio between actual retirement age and the statutory start of the retirement pension. Monitoring work wellbeing is also part of the Fortum Sound employee survey. The
survey's wellbeing index measures employee views on e.e. the openness of the dialogue in the work community, personal accountability, and how challenging work tasks are.
We assess the level of operations of our business partners through supplier pre-selection and audits. The results of the supplier surveys and audits assessing the realisation of labour rights
and practices are recorded along with corrective measures into the supplier database, which is accessible to all Fortum employees. Fortum has set a Group target for the number of audits, and the
audits that are conducted are reported in our interim reports.
For coal, we use the Bettercoal Code and tools in assessing the sustainability of the supply chain. The Bettercoal audits are always conducted by third parties.
We map our stakeholders' views annually with the One Fortum survey and with separate sustainability surveys.
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Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityAppendices Management of social responsibility: Human rights
Description
Targets and approach Our goal is to operate in accordance with the UN Guiding Principles on Business and Human Rights, and to apply these principles in our own operations as well as in country and partner risk
assessments and supplier audits.
Our social responsibility includes operating as a good corporate citizen and taking care of our own employees and the surrounding communities. We advance the wellbeing and safety of the work
Policies
Responsibilities
Monitoring and
follow-up
community, respect for individuals, and mutual trust and responsible operations in our supply chain and more broadly in society.
We have set a Group-level target for the number of supplier audits.
Key elements steering human rights management are presented in the section Policies and commitments and the Appendix 2.
Our sustainability responsibilities are presented in the section Governance and management.
We assess the level of operations of our business partners through supplier pre-selection and audits. The results of the supplier surveys and audits assessing the realisation of labour rights and practices
are recorded along with corrective measures into the supplier database, which is accessible to all Fortum employees. Fortum has set a Group target for the number of audits, and the audits that are
conducted are reported in our interim reports. For coal, we use the Bettercoal Code and tools in assessing the sustainability of the supply chain. The Bettercoal audits are always conducted by third
parties.
The divisions and sites follow and develop their operations with internal and external audits required by occupational safety and quality management systems.
Country-specific reports that address also human rights are presented to Fortum’s Board of Directors and Fortum Executive Management when needed.
We map our stakeholders' views annually with the One Fortum survey and with separate sustainability surveys.
Management of social responsibility: Society
Management of social responsibility: Product responsibility
Targets and approach We believe that an excellent financial result and ethical business are intertwined.
Description
We follow good business practices and ethical principles in all our operations.
We compete fairly and ethically and work within the framework of applicable
competition laws and Group competition instructions. We avoid all situations where
our own personal interests may conflict with the interests of the Fortum Group.
Notably, we never accept or give a bribe or other improper payment for any reason.
Our customer relations are based on honesty and trust. We treat our suppliers
and subcontractors fairly and equally. We select them based on their merit and
we expect them to consistently comply with our requirements and with Fortum’s
Supplier Code of Conduct.
Key elements steering social and compliance management are presented in the
section Policies and commitments and the Appendix 2.
Our sustainability responsibilities are presented in the section
Governance and management.
Suspected misconduct and measures related to ethical business practices and
compliance with regulations are regularly reported to the Fortum Executive
Management and to the Board’s Audit and Risk Committee.
Fortum has a channel available to all stakeholder groups for the reporting of
misconduct.
Policies
Responsibilities
Monitoring and
follow-up
Targets and
approach
Policies
Description
Our goal is to present products and services truthfully in all our marketing and
communication materials. We do not present misleading statements and we strictly follow
responsible marketing communication guidelines. In statements regarding environmental
issues, we follow the regulations for environmental marketing. We assume responsibility for
customer data protection and comply with the valid regulations related to the handling of
customer data.
We have set Group-level targets (targets for 2016 and 2017):
• Customer satisfaction
• Reputation
Key elements steering product responsibility management are presented in the section
Policies and commitments and the Appendix 2.
Responsibilities Our sustainability responsibilities are presented in the section
Governance and management.
Monitoring and
follow-up
The availability of power plants are reported monthly to Fortum Executive Management.
The Group’s key indicators are reported regularly also to Fortum’s Board of Directors and
are published in Fortum’s interim reports.
Customer satisfaction is monitored annually with the One Fortum survey. The results
of the survey are presented to Fortum’s management and they are used to develop the
business. Customer satisfaction and Fortum’s reputation are part of the Group-level
sustainability target setting, and they are reported annually to the Board of Directors.
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Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibilityAppendices Glossary and
contact information
Glossary, abbreviations and units on our website
Sustainability contact information on our website
Appendix 2 Fortum's main
internal policies and instructions
guiding sustainability
Values
Code of Conduct
Supplier Code of Conduct
Group Risk policy
Sustainability policy (including
environmental, and health and safety
policies)
Minimum requirements for EHS
management
Biodiversity guideline
Guidelines on sustainability
assessment
Human resources policy
Accounting manual
Fortum investment manual
Group instructions for anti-bribery
Group instructions for safeguarding
assets
Group instructions for conflicts of
interest
Group instruction on Competition
Law
Security guidelines
Fortum concept for sponsoring and
donations
Economic
responsibility
x
x
x
x
x
Environmental
responsibility
x
x
x
x
x
Social
responsibility:
Labour
practices and
decent work
x
x
x
x
x
Social
responsibility:
Human rights
x
x
x
x
x
Social
responsibility:
Society
x
x
x
x
x
Social
responsibility:
Product
responsibility
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
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Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability managementAppendicesEconomic responsibility