CEO letter
2017
Dear stakeholders,
2017 was a significant year for Fortum. During the year we took
many important steps in our strategy implementation. We invested
in solar and wind power production, restructured our ownership
in Hafslund, and towards the end of the year, announced our
investment in Uniper. The impacts of our previous investments in
renewables, in circular economy, and in Russia can be seen in our
strengthened financial results. Our performance was supported by
the improving market conditions which had a positive effect on our
2017 results.
Significant strategic milestones reached
Driving the change for a cleaner world is at the heart of Fortum’s
strategy and our role is to accelerate this change by reshaping the
energy system, improving resource efficiency, and providing smart
solutions. 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.
Our strategy is based on four cornerstones with a clear priority
order. Our first priority and most important cornerstone is to drive
productivity and industry transformation. Cornerstone number
two and our second priority is to offer solutions for sustainable
cities. Through cornerstones three and four – growing in solar and
wind and building new energy ventures – we target to secure our
long-term competitiveness in the future energy system.
Following the earlier successful Ekokem and Hafslund
transactions, we announced the bid for Uniper towards the end
of 2017. By investing in Uniper, Fortum continues the strategy
implementation and capital redeployment to enable a more efficient
use of our balance sheet. Together Fortum and Uniper have a good
strategic mix of assets – both clean and secure – as well as the
expertise required to successfully and affordably drive Europe’s
transition towards a low-carbon energy system. At the end of the
acceptance period in February 2018, 47.12% of Uniper’s shares had
been tendered to our offer, including Uniper’s largest shareholder
E.ON’s 46.65% shareholding.
The Hafslund restructuring was concluded in the fourth quarter
and the new business structure is now in place. Together with our
new colleagues from Hafslund, we have updated the strategies
for both our Consumer Solutions and City Solutions divisions.
We have now set the path forward and will be working together
on implementing the strategy. We target annual synergies of
EUR 15–20 million by the end of 2020.
In line with our strategy, we are also investing in new renewable
generation and targeting a gigawatt-scale portfolio of wind and
solar power. In January 2018, we commissioned Russia’s first
industrial wind power site with a capacity of 35 MW. During 2017,
we also started the implementation of other wind power plants in
the Nordics and in Russia, invested in solar power in Russia, and
commissioned our largest solar power plant in India.
The operating environment improved in 2017
Following several years of decline power prices reached their
lowest levels in February 2016. After that prices rebounded and
the upward trend continued through most of 2017. The price of
coal, which is one of the main drivers for European power prices,
continued slightly upward throughout 2017. However, the mild and
wet weather resulting in higher hydro reservoirs and higher hydro
production volumes, depressed the Nordic power price for the
fourth quarter of 2017.
During 2017, the hydrological situation in the Nordic area
strengthened due to clearly higher than normal precipitation. At
the beginning of 2017, the Nordic water reservoirs were at 75 TWh
and by the end of the year the reservoir level increased to 86 TWh.
Prices for CO2 emission allowances declined during the first half
of the year, but rebounded and ended the year clearly above the 2017
level, which added to the volatility in the Nordic power prices. In
December 2017, the EU took a very welcome decision to strengthen
the EU emission trading scheme. Although the new legislation
will increase the emission reduction target and strengthen
2
sustainable cities, by developing new products and services to help
our customers reduce their carbon footprint, and by building new
energy ventures that we believe will play an important role in the
future sustainable energy system.
As the strategy implementation and capital redeployment
continues, our dividend payment capability will be further
strengthened. Fortum’s Board of Directors is proposing an
unchanged dividend of EUR 1.10 per share for the calendar year
2017. Our ambition is to pay a stable, sustainable, and over time
increasing dividend now and in the future, and given the prevailing
market conditions, our goal is to avoid a temporary dividend cut.
I would like to thank all our employees for the excellent work and
true commitment during the year and our customers and all other
stakeholders for the continued trust in us.
Pekka Lundmark
President and CEO
the Market Stability Reserve, it still falls short of meeting the
targets of the Paris Climate Agreement.
Strong financial, but disappointing
safety performance
Our performance improvement in 2017 was broad-based, with
comparable operating profit increasing in most segments. The
Generation, City Solutions, and Russia segments continued to
perform well, while the Consumer Solutions segment continues
to be under pressure due to the tight competitive situation. The
acquisitions of Ekokem and Hafslund are already impacting our
results positively, further strengthened by our continued Fortum-
wide focus on cost and overall efficiency. We have now reached
the targeted EUR 100 million savings in fixed costs announced in
2016. The cost savings have enabled us to invest in new ventures for
the future.
Going forward we will continue to focus on cost efficiency and
investment prioritisation. Sustainability and safety continue to
be very important for us at Fortum. 2017 was a challenging year
in terms of occupational safety. We did not reach our targets for
lost workday injury frequency, especially for contractors. This was
a clear disappointment, even though we succeeded in reducing
the number of severe accidents to only one. We continue to be
committed to keeping our promise to provide a safe workplace
for all.
In 2017, our CO2 emissions decreased slightly. Our specific
emissions remained at the same level as the previous year and
continue to be at a low level compared to other European power
producers.
Accelerating the energy transition
with our Uniper investment
The investment in Uniper is a large investment for Fortum and is
in line with our strategic goal to drive productivity and industry
transformation in Europe. We are also convinced that the
investment will accelerate Europe’s energy transition in line with
our vision “For a cleaner world”.
Out of Uniper’s 38 GW generation capacity approximately 50%
is based on gas, 30% based on coal, and 20% is hydro and nuclear
power, all of which will have an important role to play during the
transition towards a low-carbon energy system. While coal-fired
generation must be phased out over time, we have a responsibility
to ensure security of supply and affordable energy for Europeans
during the transition. Uniper’s declared role as a provider of
security of supply is an excellent match with Fortum’s ambition
to accelerate the energy transition with increasing renewable
generation and innovative solutions.
We aim to take an active role in driving European energy
transition. We see plenty of opportunities for co-operation with
Uniper to add value for all stakeholders, and we have entered
into talks with Uniper to formalise the relationship between
our companies after the transaction is finalised. Going forward,
Fortum will focus on being an active, supportive, and reliable
shareholder of Uniper and a constructive strategic partner to the
company, its employees, and other stakeholders. We truly see our
investment as a win-win for all involved.
Strategy execution continues with
disciplined capital allocation
Fortum has been and will continue to be committed to a cleaner
Europe and a controlled transition to a low-carbon energy system.
Fortum’s CO2-free production capacity has grown substantially over
the last few decades and we will continue to focus on increasing it.
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), makes us one of the
lowest emitters of all utilities in Europe. In 2017, 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 we are still in the category of one of the
cleanest utilities with 61% CO2-free and specific CO2 emissions of
173 gCO2/kWh.
The energy sector is among the key sectors that can contribute
to mitigating climate change, but the focus should not be solely
on electricity generation that accounts for only 20% of energy
consumption in the EU. At Fortum, we have decided to take an
active role in tackling the challenge also by creating solutions for
3
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, 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.
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
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.
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.
Fortum co-operates with the large Nordic
cities of Stockholm, Espoo and Oslo on
energy solutions for growing urban areas.
4
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. 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.
Digitalisation opens up for new storage and demand response
solutions, which will 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.
By utilising demand response, Fortum’s Spring
venture has built a one-megawatt virtual
battery with the help of one thousand of its
consumer customers. The growing virtual
battery will play an increasingly important
role in maintaining energy system balance.
5
Market Development
Following several years of declining power prices long-term low
levels were reached in February 2016. After that prices rebounded
and the upward trend continued until September 2017. The
price of coal (one of the main drivers for European power prices)
continued slightly upward throughout 2017. However, the mild
and wet weather resulting in higher hydro reservoirs and higher
hydro production volumes depressed the Nordic power price for the
fourth quarter of 2017.
Prices for CO2 emission allowances (EUA) started at EUR 6.5
per tonne in the beginning of 2017 and declined to only EUR 4.5 in
May. Thereafter CO2-prices increased steadily to EUR 8.2 per tonne
at the end of 2017. This added to the price volatility on the Nordic
power market.
In 2017 the hydrological situation strengthened due to clearly
higher than normal precipitation in the Nordic area. At the
beginning of 2017, the Nordic water reservoirs were at 75 TWh,
Following several years of declining
power prices the long-term low levels
were reached in February 2016. After
that prices rebounded and the upward
trend continued until September 2017.
Power and coal prices 2017
Power, EUR/MWh
Coal, USD/tonne
30
28
26
24
22
20
95
90
85
80
75
70
65
60
55
50
Jan
Feb March April May
June
July Aug
Sept
Oct
Nov
Dec
Power (Nordic 2018 forward)
Coal (API2 2018 index)
Source: Bloomberg
6
which is 8 TWh below the long-term average and 23 TWh lower
than a year earlier. By the end of the year, reservoirs were 3 TWh
above the long-term average and 11 TWh higher than at the end
of 2016.
During the first five month of 2017 the Nordic spot power prices
were higher than in 2016, mainly due to the very low prices in the
beginning of 2016. During the end of the year spot prices were
around the same levels as the previous year.
The average system spot price in Nord Pool for the year 2017
was EUR 29.4 per MWh, and the average area price in Finland
was EUR 33.2 per MWh and EUR 31.2 per MWh in Sweden SE3
(Stockholm). The main driver for the price increase was the
clearly higher marginal cost of coal condensing power, which has
contributed to stronger continental prices and increased exports
from the Nordics.
Nordic electricity consumption in 2017 increased only
marginally by 2 TWh to 392 TWh compared to 2016. A modest basic
demand growth seen in the Nordic countries contributed to the
increase in consumption.
Spot price development 2016 & 2017, EUR/MWh
Nordic water reservoirs, energy content, TWh
50
40
30
20
10
0
Jan
Feb March April May
June
July
Aug
Sept
Oct
Nov
Dec
Q1
Q2
Q3
Q4
120
100
80
60
40
20
0
System 2017
System 2016
Helsinki 2017
Helsinki 2016
Stockholm 2017
Stockholm 2016
Source: Nord Pool, Fortum
2000
2003
2016
2017
Reference level
Source: Nord Pool
7
Strategy
The transition towards a cleaner world
The entire energy sector is undergoing a transformation.
Our vision is “For a cleaner world” and 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.
Sustainability is an integral part of Fortum’s strategy in
answering to these challenges. Business and responsibility
are interconnected, underlining the role of sustainable
solutions as a competitive advantage. In our operations, we give
balanced consideration to economic, social and environmental
responsibility. We assess our impacts and address sustainability
throughout the value chain.
Our values – curiosity, responsibility, integrity, and respect –
form the foundation for all our activities.
Fortum’s strategy
Fortum’s strategy has four cornerstones:
• Drive productivity and industry transformation
• Create solutions for sustainable cities
• Grow in solar and wind
• Build new energy ventures
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.
Fortum wants to drive the change towards a cleaner world.
However, the change will not happen overnight. Also during the
transition we need an energy system that is secure, flexible, and
clean. In addition to wind and solar power we need stable and
reliable production, such as flexible hydro and gas power, that
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
secures the functioning of the society at all times, also when there
is no wind and the sun does not shine.
happen and each play a crucial part as Europe transitions from
a conventional to a cleaner and more secure energy future.
In our strategy implementation, one of our goals has been to
take a leading role in the consolidation of the European generation
business, also through sizable acquisitions. In September 2017,
we announced that we have agreed with E.ON to acquire their
stake in Uniper and after the offer period ended in February 2018,
47.12% of the shares had been tendered, including E.ON’s 46.65%
shareholding. Uniper’s stated role as the provider of security of
supply will be an excellent match with our ambition to accelerate
the energy transition with increasing renewable generation
and innovative solutions. Both are needed to make the change
Create solutions for sustainable cities
We are utilising our know-how and experience to create scalable,
sustainable solutions that improve the quality of urban life.
Growing cities and urban areas are facing multiple challenges,
such as high emissions from inefficient heating, cooling, and
electricity production, increasing amounts of waste, as well as
high traffic pollution and noise. We offer today’s digitalised active
customers, businesses, and communities heating, cooling, waste
management, recycling, and energy-related solutions. This way we
8
help the cities and its inhabitants solve the challenges sustainably
and support building a circular economy.
We have successful partnerships in several cities, and joint
ventures with Stockholm and Oslo, to jointly develop solutions for
greener cities.
With the acquisitions of Ekokem and Turebergs in 2016, we
broadened the scope of our City Solutions to include efficient
resource management within the circular economy, which
complement our competences in the energy sector well.
For us circular economy means that materials are recycled and
utilised as efficiently as possible. At the same time, hazardous
substances are removed from circulation. We believe that a phased
migration to a circular economy offers a positive perspective and
invaluable solutions to today’s problems.
Our goal is to develop our recycling and waste management
business and launch new solutions on the market for utilising waste
as a raw material. We support industries and social actors to find
solutions in which someone’s waste is another’s raw material.
Grow in solar and wind
Solar and wind power have huge growth potential.
Increasing the generation of carbon-neutral energy is one
important way to control climate change. Therefore, renewable
energy sources play a key role in the change towards a cleaner
world. By investing in solar and wind power we are also securing
our long-term competitiveness.
We target a gigawatt-scale solar and wind portfolio. These
technologies are rapidly maturing. At the same time, utility
competences are becoming increasingly important as subsidy
schemes are gradually being phased out and renewable energy
production is becoming more market-based.
We have started the transition and have 295 MW of solar and
wind capacity in the Nordics, Russia, and India as well as several
on-going projects. We have also announced plans to further expand
our wind power production in Russia.
9
Build new energy ventures
Technological and digital disruption accelerate energy sector
transformation. Our goal is to be in the forefront of energy
technology and application development.
Digitalisation is enabling us to create new customer
offerings and improve the productivity of our businesses. Our
focus areas include development of smart home solutions,
electric transportation, demand response, and energy storage.
Breaktrough’s in these areas can transform the way we use energy.
In addition to our own R&D, we are investing in funds
and cooperating with start-ups – jointly innovating both new
technologies and business models in the changing energy
industry landscape.
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. The transformation will not
happen overnight and we must provide customers with a secure
energy supply at a competitive price during the transition towards
lower emissions. 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 continue to focus on increasing
our solar and wind power capacity 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 45 TWh in 2017. The
development has not always been linear, as annual variations in
hydropower production have a significant impact.
We were among the early proponents for a market-based price
on CO2. We are advocating for market-based solutions and a
strengthening of the EU ETS to drive the necessary change in the
energy system. 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 2017.
The respective figure for Fortum overall was 173 gCO2/kWh in 2017.
Fortum’s wind and
solar power capacity
grew from 58 MW to
295 MW
during 2017.
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 17
CO2-free
Other
10
Fortum’s wind and solar power generation capacity,
MW
800
700
600
500
400
300
200
100
0
2014
2015
2016
2017
2018
2020
2019
planned
Wind
Solar
Projects under investigation
Russian specific CO2 emissions from power and
heat production
380
370
360
350
340
330
320
2010
2011
2012
2013
2014
2015
2016
2017
Specific emissions (g CO2/kWh)
Increase efficiency and reduce specific emissions
When Fortum acquired the Russian power and heat generation
company TGC-10 (currently PAO Fortum) in 2008, we committed to
a substantial capacity investment program. In 2016, the investment
programme was finalised. 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.
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 totalling 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. In January 2018, Fortum commissioned
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, which is due to be commissioned
in 2018. In Norway, Fortum recently acquired the operational
Nygårdsfjellet wind farm and the Ånstadblåheia and Sørfjord wind
farms that are to be commissioned in 2018 and 2019 respectively.
Our target in wind power is up to 1,000 MW in the Nord Pool
area and up to 500 MW in Russia.
Although the solar and wind capacity is still small compared
to Fortum’s current total power generation capacity of close to
14,000 MW, the growth in 2017 was substantial and the capacity
increased from 58 MW to 295 MW.
11
Financials
2017
Operating and
financial review
Financials 2017 – 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 CEO letter, corporate governance statement, remuneration statement as well as tax footprint, which are published on Fortum’s webpage. Sustainability reporting is an
integrated part of Fortum’s annual reporting and additional information on sustainability operations can be found on Forum’s website in sustainability section.
Operating and financial review
This section includes
description of Fortum’s financial
performance during 2017. Here
you will also find a description of
the risk management as well as
information on sustainability and
Fortum share performance.
Key figures 2008–2017
Key figures consist of financial
key figures, share key figures
and operational key figures for
2008–2017. 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 Oy.
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.
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.
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.
Proposal for the use of profit
shown on the balance sheet
The Board of Directors proposal
for the dividend in 2017 is
disclosed in this section.
Operational key figures and
quarterly financial information
Look here for volume related
key figures for 2008–2017 and
quarterly financial information
for the years 2016 and 2017.
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 2018.
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.
5–13 Income statement
These notes provide supporting information for the income
statement.
14–32 Balance sheet
These notes provide supporting information for the balance sheet.
33–36 Off balance sheet items
The notes in this section provide information on items that are not
included in the balance sheet.
37–40 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 sheet
and cash flow statement.
IS = Income statement
BS = Balance sheet
CF = Cash flow
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotes Operating and
financial review
Financials 2017
Reader’s guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Operating and financial review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Financial performance and position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Fortum share and shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Consolidated income statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Consolidated statement of comprehensive income . . . . . . . . . . . . . . . . . 34
Consolidated balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Consolidated statement of changes in total equity . . . . . . . . . . . . . . . . . 36
Consolidated cash flow statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Notes to the consolidated financial statements . . . . . . . . . . . . . . . . . 39
1 Accounting policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
2 Critical accounting estimates and judgements . . . . . . . . . . . . . . . 44
3 Financial risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
4 Capital risk management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
5 Segment reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
6 Items affecting comparability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
7 Fair value changes of derivatives and
underlying items in income statement . . . . . . . . . . . . . . . . . . . . . . . . . 58
8 Other income and other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9 Materials and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
10 Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
11 Finance costs - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
12 Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
13 Earnings and dividend per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
14 Financial assets and liabilities by categories . . . . . . . . . . . . . . . . . . 67
15 Financial assets and liabilities by fair value hierarchy . . . . . . . . 71
16 Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
17 Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
18 Participations in associated companies and joint ventures . . 81
19 Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
20 Interest-bearing receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
21 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
22 Trade and other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
23 Liquid funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
24 Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
25 Non-controlling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .89
26 Interest-bearing liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
27 Income taxes in balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
28 Nuclear related assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
29 Other provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
30 Pension obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
31 Other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
32 Trade and other payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
33 Lease commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
34 Capital commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
35 Pledged assets and contingent liabilities . . . . . . . . . . . . . . . . . . . . . 103
36 Legal actions and official proceedings . . . . . . . . . . . . . . . . . . . . . . . 105
37 Events after the balance sheet date . . . . . . . . . . . . . . . . . . . . . . . . . . 107
38 Acquisitions and disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
39 Related party transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
40 Subsidiaries by segment on 31 December 2017 . . . . . . . . . . . . . . . 112
2
Key figures 2008–2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Financial key figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Share key figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
Segment key figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Definitions of key figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Parent company financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Income statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
Cash flow statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
Notes to the parent company financial statements . . . . . . . . . . . . . . . . 127
Proposal for the use of the profit shown on
the balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
Auditor’s report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
Operational key figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
Quarterly financial information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
Investor information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotes
Financial performance and position
Sustainability
Risk management
Fortum share and shareholders
Financial performance and position
Strong results and efficient strategy implementation .
Key financial ratios 1)
Return on capital employed, %
Comparable net debt/EBITDA
2017
7.1
0.8
2016
4.0
0.0
2015
22.7
-1.7
1) Key financial ratios are based on total Fortum, including discontinued operations. See Definitions of key figures.
Key figures
EUR million
Sales
IS Continuing operations
Discontinued operations
Total Fortum
Comparable EBITDA
IS Continuing operations
Discontinued operations
Total Fortum
Comparable operating profit
IS Continuing operations
Discontinued operations
Total Fortum
Operating Profit
IS Continuing operations
- of sales %
Discontinued operations
Total Fortum
- of sales %
Share of profits from associates and
joint ventures
IS Continuing operations
Discontinued operations
Total Fortum
2017
4,520
-
4,520
1,275
-
1,275
811
-
811
1,158
25.6
-
1,158
25.6
148
-
148
2016
3,632
-
3,632
1,015
-
1,015
644
-
644
633
17.4
-
633
17.4
131
-
131
2015
Change 17/16
3,459
274
3,702
1,102
163
1,265
808
114
922
-150
-4.3
4,395
4,245
114.7
20
0
20
24%
24%
26%
26%
26%
26%
83%
83%
13%
13%
3
EUR million
Profit before income tax
IS Continuing operations
- of sales %
Discontinued operations
Total Fortum
- of sales %
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) *
Return on shareholders’ equity total
Fortum, %
Equity-to-assets ratio, %
* Net cash in 2015 and 2016
2017
1,111
24.6
-
1,111
24.6
0.98
-
0.98
993
14.69
988
6.6
61
2016
595
16.4
-
595
16.4
0.56
-
0.56
621
15.15
-48
3.7
62
2015
Change 17/16
-305
-8.8
4,393
4,088
110.4
-0.26
4.92
4.66
1,228
15.53
87%
87%
75%
75%
60%
-3%
-2,195
2,158%
33.4
61
We are satisfied with the progress of our strategy implementation during the year . Following the earlier
Ekokem and Hafslund transactions, we announced the bid for Uniper towards the end of 2017 . By
investing in Uniper, Fortum continues the capital redeployment to enable a more efficient use of our
balance sheet . The offer period commenced in November . At the end of the initial acceptance period in
mid-January 2018, 46 .93% of Uniper’s shares had been tendered to our offer, including E .ON’s 46 .65%
shareholding . Uniper shareholders who have not yet accepted our offer still have a chance to do so within
the additional acceptance period .
Uniper’s and Fortum’s businesses complement each other well . Together Fortum and Uniper have a
good strategic mix of assets – both clean and secure – as well as the expertise required to successfully
and affordably drive Europe’s transition towards a low-carbon energy system . We aim to take an active
role in driving European energy transition . We see plenty of opportunities for co-operation with
Uniper to add value for all stakeholders, and we have entered into talks with Uniper to formalise the
relationship between our companies after the transaction is finalised . We truly see our investment as a
win-win for all involved .
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotesOperating and financial review Financial performance and position
Sustainability
Risk management
Fortum share and shareholders
The Hafslund restructuring was concluded in the fourth quarter
As the strategy implementation and capital redeployment
and the new business structure is in place . Together with our new
colleagues from Hafslund, we have updated the strategies for both
our Consumer Solutions and City Solutions divisions . We have now
set the path forward and will be working together on implementing
the strategy . We target annual synergies of EUR 15–20 million by
the end of 2020 .
continues, our dividend payment capability will be further
strengthened . Fortum’s Board of Directors is proposing an
unchanged dividend of EUR 1 .10 per share for the calendar year
2017 . Our ambition is to pay a stable, sustainable and over time
increasing dividend now and in the future, and given the prevailing
market conditions, our goal is to avoid a temporary dividend cut .
In line with our strategy, we are not only focusing on taking
part in the European power sector consolidation, we are also
investing in new renewable generation and targeting a gigawatt-
scale portfolio of wind and solar power . In January 2018 we
commissioned Russia’s first industrial wind power site with
a capacity of 35 MW . In addition, we have recently started the
implementation of other wind power plants in the Nordics and
Russia and invested in solar power in Russia, and commissioned
our largest solar power plant in India .
In the fourth quarter our performance improvement was broad-
based, with comparable operating profit increasing in all operative
segments . The Generation, City Solutions and Russia segments
continued to perform well, while the Consumer Solutions segment
continues to be under pressure due to the tight competitive
situation . The acquisitions of Ekokem and Hafslund are already
impacting our results positively, further strengthened by our
continued Fortum-wide focus on efficiency . We have now reached
the targeted EUR 100 million savings in fixed costs announced in
2016 . The cost savings have enabled us to invest in new ventures
for the future . Going forward we will continue to focus on cost
efficiency and investment prioritisation .
Sustainability and safety continue to be very important
for us at Fortum . 2017 was a challenging year in terms of
occupational safety . We did not reach our targets for lost workday
injury frequency, especially for contractors . This was a clear
disappointment, even though we succeeded in reducing the number
of severe accidents to only one . We continue to be committed to
keeping our promise to provide a safe workplace for all . In 2017, our
CO2 emissions decreased slightly . Our specific emissions remained
at the same level as the previous year and continue to be at a low
level compared to other European power producers .
Uniper investment
In September 2017, Fortum announced it had signed a transaction
agreement with E .ON under which E .ON had the right to decide
to tender its 46 .65% shareholding in Uniper SE into Fortum’s
public takeover offer . In November, Fortum launched a voluntary
public takeover offer to all Uniper shareholders at a total value of
EUR 22 per share implying a premium of 36% to the price prior to
intense market speculation on a potential transaction at the end of
May . The offer is subject to competition and regulatory approvals .
Already in October 2017, Fortum received approval from the US
competition authorities . Fortum expects to finalise the transaction
in mid-2018 .
The investment in Uniper delivers on Fortum’s previously
announced capital redeployment strategy and investment
criteria . Uniper’s businesses are well aligned with Fortum’s core
competencies, are close to Fortum’s home markets and are highly
cash generative . Fortum expects the investment to deliver an
attractive return that will support the company in accelerating
the development and implementation of sustainable energy
technologies, without sacrificing a competitive dividend .
The offer will be financed with existing cash resources and
committed credit facilities, with Barclays Bank PLC originally
underwriting 100% of the credit facilities, including ongoing
liquidity requirements . In October the credit facilities were
syndicated to selected relationship banks of Fortum . Dividends
received from the stake in Uniper will contribute to a stable and
sustainable dividend for Fortum’s shareholders . Fortum will
account for Uniper as an associated company unless control
according to IFRS is attained; as such, EBITDA and cash flow
contribution, as well as the EPS effect on Fortum’s results, will
4
depend on the final outcome of the offer . As a result of this
transaction, Fortum’s leverage will rise above our given guidance
for net debt/EBITDA level of around 2 .5x . Over time however,
Fortum expects its cash generation in combination with the
dividend from Uniper to reduce this level towards the stated target .
In January 2018, Fortum announced that shareholders
representing 46 .93% of the shares in Uniper had accepted the
offer during the initial acceptance period, including E .ON . Uniper
shareholders who have not tendered their shares to the offer within
the initial acceptance period can still tender during the additional
acceptance period that began on 20 January 2018 and ending on
2 February 2018 . Fortum expects to publish the total amount of
shares tendered on 7 February 2018 .
Hafslund transaction
On 26 April 2017, Fortum and the City of Oslo entered into an
agreement to restructure their ownership in Hafslund ASA, one of
the largest listed power groups in the Nordic region . On 4 August
2017, Fortum concluded the restructuring of the ownership in
Hafslund . Fortum sold its 34 .1% stake in Hafslund ASA to the
City of Oslo, acquired 100% of Hafslund Markets AS and 50 .0% of
Hafslund Varme AS (renamed as Fortum Oslo Varme AS) including
the City of Oslo’s waste-to-energy company Klemetsrudanlegget
AS (renamed as Fortum Oslo Varme KEA AS), and 10% of Hafslund
Produksjon Holding AS .
The total debt-free price of the acquisitions was
EUR 940 million . The combined net cash investment of the
transactions, including the dividend received in May 2017, was
EUR 230 million . Fortum booked a one-time tax-free sales gain in
its 2017 results, totalling EUR 324 million, which corresponds to
EUR 0 .36 earnings per share . Transaction costs of EUR 4 million
for the acquisitions were included in Items affecting
comparability . The acquired businesses were consolidated into
Fortum Group from 1 August 2017 .
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotesOperating and financial review Financial performance and position
Sustainability
Risk management
Fortum share and shareholders
Reorganisation of operations
As of 1 March 2017, the City Solutions division was divided into
two separate divisions: City Solutions and Consumer Solutions,
reported as separate segments . City Solutions comprises heating
and cooling, waste-to-energy, biomass and other circular economy
solutions . Consumer Solutions comprises electricity and gas
retail businesses in the Nordics and in Poland, including the
customer service, invoicing and collection business . (Nordic
customer services previously reported under the Other segment) .
Comparison figures in accordance with the new organisational
structure were published on 11 April 2017 .
Comparability of information
presented in tables
Following the divestment of the Swedish distribution business,
Distribution segment is treated as discontinued operations in
2015 . Financial results discussed in this operating and financial
review are for the continuing operations of Fortum Group unless
otherwise stated .
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
Return on capital employed total Fortum, %
6,000
5,000
4,000
3,000
2,000
1,000
0
25
20
15
10
5
0
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Return on capital employed, %
Target %, revised in 2016
Operating profit and comparable operating profit,
EUR million
Return on shareholders’ equity total Fortum, %
1,750
1,500
1,250
1,000
750
500
250
0
-250
35
30
25
20
15
10
5
0
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Operating profit
Comparable operating profit
Earnings per share total Fortum, EUR
5.0
4.0
3.0
2.0
1.0
0.0
2013
2014
2015
2016
2017
5
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotesOperating and financial review Financial performance and position
Sustainability
Risk management
Fortum share and shareholders
Financial results
Sales by segment
EUR million
Generation
City Solutions
Consumer Solutions
Russia
Other
Netting of Nord Pool
transactions 1)
Eliminations
IS Total
2017
1,677
1,015
1,097
1,101
102
-367
-103
4,520
2016 Change 17/16
1%
30%
64%
23%
11%
1,657
782
668
896
92
-384
-79
3,632
24%
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
Consumer Solutions
Russia
Other
IS Total
2017
603
262
57
438
-83
1,275
2016 Change 17/16
14%
527
41%
186
4%
55
40%
312
-30%
-64
26%
1,015
Comparable operating profit by segment
EUR million
Generation
City Solutions
Consumer Solutions
Russia
Other
IS Total
2017
478
98
41
296
-102
811
2016 Change 17/16
15%
417
53%
64
-15%
48
55%
191
-32%
-77
26%
644
Operating profit by segment
EUR million
Generation
City Solutions
Consumer Solutions
Russia
Other
IS Total
2017
501
102
39
295
221
1,158
2016 Change 17/16
48%
338
19%
86
-34%
59
31%
226
387%
-77
83%
633
For further information see Note 5 Segment reporting.
In 2017, sales were EUR 4,520 (3,632) million . The increase was
mainly due to the strengthening Russian rouble and the
consolidation of Ekokem, Hafslund and DUON . Comparable
EBITDA totalled EUR 1,275 (1,015) million . Comparable operating
profit totalled EUR 811 (644) million . Comparable operating profit
was positively impacted by the consolidation of Hafslund, higher
achieved power prices, lower real estate and capacity taxes in
Swedish nuclear and hydro power plants and by improved result in
the Russian operations . Operating profit totalled EUR 1,158 (633)
million . Fortum’s operating profit for the period was impacted by
items affecting comparability of EUR 347 (-11) million, including
updated provisions, sales gains, transaction costs and the IFRS
accounting treatment (IAS 39) of derivatives mainly used for
hedging, as well as nuclear fund adjustments ( Note 5) . The sales
gains include a one-time tax-free sales gain of EUR 324 million
from the divestment of the 34 .1% stake in Hafslund ASA
( Note 38) .
In 2017, Fortum reached the targeted EUR 100 million savings
in fixed costs announced in 2016 . At the same time, the cost
spend has been shifted to businesses under development and new
ventures .
The share of profit from associates and joint ventures was
EUR 148 (131) million, of which Hafslund represented
EUR 39 (51) million, TGC-1 EUR 32 (38) million and Fortum Värme
EUR 66 (66) million . The share of profit from Hafslund is based on
the company’s published fourth-quarter 2016 and January–June
2017 interim reports . The share of profit from TGC-1 is based on the
company’s published fourth-quarter 2016 and January-September
6
2017 interim reports ( Note 18) . Due to the restructuring of
Hafslund and the divestment of Fortum’s 34 .1% share in the
company, Fortum will no longer have share of profits from
Hafslund ASA .
Net finance costs amounted to EUR 195 (169) million,
including costs relating to financing arrangements for the Uniper
transaction .
Profit before income taxes was EUR 1,111 (595) million .
Taxes for the period totalled EUR 229 (90) million . The effective
income tax rate according to the income statement was 20 .6%
(15 .2%) . 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 and other major
one-time income tax effects, was 18 .8% (20 .0%) ( Note 12) .
The profit for the period was EUR 882 (504) million . Earnings
per share were EUR 0 .98 (0 .56), of which EUR -0 .14 per share was
related to a Swedish income tax case and EUR 0 .38 (-0 .02) per share
was related to items affecting comparability ( Note 6 and
Note 36) .
Cash flow
In 2017, net cash from operating activities increased by
EUR 372 million to EUR 993 (621) million, due to a EUR 260 million
increase in comparable EBITDA, a EUR 193 million decrease in
realised foreign exchange gains and losses, a EUR 133 million
decrease in income taxes paid and a EUR 183 decrease in working
capital compared to the previous year . The foreign exchange gains
and losses of EUR -83 (110) million relate to the rollover of foreign
exchange contract hedging loans to Russian and Swedish
subsidiaries . In June 2016, Fortum paid income taxes in Sweden
totalling EUR 127 million regarding an ongoing tax dispute . The
change in working capital in 2017 was EUR 81 (-102) million . The
biggest impact was the effect of the daily cash settlements for
futures in Nasdaq OMX Commodities Europe
( Additional cash flow information) .
Investments excluding acquisitions increased by EUR 58 million
to EUR 657 (599) million compared to the previous year .
Acquisition of shares amounted to EUR 972 (695) million mainly
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotesOperating and financial review Financial performance and position
Sustainability
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
2017
-164
32
-12
-50
-195
4,885
3,897
988
2016 Change 17/16
3%
-169
7%
30
-2
-29
-169
5,107
5,155
-48
-500%
-72%
-15%
-4%
-24%
2,158%
due to the Hafslund transaction in 2017 and the acquisitions of
Ekokem and Polish DUON in 2016 . Divestment of shares, mainly
the Hafslund transaction, amounted to EUR 741 million (39) . Net
cash used in investing activities decreased to EUR 807 (1,701)
million including the increase in cash collaterals of EUR -3 (-359)
million given as trading collaterals to commodity exchanges .
Cash flow before financing activities was EUR 187 (-1,080)
million, mainly impacted by the Hafslund transaction .
In 2017, Fortum paid dividends totalling EUR 977 (977) million .
Payments of long-term liabilities totalled EUR 543 (934) million,
including the repayment of bonds of EUR 343 million and other
loan repayments of EUR 200 million . The net decrease in liquid
funds was EUR 1,241 (3,064) million .
Assets and capital employed
At the end of the reporting period, total assets amounted to
EUR 21,753 (21,964) million, a decrease of EUR 211 million . Liquid
funds at the end of the period amounted to EUR 3,897 (5,155)
million . Capital employed decreased by EUR 477 million and was
EUR 18,172 (18,649) million .
Equity
Equity attributable to owners of the parent company totalled
EUR 13,048 (13,459) million .
The decrease in equity attributable to owners of the parent
company was EUR 411 million, mainly due to the net profit
for the period of EUR 866 million, translation differences of
EUR -369 million and the dividend payment of EUR 977 million .
Financing
Net debt increased by EUR 1,036 million to EUR 988 (-48) million .
At the end of the reporting period, the Group’s liquid funds
totalled EUR 3,897 (5,155) million . Liquid funds include cash and
bank deposits held by PAO Fortum amounting to EUR 246 (105)
million . In addition to liquid funds, Fortum’s undrawn committed
credit facilities totalled EUR 1 .8 billion ( Note 23), excluding
Change in net debt during 2017, EUR million
committed credit facilities of EUR 12 .0 billion for Fortum’s offer for
Uniper shares .
Net financial expenses totalled EUR 195 (169) million, of which
net interest expenses were EUR 132 (139) million . Net financial
expenses include costs relating to financing arrangements of the
Uniper transaction .
In September 2017, Standard & Poor’s and Fitch Ratings placed
both Fortum’s long-term and short-term credit ratings on credit
watch negative on possible adverse impacts of the planned Uniper
investment . In January 2018, Standard & Poor’s downgraded
Fortum’s long-term credit rating from BBB+ to BBB with a Negative
Outlook due to the Uniper investment . The short-term rating was
affirmed at level A-2 . Fitch Ratings rates Fortum’s long-term credit
rating at level BBB+ and the short-term rating at level F2 .
1,036
1,629
250
988
977
-48
749
74
282
76
81
1,275
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o
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At the end of 2016 Fortum was in net cash position, see Financial position and cash flow table above.
7
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotesOperating and financial review
Financial performance and position
Sustainability
Risk management
Fortum share and shareholders
Interest-bearing net debt, EUR million
Nordic water reservoirs, energy content, TWh
10,000
7,500
5,000
2,500
0
-2,500
120
100
80
60
40
20
0
2013
2014
2015
2016
2017
Q1
Q2
Q3
Q4
Interest-bearing net debt
Interest-bearing net debt without Värme financing
2000
2003
2016
2017
Reference level
Source: Nord Pool
Comparable net debt/EBITDA
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
2013
2014
2015
2016
2017
Comparable net debt/EBITDA total Fortum
Comparable net debt/EBITDA without Värme financing
Target, comparable net debt/EBITDA
Key figures
At the end of 2017, the comparable net debt to EBITDA ratio was
0 .8 (0 .0) .
Gearing was 7% (0%) and the equity-to-assets ratio 61% (62%) .
Equity per share was EUR 14 .69 (15 .15) . Return on capital employed
improved to 7 .1% (4 .0%) . Fortum targets a long-term Return on
capital employed of at least 10% .
Market conditions
Nordic countries
According to preliminary statistics, electricity consumption in the
Nordic countries was 392 (390) terawatt-hours (TWh) in 2017 .
At the beginning of 2017, the Nordic water reservoirs were
at 75 TWh, which is 8 TWh below the long-term average and 23
TWh lower compared to the previous year . At the end of 2017,
the reservoirs were 86 TWh, which is 3 TWh above the long-
term average and 11 TWh higher compared to the previous year .
Precipitation in the Nordics, was clearly above the normal level both
in the fourth quarter and during the full year 2017 .
The average system spot price in Nord Pool for the year 2017 was
EUR 29 .4 (26 .9) per MWh, and the average area price in Finland was
EUR 33 .2 (32 .4) per MWh and EUR 31 .2 (29 .2) per MWh in Sweden
(SE3, Stockholm) . The main driver for the price increase was the
clearly higher marginal cost of coal condensing power, which has
contributed to stronger continental prices and increased exports
from the Nordics .
In Germany, the average spot price in 2017 increased to
EUR 34 .2 (29 .0) per MWh .
The market price of CO2 emission allowances (EUA) increased
from EUR 6 .5 per tonne at the beginning of the year to EUR 8 .2 per
tonne at the end of 2017 .
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 . The Russian market is
divided in two price zones and Fortum operates in the First Price
Zone .
Russian electricity consumption in 2017 was 1,035 (1,027)
TWh and the corresponding figure for the First Price Zone was
799 (787) TWh .
In 2017, the average electricity spot price, excluding capacity
price, was unchanged at RUB 1,204 (1,204) per MWh in the First
Price Zone .
8
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotesOperating and financial review Financial performance and position
Sustainability
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
2017
392
1,035
95
33
261
2017
29.4
33.2
31.2
30.8
1,204
535
34.2
3,685
148
899
1,041
6
84
55
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
31 Dec 2017
86
83
31 Dec 2016
75
83
31 Dec 2015
98
83
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
2017
-15
6
-9
2016
-10
6
-4
2015
-18
4
-14
9
European business environment
and carbon market
Revision of the EU ETS approved
After two and a half years of legislative processing the revision of
the EU Emissions Trading Scheme (ETS) for the period 2021–2030
was adopted in December . The new rules will increase the annual
emission reduction target of the ETS from the current 1 .74% to
2 .2% . From the carbon market balance and pricing perspective the
essential improvement is the strengthening of the Market Stability
Reserve (MSR), including a temporary doubling of the intake rate
from 12% to 24% during 2019–2023 and cancellation of allowances
from the reserve from 2023 onwards . In addition, the new directive
includes a provision for voluntary cancellation of allowances from
the market .
However, the agreed setup is not yet in line with the Paris
Climate Agreement and meets only the lower end of the EU 2050
goal to reduce emissions by 80–95% by 2050 .
Swedish hydropower legislation
In June, the Swedish Government released a proposal on revision
of hydro legislation including changes in the Environmental
Act . This is a follow-up of the Swedish energy agreement done
in summer 2016 and includes adjustments to meet requirements
based on the EU Water Framework Directive . The aim is to
mitigate environmental impacts and facilitate more efficient
power production . According to the proposal, environmental
permits for hydropower should be revised during a 20-year period
in accordance with a national plan for prioritisation . The Ministry
of Environment aims to have the revised legislation in place in
March 2018 .
Fortum emphasises the need to reform the Swedish system
for hydro management . However, the proposal fails in ensuring
a fair balance between environmental improvements and power
production and a reasonable level of legal certainty .
The energy agreement requires hydro power companies to
carry the full cost of environmental improvements . The largest
hydro power companies are planning a joint fund in order to
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotesOperating and financial review Financial performance and position
Sustainability
Risk management
Fortum share and shareholders
secure financing for the improvements . The fund is expected to
be in operation from July 2018 provided that the revision of hydro
legislation has been completed .
Swedish nuclear waste fund fee approved
In December, the Swedish Government decided on the waste fund
fees for the period 2018–2020 . The fees are based on a new structure
with a calculated lifetime of 50 years and on parts of the funds
capital being invested in shares .
Swedish nuclear and hydro taxes adopted
In May, the Swedish Parliament adopted the proposed changes of
nuclear and hydropower taxation in accordance with the energy
agreement from June 2016 . Starting from 1 July 2017, the tax on
installed effect in nuclear reactors decreased by 90%, from SEK
14,770/MW/month to SEK 1,500/MW/month, and on 1 January
2018 the tax was abolished . The hydropower real-estate tax will be
reduced from 2 .8% to 0 .5% in four steps by 2020 .
Development of Nordic energy cooperation
Development of regional energy cooperation in the Nordic
context moved forward in 2017 . Following the June 2017 report by
independent investigator Jorma Ollila, the Nordic energy ministers
discussed the report in their annual meeting in November .
They agreed on next-step actions to implement these proposals,
including a proposal to establish a Nordic electricity market
forum comprising various actors in the sector to discuss topics
particularly related to development of the Nordic regional power
market .
Segment reviews
Generation
The Generation segment comprises power production in the
Nordics including nuclear, hydro and thermal power production,
powerportfolio optimisation, trading and industrial intelligence, and
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
2017
1,677
1,649
1,342
28
603
478
501
2016
1,657
1,635
1,339
22
527
417
338
Change
17/16
1%
1%
0%
27%
14%
15%
48%
-1
-34
97%
5,672
8.4
264
1,035
5,815
6.9
203
979
-2%
22%
30%
6%
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 18).
In 2017, the Generation segment’s total power generation in
the Nordic countries was 44 .2 (45 .3) TWh . CO2-free production
accounted for 99% (99%) of the total production .
Comparable EBITDA increased to EUR 603 (527) million .
Comparable operating profit improved to EUR 478 (417) million .
The increase was mainly related to the higher achieved power
price, and lower real-estate and capacity taxes in Swedish hydro
and nuclear power plants, and was partly offset by lower nuclear
production volumes resulting from the closure of Oskarshamn 1
and lower nuclear availability .
Operating profit clearly increased to EUR 501 (338) million and
was positively affected by EUR 23 (-79) million of the IFRS
accounting treatment (IAS 39) of derivatives mainly used for
hedging Fortum’s power production, updated provisions, and by
nuclear fund adjustments ( Note 5) .
10
The share of profits from associated companies and joint
ventures totalled EUR -1 (-34) million ( Note 18) .
The Nordic power price achieved in the Generation segment
was EUR 31 .8 (31 .0) per MWh, EUR 0 .8 per MWh higher than in
2016 . The average system spot price of electricity in Nord Pool
was EUR 29 .4 (26 .9) per MWh . The average area price in Finland
was EUR 33 .2 (32 .4) per MWh and in Sweden (SE3, Stockholm)
EUR 31 .2 (29 .2) per MWh .
Power generation by source
TWh
Hydro power, Nordic
Nuclear power, Nordic
Thermal power, Nordic
Total in the Nordic countries
Nordic sales volume
2017
20.7
23.0
0.5
44.2
2016
20.7
24.1
0.5
45.3
Change
17/16
0%
-5%
0%
-2%
TWh
Nordic sales volume
of which Nordic Power sales volume 1)
2017
51.8
42.2
Change
17/16
-1%
-2%
2016
52.4
43.2
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.
Sales price
EUR/MWh
Generation’s Nordic power price 2)
2017
31.8
2016
31.0
Change
17/16
3%
2) Generation’s Nordic power price includes hydro and nuclear generation,
excluding minorities. It does not include thermal generation, minorities, customer
business or other purchases.
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotesOperating and financial review Financial performance and position
Sustainability
Risk management
Fortum share and shareholders
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
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Thermal power
Nuclear power
Hydro power
UK
Sweden
Finland
Nord Pool, power price, 2013–2017, EUR/MWh
80
60
40
20
0
2013
2014
2015
2016
2017
Fortum achieved
Spot average
Spot price
Source: Nord Pool, Fortum
11
City Solutions
City Solutions develops sustainable city solutions into a growing
business for Fortum. The segment comprises heating and cooling,
waste-to-energy, biomass and other circular economy solutions. 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
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
2017
1,015
523
121
370
262
98
102
Change
17/16
30%
17%
-1%
75%
41%
53%
19%
2016
782
448
122
212
186
64
86
80
76
5%
3,728
5.5
556
1,907
2,873
5.9
807
1,701
30%
-7%
-31%
12%
In April 2017, Ekokem was rebranded to Fortum . The rebranded
Ekokem forms City Solutions’ Recycling and Waste Solutions unit .
On 4 August 2017, Fortum concluded the restructuring of its
ownership in Hafslund . Fortum’s 50% ownership in Fortum Oslo
Varme (the combined company of Hafslund’s Heat business area
and Fortum Oslo Varme KEA has been consolidated as a subsidiary
to Fortum in the results of City Solutions as of 1 August 2017 .
Heat sales volumes amounted to 10 .0 (8 .7) TWh . Power sales
volumes from CHP production totalled 2 .6 (2 .8) TWh, of which
Fortum Oslo Varme’s share was 0 .7 TWh .
Sales increased to EUR 1,015 (782) million, mainly as a
consequence of the consolidation of Ekokem and Fortum Oslo
Varme .
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotesOperating and financial review Financial performance and position
Sustainability
Risk management
Fortum share and shareholders
Comparable EBITDA increased and totalled EUR 262 (186)
million . Comparable operating profit improved to EUR 98 (64)
million . The consolidation of Fortum Oslo Varme had a positive
effect of EUR 29 million on the comparable EBITDA and
EUR 15 million on the comparable operating profit . In addition,
the consolidation of Ekokem, improved power prices and fuel mix
contributed positively to the results .
Operating profit totalled EUR 102 (86) million, including
EUR 4 (22) of items affecting comparability ( Note 5) .
The share of profits from associated companies and joint
ventures totalled EUR 80 (76) million, including the share of profit
from Fortum Värme ( Note 18) .
Heat sales by country
TWh
Finland
Poland
Other countries
Total
Power sales by country
TWh
Finland
Poland
Other countries
Total
2017
3.9
3.7
2.5
10.0
2017
1.5
0.4
0.7
2.6
Change
17/16
8%
3%
67%
15%
Change
17/16
0%
-43%
17%
-7%
2016
3.6
3.6
1.5
8.7
2016
1.5
0.7
0.6
2.8
Heat sales by country, TWh
12
10
8
6
4
2
0
2013
2014
2015
2016
2017
Other countries
Finland
Poland
Consumer Solutions
Consumer Solutions comprises electricity and gas retail businesses
in the Nordics and Poland, including the customer service, invoicing
On 4 August 2017, Fortum concluded the restructuring of its
ownership in Hafslund . Hafslund Markets has been consolidated
into the results of Consumer Solutions as of 1 August 2017
Electricity and gas sales volumes totalled 24 .4 (14 .8) TWh . The
total customer base at the end of the period was 2 .49 (1 .36) million .
Sales increased to EUR 1,097 (668) million, mainly due to the
consolidation of Polish DUON and Hafslund .
Comparable EBITDA amounted to EUR 57 (55) million
and comparable operating profit was EUR 41 (48) million . The
consolidation of Hafslund had a positive effect of EUR 22 million
on the comparable EBITDA and EUR 13 million on the comparable
operating profit . The result improvement was offset by the lower
average margin in electricity and gas products and higher costs
arising from the increased focus and spend on the development of
new digital services . The renegotiated invoicing service agreements
for external distribution companies also had a negative impact on
the results .
and debt collection business. Fortum is the largest electricity retail
Operating profit declined to EUR 39 (59) million affected by
business in the Nordics, with approximately 2.5 million customers
across different brands in Finland, Sweden, Norway and Poland. The
business provides electricity and related value-added products as well
as new digital customer solutions.
EUR million
Sales
- power sales
- other sales
Comparable EBITDA
Comparable operating profit
Operating profit
Comparable net assets
(at period-end)
Capital expenditure and gross
investments in shares
Number of employees
2017
1,097
862
235
57
41
39
Change
17/16
64%
63%
69%
4%
-15%
-34%
2016
668
528
139
55
48
59
638
154
314%
493
1,543
120
961
311%
61%
sales gains and the IFRS accounting treatment (IAS 39) of
derivatives, mainly used for hedging, EUR -2 (11) million ( Note 5) .
Sales volumes
TWh
Electricity
Gas *
* Not including wholesale volumes.
Number of customers
Thousands *
Electricity
Gas
Total
* Rounded to the nearest 10,000.
2017
20.5
4.0
Change
17/16
67%
60%
2016
12.3
2.5
2017
2,470
20
2,490
2016
1,350
10
1,360
Change
17/16
83%
100%
83%
12
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotesOperating and financial review Financial performance and position
Sustainability
Risk management
Fortum share and shareholders
Electricity sales, TWh
25
20
15
10
5
0
2013
2014
2015
2016
2017
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
2017
1,101
837
258
6
438
296
295
Change
17/16
23%
21%
30%
0%
40%
55%
31%
2016
896
691
199
6
312
191
226
31
38
-18%
3,161
10.1
277
3,495
3,284
8.0
201
3,745
-4%
26%
38%
-7%
After the completion of the multi-year investment programme
in March 2016, Fortum’s total capacity in Russia amounts to
4,794 MW, including 35 MW of solar power acquired at the end of
2017 . The generation capacity built after the year 2007 amounts
to 2,333 MW . Under the Russian Capacity Supply Agreement (CSA
– “new capacity”) this capacity entitles Fortum to guaranteed
payments for approximately ten years after the commissioning of
each new unit . The received capacity payments vary depending on
age, location, type and size of the plant, as well as on seasonality
and availability . The CSA payments can also vary somewhat on an
annual basis, as they are linked to Russian Government long-term
bonds with eight to ten years maturity .
In March 2017, the System Administrator of the wholesale
market published its annual data which is the basis for the CSA
payment calculation . These components comprise among others
the weighted average cost of capital (WACC), the consumer
price index (CPI) and re-examination of earnings from the
electricity-only (spot) market (done every three and six years
after commissioning of a unit) . Fortum’s CSA payment for 2017
was revised upwards to compensate for lower earnings from the
electricity-only market . In addition, certain power plants were
entitled to higher CSA payments when entering into the seven-
to-ten year time period of generation . The increase of the CSA
payment was somewhat offset by lower Government bond rates and
consumer price index (CPI) .
Fortum’s Russian capacity generation, totalling 2,461 MW, was
allowed to participate in the Competitive Capacity Selection (CCS
– “old capacity”) for 2017 . All Fortum plants offered in the auction
were selected . Fortum has obtained forced mode status for 195 MW
of its capacity, i .e . it receives higher-rate capacity payments .
In 2017, the Russia segment’s power sales volumes amounted
to 30 .5 (29 .5) TWh and heat sales volumes totalled 19 .8 (20 .7)
TWh . The power volumes increased due to commissioning of the
Chelyabinsk GRES unit 3 .
13
Sales increased to EUR 1,101 (896) million, mainly supported
by the strengthening of the Russian rouble, higher received CSA
payments, the change in the heat supply scheme in Tyumen and
commissioning of the Chelyabinsk GRES unit 3 .
The Russia segment’s comparable EBITDA was EUR 438 (312)
million and the comparable operating profit was EUR 296 (191)
million . The Russian rouble had a positive effect of EUR 31 million .
The commissioning of the new unit, higher received CSA payments,
higher power volumes, as well as improved bad-debt collections
also affected the results positively .
Operating profit was EUR 295 (226) million, including sales
gains of EUR 0 (35) million ( Note 5) .
The share of profits from associated companies and joint
ventures totalled EUR 31 (38) million ( Note 18) .
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)
2017
2016
Change
17/16
1,041
1,054
-1%
3,685
3,614
2%
6%
140
815
10%
481
11%
148
899
535
1,813
1,734
5%
27.5
23.5
17%
1) Capacity prices paid for the capacity volumes, excluding unplanned outages,
repairs and own consumption.
2) Translated using average exchange rate.
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotesOperating and financial review Financial performance and position
Sustainability
Risk management
Fortum share and shareholders
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 regular
electricity production is expected to take place in May 2019,
according to the plant supplier AREVA-Siemens Consortium .
Olkiluoto 3 is funded through external loans, share issues and
shareholder loans according to shareholder agreements between
the owners and TVO . As a 25% shareholder in Olkiluoto 3, Fortum
has committed to funding of the project pro rata . At the end of
December 2017, Fortum’s shareholder loans to TVO amounted to
EUR 145 million and the outstanding commitment for was
EUR 88 million ( Note 20) .
City Solutions
On 30 March 2017, the final decision regarding the minority
redemption process of Ekokem Oyj shares was made by the
arbitration court, bringing Fortum’s ownership to 100% .
Consumer Solutions
In May 2017, Fortum agreed to sell 100% of its shares in the Polish
gas infrastructure company DUON Dystrybucja S .A . to Infracapital,
Capital expenditure and gross investments in shares,
EUR million
Capital expenditure, divestments
and investments in shares
EUR million
Capital expenditure
Intangible assets
Property, plant and equipment
Total
Gross investments in shares
Subsidiaries
Associated companies
Available for sale financial assets
Total
2017
18
672
690
982
135
8
1,125
2016
3
588
591
813
17
14
844
See also Note 17.2 Capital expenditure .
Fortum expects to start the supply of power and heat from new
power plants and to upgrade existing plants as follows:
Electricity
capacity
MW
Heat
capacity
MW
Type
Supply
starts
Nuclear
6
Hydro
~12
2018
2018
CHP
75
145
2018
Wind
Wind
Wind
Wind
Wind
Solar
35
50 1)
75 2)
50
97
100
1 Jan
2018
H1 2019
Q1 2018
2018
2019
Q4 2017
2,000
1,500
1,000
500
0
Generation
Loviisa, Finland
Hydro plants in
Sweden and Finland
City Solutions
Zabrze, Poland
Russia
Ulyanovsk
Ulyanovsk
Other
Solberg, Sweden
Ånstadblåheia,
Norway
Sørfjord, Norway
Karnataka, India
1) Fortum-RUSNANO wind investment fund is a joint venture and Fortum’s
share is 50%.
2) Skellefteå Kraft AB (SKAB) is participating in the project with a 50%
(37.5 MW) share.
2013
2014
2015
2016
2017
Investments in shares
Capital expenditures
14
Capital expenditure by country, EUR million
690
Finland, 179
Sweden, 104
Russia, 152
Norway, 46
Poland, 92
Other countries, 115
the infrastructure investment arm of M&G Investments . DUON
Dystrybucja S .A . is transporting grid gas and LNG in Poland . The
company was acquired as part of the acquisition of the electricity
and gas sales company Grupa DUON S .A . (currently Fortum
Markets Polska S .A .) in 2016 . The divestment was concluded on
28 July 2017 . The sale had a minor positive impact on Fortum’s
2017 results .
Russia
On 27 April 2017, Fortum and RUSNANO, a Russian state-owned
development company, signed a 50/50 investment partnership
(joint venture) in order to secure the possibility of a Russian
Capacity Supply Agreement (CSA) wind portfolio . In June,
1,000 MW of the bids of the Fortum-RUSNANO wind investment
fund were selected in the Russian renewable energy auction . The
bids were for projects to be commissioned during 2018–2022
with a price corresponding to approximately EUR 115–135 per
MWh . The projects will be covered by CSA for a period of 15 years .
The investment decisions will be made on a case-by-case basis
within the total mandate of the wind investment fund . Fortum’s
equity stake in the wind investment fund totals a maximum of
RUB 15 billion (currently approximately EUR 220 million) . The
amount is to be invested over time (approx . 5 years), subject to
separate investment decisions . The investment fund has selected
Vestas as the supplier of wind turbines in Russia . In October 2017,
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotesOperating and financial review
Financial performance and position
Sustainability
Risk management
Fortum share and shareholders
the wind investment fund made an investment decision on the first
50-MW wind farm . The wind farm is expected to start production
during the first half of 2019 .
In November 2017, Fortum completed the replacement
investment at the Chelyabinsk GRES power plant . The new
combined-cycle gas turbine (CCGT) unit with 247 .5 MW of
electricity generation capacity and 174 MW of heat capacity started
commercial operation . The new turbine replaces the previous eight
turbine generators in the power plant . This unit is not within the
scope of the previously completed larger investment programme
and consequently receives Competitive Capacity Selection (CCS)
payments . Fortum’s Chelyabinsk GRES site has electricity generation
capacity of 742 MW and heat production capacity of 988 MW .
On 30 November 2017, Fortum signed an agreement to
acquire three solar power companies from Hevel Group, Russia’s
largest integrated solar power company . The transaction was
closed in December 2017 . All three power plants are operational
with a total capacity of 35 MW . The plants will receive Capacity
Supply Agreement (CSA) payments for approximately 15 years
after commissioning at an average CSA price corresponding to
approximately EUR 430/MWh . The plants were commissioned
in 2016 and 2017 . Hevel Group will provide operation and
maintenance services for all three power plants .
Other
In January 2017, Fortum finalised the acquisition of 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 . The wind farms are expected to be commissioned
in 2018 and 2019 . When built, the total installed capacity of the three
wind farms will be approximately 170 MW . On 29 September 2017,
Fortum announced the decision to invest in the Sørfjord wind farm in
northern Norway . The Sørfjord wind park will have 23 wind turbines
with a total capacity of 97 megawatts . The wind turbines for Sørfjord
will be delivered by Siemens Gamesa Renewable Energy .
In March 2017, Fortum commissioned the 70-MW solar plant
at Bhadla solar park in Rajasthan, India and in December 2017
Fortum commissioned the 100-MW solar plant at Pavagada solar
park in Karnataka, India . Fortum won a reverse auction for the
projects in 2016 . The power plants will operate based on a Power
Purchase Agreement (PPA), with a fixed tariff for 25 years . The Power
Purchase Agreements have been made with National Thermal Power
Corporation Limited (NTPC), India’s largest power utility .
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 is strengthening
its in-house innovation and digitalisation efforts and building
partnerships with leading global suppliers, promising technology
and service companies, and research institutions . Fortum makes
direct and indirect investments in start-ups that have promising
new innovations focused 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 that 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 .
The Group reports its R&D expenditure on a yearly basis . In
2017, Fortum’s R&D expenditure was EUR 53 (52) million, or 1 .2%
(1 .4%) of sales .
EUR million
R&D expenditure, EUR million
R&D expenditure, % of sales
2017
53
1.2
2016
52
1.4
2015
47
1.4
Change
17/16
2%
Changes in Fortum’s Management
On 8 February 2017, Markus Rauramo, Executive Vice President,
City Solutions, was appointed Chief Financial Officer of the
15
company as of 1 March 2017 following Timo Karttinen’s resignation
from his CFO duties . At the same time, Per Langer, Senior Vice
President, Technology and New Ventures, was appointed Executive
Vice President, City Solutions, also as of 1 March 2017 .
On 20 March 2017, Mikael Rönnblad, M .Sc . (Econ .), was
appointed Executive Vice President, Consumer Solutions, and
member of Fortum’s Executive Management . Rönnblad started in
his position on 15 May 2017 .
On 31 October 2017, Matti Ruotsala, Deputy CEO, retired from
the company .
On 9 November 2017, Fortum announced that Tapio Kuula,
member of the Board of Directors and former President and
CEO had passed away after a long illness . On 15 November
2017, Fortum’s Shareholders’ Nomination Board evaluated and
confirmed the Board of Directors’ ability to function with seven
members until the Annual General Meeting 2018 .
Annual General Meeting 2017
Fortum Corporation’s Annual General Meeting, which was held
in Helsinki on 4 April 2017, adopted the financial statements
of the parent company and the Group for the financial period
1 January–31 December 2016, and discharged the members of
Fortum’s Board of Directors and the President and CEO from
liability for the year 2016 .
The Annual General Meeting decided to pay a dividend
of EUR 1 .10 per share for the financial year that ended on
31 December 2016 . The record date for the dividend payment was
6 April 2017, and the dividend payment date was 13 April 2017 .
The Annual General Meeting confirmed the remuneration of
EUR 75,000 per year to the Chairman, EUR 57,000 per year to the
Deputy Chairman, EUR 40,000 per year to each member of the
Board, as well as EUR 57,000 per year to the Board member acting
as the Chairman of the Audit and Risk Committee if he or she is
not at the same time acting as Chairman or Deputy Chairman of
the Board . In addition, a EUR 600 meeting fee is paid for Board
meetings as well as for committee meetings . The meeting fee is
doubled for Board members who live outside Finland in Europe
and tripled for members living outside Europe . For Board members
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotesOperating and financial review Financial performance and position
Sustainability
Risk management
Fortum share and shareholders
living in Finland, the fee for each Board and Board Committee
meeting is doubled for meetings held outside Finland and tripled
for meetings outside Europe . For Board and Committee meetings
held as a telephone conference, the basic meeting fee is paid to
all members . No fee is paid for decisions made without a separate
meeting .
The Annual General Meeting also confirmed the number of
members in the Board of Directors to be eight . Ms Sari Baldauf
was re-elected as Chairman, Mr Matti Lievonen was elected as a
new member and Deputy Chairman, Mr Heinz-Werner Binzel, Ms
Eva Hamilton, Mr Kim Ignatius, Mr Tapio Kuula and Mr Veli-Matti
Reinikkala were re-elected as members, and Ms Anja McAlister was
elected as a new member .
In addition, Authorised Public Accountant Deloitte & Touche
Ltd (Deloitte Ltd as of 1 June 2017) was re-elected as auditor, with
Authorised Public Accountant Ms Reeta Virolainen as the principal
auditor . The auditor’s fee is paid pursuant to an invoice approved by
the company .
The Annual General Meeting authorised 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 . It was also decided that own shares could be repurchased
or disposed of in connection with acquisitions, investments or
other business transactions, or be retained or cancelled . The
repurchases or disposals could not be made for the purposes of the
company’s incentive and remuneration schemes . The authorisation
cancelled the authorisation resolved by the Annual General
Meeting of 2016 and it will be effective until the next Annual
General Meeting and, in any event, for a period of no longer than
18 months .
At the meeting held after the Annual General Meeting,
Fortum’s Board of Directors elected from among its members to
the Nomination and Remuneration Committee Matti Lievonen
as Chairman and Sari Baldauf, Eva Hamilton, and Tapio Kuula as
members . Furthermore, the Board elected to the Audit and Risk
Committee Kim Ignatius as Chairman and Heinz-Werner Binzel,
Anja McAlister and Veli-Matti Reinikkala as members .
Shareholders Nomination Board
On 9 October 2017, Pekka Timonen (Chairman), Director
General of the Ministry of Economic Affairs and Employment,
Timo Ritakallio, President and CEO, Ilmarinen Mutual Pension
Insurance Company, and Elli Aaltonen, Director General, The
Social Insurance Institution of Finland KELA, were appointed
to Fortum’s Shareholders’ Nomination Board . In addition, Sari
Baldauf, Chairman of Fortum’s Board of Directors, is a member of
the Shareholders’ Nomination Board .
Other events during the reporting period
On 19 December 2017, Fortum announced that the Board of
Directors has decided to commence the 2018–2020 long-term
incentive (LTI) plan for key employees and executives . The
2018–2020 LTI plan is part of Fortum’s ongoing LTI programme
and follows the same principles as the previous plan . The
performance measures applied to the 2018–2020 LTI plan will be
based on cumulative Earnings Per Share over three years and Total
Shareholder Return measured relative to the European Utilities
Group, both with an equal weight of 50% . The 2018–2020 LTI
plan will comprise approximately 110 participants, including
the members of Fortum Executive Management . The maximum
number of shares that may potentially be delivered as a reward
under the 2018–2020 LTI plan, based on the currently prevailing
price of Fortum’s share, is expected not to exceed 700,000 shares .
Events after the balance sheet date
On 8 January 2018, E .ON SE announced that it had decided to
tender its 170,720,340 Uniper SE shares (corresponding to 46 .65%
of shares and voting rights) into Fortum’s public takeover offer .
On 19 January 2018, Fortum announced that 46 .93% of the share
capital and the voting rights in Uniper were tendered during the
initial acceptance period of Fortum’s voluntary public takeover offer
for the outstanding shares of Uniper corresponding to 171,736,647
shares . The initial acceptance period ended on 16 January 2018 and
the additional acceptance period resumed on 20 January 2018 and
will end on 2 February 2018 .
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 emission allowances, and the hydrological situation .
The world economy has recently been growing at an increasing
pace . The overall economic growth impacts commodity and CO2
emission allowance prices, which has an effect 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 heat business, and the further development of the
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 and environmental management sectors has also
added risks for 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 . The environmental
management business is based on the framework and
opportunities created by environmental regulation . Being able to
respond to customer needs created by the tightening regulation is a
key success factor .
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 .
16
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotesOperating and financial review Financial performance and position
Sustainability
Risk management
Fortum share and shareholders
Outlook
Nordic market
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 .
The price of oil and coal in 2017, was on a clearly higher
level compared to the previous year . The price of CO2 emission
allowances (EUA) also increased during the fourth quarter of 2017 .
The price of electricity for the upcoming 12 months decreased in
the Nordics due to a stronger hydrological balance but increased in
Germany due to higher fuel prices .
Late in January 2018, the forward quotation for coal (ICE
Rotterdam) for the remainder of 2018 was around USD 88 per
tonne and the market price for CO2 emission allowances for 2018
around EUR 8 .90 per tonne . The Nordic system electricity forward
price at Nasdaq Commodities for the remainder of 2018 was
around EUR 27 per MWh and for 2019 around EUR 26 per MWh .
In Germany, the electricity forward price for the remainder of 2018
and 2019 was around EUR 35 per MWh . Nordic water reservoirs
were about 2 TWh below the long-term average, and were 7 TWh
higher than a year earlier .
Generation
The Generation segment’s achieved Nordic power price typically
depends on such factors as 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 . Achieved power price includes
also the results of optimization of Fortum’s hydro and nuclear
production as well as operations in the physical and financial
commodity markets .
As a result of the nuclear stress tests in the EU, the Swedish
Radiation Safety Authority (SSM) has decided on new regulations
for Swedish nuclear reactors . For the operators, this means that
safety investments should be in place no later than 2020 .
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) has updated the new technical plan including earlier
shut down of some nuclear plants for the SSM to review . The final
decision on the new nuclear waste fees for years 2018–2020 was
made by the Swedish Government in December 2017 and was in
line with SSM’s proposal to the Government . On 25 October 2017,
the Swedish Parliament decided on changes in the legal framework
impacting calculations of nuclear waste fees and the investment
of the nuclear waste fund . In the revised legal framework the
assumed operating time for calculating the waste fee is 50 years, as
opposed to the previous assumption of 40 years . The fund is now
also allowed to invest in other financial instruments in addition to
bonds . Based on these changes the annual waste fees for Fortum
will increase by approximately EUR 8 million .
On 3 July 2017, Fortum announced the decision by the
Administrative Court in Stockholm, Sweden, related to Fortum
Sverige AB’s hydro production-related real-estate tax assessments
for the years 2009–2014 . The Court decided in Fortum’s favour . The
disputed amount for the five years was a total of SEK 508 million
(EUR 52 million) . Fortum will book the tax income (subject to
income tax) only after the legal decision has entered into force .
Hydropower plants have been subject to a real-estate tax rate that
has resulted in an approximately 12 times higher real-estate tax per
kWh compared to any other production, due to different tax rates
and different valuation factors . The tax authority has appealed the
decision .
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
17
system, as part of the Energy Agreement . In April 2017, the Swedish
Government decided that the increase will be carried out in a linear
manner .
In September 2016, the Swedish Government presented the
budget proposal for the coming years . One of the key elements was
the proposal that the 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
SEK/MW per month from 1 July 2017 and abolished on 1 January
2018 . As a result, the tax for Fortum decreased by EUR 32 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
2017, the capacity tax was EUR 52 million . In 2018, there is no
capacity tax . As stated in the Government’s budget, the hydropower
real-estate tax will decrease from 2 .8% to 0 .5%; the tax will 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 for Fortum decreased by EUR 20 million to 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 in 2019 . The real-estate tax values are updated every six
years . With the current low electricity prices, the tax values in
2019 would be clearly lower than today . The process for renewing
existing hydro permits will also be reformed .
In 2015, the Swedish OKG AB decided to permanently
discontinue electricity production at Oskarshamn’s nuclear plant
units 1 and 2 . Unit 1 was shut down on 17 June 2017, approximately
2 weeks earlier than planned, and unit 2 has been out of operation
since June 2013 . The closing processes for both units are estimated
to take several years .
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotesOperating and financial review Financial performance and position
Sustainability
Risk management
Fortum share and shareholders
City Solutions
In City Solutions, stable growth, cash flow and earnings are
achieved through investments in new plants and through
acquisitions . Fuel cost, availability, flexibility and efficiency as
well as gate fees are key drivers in profitability, but also the power
supply/demand balance, electricity price and the weather affect
profitability .
In May 2016, 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 .
The development of acquired business operations of Fortum
Oslo Varme is estimated to require integration-related one-time
costs and increased investments over the coming years . The
realisation of cost synergies are estimated to gradually start
materialising from 2019 onwards with targeted annual synergies of
EUR 5–10 million expected to be achieved by the end of 2020 .
Consumer Solutions
After the acquisition of Hafslund Markets in August, a new business
strategy for Consumer Solutions, was approved by the Fortum
Board of Directors in December . The strategic objective is to
establish Consumer Solutions as the leading consumer business in
the Nordics, with a customer-centric multi-brand structure .
Competition in the Nordic electricity retail market is expected
to remain challenging, with continued pressure on sales margins
and increasing customer churn . To counter the market challenges
and create a solid foundation for competitive operations, Consumer
Solutions will increase its resources and cost spend on developing
new digital services for consumers .
The combined Hafslund Markets and Fortum Markets business,
while largely complementary, have identified synergy potential, in
terms of both revenue and costs . The short-term priority will be on
achieving identified revenue synergies by leveraging established
best practices and providing additional products and services to
the whole customer base . The realisation of cost synergies will
start materialising once the integration of Hafslund Markets is
completed, expected from 2019, with cost synergy realisation
gradually increasing over the coming years, and targeted annual
synergies of approximately EUR 10 million to be achieved by the
end of 2020 .
Russia
The Russia segment’s new capacity generation built after 2007
under the Russian Capacity Supply Agreement (CSA) has been a
key driver for earnings growth in Russia, as it receives considerably
higher capacity payments than the old capacity . Fortum will receive
guaranteed capacity payments for a period of approximately
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 and six years after the commissioning of a unit
and could revise the CSA payments accordingly . Furthermore, the
level of the CSA payments increases starting from the seventh year
of the 10-year period .
In June 2017, 1,000 MW of the bids of the 50/50-owned Fortum-
RUSNANO wind investment fund were selected in the Russian
wind auction . The bids are for projects to be commissioned during
the years 2018–2022 with a price corresponding to approximately
EUR 115–135 per MWh . The projects will be covered by CSA for a
period of 15 years .
The long-term Competitive Capacity Selection (CCS) for the
years 2017–2019 was held at the end of 2015, the CCS for the year
2020 in September 2016, and the CCS for the year 2021 in September
2017 . All Fortum plants offered in the auction were selected . Fortum
also obtained forced mode status, i .e . it receives payments for the
capacity at a higher rate for some of the “old capacity” . For the years
2017–2019, forced mode status was obtained for 195 MW; for the
year 2020, 175 MW, and for the year 2021, 105 MW .
18
In December 2017, Fortum acquired three solar power
companies from Hevel Group, Russia’s largest integrated solar
power company . All three power plants are operational and
will receive CSA payments for approximately 15 years after
commissioning at an average CSA price corresponding to
approximately EUR 430/MWh . The plants were commissioned in
2016 and 2017 .
Fortum’s Ulyanovsk wind farm is listed in the registry of
capacity as of January 2018 . The 35 MW power plant is Russia’s first
industrial wind park . It will receive CSA payments for a guaranteed
period of 15 years .
The Russian gas price increased by 3 .9% in July 2017 and the
increase of the annual average gas price for 2017 was 2 .0% .
Capital expenditure and divestments
Fortum currently estimates its capital expenditure, including
maintenance but excluding acquisitions, to be in the range of
EUR 600–700 million in 2018 most of which is related to hydro
and CHP capacity as well as new investments in renewables .
The maintenance capital expenditure in 2018 is estimated
at approximately EUR 300 million, well below the level of
depreciation .
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotesOperating and financial review Financial performance and position
Sustainability
Risk management
Fortum share and shareholders
Hedging
At the end of 2017, approximately 70% of Generation’s estimated
Nordic power sales volume was hedged at EUR 28 per MWh for
2018, and approximately 40% at EUR 25 per MWh for 2019 .
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 electricity derivatives
quoted on Nasdaq Commodities .
Taxation
The effective corporate income tax rate for Fortum in 2018 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 a Swedish income tax case .
On 11 May 2017, the Administrative Court in Stockholm,
Sweden, gave its decisions related to Fortum’s income tax
assessments for the year 2013 . The Court’s decisions were
not in Fortum’s favour . Fortum has appealed the decisions . If
the decisions remain in force despite the appeal, the negative
impact on the net profit would be approximately EUR 28 million
(approximately SEK 273 million) . Fortum has not made a provision
for this, as, based on legal analysis, the EU Commission’s view
and supporting legal opinions, the cases should be ruled in
Fortum’s favour . The assessments concern the loans given in 2013
by Fortum’s Dutch financing company to Fortum’s subsidiaries
in Sweden . The interest income for these loans was taxed in the
Netherlands . The Swedish 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 decisions are based on the changes in the Swedish tax
regulation in 2013 .
On 30 June 2017, the Court of Appeal in Stockholm, Sweden,
ruled against Fortum related to Fortum’s income tax assessments in
Sweden for the years 2009–2012 . Due to the decision of the Court of
Appeal, Fortum booked a tax cost of 1,175 MSEK (EUR 123 million)
in the second-quarter 2017 results . The booking did not have any
cash flow effect for Fortum, as the additional taxes and interest
have already been paid in 2016 . The case concerns Fortum’s right to
deduct intra-group interest expenses in Sweden in the years 2009–
2012 . Fortum restructured its operations and reallocated loans in
2004–2005 to secure future operations . Fortum does not agree with
the Court’s decision and had applied for the right to appeal from the
Supreme Administrative Court .
19
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotesOperating and financial review Financial performance and position
Sustainability
Risk management
Fortum share and shareholders
Sustainability
Business model
Fortum’s business activities cover the production and sales
of electricity and heat, waste-to-energy and circular economy
solutions as well as energy-sector expert services and various
consumer solutions . Fortum is the third largest power generator
and the largest electricity retailer in the Nordic countries . Globally,
the company is one of the leading heat producers . As two thirds of
Fortum’s power production is hydro and nuclear, it is also among
the lowest-emitting generators in Europe .
Fortum’s ambition is to increase its CO2-free power generation .
The company also has generation capacity based on fossil fuels,
located mainly in Russia, and it has worked to increase its efficiency
and reduce its specific emissions . Fortum is focusing on increasing
its solar and wind power capacity heavily over the coming years .
With core operations in 10 countries, Fortum employs a diverse
team of close to 9,000 energy-sector professionals . Fortum has 128
hydro power plants as well as 26 CHP (combined heat and power),
condensing and nuclear power plants . Globally, the company
supplies heat in 22 cities and towns and has five main waste
treatment facilities . Fortum’s key markets are the Nordic and Baltic
countries, Russia, Poland and India .
Sustainability approach
Fortum strives for balanced management of economic, social
and environmental responsibility in the company’s operations,
emphasising the following focus areas:
Economic
responsibility
Economic benefits to
our stakeholders
Long-term value and
growth
Social
responsibility
Operational and
occupational safety
Secure energy supply
for customers
Sustainable supply
chain
Personnel wellbeing
Customer satisfaction Business ethics and
compliance
Environmental
responsibility
Energy and resource
efficiency
Reduction of
environmental
impacts
Climate-benign
energy production
and systems
Solutions for
sustainable cities
The Group-level sustainability targets are linked to the main
sustainability focus areas and emphasise Fortum’s role in society .
They measure not only environmental and safety targets, but also
Fortum’s reputation, customer satisfaction, employee wellbeing,
and the security of power and heat production . Targets are set
annually and are based on continuous operational improvement .
The achievement of the sustainability targets is monitored
in monthly, quarterly and annual reporting . Fortum publishes a
yearly Sustainability Report with additional information on the
company’s sustainability performance .
Group sustainability targets and performance
Economic responsibility
Reputation index, based on One
Fortum Survey
Customer satisfaction index (CSI),
based on One Fortum Survey
Environmental responsibility
Specific CO2 emissions from total
energy production as a five-year
average, g/kWh
Energy-efficiency improvement
by 2020, base-line year 2012,
GWh/a
Major EHS incidents, no.
Social responsibility
Energy availability of CHP plants, %
Total recordable injury frequency
(TRIF), own personnel
Lost workday injury frequency
(LWIF), own personnel
Lost workday injury frequency
(LWIF), contractors
Severe occupational accidents, no.
Quality of investigation process of
occupational accidents, major EHS
incidents and near misses
Sickness-related absences, %
* Excluding DUON and Hafslund
Target
2017
2016
70.7
Level
“good”,
70–74
72.3
72.5
64–76
67–79
<200
188
188
>1,400
≤21
1,502
20
1,372
22
>95.0
96.1
97.4
≤2.5
≤1.0
≤3.5
≤5
1.8
1.2
4.2
1
1.9
1.0
3.0
5
Level 1.0
≤2.3
Level
0.75
2.2 *
-
2.3 *
20
Fortum is listed on the Nasdaq Helsinki exchange and is included
in the STOXX Global ESG Leaders, OMX GES Sustainability
Finland, ECPI® and Euronext Vigeo Eurozone 120 indices . Fortum is
also ranked in category A- in the annual CDP (formerly the Carbon
Disclosure Project) rating 2017, and it has received a Prime Status
(B-) rating by the German oekom research AG .
Fortum’s sustainability reporting covers all functions under
Fortum’s operational control, including subsidiaries in all
countries of operation . Sustainability information relating to
Hafslund Markets’ and Fortum Oslo Varme’s operations is included
in Fortum’s reporting as of August 2017 . The figures for power and
heat generation, capacities and investments include also figures
from Fortum’s share in associated companies and joint ventures
that sell their production to the owners on cost basis . The Meri-Pori
power plant is included fully in sustainability figures as Fortum has
the environmental permit .
Sustainability risks
Fortum’s operations are exposed to risks, which if materialised
can have adverse effects on the environment and the safety and
security of employees, contractors and neighbouring societies . Key
sustainability risks are presented in the Risk management part in
the Operating and financial review . Climate change and the need
for decarbonisation and resource efficiency is changing energy
industry in a profound way and these changes also create new
business opportunities for Fortum .
Sustainability governance and policies
Sustainability management at Fortum is strategy-driven and is
based on the company’s Values, the Code of Conduct, the Supplier
Code of Conduct, the Sustainability Policy and other Group policies
and their specifying instructions . 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 .
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotesOperating and financial review
Financial performance and position
Sustainability
Risk management
Fortum share and shareholders
Fortum’s main internal policies and instructions guiding sustainability
Values
Code of Conduct
Supplier Code of Conduct
Disclosure Policy
Group Risk Policy
Sustainability Policy (including environmental,
and health and safety policies)
Minimum Requirements for EHS Management
Biodiversity Manual
Group Manual for Sustainability Assessment
Human Resources Policy
Leadership Principles
Accounting Manual
Investment Manual
Group Instructions for Anti-Bribery
Group Instructions for Safeguarding Assets
Group Instructions for Conflicts of Interest
Anti-Money-Laundering Manual
Compliance Guidelines for Competition Law
Security Guidelines
Policy for Sponsoring and Donations
Group Instructions for Compliance
Management
Economic
responsibility
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Environmental
responsibility
x
x
x
x
x
x
x
x
x
x
x
x
Social and
employee matters
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Social responsibility
Human rights
x
x
x
Anti-corruption
and bribery
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
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’s line management is responsible for the
implementation of the Group’s policies and instructions and for
day-to-day sustainability management . Realisation of the safety
targets is a part of Fortum’s short-term incentive system .
Fortum is a participant of the UN Global Compact initiative and
the UN Caring for Climate initiative . Fortum respects and supports
the International Bill of Human Rights, the United Nations
Convention on the Rights of the Child, and the core conventions
of the International Labour Organisation (ILO) . Additionally,
Fortum recognises in its operations the UN Guiding Principles on
Business and Human Rights, the statutes of the OECD Guidelines
for Multinational Enterprises, the International Chamber of
Commerce’s anti-bribery and anti-corruption guidelines, and the
Bettercoal initiative’s Code on responsible coal mining .
Business ethics
The Fortum Code of Conduct and Fortum Supplier Code of
Conduct define how we treat others, engage in business, safeguard
corporate assets, and how Fortum expects 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 . 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 .
In addition to internal reporting channels, Fortum employees
and partners can report suspicions of misconduct confidentially
to the Fortum Head of Internal Audit via the “raise-a-concern
channel” on Fortum’s internal and external web pages .
Suspected misconduct and measures related to ethical business
practices and compliance with regulations are regularly reported to
the Audit and Risk Committee .
No cases of suspected corruption or bribery related to Fortum’s
operations were reported in 2017 .
21
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotesOperating and financial review
Financial performance and position
Sustainability
Risk management
Fortum share and shareholders
Economic responsibility
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: at least
10%) and capital structure (target: comparable net debt/EBITDA
around 2 .5) .
Fortum is a significant economic actor in its operating
countries . The most significant direct monetary flows of Fortum’s
operations come from revenue from customers, procurements
of goods and services from suppliers, compensation to lenders,
dividends to shareholders, growth and maintenance investments,
employee wages and salaries, and taxes paid . In 2017, investments
in CO2-free production were EUR 375 (270) million .
Fortum supports social development and wellbeing in its
operating countries by e .g . paying taxes . The tax benefits Fortum
produces to society include not only corporate income taxes
but also several other taxes . In 2017, Fortum’s taxes borne were
EUR 445 (365) million . Fortum publishes its tax footprint annually .
Targets for reputation and customer satisfaction are monitored
annually . In the One Fortum Survey in 2017 company reputation
among key stakeholders was 72 .3 (72 .5) points (on a scale of 1–100)
and exceeded the target of 70 .7 points . The stakeholder groups
selected for the One Fortum Survey differ between the years 2016
and 2017 . The reference value for the 2017 target-setting (70 .7) is
the reputation index (69 .7) given by the same stakeholder groups in
2016 . The Group target (70–74 points) for customer satisfaction was
achieved among all business areas, but not in retail electricity sales .
The Recycling and Waste Solutions unit was not part of the One
Fortum survey in 2017 .
Fortum’s total purchasing volume in 2017 was EUR 3 .2 (2 .5)
billion and Fortum had about 16,000 suppliers of goods and
services . 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 2017, Fortum audited a total of 11 (13) suppliers in China, India,
Russia, Slovenia, Estonia and Finland . Most of the non-compliances
identified in the audits in 2017 were related to occupational safety,
working hours and remuneration .
generation was CO2-free . In 2017, Fortum built and acquired
294 MW of renewable, carbon-free production .
Environmental responsibility
Fortum’s Group-level environmental targets are related to CO2
emissions, energy efficiency, and major environmental, health and
safety (EHS) incidents .
The Group Sustainability Policy together with the Minimum
Requirements for EHS Management steer Fortum’s environmental
management . Investments, acquisitions and divestments are
assessed based on the sustainability assessment criteria defined
in the Group’s Investment Manual . Operational-level activities
follow the requirements set forth in the ISO 14001 environmental
management standard, and 99 .8% (99 .9%) of Fortum’s power and
heat production worldwide has ISO 14001 certification .
Circular economy
Fortum’s aim is to promote resource efficiency improvements and
the transition towards a more extensive circular economy . Resource
efficiency and maximising the added value of waste and biomass
are key priorities in the environmental approach, as defined in the
Group Sustainability Policy .
In 2017, Fortum received a total of 1 .2 million tonnes of non-
hazardous waste and 640,000 tonnes of hazardous waste from
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 Fortum’s waste-to-energy plants in
the Nordic countries and Lithuania .
Sustainable energy production
Fortum’s energy production is primarily based on carbon dioxide-
free hydropower and nuclear power and on energy-efficient
combined heat and power (CHP) . In line with the strategy, Fortum
is targeting a gigawatt-scale solar and wind portfolio .
In 2017, Fortum’s power generation was 73 .2 (73 .1) TWh and
heat production 28 .6 (27 .8) TWh . 61% (62%) of the total power
generation was CO2-free . In the EU area, 96% (96%) of the power
22
The main fuels that Fortum uses to produce electricity and heat
are natural gas, nuclear fuel, coal, waste-derived fuels and biomass
fuels . The most significant fuel was natural gas, which accounted
for 62% (62%) of the total fuel consumption . The next highest fuel
use was uranium 21% (23%) . Coal accounted for 10% (10%) of the
total fuel use, and waste-derived fuels and biomass fuels 3% (2%)
and 3% (3%), respectively . Russia accounted for 99% of the use of
natural gas and 51% of the use of coal .
Climate change mitigation
Fortum expects the concern about climate change to increase
the demand for low-carbon production and energy-efficient
solutions and products . Fortum aims to mitigate climate change by
investing in CO2-free energy production and by improving energy
and resource efficiency . Fortum is also adapting its operations to
climate change in production planning and in the assessment of
growth projects and investments .
In 2017, Fortum’s direct CO2 emissions were 18 .3 (18 .6) Mt . 84%
(83%) of CO2 emissions originated from Russian power plants .
Direct CO2 emissions decreased due to the reduction in condensing
power production . Of the total CO2 emissions, 2 .3 (2 .7) Mt were
within the EU’s emissions trading scheme (ETS) . The estimate for
Fortum’s free emission allowances is 1 .0 (1 .0) Mt .
Fortum’s direct CO2 emissions
Fortum’s total CO2 emissions
(million tonnes, Mt)
Total emissions
Emissions subject to ETS
Free emissions allowances
Emissions in Russia
2017
18.3
2.3
1.0
15.4
2016
18.6
2.7
1.0
15.5
2015
19.2
2.1
1.3
17.0
Fortum’s specific carbon dioxide emissions from total energy
production remained at the same level and were 184 (184) g/kWh .
The specific CO2 emissions from total energy production as a five-
year average were at 188 (188) g/kWh, which is better than Fortum’s
Group target of 200 g/kWh .
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotesOperating and financial review Financial performance and position
Sustainability
Risk management
Fortum share and shareholders
Specific carbon dioxide emissions
of total energy production in 2015–2017
g/kWh
220
220
200
200
180
180
160
160
140
140
120
120
100
100
80
80
60
60
40
40
20
20
0
0
2015
2016
2017
Annual specific emissions
Specific emissions (5-year average)
Target (5-year average)
Fortum has had a Group target to achieve annual energy
improvements of more than 1,400 GWh by 2020 compared to 2012 .
This target was reached (1,502 GWh/a) by the end of 2017 .
Decreasing environmental impact
Emissions into air
Fortum’s activities cause various emissions to air . In addition to
carbon dioxide (CO2) emissions, these include flue-gas emissions
such as sulphur dioxide (SO2), nitrogen oxide (NOx) and particle
emissions . All power plants operate in compliance with their air
emission limits .
Fortum’s flue-gas emissions into air
1,000 tonnes
Sulphur dioxide emissions
Nitrogen oxide emissions
Particle emissions
2017
18.8
27.5
15.8
2016
22.5
26.0
16.8
2015
19.9
26.8
17.8
Water withdrawal
Fortum uses large volumes of water at various types of power plants
and in district heat networks . In most cases, power plants do not
consume water – the water is discharged back to the same water
system from where it was withdrawn . Fortum withdrew a total of
2,100 (2,100) million m3 of water in power and heat production;
94% of this amount was used as cooling water .
Radioactive waste
In 2017, 23 .4 (19 .6) tonnes of spent nuclear fuel was removed from
Loviisa power plant’s reactors in Finland . High-level radioactive
spent fuel is stored in an interim storage at the Loviisa power
plant site . The final disposal of the high-level radioactive waste is
scheduled to begin at Olkiluoto in Eurajoki in the first half of
the 2020s .
Biodiversity
Fortum’s main impacts on biodiversity are related to hydropower
production . Fuel procurement and flue-gas emissions may also have
a negative impact on biodiversity . On the other hand, increasing
CO2-free production mitigates the biodiversity loss caused by
climate change . Fortum’s Biodiversity Manual, revised in 2017,
defines the company’s approach in biodiversity management .
Environmental incidents
Fortum’s target is fewer than 21 major EHS incidents annually .
Major EHS incidents are monitored, reported and investigated,
and corrective actions are implemented . In 2017, there were 20
(22) major EHS (environmental, health and safety) incidents in
Fortum’s operations . There were 10 (11) environmental incidents,
out of which eight were spills . Fortum paid fines totalling RUB
8,000 (EUR 121) for the permit violation involving exceeding the
wastewater emission limit in Russia . The major EHS incidents did
not have significant environmental impacts .
23
Social responsibility
Fortum’s social responsibility targets are related to the secure
supply of electricity and heat for customers, operational and
occupational safety as well as employee wellbeing .
Employees
The Group Human Resources Policy is based on the company’s
Values, Leadership Principles and Code of Conduct . The HR Policy
guides the daily work in the company, and the implementation
of the policy is followed up regularly through the employee
engagement survey, the annual performance and development
discussions, as well as other feedback practices .
Fortum’s operations are mainly based in the Nordic countries,
Russia, Poland and the Baltic Rim area . The total number of
employees at the end of 2017 was 8,785 (8,108) . The number of
employees increased mainly due to the acquisition of Hafslund .
Group employee statistics
Number of employees, 31 December
Average number of employees
Total amount of employee benefits,
EUR million
Departure turnover, %
Permanent employees, %
Full-time employees, % (of permanent
employees)
Female employees, %
Females in management, %
2017
8,785
8,507
2016
8,108
7,994
2015
7,835
8,009
423
10.5
95.2
98.1
32
29
334
13.0
96.1
98.5
29
25
351
8.6
96.0
98.3
29
33
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotesOperating and financial review
Financial performance and position
Sustainability
Risk management
Fortum share and shareholders
Number of employees by country, 31 December 2017
The TRIF for Fortum employees was 1 .8 (1 .9) per one million
A sustainability assessment, including a human rights
Finland, 2,165
Sweden, 968
Norway, 654
Russia, 3,494
Poland, 827
Other countries, 677
Number of employees, 31 December
10,000
8,000
6,000
4,000
2,000
0
2013
2014
2015
2016
2017
Occupational safety
For Fortum, excellence in safety is the foundation of the company’s
business and an absolute prerequisite for efficient and interruption-
free production . Fortum strives to be a safe workplace for the
employees and for the contractors and service providers who work
for the company . The Group Sustainability Policy, the Minimum
Requirements for EHS Management and more detailed Group-
level EHS manuals steer the work . A certified OHSAS 18001 safety
management system covers 98 .4% (99 .9%) of Fortum’s power and
heat production worldwide .
2017 was a challenging year in terms of occupational safety . Only
the total recordable incident frequency (TRIF) for own employees
and the number of severe accidents met the set target level .
working hours, which is better than the target (≤ 2 .5) . The lost-
workday injury frequency (LWIF) for own personnel was 1 .2 (1 .0),
which did not meet the set target level (≤1 .0) .
The lost workday injury frequency (LWIF) for contractors
continues to be Fortum’s main challenge . The LWIF for contractors
per million working hours was 4 .2 (3 .0), and Fortum did not achieve
the target of ≤3 .5 . The same challenge applies to the combined
LWIF (own employees and contractors): the result was 2 .4 (1 .8),
exceeding the target of 1 .9 .
In 2018, Fortum will implement new tools to assess contractor
safety performance as part of the supplier qualification process
and will also evaluate their safety practices in a more systematic
manner during work . Fortum will also introduce external safety
training for both the management level and key individuals leading
safety work as well as the most challenging business areas .
In 2017, as in 2016, there were no accidents leading to a fatality
in the company’s operations .
Open leadership, personnel development and wellbeing
In late 2017, Fortum launched the company’s revised Values and
new Leadership Principles . The Open Leadership framework
supports cooperation across units and aims to create an
environment that fosters innovation, flexibility and agility .
ForCare, Fortum’s programme for overall wellbeing at work,
aims to promote health, safety, employee work capacity and work
community functionality . As part of ForCare, the Energise Your
Day wellbeing programme was launched in several new operating
countries in 2017 . The percentage of sickness-related absences
excluding DUON and Hafslund was 2 .2 (2 .3), which is better than
the target level of ≤2 .3 . The percentage of sickness-related absences
for Hafslund was 3 .0 .
Respect for human rights
Fortum’s goal is to operate in accordance with the UN Guiding
Principles on Business and Human Rights, and to apply these
principles in own operations as well as in country and partner risk
assessments and supplier audits .
24
evaluation, is carried out for investment projects – especially in new
operating areas – and also for new countries where Fortum plans to
expand the sales of products and services . In 2017, 15 (28) of these
assessments were made .
In 2017, there were no grievances related to human rights filed
through Fortum’s formal grievance channels, nor were there any
grievances carried over from the previous year .
Society
An uninterrupted and reliable energy supply is critical for society
to function . With planned preventive maintenance and condition
monitoring, Fortum ensures that the power plants operate reliably
to produce the electricity and heat customers need . The energy
availability of the company’s CHP plants in 2017 was, on average,
96 .1%; the target was above 95% .
Fortum’s operations impact the local communities where
the power plants are located, and the company engages in many
kinds of collaboration with local stakeholders . Fortum’s Policy for
Sponsoring and Donations was revised in late 2017 . According to
the policy Fortum’s sponsoring will focus on wellbeing of children
and youth, renewable energy projects, R&D and innovations
supporting Fortum’s strategy, recycling, recovery and reutilization .
The company also does significant collaboration with different
research and development projects, particularly with Nordic
universities . In 2017, Fortum’s support for activities promoting
the common good totalled about EUR 4 .9 (2 .9) million . The grants
awarded by Fortum Foundation were about EUR 696,000 (675,000) .
Fortum Foundation is not part of Fortum Group .
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotesOperating and financial review Financial performance and position
Sustainability
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 systems are 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, 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
cyber and information security risks 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 Group Risk Policy and 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
Management is responsible for assessing and reporting maturity of
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
risk management in Divisions, Development Units and Corporate
Functions and for providing independent monitoring and reporting
of material risk exposures to Group Management, the ARC and the
Board of Directors . Risk control functions and controllers in the
business monitor and report risks to the CRO .
Risk management process
Identify
Root causes
and
consequences
Assess
Likelihood
and
impact
Respond
Accept, avoid,
mitigate
or transfer
Control
Monitor
and report
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
not only in monetary terms, but also in terms of health and safety,
the environment and reputation . Risk owners, responsible for
implementing actions to respond to the risk, are defined by the
business and operational management . Risk responses can be 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 .
Fortum’s Board of Directors annually approves the Group Risk
Policy and the CEO annually approves Group Risk Instruction
25
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotesOperating and financial review Financial performance and position
Sustainability
Risk management
Fortum share and shareholders
covering commodity market risks, counterparty credit risks,
and operational risks . Fortum also has other Group policies and
instructions covering e .g . compliance, sustainability, treasury and
cyber and information security risks which are aligned with the
Group Risk Policy . Risk mandates or limits are defined for commodity
market 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 . Future energy market and regulation
scenarios, including the impact of these to Fortum’s business, are
continuously assessed and analysed . It is part of Fortum’s strategy
Fortum Risk Map
Counter-
party
Business Ethics
& Compliance
Liquidity &
Refinancing
•
•
•
to, in the long-term, broaden the base of revenues and diversify into
new businesses, technologies and markets .
Risks which could hinder Fortum in executing this strategy
are continuously assessed, monitored and reported as part of the
strategy work . These 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 .
Investment and acquisition risks
Fortum’s strategy includes growth of operations in new businesses,
technologies and geographies, and any future investment or
acquisition, including partnerships, entails risk such as:
•
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 new markets with different
cultural and compliance requirements,
the need to understand and manage risks related to
sustainability and safety issues .
Taxation
Sustain
a
b
i
l
i
t
y
EHS & Social
These risks are managed as part of the investment process which
includes requirements for risk identification and assessment and
action plans before investment decisions are made, and also sets
requirements to follow-up risks in projects and acquisitions .
Currency &
Interest Rates
m m o d i t y
o
cial & C
arkets
M
n
a
n
i
F
Fortum’s
Risks
Commodity
Markets
& Fuels
Equipment,
Systems &
Processes
O
p
e
r
a
tio
nal
S trategic
Investments &
Acquisitions
Energy Policy
& Regulations
External
Events
Technology
Cyber and
Information
Security
Market
Environment
Energy policy and regulation risks
The energy business is heavily influenced by national and EU-
level 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
regulatory changes in Fortum’s various operating countries pose
a risk if we are not able to anticipate, identify and manage those
changes efficiently .
26
Fortum maintains an active dialogue with the bodies involved in
the development of laws and regulations in order to manage these
risks and proactively contribute to 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 increasing policy harmonization . Even
if the Nordic power market has a long tradition of harmonization,
national policies vary considerably when it comes to e .g . taxation,
permitting, subsidies and market model meaning that we have
to manage risks related to both EU regulation and national
regulation . Potential risks related to the future energy and climate
policy framework include;
• The development towards integrated, flexible and dynamic
power market hampered by increasing policy costs and
uncoordinated national mechanisms,
• Overlapping national carbon policies diluting the EU ETS and
•
carbon price despite the ETS reform,
Increasing cost burden for hydro power in Finland, driven
by fish obligations, grid costs and real estate taxation and
unbalanced implementation of the EU Water Framework
directive in Sweden, potentially leading to lower production
volumes,
• Sustainability requirements for forest biomass leading to
•
reduced availability and increasing costs,
Implementation of national waste incineration taxes or other
measures due to opposition to incineration hampers the
competitiveness of waste-to-energy,
• Substantial retroactive changes and/or discontinuation of
prevailing CHP support schemes in Baltic countries and
Poland or deteriorating competitiveness of CHP due to fuel tax
increases,
• Emergence of windfall tax discussions following possible
positive electricity and carbon price development .
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotesOperating and financial review
Financial performance and position
Sustainability
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 .
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, as well as digitalizing the business . Fortum’s R&D
and innovation activities focus on the development of the energy
system towards a future solar economy . Fortum is, for example,
developing circular economy, bio-economy and other renewable
energy concepts as well as innovative solutions for its customers .
New technologies expose Fortum to risks related to intellectual
property rights, data privacy and viability of technologies .
Technology risks are managed primarily through developing a
diversified portfolio of projects consisting of different technologies .
Sustainability risks
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 and the same applies to changes in views of our main
stakeholders . In order to identify 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
on how to conduct business . Corporate Functions, Divisions and
Development units identify and assess sustainability risks related
to their operations and define mitigation measures annually .
Corporate Sustainability executes oversight as part of the Group’s
risk management process .
Environmental, health and safety and social risks
Operating power and heat generation plants, circular economy
services and waste management involves use, storage and
transportation of fuels and materials that can have adverse effects
on the environment and expose personnel, contractors and third
parties to safety risks . Assessment of environmental risks and
preparedness to operate in exceptional and emergency situations
follows legislative requirements as well as the requirements in
the environmental management standard (ISO 14001) . The same
approach, based on the requirements in the operational health
and safety standard (OHSAS 18001), 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 including partner and country risk assessment .
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 manual .
Environmental risks and liabilities in relation to past actions have
been assessed and provisions have been made for future remedial
costs .
Fortum’s operations are exposed to physical risks caused by
climate 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 also bioenergy supply
27
and availability . Fortum adapts its operations to the changing
climate and takes it into consideration, for example, in
production and maintenance planning and in evaluating growth
and investment projects .
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 which has
decreased the predictability and visibility around how our
operations are taxed .
Fortum’s tax policy aims to identify simple and cost-efficient
solutions to manage taxes in a sustainable manner . Fortum’s
tax policy is based on a principle that tax is a consequence of
business and that compliance with tax rules and legislation and
transparency result in a correct tax contribution . This policy
leaves no room for artificial or other aggressive solutions .
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 openly both internally and externally and
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 Code of Conduct enhances the understanding of
the importance of business ethics for all Fortum employees,
contractors and partners . 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’s supplier code of conduct sets
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotesOperating and financial review Financial performance and position
Sustainability
Risk management
Fortum share and shareholders
sustainability requirements for suppliers of goods and services . The
Supplier Code of Conduct is based on the principles of the United
Nations Global Compact and is divided into four sections: business
principles including anti-corruption, human rights, labour
standards and environment .
Fortum systematically identifies, assesses, mitigates and
reports compliance risks including risks related to sustainability
and business ethics . Internal controls are implemented to prevent
the possibilities of unauthorised activities or non-compliance with
Group policies and instructions .
Financial & commodity market risks
Commodity market and fuel 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 . For further information on hedge ratios, exposures,
sensitivities and outstanding derivatives contracts, see Note 3
Financial risk management .
Electricity price and volume risks
In competitive markets, such as in the Nordic region, the wholesale
price of electricity 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 . Hedging of the
Generation segment’s power sales is performed in EUR on a
Nordic level covering both Finland and Sweden, and the currency
component of these hedges in the Swedish entity is currently not
hedged . 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 exposure is mitigated through the use of
fixed-price bilateral agreements . In India, the electricity price
received from solar production are fixed through long term power-
purchasing agreements .
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 .
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 .
The main factor influencing the prices of CO2 allowances and
other environmental values is the supply and demand balance .
Fortum hedges its exposure to these prices and volumes through
the use of CO2 futures and environmental certificates .
Liquidity and refinancing risks
Fortum’s business is capital intensive and there is a regular need
to raise financing . Fortum maintains a diversified financing
structure in terms of debt maturity profile, debt instruments and
geographical markets . Liquidity and refinancing risks are managed
through a combination of cash positions and committed credit
facility agreements with its core banks . The credit risk of cash
positions has been mitigated by diversifying the deposits to high-
credit quality financial institutions and issuers of corporate debt .
In relation to the offer for Uniper shares, Fortum has commitments
from 10 relationship banks to provide credit facilities at the request
of Fortum in an aggregate amount of up to EUR 12,000 million .
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
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 material transaction exposures
should be hedged while translation exposures are not hedged, or
are hedged selectively . An exception is the Generation segment’s
hedging of power sales in Sweden where the currency component is
currently not hedged . The main translation exposures toward the
28
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotesOperating and financial review Financial performance and position
Sustainability
Risk management
Fortum share and shareholders
EUR/RUB, EUR/SEK and EUR/NOK are monitored continuously .
Changes in these currency rates affect Fortum’s profit level and
equity when translating results and net assets to euros .
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 .
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 .
Counterparty risks
Fortum is exposed to counterparty risk whenever there is a
contractual arrangement with an external counterparty including
customers, suppliers, partners, banks, clearing houses and trading
counterparties .
Credit risk exposures relating to financial derivative
instruments are often volatile . The majority of commodity
derivatives are cleared through exchanges such as Nasdaq OMX
commodities . The trend toward more use of futures contracts
instead of forward contracts is decreasing the credit exposure
toward clearing houses . Derivatives contracts are also entered into
directly with external counterparties and 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
and financial institutions . The majority of the exposure is toward
Fortum’s key relationship banks, which are highly creditworthy
institutions, but also 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 .
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 larger
individual counterparties . Creditworthiness is monitored through
the use of internal and external sources so that mitigating actions
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 .
In addition, all Fortum’s industrial assets are covered by a Group
Master Policy covering property damage and business interruption
risks which mitigates the impact of internal and external events .
Operational risks at production facilities
Combined heat and power (CHP) and recycling and waste
CHP production and the recycling and waste business involve
the use, storage and transportation of fuels and waste (including
hazardous waste) . Leakage and contamination of the surrounding
environment could lead to clean-up costs and third-party liabilities .
An explosion or fire at a 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 . Requirements
for waste are clearly specified and samples are tested for selected
incoming waste deliveries . Risks in large CHP projects are
mitigated through contract structures and insurance coverage .
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
29
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 600M SDR (Special Drawing Right) and
the same type of insurance policies are in place for the operators
where Fortum has a minority interest .
Cyber and information security 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 . Cyber security
risks, including risks related to information, industrial control
systems (ICS), digitalization and privacy, are managed centrally
by Corporate Security . Group instructions and procedures set
requirements for managing and mitigating cyber security risks .
General Data Protection Regulation will become applicable
on 25th of May 2018 . The regulation contains a number of
requirements related to processing personal data . Therefore,
Fortum has established a Group-wide program to ensure the
fulfilment of the requirements .
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 .
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotesOperating and financial review Financial performance and position
Sustainability
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, %
2017
0.98
-
0.98
1.12
1.12
14.69
1.10 1)
-
112.2 1)
6.7 1)
2016
0.56
-
0.56
0.7
0.7
15.15
1.10
-
196.4
7.5
2015
-0.26
4.92
4.66
1.55
1.38
15.53
1.10
-
23.6
7.9
1) Board of Directorsʼ proposal for the Annual General Meeting 28 March 2018.
For full set of share Key figures 2008–2017, see the section Key figures in the Financial Statements .
Shareholders value, share price performance and volumes
Fortum’s mission is to deliver excellent value to its shareholders . Fortum’s share price has appreciated
approximately 15% during the last five years, while Dow Jones European Utility Index has increased 11% .
During the same period Nasdaq Helsinki Cap index has increased 67% . During 2017 Fortum’s share
price appreciated approximately 13%, while Dow Jones European Utility index increased 7% and Nasdaq
Helsinki Cap index increased 5% .
In 2017, a total of 582 .9 million (2016: 611 .6) Fortum Corporation shares, totalling EUR 8,906
million, were traded on the Nasdaq Helsinki . The highest quotation of Fortum Corporation shares
during 2017 was EUR 18 .94, the lowest EUR 12 .69, and the volume-weighted average EUR 15 .28 . The
closing quotation on the last trading day of the year 2017 was EUR 16 .50 (2016: 14 .57) . Fortum’s market
capitalisation, calculated using the closing quotation of the last trading day of the year, was EUR 14,658
million (2016: 12,944) .
In addition to the Nasdaq Helsinki, Fortum shares were traded on several alternative market places,
for example at Boat, Cboe and Turquoise, and on the OTC market as well . In 2017, approximately 61%
(2016: 63%) of Fortum’s shares were traded on markets other than the Nasdaq Helsinki Ltd .
Market capitalisation, EUR billion
Share quotations, index 100 = quote on 2 January 2013
20
15
10
5
0
200
150
100
50
0
2013
2014
2015
2016
2017
2013
2014
2015
2016
2017
Fortum
OMXHCap
DJ STOXX
30
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotesOperating and financial review Financial performance and position
Sustainability
Risk management
Fortum share and shareholders
Share capital
Fortum has one class of shares . By the end of 2017 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 2017 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 2017, 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 30 .6 % (2016: 28 .1%) .
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 2017
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
28.83
39.09
15.47
15.73
0.81
0.06
0.01
0.00
100.00
In the joint book-entry account and in special accounts on 31 December
Nominee registrations
Total
No. of
shareholders
36,689
49,757
19,695
20,023
1,035
74
12
1
127,286
Shareholders, 31 December 2017
Shareholders
Finnish State
The Finnish Social Insurance Institution
Ilmarinen Mutual Pension Insurance Company
Kurikan Kaupunki
The State Pension Fund
Elo Mutual Pension Insurance Company
Varma Mutual Pension Insurance Company
The Local Government Pensions Institution
Nordea Suomi Pro fund
Schweizerische Nationalbank
Danske Invest Suomi Osakeyhtiö fund
Society of Swedish Literature in Finland
Etera Mutual Pension Insurance Company
Seligson & Co OMX 25 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
7,030,896
6,220,000
6,203,500
4,600,000
4,000,000
3,050,167
2,568,955
2,545,929
1,977,723
1,239,436
1,156,375
1,132,142
905,751
269,923,008
124,880,175
888,367,045
Holding %
50.76
0.79
0.70
0.70
0.52
0.45
0.34
0.29
0.29
0.22
0.14
0.13
0.13
0.10
30.38
14.06
100.00
31
% of total amount of shares
1.27
1.19
55.08
1.42
10.21
30.83
100.00
% of total
amount of
shares
0.22
1.50
1.64
5.90
2.56
2.59
4.70
50.76
69.87
0.01
30.12
100.00
No. of shares
2,002,060
13,304,536
14,551,606
52,398,992
22,764,187
23,013,521
41,725,123
450,932,988
620,693,013
73,276
267,600,756
888,367,045
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotesOperating and financial review
Financial performance and position
Sustainability
Risk management
Fortum share and shareholders
Management interests 31 December 2017
At the end of 2017, the President and CEO and other members of the Fortum Management Team owned
200,667 shares (2016: 315,653) representing approximately 0 .02% (2016: 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 10 Employee
benefits .
Authorisations from the Annual General Meeting 2017
In 2017, 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 2017 .
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 Corporation as at 31 December 2017 amounted to
EUR 5,170,240,554 .04 including the profit of the financial period 2017 of EUR 932,525,770 .24 . The
company’s liquidity is good and the dividend proposed by the Board of Directors will not compromise
the company’s liquidity .
The Board of Directors proposes to the Annual General Meeting that a dividend of EUR 1 .10 per share
be paid for 2017 .
Based on the number of registered shares as at 1 February 2018 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 28 March 2018 at 11:00 EET at Finlandia Hall in Helsinki .
Total shareholder return, EUR
40
35
30
25
20
15
10
5
0
2009
2010
2011
2012
2013
2014
2015
2016
2017
Fortum’s share price, (EUR 16.50)
Fortum’s total shareholder return, EUR 30.10
(dividends reinvested)
Earnings per share total Fortum, EUR
5.0
4.0
3.0
2.0
1.0
0.0
2013
2014
2015
2016
2017
Dividend per share, EUR
1.5
1.25
1.0
0.75
0.5
0.25
0.0
2013
2014
2015
2016
2017
The dividend for 2017 represents the Board of Directors’ proposal
for the Annual General Meeting in March 2018.
Fortum paid extra dividend of EUR 0.20 per share for the financial year
that ended 31 Dec 2014.
32
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationNotesOperating and financial review Income statement
Statement of comprehensive income
Balance sheet
Statement of changes in total equity
Cash flow statement
Notes
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
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)
Basic
Note
5
8
9
10
5, 16, 17
8
5
6
5
5, 18
7
11
12
13
2017
4,520
55
-2,301
-423
-464
-576
811
347
1,158
148
-164
32
-12
-50
-195
1,111
-229
882
866
16
882
2016
3,632
34
-1,830
-334
-373
-485
644
-11
633
131
-169
30
-2
-29
-169
595
-90
504
496
8
504
0.98
0.56
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
5
5, 6
2017
811
6
326
14
1
347
1,158
2016
644
27
38
-65
-11
-11
633
Comparable operating profit, EUR million
644
61
34
-7
105
-25
811
0 1 6
2
n
e r a ti o
n
e
G
C it y S
s
n
n
o
o l u ti o
C
e r S
m
u
s
s
n
o l u ti o
s si a
u
R
e r
O t h
0 1 7
2
1,000
800
600
400
200
0
33
Auditor’s reportKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotesConsolidated financial statements
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.
EUR million
Profit for the period
Other comprehensive income
Note
2017
882
2016
504
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
3.6
18
30
30
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
Other comprehensive income for the period, net of deferred taxes
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interests
22
76
-4
-19
23
-5
-372
-10
-2
-291
-13
6
-7
-298
584
571
13
584
-142
-85
-10
51
-2
0
342
-9
0
145
-7
12
5
150
654
639
15
654
34
Auditor’s reportKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotesConsolidated financial statements
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
Income 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 2017
31 Dec 2016
16
17
18
28
19
27
3
20
21
3
20
27
22
23
1,064
10,510
1,900
858
140
73
281
1,010
15,835
216
240
395
172
997
715
3,182
3,897
5,918
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
21,753
21,964
Note
31 Dec 2017
31 Dec 2016
24
25
26
3
27
28
29
30
31
26
3
32
3,046
73
9,875
54
13,048
239
13,287
4,119
214
819
858
100
102
175
6,388
766
200
1,112
2,078
8,466
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
21,753
21,964
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
35
Auditor’s reportKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotesConsolidated financial statements
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 2016
Net profit for the period
Translation differences
Other comprehensive income
Total comprehensive income for the period
Cash dividend
Other
BS Total equity 31 December 2017
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
Note
3,046
73
Retained
earnings and
other funds
12,186
866
Translation
of foreign
operations
-1,817
Cash
flow hedges
-115
Other
OCI items
58
OCI items
associated
companies and
joint ventures
27
13
13
3,046
3,046
73
73
3,046
73
-9
857
-977
-4
12,062
12,663
496
1
497
-977
3
12,186
-369
-369
-2,187
-2,156
339
339
1
74
75
-40
74
-2
-186
-188
-1,817
-115
1
11
11
70
67
1
-10
-9
58
-1
-2
-3
24
27
-3
3
0
27
13,459
866
-369
73
571
-977
-4
13,048
13,794
496
335
-192
639
-977
3
13,459
84
16
-3
0
13
-2
145
239
69
8
7
15
-1
84
13,542
882
-372
74
584
-979
141
13,287
13,863
504
342
-192
654
-977
2
13,542
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 -369 million during 2017 (2016: 335) . 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 28 million (2016: 5), 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 75 million (2016: -188), 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 .
Non-controlling interests
Non-controlling interests have increased with EUR 155 million during 2017 mainly due to the acquisition
of Fortum Oslo Varme AS which is consolidated as a subsidiary with 50% non-controlling interest . See
also Note 38 Acquisitions and disposals .
36
Auditor’s reportKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotesConsolidated financial statements Income statement
Statement of comprehensive income
Balance sheet
Statement of changes in total equity
Cash flow statement
Consolidated cash flow statement
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
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
13
23
2017
187
35
-543
68
-977
-12
-1,428
-1,241
5,155
-16
3,897
2016
-1,080
32
-934
-97
-977
-8
-1,984
-3,064
8,202
18
5,155
Realised foreign exchange gains and losses relate mainly to financing of Fortumʼs Russian and Swedish
subsidiaries and the fact that the Groupʼs 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.
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
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 cash collaterals
Change in other interest-bearing receivables
Net cash used in investing activities
5, 16, 17
2017
882
229
195
-148
464
1,623
-347
0
1,275
-76
35
-187
58
-83
-83
-28
912
81
993
-657
-972
8
741
43
-3
34
-807
2016
504
90
169
-131
373
1,006
11
-2
1,015
-49
39
-214
54
110
-216
-18
723
-102
621
-599
-695
10
39
-117
-359
20
-1,701
37
Auditor’s reportKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotesConsolidated financial statements
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
Comparable EBITDA
Non-cash flow items
Paid net financial costs
Income taxes paid
Change in working capital
Capital expenditures
Acquisitions
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
Additional cash flow information
Change in working capital
EUR million
Change in settlements for futures, decrease(+)/increase(-)
Change in interest-free receivables, decrease(+)/increase(-)
Change in inventories, decrease(+)/increase(-)
Change in interest-free liabilities, decrease(-)/increase(+)
CF Total
2017
-48
-15
1,275
-76
-199
-83
81
-657
-972
749
43
31
-977
-17
-802
248
988
2017
141
-94
19
15
81
2016
-2,195
-70
1,015
-49
-29
-216
-102
-599
-695
49
-117
-340
-977
-8
-2,065
152
-48
2016
-138
92
14
-70
-102
In Fortum’s cash flow statement the daily cash settlements for futures are shown as change in working
capital whereas the changes in cash collaterals for forwards are included in cash flow from investing
activities . 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 cash collaterals are included in
the short-term interest-bearing receivables, see Note 20 Interest-bearing receivables .
38
Capital expenditure in cash flow
EUR million
Capital expenditure
Change in not yet paid investments, decrease(+)/increase(-)
Capitalised borrowing costs
CF Total
Note
5, 16, 17
2017
690
-17
-16
657
2016
591
24
-16
599
Capital expenditures for intangible assets and property, plant and equipment were in 2017 EUR 690
million (2016: 591) . Capital expenditure in cash flow in 2017 EUR 657 million (2016: 599) is including
payments related to capital expenditure made in previous year i .e . change in trade payables related to
investments EUR -17 million (2016: 24) and excluding capitalised borrowing costs EUR -16 million (2016:
-16), 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 17.2 Capital expenditure .
Acquisition of shares in cash flow
Acquisition of shares, net of cash acquired, amounted to EUR 972 million during 2017 (2016: 695) .
Acquisition of shares during 2017 include mainly the acquisition of subsidiary shares in Hafslund
Markets AS and Hafslund Varme AS (renamed as Fortum Oslo Varme AS) including the City of Oslo’s
waste-to-energy company Klemetsrudanlegget AS (renamed as Fortum Oslo Varme KEA AS) as well as
associated company shares in Hafslund Produksjon Holding AS . During 2017 Fortum also acquired
100% of the shares in three Norwergian wind park companies, Russian solar power companies and other
smaller companies . Fortum also invested in the wind investment fund owned 50/50 by Fortum and
RUSNANO . For further information see Note 38 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
38
18, 38
2017
54
687
741
2016
6
34
39
Proceeds from sales of subsidiaries during 2017 include mainly the sale of the Polish gas infrastructure
company DUON Dystrybucja S .A . that was acquired as part of the acquisition of the electricity and gas
sales company Grupa DUON S .A . (currently Fortum Markets Polska S .A .) in 2016 . Proceeds from sales of
associated companies and joint ventures during 2017 include the sale of Fortum’s 34 .1% stake in
Hafslund ASA . For further information see Note 38 Acquisitions and disposals .
Auditor’s reportKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotesConsolidated financial statements
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 2018 .
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;
• effects from accounting of Fortum’s part of the State Nuclear Waste Management Fund where the
assets cannot exceed the related liabilities according to IFRIC 5 .
Comparable operating profit is used for financial target setting, follow up and allocation of resources
in the Group’s performance management .
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 .
Subsidiaries are fully consolidated from the date on which control is transferred to the Group and are
no longer consolidated from the date that control ceases .
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 .
39
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
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
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
Average rate
Currency
SEK
NOK
PLN
RUB
2017
9,6392
9,3497
4,2556
66,0349
2016
9.4496
9.2888
4.3659
73.8756
Balance sheet date rate
31 Dec 2017
9,8438
9,8403
4,1770
69,3920
31 Dec 2016
9.5525
9.0863
4.4103
64.3000
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 .
The Fortum Group subsidiaries are disclosed in Note 40 Subsidiaries by segment on
31 December 2017 .
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 arrangements 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 .
1.4 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 .
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Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
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 .
1.6 New accounting principles
1.6.1 New IFRS standards adopted from 1 Jan 2017
Fortum has adopted the following new or amended standards on 1 January 2017:
Accounting principle
Segment reporting
Revenue recognition
Government grants
Share-based payments
Income taxes
Joint arrangements
Note
5 Segment reporting
Segment reporting and
5
22
Trade and other receivables
17 Property, plant and equipment
10 Employee benefits
27 Income taxes in balance sheet
18 Participations in associated companies and joint
ventures
Investments in associates
18 Participations in associated companies and joint
ventures
14 Financial assets and liabilities by categories
16 Intangible assets
17 Property, plant and equipment
33 Lease commitments
21 Inventories
13 Earnings and dividend per share
30 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
28 Nuclear related assets and liabilities
IFRIC 5
29 Other provisions
35 Pledged assets and contingent liabilities
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23 Liquid funds
26 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
Leases
Inventories
Earnings per share
Pensions and similar
obligations
Decommissioning
obligation
Provisions
Contingent liabilities
Financial instruments
Liquid funds
Borrowings
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.
1 January 2017
In connection to the disclosure initiative project, IAS 7 was amended to require
additional disclosures on the movement of liabilities. Fortum presents a reconciliation of
liabilities arising from financing activities in Note 26. Impacts of the other
amendments are not material in Fortum’s financial statements.
Date of adoption
Impact
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Balance sheet
Off balance sheet items
Group structure and related parties
1.6.2 Adoption of new IFRS standards from 1 Jan 2018 or later
Fortum will apply the following new or amended standards and interpretations starting
from 1 January 2018 or later:
• Waste management services: Majority of the revenues from waste management
services arises from the fees charged for receiving the waste from customers (i.e. gate
fees). The fee is usually determined based on the volume of waste received and there
are no variable elements in the pricing. Fortum is required to treat the waste and this
performance obligation is satisfied when the treatment is performed. Transportation
of the waste form another performance obligation, which is recognized once the
service is performed. There are no changes identified to the current practices.
• Electricity sales to retail customers: Fortum’s contracts with the consumer and business
customers cover the electricity sales, while the distribution service is delivered by the
transmission company operating the local network. There is only one performance
obligation, which is to stand-ready to supply electricity to the customer. The
transaction price generally includes both a fixed monthly fee and a variable fee that
depends on the volume of electricity supplied. As with the district heating business,
the fixed and variable components are to be recognized as revenue based on the
fees chargeable from the customer.
IFRS 15 will change the treatment of sales commission costs for obtaining new
customers, which are currently mostly expensed. In the future the sales commissions
shall be capitalized as intangible assets and depreciated over the expected contract
term. Implementation of IFRS 15 will thus impact the timing and classification of
expenses, but the impact to Fortum Comparable operating profit is not expected to be
material.
Further details on the impact will be disclosed in the Q1/2018 interim report. Fortum
will use the transition relief for not to restate the comparative information at the date of
initial application.
IFRS 15 Revenue from Contracts with Customers
Nature of change
Date of adoption
Impact
New standard. The standard focuses on revenue recognition models and will replace
IAS 11 and IAS 18.
1 January 2018
Fortum has completed the analysis of the significant business areas and has not
identified any material changes from IFRS 15 implementation.
Analysis includes the following main steps:
• Identification and assessment of the main revenue streams,
• Determining key areas of potential differences between old and new revenue
recognition principles and
• Reviewing a sample of contracts.
The conclusions requiring the greatest degree of management judgement
are as follows:
• Electricity sales to wholesale market: Physical electricity trades to Nord Pool or other
wholesale markets are made either during the same day or day before the delivery
and the duration of the contract is thus very short. The transaction price is the spot
price and there are no variable elements. Electricity sales continue to be recognized
upon delivery and hence there are no changes identified compared to the current
recognition principles.
• District heating: In many areas the district heating service covers both the distribution
and sale of heat. Even if heat is produced by a third party, Fortum is usually
responsible for delivering the whole service and is acting as a principal for the
heat sales as well. Fortum has concluded that the distribution and sale of heat
are not separate performance obligations and are both covered by the promise to
stand-ready to supply heat to the customer. Also the fees charged for connecting
the end customer to the district heat network are part of the same performance
obligation. The fees charged from the customer generally comprise a fixed monthly
charge and a variable component that is determined based on the volume of heat
supplied. In accordance to the IFRS 15 principles, the fixed charge and the variable
heat volume charge are allocated and recognised in line with the fees chargeable
from the customer. In Russia, Baltics and Poland there are also areas, where Fortum
operates only the heat production facilities while some third party is responsible
for the distribution of heat. In these areas the performance obligation is to supply
heat. There are no changes identified compared to the current revenue recognition
principles.
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Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
IFRS 9 Financial instruments
Nature of change
Date of adoption
Impact
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. Additionally, it introduces a new impairment model for expected credit losses.
1 January 2018
Fortum is finalising the implementation and testing phase including model validations,
process and system updates and preparation of the new disclosures including possible
opening balance sheet adjustments.
The interpretations taken are:
• Classification and measurement of financial assets - Most financial assets will be
classified under “Held-to-Collect” business model and accounted for as amortised
cost when they meet the SPPI criteria. TVO shareholder loan meets the criteria for
equity investment and it will be reclassified.
• Fortumʼs commodity derivative hedging will benefit from the possibility to apply
hedge accounting for one or several risk components separately or in aggregation. In
the Nordic area Fortum considers system and electricity price area differential (EPAD)
products perfect hedges for corresponding electricity price risk components. This will
reduce the volatility in Fortumʼs profit and loss currently recognized as items affecting
comparability. Vast majority of the non-hedge accounted electricity derivatives in
December will qualify for hedge accounting under IFRS 9.
• Implementation of expected credit loss (“ECL”) model is completed. Fortum has
implemented counterparty specific ECL models to be used on individual contract
basis for deposits, shareholder loans and trade receivables with large customers
whereas portfolio models will be used for trade receivables with consumers and small
business customers. Fortum has prepared analysis based on historical data, which
indicates no material impacts. Actual impacts will fluctuate due to seasonality of the
business.
Further details on the impact will be disclosed in the Q1/2018 interim report. Fortum
will use the transition relief for not to restate the comparative information at the date of
initial application.
43
IFRS 16 Leases
Nature of change
Date of adoption
Impact
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.
1 January 2019
Currently under IAS 17, lessees recognize leases either as operating leases or finance
leases. The new standard no longer distinguishes between operating and finance
leases from a lessees point of view, and most right-of-use assets are recognized in
the balance sheet. For lessors, there are no significant changes. In brief, IFRS 16
requirements contain the following:
• A lessee shall recognize all leases, except for short-term and low value leases, in the
balance sheet.
• For lessees, both the value of the right-of-use asset and the corresponding liability
shall be recognized in the balance sheet.
IFRS 16 is effective for financial periods starting on 1 January 2019 or later. The
European Union endorsed the use of the standard on 31 October 2017.
Currently, Fortum has mainly operating leases with varying lease terms and
prolongation rights. The majority of the operating leases are for the use of land and
office buildings. Total future lease obligations amounted to EUR 160 million at the end
of the reporting period (Dec 31 2016: 74). Hence, the impacts of the standard to the
consolidated financial statements are not expected to be material.
The IFRS 16 analysis is on-going and will be completed during 2018. Analysis include:
• Reviewing current lease contracts reported as operating lease commitments
• Going through supplier lists and identifying potential lease arrangements
• Determining incremental borrowing rates
• Calculation of accounting impacts.
No major issues have been identified so far. Fortum plans to apply the modified
retrospective method, which means the comparative figures will not be restated.
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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 determined 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 Fortumʼs
interest in its investees and when considering the
classification of Fortumʼs 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
16 Intangible assets
16 Intangible assets
18 Participations in associated companies and
joint ventures
Income taxes in balance sheet
Legal actions and official proceedings
27
36
28 Nuclear related assets and liabilities
29 Other provisions
30 Pension obligations
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 volume 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 and volume 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 . Hedging of the Generation segment’s power sales is performed in EUR on a Nordic
level covering both Finland and Sweden, and the currency component of these hedges in the Swedish
entity is currently not hedged .
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 2017, approximately 70% of the Generation segment’s estimated Nordic
power sales volume was hedged for the calendar year 2018 and approximately 40% for the calendar
year 2019 . 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 2018 comparable operating profit by
approximately EUR 14 million and for 2019 by approximately EUR 27 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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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 2017 (31 December 2016) 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 purchases 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
-/+
-/+
2017
22
28
2016
18
27
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 14 Financial assets and liabilities by categories for accounting principles and basis for
fair value estimations and Note 7 Fair value changes of derivatives and underlying items in income
statement .
Electricity derivatives by instrument 2017
Under
1 year
26
Volume, TWh
1–5
years
24
Over
5 years
0
Electricity derivatives
Total
Netting against
electricity exchanges 1)
Total
Electricity derivatives by instrument 2016
Under
1 year
24
Volume, TWh
1–5
years
21
Over
5 years
0
Electricity derivatives
Total
Netting against
electricity exchanges 1)
Total
Fair value, EUR million
Total
50
Positive Negative
519
519
360
360
-234
126
-234
285
Fair value, EUR million
Total
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Positive Negative
711
711
491
491
-335
156
-335
376
Net
-159
-159
0
-159
Net
-220
-220
0
-220
1) Receivables and liabilities against electricity exchanges arising from standard derivative contracts with same delivery
period are netted.
45
Maturity analysis of commodity derivatives
Amounts in the table are fair values .
EUR million
Electricity derivatives,
liabilities
Electricity derivatives, assets
Other commodity derivatives,
liabilities
Other commodity derivatives,
assets
2017
Under 1
year
1–5
years
Over 5
years
162
90
13
36
123
35
3
6
0
0
0
0
Total
285
126
16
43
2016
Under 1
year
1–5
years
Over 5
years
238
88
18
18
136
67
3
4
2
1
0
0
Total
376
156
21
22
3.3 Fuel price risks
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, 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
2017, 90% (2016: 96%) of the Group’s total external financing was raised by the parent company Fortum
Corporation .
On 31 December 2017, the total interest-bearing debt was EUR 4,885 million (2016: 5,107) and the
interest-bearing net debt was EUR 988 million (2016: -48) .
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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 2017, loan maturities for the coming twelve-month period amounted to
EUR 766 million (2016: 639) . Liquid funds amounted to EUR 3,897 million (2016: 5,155) and the total
amount of committed and undrawn credit facilities amounted to EUR 1,800 million (2016: 1,963),
excluding committed credit facilities for Fortum’s offer for Uniper shares . In relation to offer for Uniper
shares Fortum Corporation had commitments from 10 relationship banks to provide credit facilities at
the request of Fortum in an aggregate amount of up to EUR 12,000 million .
Maturity of interest-bearing liabilities
2017
766
812
71
538
1,068
1,630
4,885
EUR million
2018
2019
2020
2021
2022
2023 and later
Total
Loan maturities per loan type, EUR million
1,500
1,200
900
600
300
0
2018 1)
2019
2020
2021
2022
2023
2024
2025
2026
2027 2028+
Bonds
Financial institutions
Other long-term debt
Other short-term debt
1) In addition Fortum has received EUR 113 million based on Credit Support Annex agreements with several counterparties.
This amount has been booked as a short-term liability.
Liquid funds, major credit lines and debt programmes 2017
EUR million
Liquid funds
Cash and cash equivalents
Deposits and securities over 3 months
Total
of which in Russia (PAO Fortum)
Committed credit lines
EUR 1,750 million syndicated credit facility
Bilateral overdraft facilities
Total 1)
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
1) Excluding committed credit facilities for Fortum’s offer for Uniper shares
Total facility
Drawn
amount
Available
amount
3,182
715
3,897
246
1,750
50
1,800
500
508
5,057
6,065
1,750
50
1,800
500
508
8,000
9,008
-
-
0
-
-
2,943
2,943
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 (PAO 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
1,679
3,475
5,155
105
1,750
213
1,963
500
523
4,671
5,694
1,750
213
1,963
500
523
8,000
9,023
-
-
-
-
-
3,329
3,329
Liquid funds amounted to EUR 3,897 million (2016: 5,155), including PAO Fortum’s bank deposits
amounting to EUR 231 million (2016: 103) . See also Note 23 Liquid funds .
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Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Maturity analysis of interest-bearing liabilities and derivatives
The average interest rate on deposits and securities excluding Russian deposits on 31 December 2017
Amounts disclosed below are non-discounted expected cash flows (future interest payments and
amortisations) of interest-bearing liabilities and interest rate and currency derivatives .
was -0 .27% (2016: -0 .01%) . Liquid funds held by PAO Fortum amounted to EUR 246 million (2016: 105)
and the average interest rate for this portfolio was 6 .1% at the balance sheet date .
EUR million
Interest-bearing liabilities
Interest rate and
currency derivatives liabilities
Interest rate and
currency derivatives recievables
Total
2017
2016
Under
1 year
895
1–5
years
2,723
Over 5
years
1,869
Total
5,487
Under
1 year
765
1–5
years
2,307
Over 5
years
2,601
Total
5,673
3,210
1,005
4
4,219
2,255
1,119
20
3,394
-3,319
785
-1,092
2,636
-1
1,871
-4,413
5,293
-2,131
889
-1,291
2,136
-27
2,594
-3,449
5,619
Interest-bearing liabilities include loans from the State Nuclear Waste Management Fund and
Teollisuuden Voima Oyj of EUR 1,129 million (2016: 1,094) . 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 28 Nuclear related assets and liabilities .
3.6 Interest rate risk and currency risk
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 2017, the average duration of the debt portfolio (including derivatives) was 1 .5 years
(2016: 1 .7) . Approximately 65% (2016: 59%) 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 71 million on 31 December 2017 (2016: 87) . 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 4 million (2016: 3) .
The average interest rate for the portfolio consisting mainly of EUR and SEK loans was 2 .4% at the
balance sheet date (2016: 2 .1%) . Part of the external loans EUR 773 million (2016: 805) have been swapped
to RUB and the average interest cost for these loans, including cost for hedging the RUB, was 9,5% at the
balance sheet date (2016: 11 .4%) . The average interest rate on loans and derivatives on 31 December 2017 was
3 .6% (2016: 3 .5%) . Average cumulative interest rate on loans and derivatives for 2017 was 3 .6% (2016: 3 .5%) .
3.6.2 Currency risk
Fortum’s policy is to hedge major transaction exposures on a local level in the reporting currency of each
legal entity in order to avoid exchange differences in the profit and loss statement . These exposures are
mainly hedged with forward contracts . An exception is the Generation segment’s hedging of power sales
in Sweden where the currency component is currently not hedged .
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 2017 the open transaction, excluding Generation segment’s
EURSEK exposure and translation exposures were EUR 13 million (2016: 2) and EUR 8,212 million (2016:
7,213) respectively . The VaR for the transaction exposure was EUR 0 million (2016: 0) and VaR for the
translation exposure was EUR 98 million (2016: 96) .
Group Treasury’s transaction exposure
EUR million
RUB
SEK
PLN
NOK
INR
USD
Other
Total
Net position
589
277
310
451
117
-118
-41
1,585
2017
Hedge
-589
-264
-310
-451
-117
118
41
-1,572
Open Net position
677
532
226
-72
116
-98
-20
1,361
0
13
0
0
0
0
0
13
2016
Hedge
-677
-531
-226
72
-116
98
20
-1,359
Open
0
1
0
0
0
0
0
2
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
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
47
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes
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
2,673
4,769
1,600
294
136
9,472
2017
Hedge
-173
-1,087
-
-
-
-1,260
Open
2,500
3,682
1,600
294
136
8,212
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
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 -369 million in 2017 (2016: 335) . Part of this translation
exposure has been hedged and the foreign currency hedge result amounted to EUR 28 million in 2017
(2016: 5) .
Interest rate and currency derivatives by instrument
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
2,864
305
311
3,480
2017
Notional amount
Remaining lifetimes
1–5 years
266
3,421
580
4,267
Over 5 years
102
102
Total
3,130
3,827
892
7,849
2017
Fair value
Negative
19
90
3
112
88
24
Positive
56
205
92
353
238
114
2016
Fair value
Negative
130
127
5
261
121
140
Positive
26
269
71
366
343
23
Net
37
115
89
241
151
90
Net
-103
142
66
105
222
-117
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
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
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 to be creditworthy . Master agreements, such as ISDA, FEMA and EFET, which include netting
clauses, are in place with the majority of the counterparties .
Due to the financing needs and management of liquidity, Fortum has counterparty credit exposure
toward 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
Fair value of derivatives on the Polish Power
Exchange
Total energy exchange receivables
Associated companies and joint venture
receivables
Loan receivables
Finance lease receivable
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
Receivable from SIBUR related to divested shares of
OOO Tobolsk CHP
Loan and other interest bearing receivables
Fair values of electricity and other commodity
derivatives
Total other receivables
3,348
353
56
3,757
37
2
13
52
864
41
9
914
249
141
363
102
35
51
941
2017
2016
Carrying
amount
of which
past due
Carrying
amount
of which
past due
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,663
366
5
5,034
61
1
0
62
886
0
14
900
275
103
360
131
3
96
968
6,964
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
Total
5,664
49
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes
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
2017
2016
-
324
2,835
189
3,348
141
-
-
141
-
249
-
-
-
-
-
249
-
995
3,437
231
4,663
103
-
-
103
-
275
-
-
-
-
-
275
Total
3,738
5,040
In addition, cash in other bank accounts totalled EUR 159 million on 31 December 2017 (2016: 115) .
See Note 23 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
2017
2016
Receivables
amount 1) Receivables
Netted
Netted
amount 1)
-
51
292
10
353
0
-
353
-
30
100
9
140
0
-
140
-
11
259
96
366
0
0
366
-
-
76
31
107
0
0
107
1) The netted amount includes the cash received in accordance with Credit Support Annex agreements EUR 113 million
(2016: 135).
Electricity, coal, gas and oil derivatives and CO2 emission allowances treated as
derivatives
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
2017
2016
Receivables
Netted
amount Receivables
Netted
amount
-
1
53
2
56
1
0
-
1
9
-
1
53
1
55
0
0
-
0
0
-
0
4
1
5
1
-
-
1
14
-
0
3
0
3
0
-
-
0
7
50
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
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
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
2017
2016
Receivables
Netted
amount Receivables
Netted
amount
0
15
19
16
0
-
1
51
117
0
10
12
12
0
-
1
35
90
0
34
39
22
0
0
0
95
115
0
28
29
19
0
0
0
77
87
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 Bisnode is
used for Nordic 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 .
4 Capital risk management
Financial targets give guidance on Fortum’s view of the company’s long-term value creation potential,
its growth strategy and business activities . The long-term over-the-cycle financial targets (published
in Feb 2016) are Return on capital employed, ROCE at least 10% and Comparable net debt to EBITDA
around 2 .5 times .
In November 2016 the strategy execution plan was detailed in order to enable profit growth and
improved cash flow . According to that detailed plan the redeployment of cash and the execution
of Fortum’s strategy will take place in two phases, and a significant part of the redeployment was
targeted to take place during 2016–2017 . The goal for the first phase is to maximise cash flow through
redeployment and the goal for the second phase is to secure Fortum’s longer-term competitiveness .
Following the earlier Ekokem and Hafslund transactions in September 2017 Fortum announced that
it has signed a transaction agreement under which E .ON had the right to decide to tender its 46 .65%
shareholding in Uniper SE into Fortum’s public takeover offer .
The investment in Uniper delivers on Fortum’s previously announced capital redeployment strategy and
investment criteria . The offer will be financed with existing cash resources and committed credit facilities .
Fortum has received as of 16 January 2018 in the offer 46 .93% including E .ON’s shares in Uniper which
corresponds to a commitment of billion 3 .78 euro . As a result of this transaction, Fortum’s leverage will rise
above our given guidance for net debt/EBITDA level of around 2 .5x . Over time however, Fortum expects its
cash generation in combination with the dividend from Uniper to reduce this level towards the stated target .
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 .
In September 2017, Standard & Poor’s and Fitch Ratings placed both Fortum’s long-term and
short-term credit ratings on credit watch negative on possible adverse impacts of the planned Uniper
investment . In January 2018, Standard & Poor’s downgraded Fortum’s long-term credit rating from BBB+
to BBB with a Negative Outlook due to the Uniper investment . The short-term rating was affirmed at level
A-2 . Fitch Ratings rates Fortum’s long-term credit rating at level BBB+ and the short-term rating at level F2 .
Net debt/EBITDA ratios
EUR million
Interest-bearing liabilities
BS Less: Liquid funds
Net debt
Operating profit
Add: Depreciation and amortisation
EBITDA
Less: Items affecting comparability
Less: Net release of CSA provision
Comparable EBITDA
Note
26
23
2017
4,885
3,897
988
1,158
464
1,623
347
-
1,275
2016
5,107
5,155
-48
633
373
1,006
-11
2
1,015
Comparable net debt/EBITDA
0.8
0.0
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
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Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
5 Segment reporting
ACCOUNTING POLICIES
REVENUE RECOGNITION
NETTING AND INTER-SEGMENT TRANSACTIONS
Generation segment sells its production to Nord Pool and Consumer Solutions buys its electricity from
Nord Pool. Eliminations of sales include eliminations of sales and purchases with Nord Pool that are
Revenue comprises the fair value consideration received or receivable at the time of delivery of products
netted on group level on an hourly basis and posted either as revenue or cost depending on if Fortum
and/or upon fulfilment of services. Revenue is shown net of rebates, discounts, value-added tax and
is a net seller or net buyer during any particular hour. Inter-segment sales, expenses and results for the
selective taxes such as electricity tax. Revenue is recognised as follows:
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
performed.
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.
5.1 Fortum’s business structure
Fortum has reorganised its operating structure as of 1 March 2017 . The City Solutions division was
divided into two divisions: City Solutions and Consumer Solutions . City Solutions comprises heating and
cooling, waste-to-energy, biomass and other circular economy solutions . Consumer Solutions comprises
electricity sales in the Nordics, electricity sales and gas sales in Poland, as well as Nordic customer
services (previously reported under the Other segment) . The business divisions are: Generation, City
Solutions, Consumer Solutions, Russia, and Other, which includes the two development units, M&A and
Solar & Wind Development, Technology and New Ventures as well as 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 . Fortum,s
reportable segments under IFRS are the business divisions Generation, City Solutions, Consumer
Solutions and Russia . Fortum has restated its 2016 comparison segment reporting figures in accordance
with the new organisation structure . The restated and previously communicated quarterly information
for 2016 were published on 11 April 2017 and can be found in the Interim reports section in Fortum’s
webpage .
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 .
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
52
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5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
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24
25
26
27
28
29
30
31
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33
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Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
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 of subsidiary shares are
included in capital gains and other within items affecting comparability . According to IFRS 3 transaction
costs related to the acquisitions of subsidiary shares 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 Definition of financial key figures .
Generation
City Solutions
Consumer Solutions
Russia
Group
s
n
o
i
s
i
v
D
i
Generation
City Solutions
Consumer Solutions
Russia
s The Generation segment comprises power
t
n
e
m
g
e
s
production in the Nordics including nuclear, hydro
and thermal power production, power portfolio
optimisation, trading and industrial intelligence,
and nuclear services globally.
g
n
i
t
r
o
p
e
R
City Solutions develops sustainable city solutions
into a growing business for Fortum. The segment
comprises heating and cooling, waste-to-energy,
biomass and other circular economy solutions.
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.
Consumer Solutions comprises electricity and gas
retail businesses in the Nordics and Poland,
including the customer service, invoicing and debt
collection business. Fortum is the largest electricity
retail business in the Nordics, with approximately
2.5 million customers across different brands in
Finland, Sweden, Norway and Poland. The business
provides electricity and related value-added
products as well as new digital customer solutions.
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.
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
53
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes
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
Generation 1)
2017
1,662
15
2016
1,643
15
2017
996
19
1,677
603
1,657
527
1,015
262
-125
478
6
1
15
1
23
501
-1
-110
417
27
1
-96
-11
-79
338
-34
-163
98
0
1
3
4
102
80
6
6
6, 7
6, 28
6
18, 28
City Solutions 1)
Consumer Solutions
Russia
Other
Total
2016
780
1
782
186
-121
64
0
0
22
22
86
76
2017
1,094
3
1,097
57
-16
41
0
2
-4
-2
39
0
2016
666
2
668
55
-7
48
0
0
11
11
59
0
2017
1,101
0
1,101
438
0
-142
296
0
0
0
0
295
31
2016
896
0
896
312
2
-123
191
0
35
0
35
226
38
2017
35
67
102
-83
-18
-102
0
322
0
322
221
38
2016
31
61
92
-64
-13
-77
0
2
-2
0
-77
51
2017
4,888
103
-367
-103
4,520
1,275
0
-464
811
6
326
14
1
347
1,158
148
-195
-229
882
2016
4,016
79
-384
-79
3,632
1,015
2
-373
644
27
38
-65
-11
-11
633
131
-169
-90
504
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 and netting of Nord Pool transactions. Sales and purchases with Nord Pool, EUR -367 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.
54
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
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes 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
Consumer Solutions
Russia
Other
City Solutions
Consumer Solutions
Russia
Other
Total
Note
18, 28
Generation
2017
6,097
785
2016
6,206
711
2017
3,517
611
2016
2,672
573
6,882
6,917
4,128
3,245
2017
923
0
923
2016
348
0
2017
2,812
472
2016
2,967
436
348
3,284
3,402
2017
452
32
483
2016
240
392
632
20
27
27
26
1,210
1,102
400
371
285
194
124
119
207
117
2017
13,801
1,900
-19
15,682
1,406
73
696
3,897
21,753
2,227
-19
2,208
819
554
3,581
4,885
13,287
21,753
2016
12,432
2,112
-18
14,526
1,380
66
838
5,155
21,964
1,903
-18
1,885
616
814
3,315
5,107
13,542
21,964
Note
18, 38
16, 17
38
Generation
2017
90
174
3
0
2016
7
196
3
0
City Solutions
Consumer Solutions
Russia
Other
Total
2017
386
170
2
0
2016
698
109
1
33
2017
486
7
0
55
2016
117
3
0
1
2017
125
152
7
0
2016
0
201
10
127
2017
39
187
4
687
2016
22
83
2
0
2017
1,125
690
16
742
Comparable net assets by segments, EUR million
2016
5,815
2,873
154
3,284
514
2017
5,672
3,728
638
3,161
276
Comparable return on net assets, %
2017
8.4
5.5
11.7
10.1
-13.3
55
2016
844
591
16
161
2016
6.9
5.9
44.3
8.0
-6.1
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
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Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes
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
2017
1,035
1,036
2016
979
1,064
City Solutions
Consumer Solutions
Russia
Other
Total
2017
1,907
1,807
2016
1,701
1,529
2017
1,543
1,180
2016
961
877
2017
3,495
3,710
2016
3,745
3,814
2017
805
774
2016
722
711
2017
8,785
8,507
2016
8,108
7,994
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, Consumer Solutions operates
mainly in Nordic countries and Poland, whereas City Solutions operates in all of these geographical areas
except Russia . Other countries are mainly Estonia, Latvia, Lithuania and India . 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 .
External sales by product area
EUR million
Power sales excluding indirect taxes
Heating sales
Other sales
IS Total
2017
3,089
782
649
4,520
2016
2,587
648
398
3,632
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 .
Capital expenditure by location
EUR million
Finland
Sweden
Norway
Russia
Poland
Other countries
Total
Segment assets by location
EUR million
Finland
Sweden
Norway
Russia
Poland
Other countries and eliminations
Non-interest bearing assets
BS Participations in associates and joint ventures
Total
Number of employees on 31 December by location
Sales by market area based on customer location
EUR million
Nordic
Russia
Poland
Other countries
IS Total
2017
2,827
1,102
452
139
4,520
2016
2,258
899
355
120
3,632
Finland
Sweden
Norway
Russia
Poland
Other countries
Total
The Nordic power production is not split by countries since Nordic power production is mainly sold
through Nord Pool .
56
2017
179
104
46
152
92
115
690
2017
3,882
4,304
1,533
2,812
559
692
13,781
1,900
15,682
2017
2,165
968
654
3,494
827
677
8,785
2016
173
91
11
201
59
56
591
2016
3,958
4,341
27
2,967
513
608
12,414
2,112
14,526
2016
2,029
724
43
3,745
894
673
8,108
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
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Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes 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
2017
6
326
14
1
347
2016
27
38
-65
-11
-11
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
EUR million
Impairment charges
Segment
Country
2017
2016
Reversal of provision for early closure of
units 1 and 2 in OKG AB
Reversal of dismantling provision for
the Finnish coal-fired power plant Inkoo Generation
Total
Generation
Capital gains and other
Hafslund ASA, associated company
Transaction costs from Hafslund
acquisition
OOO Tobolsk CHP, subsidiary
AS Eesti Gaas, joint venture
Transaction costs from Ekokem
acquisition
Other non-recurring items
Total
Other
Other
Russia
City Solutions
City Solutions
Sweden
Finland
Norway
Norway
Russia
Estonia
Finland
22
5
27
35
11
-12
4
38
6
6
324
-4
6
326
57
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 38 Acquisitions and disposals .
For more information regarding fair value changes of derivatives, see Note 7 Fair value changes of
derivatives and underlying items in income statement .
For more information regarding nuclear waste management, see Note 28 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
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37
38
39
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Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
7 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 -7 million (2016: -9) . The net effect of fair value changes of hedging derivative and hedged bonds are
EUR 0 million (2016: 0) .
EUR million
In operating profit
Fair value changes from derivatives not getting hedge accounting status
2017
2016
Electricity derivatives
Currency derivatives
Other commodity derivatives
Ineffectiveness from cash flow hedges
Total effect in operating profit
In finance costs
Exchange gains and losses on loans and receivables 1)
Fair value changes of derivatives not getting hedge accounting status
Cross currency interest rate derivatives 1)
Foreign currency derivatives 1)
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 2)
Total effect in finance costs
Total effect on profit before income tax
-20
-1
25
11
14
-51
6
47
-4
49
-7
-31
31
42
-10
4
-43
2
-2
-23
-65
143
12
-156
7
-137
-9
11
-11
-146
-3
-68
1) Exchange gains and losses on loans, receivables and derivatives totalling EUR 2 million (2016: -1).
2) Including fair value gains and losses on financial instruments and exchange gains and losses on derivatives EUR -12 million
(2016: -2). See also Note 11 Finance costs - net.
58
8 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.
8.1 Other income
EUR million
Rental income
Insurance compensation
Other items
IS Total
8.2 Other expenses
EUR million
Operation and maintenance costs
Property taxes
IT and telecommunication costs
Other items
IS Total
2017
6
2
45
55
2017
125
115
60
276
576
2016
11
2
22
34
2016
94
145
51
195
485
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 81 million (2016: 118) . Other items includes expenses relating to properties and other operative
expenses .
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
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Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Principal auditorʼs fees
EUR million
Audit fees
Audit related assignments
Tax assignments
Other assignments
Total
2017
1.4
0.2
0.0
1.0
2.6
2016
1.3
0.2
0.0
0.0
1.5
Deloitte Oy is the appointed auditor until the next Annual General Meeting, to be held in 2018 . 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 Corporation 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 . Other assignments consist of advisory services .
9 Materials and services
EUR million
Materials
Materials purchased from associated companies and joint ventures
Transmission costs
External services
IS Total
2017
1,769
431
39
63
2,301
2016
1,216
540
38
37
1,830
Materials consists mainly of coal, gas and nuclear fuels used for producing power and heat .
Materials purchased from associated companies consist of nuclear and hydropower purchased at
10 Employee benefits
EUR million
Wages and salaries
Pensions
Defined contribution plans
Defined benefit plans
Social security costs
Share-based incentives
Other employee costs
IS Total
2017
312
32
8
44
4
23
423
2016
248
25
4
38
2
17
334
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 .
For further information on pensions see Note 30 Pension obligations .
10.1 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 .
production cost (including interest costs and production taxes) and purchased steam .
The Board of Directors determines the performance criteria and award levels for the Fortum
Total materials and services include production taxes EUR 109 million (2016: 141), of which nuclear
related capacity and property taxes EUR 48 million (2016: 81) and hydro power related property taxes
EUR 14 million (2016: 15) . Taxes related to nuclear and hydro production are included in taxes paid
through purchases from associated companies .
See Note 18 Participations in associated companies and joint ventures .
Executive Management . The awards are based on the achievement of divisional targets, Group financial
performance as well as individual targets . The target incentive opportunity is 20% and the maximum
incentive opportunity is 40% of the annual base salary . 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 .
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
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Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
10.2 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 . Under
the LTI programme and subject to the decision of the Board of Directors, a new LTI plan commences
annually . The Board of Directors approves participation of the Fortum Executive Management members
in each annually commencing LTI plan . Subject to a decision by the Board of Directors the President
and CEO is authorised to decide on individual participants and potential maximum awards for other
participants than the Fortum Executive Management in accordance with the nomination guidelines
approved by the Board of Directors . 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 . 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 . For LTI plans commencing in
2017 and beyond, the share awards will not be subject to a minimum lock-up period . 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 .
The Board of Directors has the right to revise the targets set in the incentive plans or decide to deviate
from the payment based on achievement of the set earnings criteria or to discontinue any ongoing
incentive plan .
Long-term incentive programme
Plans
2011–2016
2012–2017
2013–2018
2014–2019
2015–2020
2016–2021
2017–2019
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
6
5
4
3
6
5
6
Earnings period
Lock-up period
Additional lock-up period for FEM
Share delivery
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 earnings 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 2017 was EUR 18 million
(2016: 19), including EUR 4 million (2016: 5) recorded in equity .
At present, approximately 120 key employees are participants in at least one of the six on-going
annual LTI plans (plans 2012–2017, 2013–2018, 2014–2019, 2015–2020, 2016–2021 and 2017–2019) .
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
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Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Shares granted
EUR million
Grant date
Grant price, EUR
Plan
2013–2018
Plan
2014–2019
Plan
2012–2017
13 Feb 2017 12 Feb 2016 13 Feb 2015
19.96
12.18
14.28
10.4 The President and CEO and the Fortum Executive Management remuneration
The Fortum Executive Management (FEM) consists of ten 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 .
Number of shares granted
Number of shares subsequently forfeited or
released from lock-up and other changes
Number of shares under lock-up at the end of the year 2017
92,321
152,200
126,515
Management remuneration
-13,464
78,857
-140,916
11,284
-52,217
74,298
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 2017 for plan 2014–2019 was 76,922, for plan 2013–2018 was 32,066 and for plan
2012–2017 89,111 share rights .
10.3 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 .
EUR thousand
Salaries and fringe benefits
Performance bonuses 1)
Share-based incentives 1)
Pensions (statutory)
Pensions (voluntary)
Social security expenses
Total
1) Based on estimated amounts.
2017
2016
Pekka
Lundmark,
President
and CEO
998
187
334
231
229
41
2,019
Other FEM
members
3,387
589
1,030
665
712
257
6,640
Pekka
Lundmark,
President
and CEO
982
248
433
209
356
73
2,299
Other FEM
members
3,581
925
886
683
769
331
7,174
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 .
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 annual 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 .
The fund,s latest financial year ended at 30 April 2017 and the fund then had a total of 2,320 members
A pension liability of EUR 693 thousand (2016: 2,070) related to the defined benefit plans for FEM
(2016: 2,112) . At the end of April 2017 Fortum contributed EUR 2 .8 million (2016: 0 .6) to the personnel
fund as an annual profit-sharing bonus based on the financial results of 2016 . The combined amount of
members, shares in the fund was EUR 21 million (2016: 20) .
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 .
The contribution to the personnel fund is expensed as it is earned .
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 .
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Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Number of shares delivered to the management
The table below shows the number of shares delivered during 2017 and 2016 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 .
10.5 Board of Directors and management shareholding
On 31 December 2017, the members of the Board of Directors owned a total of 9,200 shares (2016:
208,940), which corresponds to 0 .00% (2016: 0 .02%) of the company’s shares and voting rights .
2017 3)
2016 4)
Number of shares held by members of the Board of Directors
Board members at 31 December 2017
Sari Baldauf, Chairman
Matti Lievonen, Deputy Chairman
Heinz-Werner Binzel
Eva Hamilton
Kim Ignatius
Anja McAlister
Veli-Matti Reinikkala
Former Board members
Tapio Kuula
Total
2017
2,300
1,500
-
-
2,400
-
3,000
N/A
9,200
2016
2,300
N/A
-
40
2,400
N/A
3,000
201,200
208,940
The President and CEO and other members of the FEM owned a total of 200,667 shares (2016: 315,653)
which corresponds to approximately 0 .02% (2016: 0 .04%) of the company,s shares and voting rights .
FEM members at 31 December 2017
Pekka Lundmark, CEO
Alexander Chuvaev 1)
Kari Kautinen
Per Langer
Risto Penttinen (member of FEM from 1 April 2016) 2)
Markus Rauramo
Arto Räty (member of FEM from 1 April 2016)
Mikael Rönnblad (member of FEM from 15 May 2017)
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)
Timo Karttinen (member of FEM until 28 February 2017)
Matti Ruotsala (member of FEM until 31 October 2017)
Total
4,463
15,480
2,274
2,358
1,793
4,185
-
-
1,777
2,563
N/A
N/A
N/A
3,626
4,176
42,695
-
27,897
4,014
4,677
-
7,383
-
N/A
-
3,902
3,188
5,028
3,053
6,399
7,443
72,984
1) Due to local legislation, share rights will be paid in cash instead of shares after the three-year lock-up period.
2) Shares delivered before the term in the Fortum Executive Management are not disclosed.
3) Share delivery based on share plan 2014–2019.
4) Share delivery based on share plan 2013–2018.
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17
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19
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25
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Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Number of shares held by members of the Fortum Executive Management Team
FEM members at 31 December 2017
Pekka Lundmark
Alexander Chuvaev
Kari Kautinen
Per Langer
Risto Penttinen
Markus Rauramo
Arto Räty
Mikael Rönnblad
Sirpa-Helena Sormunen
Tiina Tuomela
Former FEM member
Timo Karttinen
Matti Ruotsala
Total
2017
2016
60,713
14,713
30,720
31,570
10,588
32,032
-
-
4,777
15,554
56,250
14,713
29,246
29,212
8,795
27,847
-
N/A
3,000
12,991
N/A
N/A
200,667
87,090
46,509
315,653
10.6 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 end of 2017 the Board of Directors consists of seven members .
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 14 thousand (2016: 25) have
been recorded for the fees in accordance with local legislation in respective countries .
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 2017
Sari Baldauf, Chairman
Matti Lievonen, Deputy Chairman from 4 April 2017
Heinz-Werner Binzel
Eva Hamilton
Kim Ignatius, Chairman of the Audit and Risk Committee
Anja McAlister (member of the board from 4 April 2017)
Veli-Matti Reinikkala (member of the board from 5 April 2016)
Former Board members
Minoo Akhtarzand (member of the board until 4 April 2017)
Tapio Kuula (member of the board until 7 November 2017)
Petteri Taalas (member of board until 5 April 2016)
Jyrki Talvitie (member of the board until 4 April 2017)
Total
2017
84
49
57
54
67
47
58
16
43
N/A
17
492
2016
87
N/A
61
56
70
N/A
44
61
52
17
70
518
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.
2017
75
57
57
40
2016
75
57
57
40
63
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Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
11 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
17
Fair value gains and losses on financial instruments
7
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
7
7
7
28
28
29, 30
2017
-170
-10
16
-164
28
3
32
-7
-31
31
-4
-12
-51
6
47
6
-45
-3
14
-25
-50
-195
2016
-181
-4
16
-169
29
1
30
-9
11
-11
7
-2
143
12
-156
8
-40
-2
12
-6
-29
-169
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 . Other interest expenses for 2017 include the interest expense of SEK 69 million
(EUR 7 million) relating to the Swedish income tax assessment for 2009–2012 . See Note 36 Legal
actions and official proceedings .
Interest income includes EUR 12 million (2016: 15) from shareholders, loans in Finnish and Swedish
nuclear companies, and EUR 10 million (2016: 12) 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 includes EUR 14 million from SIBUR receivable (2016:12) . Other financial
expenses includes EUR 16 million financial cost related to financing commitment for Uniper acquisition .
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
2017
2016
21
6
-38
-11
-68
47
-4
-25
-36
16
12
2
30
-62
-156
7
-211
-181
1) Fair value gains and losses on financial instruments include fair value changes from interest rate swaps not getting
hedge accounting amounting to EUR -7 million (2016: -9) and fair value change of hedging derivatives in fair value hedge
relationship EUR -31 million (2016: 11), totalling EUR -38 million (2016: 2).
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Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
12 Income tax expense
12.3 Income tax rate
12.1 Profit before tax
EUR million
Finnish companies
Swedish companies
Russian companies
Other companies
IS Total
2017
76
240
269
526
1,111
2016
59
46
202
289
595
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 .
12.2 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 1)
Russian companies
Other companies
Total
IS Income tax expense
1) Income tax expense 2017 from the unfavourable decisions in the Administrative
Court of Appeal in Sweden relating to the income tax assessments for 2009–2012.
2017
2016
-15
2
-11
-34
-58
11
-34
-43
24
-42
-13
-115
0
-1
-129
-229
-14
-1
-2
-24
-42
0
10
-36
-17
-42
-6
0
0
0
-6
-90
65
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
Tax rate changes
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
2017
1,111
-222
6
5
0
77
-3
33
-10
-2
3
-117
-229
%
20.0
-0.6
-0.4
0.0
-6.9
0.3
-2.9
0.9
0.2
-0.3
10.5
20.6
2016
595
-119
0
16
0
4
-5
30
-8
-6
0
-2
-90
%
20.0
0.0
-2.7
0.0
-0.7
0.8
-5.0
1.4
1.0
0.0
0.3
15.2
Key tax indicators:
• The weighted average applicable income tax rate for 2017 is 21 .7% (2016: 20 .2%)
• The effective income tax rate in the income statement for 2017 is 20 .6% (2016: 15 .2%)
• The comparable effective income tax rate (excluding the share of profits from associates, joint
ventures as well as tax exempt capital gains, tax rate changes and other major one-time income tax
effects) for 2017 is 18 .8% (2016: 20 .0%) .
See Definitions of key figures .
The major items affecting the effective income tax rate are as follows:
The one-time tax-free capital gain (EUR 324 million) in Norway 2017 from the restructuring of the
ownership in Hafslund reduced the effective income tax rate with 6 .9% . Share of profit of associated
companies and joint ventures during 2017 reduced the effective income tax rate with 2 .9% . Fortum has
booked a tax cost of EUR 115 million because of the unfavourable decisions from the Administrative
Court of Appeal in Sweden relating to the income tax assessments for 2009–2012 . This increased the
effective income tax rate with 10 .4% .
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, Netherlands and Norway 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
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Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
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 had several tax audits ongoing during 2017 . Based on these and earlier audits Fortum
has received income tax assessments in Sweden for the years 2013–2015 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 Sweden 2013–2015 and Belgium 2008–2012 tax
audits .
13 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
For further information regarding the ongoing tax appeals see Note 36 Legal actions and official
company by the weighted average number of ordinary shares in issue during the year, excluding ordinary
proceedings .
shares purchased by the Group and held as treasury shares.
During 2017 entities primarily in Russia and Sweden used a portion of the deferred tax asset relating
Diluted earnings per share is calculated adjusting the weighted average number of ordinary shares
to tax loss carry forwards .
outstanding to assume conversion of all dilutive potential ordinary shares. For the warrants and stock
Fortum has a material deferred tax liability owing to its investments in non-current assets . These
options a calculation is done to determine the number of shares that could have been acquired at fair
assets are depreciated more rapidly for tax than for accounting purposes resulting in lower current
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 .
12.4 Total taxes
Taxes borne indicate different taxes that Fortum pays for the period . In 2017 Fortum’s taxes borne were
EUR 445 million (2016: 365) . 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, on production and 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 .
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 2017 is 32 .5% and 48 .1% (2016: 40 .0% and 47 .5%) . 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 521 million (2016: 376) .
See also Note 27 Income taxes in the balance sheet and Note 9 Materials and services .
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.
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.
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.
13.1 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)
2017
866
888,367
2016
496
888,367
0.98
0.56
As Fortum currently has no dilutive instruments outstanding, diluted earnings per share is the same as
basic earnings per share .
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Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
13.2 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 2017 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 2018, is to be proposed at the Annual General
Meeting on 28 March 2018 . These Financial statements do not reflect this dividend .
A dividend for 2016 of EUR 1 .10 per share, amounting to a total of EUR 977 million, was decided in
14 Financial assets and
liabilities by categories
ACCOUNTING POLICIES
the Annual General Meeting on 4 April 2017 . The dividend was paid on 13 April 2017 .
FINANCIAL ASSETS
A dividend for 2015 of EUR 1 .10 per share, amounting to a total of EUR 977 million, was decided in
The Group classifies its investments in the following categories: financial assets at fair value through
the Annual General Meeting on 5 April 2016 . The dividend was paid on 14 April 2016 .
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
commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction
costs for all financial assets not carried at fair value through profit or loss. Investments are derecognised
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
profit or loss’ category are included in the income statement in the period in which they arise. Gains and
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Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
losses arising from changes in the fair value of securities classified as available-for-sale are recognised in
CASH FLOW HEDGE
equity. When securities classified as available-for-sale are sold or impaired, the accumulated fair value
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash
adjustments are included in the income statement.
flow hedges are recognised in equity. The gain or loss relating to the ineffective portion is recognised
The fair values of quoted investments are based on current bid prices. If the market for a financial
immediately in the income statement. Amounts accumulated in equity are recycled in the income
asset is not active (and for unlisted securities), the Group establishes fair value by using valuation
statement in the periods when the hedged item will affect profit or loss (for instance when the forecast
techniques. These include the use of recent arm’s length transactions, reference to other instruments that
sale that is hedged takes place). However, when the forecast transaction that is hedged results in the
are substantially the same, discounted cash flow analysis, and option pricing models refined to reflect the
recognition of a non-financial asset (for example, inventory) or a liability, the gains and losses previously
issuer’s specific circumstances.
deferred in equity are transferred from equity and included in the initial measurement of the cost of the
The Group assesses at each closing date whether there is objective evidence that a financial asset or
asset or liability. When a hedge no longer meets the criteria for hedge accounting, any cumulative gain
a group of financial assets is impaired. If any such evidence exists for available-for-sale financial assets,
or loss existing in equity is recognised in the income statement when the forecast transaction is ultimately
the cumulative loss – measured as the difference between the acquisition cost and the current fair value,
also recognised in the income statement. When a forecast transaction is no longer expected to occur, the
less any impairment loss on that financial asset previously recognised in profit or loss – is removed from
cumulative gain or loss that was reported in equity is immediately recognised in the income statement.
equity and recognised in the income statement.
FAIR VALUE HEDGE
ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded
Within the ordinary course of business the Group routinely enters into sale and purchase transactions
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 IAS
of a hedged item for which the effective interest method is used is amortised to profit or loss for the
39. All other net-settled commodity contracts are measured at fair value with gains and losses taken to
period to maturity.
the income statement.
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and
NET INVESTMENT HEDGING IN FOREIGN OPERATIONS
are subsequently re-measured at their fair value. The method of recognising the resulting gain or loss
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 of.
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.
DERIVATIVES THAT DO NOT QUALIFY FOR HEDGE ACCOUNTING
The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether
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.
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 .
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
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Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Financial assets by categories 2017
EUR million
Financial instruments in non-current assets
Other non-current assets
Derivative financial instruments
Electricity derivatives
Interest rate and currency derivatives
Other commodity future and forward
contracts
Long-term interest-bearing receivables
Financial instruments in current assets
Derivative financial instruments
Electricity derivatives
Interest rate and currency derivatives
Other commodity future and forward
contracts
Trade receivables
Other short-term interest-bearing receivables
Liquid funds
Total
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
Other commodity future and forward
contracts
Long-term interest-bearing receivables
Financial instruments in current assets
Derivative financial instruments
Electricity derivatives
Interest rate and currency derivatives
Other commodity future and forward
contracts
Trade receivables
Other short-term interest-bearing receivables
Liquid funds
Total
Loans and receivables Financial assets at fair value through profit and loss
Hedge accounting, fair
Note
Amortised cost
value hedges Non-hedge accounting
Fair value recognised in
equity, cash flow hedges
Available-for-sale
financial assets
Finance lease
Total financial
assets
19
3
20
3
22
20
23
74
969
638
395
1,928
4,004
140
35
85
7
69
29
36
0
13
21
85
0
65
140
35
238
7
41
1,010
90
114
36
638
395
3,897
6,600
140
261
119
1,968
2,033
41
Loans and receivables Financial assets at fair value through profit and loss
Hedge accounting, fair
Note
Amortised cost
value hedges Non-hedge accounting
Fair value recognised in
equity, cash flow hedges
Available-for-sale
financial assets
Finance lease
Total financial
assets
19
3
20
3
22
20
23
55
985
562
395
1,444
3,441
179
67
103
5
88
7
18
179
288
69
1
61
0
16
0
78
58
3,711
3,769
0
113
68
343
5
985
88
23
18
562
395
5,155
7,755
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
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Financial liabilities by categories 2017
EUR million
Financial instruments in non-current liabilities
Interest-bearing liabilities
Derivative financial instruments
Electricity derivatives
Interest rate and currency derivatives
Other commodity future and forward contracts
Financial instruments in current liabilities
Interest-bearing liabilities
Derivative financial instruments
Electricity derivatives
Interest rate and currency derivatives
Other commodity future and forward contracts
Trade payables
Other liabilities
Total
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
Other commodity future and forward contracts
Financial instruments in current liabilities
Interest-bearing liabilities
Derivative financial instruments
Electricity derivatives
Interest rate and currency derivatives
Other commodity future and forward contracts
Trade payables
Other liabilities
Total
1) Fair valued part of bond in fair value hedge relationship.
Note
26
3
26
3
32
32
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
26
26
100
43
3
131
12
13
302
3,082
1,037 1)
766
318
208
4,374
1,037
23
19
31
12
0
85
4,119
123
88
3
766
162
24
13
318
208
5,824
Financial liabilities at fair value through profit and loss
Other financial liabilities
Note
fair value hedges Non-hedge accounting
Hedge accounting,
Fair value recognised
in equity, cash flow hedges
Amortised costs
Fair value
Total financial liabilities
26
3
26
3
32
32
32
32
90
51
3
155
130
18
447
70
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
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
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
15 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
reflects the significance of the inputs used in making the measurements.
Investments in unlisted shares classified as Available-for-sale financial assets, for which the fair value
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
options, coal, gas and oil futures) are market quotes at the closing date.
The nominal value less estimated credit adjustments of trade receivables and payables are assumed to
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 Commodities Europe and financial derivatives done with creditworthy financial
institutions with investment grade ratings.
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
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes 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
Other commodity future 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
Other commodity future and forward
contracts
Non-hedge accounting
Total
Note
19
3
3
Level 1
2017
2016
Level 2
2017
2016
0
0
8
8
0
0
7
0
186
202
106
113
5
66
153
85
28
253
85
29
1
705
4
98
240
103
9
381
16
7
2
860
Level 3
2017
65
2016
58
Netting 2)
2017
2016
Total
2017
-5
-30
-3
-31
65
0
35
153
85
2016
58
1
67
240
103
-1
-2
7
5
-7
-192
-9
-293
65
58
-151
-386
-90
-428
21
69
85
29
36
586
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 65 million (Dec 31 2016: 58), for which the fair value cannot be reliably determined.
This includes EUR 25 million (Dec 31 2016: 18) 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 (2016: 0). The cumulative fair value change booked in Fortum’s equity was EUR -3 million (2016: -3).
2) Receivables and liabilities against electricity and other commodity exchanges arising from standard derivative contracts with same delivery period are netted.
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
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Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Note
26
3
3
Financial liabilities
EUR million
In non-current liabilities
Interest-bearing liabilities
Derivative financial instruments
Electricity derivatives
Hedge accounting
Non-hedge accounting
Interest rate and currency derivatives
Hedge accounting
Non-hedge accounting
Other commodity future and forward
contracts
Non-hedge accounting
In current liabilities
Derivative financial instruments
Electricity derivatives
Hedge accounting
Non-hedge accounting
Interest rate and currency derivatives
Hedge accounting
Non-hedge accounting
Other commodity future and forward
contracts
Non-hedge accounting
Total
Level 1
2017
2016
Level 2
2017
2016
Level 3
2017
2016
Netting 2)
2017
2016
Total
2017
2016
1,037 1)
1,280 1)
1,037
1,280
28
131
45
43
1
39
315
12
12
51
121
70
51
92
448
10
130
3
7
5
0
-5
-30
-3
-31
-1
-2
-7
-192
-9
-293
23
100
45
43
3
31
131
12
12
48
90
70
51
3
83
155
10
130
160
170
106
111
4
1,667
2
2,255
0
0
-151
-386
-90
-428
13
1,451
18
1,938
1) Fair valued part of bonds in fair value hedge relationship.
2) Receivables and liabilities against electricity 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 241 million, including assets EUR 353 million and liabilities EUR 112 million . Fortum has cash collaterals based on Credit Support Annex
agreements with some counterparties . At the end of December 2017 Fortum had received EUR 113 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
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25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
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Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
16 Intangible assets
ACCOUNTING POLICIES
Intangible assets, except goodwill, are stated at the historical cost less accumulated amortisation and
EMISSION ALLOWANCES
impairment losses. They are amortised on a straight-line method over their expected useful lives.
The Group accounts for emission allowances based on currently valid IFRS standards where purchased
COMPUTER SOFTWARE
emission allowances are accounted for as intangible assets at cost, whereas emission allowances
received free of charge are accounted for at nominal value. For CO2 emissions from power and heat
Acquired computer software licences are capitalised on the basis of the costs incurred when bringing the
production, a provision is recognized. CO2 emission costs is settled by returning emission allowances. To
software into use. Costs associated with developing or maintaining computer software are recognised as
the extent that the Group already holds allowances to cover emission costs, the provision is measured at
an expense as incurred. Costs that are directly associated with the production of identifiable and unique
the carrying amount of those allowances. Any shortfall of allowances held over the obligation is valued
software products controlled by the Group, and that will generate economic benefits exceeding costs
at the current market value of allowances. The emission cost is recognised in the income statement within
beyond one year, are recognised as intangible assets. Direct costs include the software development
materials and services. The sales gains and losses of emission allowances not used for covering the
employee costs and an appropriate portion of relevant overheads. Computer software costs recognised
obligation from CO2 emissions, are reported in other income.
as assets are amortised over their estimated useful lives (three to five years).
TRADEMARKS AND LICENSES
IMPAIRMENT TESTING OF NON-FINANCIAL ASSETS
The individual assets’ carrying values are reviewed continuously to determine whether there is any
Trademarks and licences are shown at historical cost less accumulated amortisation and impairment
indication of impairment. An asset’s carrying amount is written down immediately to its recoverable
losses, as applicable. Amortisation is calculated using the straight-line method to allocate the cost of
amount if it is greater than the estimated recoverable amount.
trademarks and licences over their estimated useful lives (15–20 years).
In addition, impairment needs are assessed and documented once a year in connection with the
CONTRACTUAL CUSTOMER RELATIONSHIPS
long-term forecasting process. Indications for impairment are analysed separately by each division
as they are different for each business and include risks such as changes in electricity and fuel prices,
Contractual customer relationships acquired in a business combination are recognised at fair value on
regulatory/political changes relating to energy taxes and price regulations etc. Impairment testing needs
acquisition date. The contractual customer relations have a finite useful life and are carried at costs less
to be performed if any of the impairment indications exists. Assets that have an indefinite useful life and
accumulated amortisation. Amortisation is calculated using the straight-line method over the expected
goodwill, are not subject to amortisation and are tested annually for impairment.
duration of the customer relationship.
GOODWILL
Value in use is determined by discounting the future cash flows expected to be derived from an
asset. If it’s not possible to estimate the cash flows generated by an individual asset, the impairment
testing is performed on a cash-generating unit level. Fortum defines the cash-generating unit as the
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of
smallest business area where the tested assets generate cash flows that are independent of the cash
net identifiable assets of the acquired subsidiary, associate or joint venture at the date of acquisition.
flows generated by other assets in other business areas. Goodwill is allocated to the cash-generating
Goodwill on acquisitions of subsidiaries is included in intangible assets and tested yearly for impairment.
unit or lowest level of groups of cash-generating units that benefit from the synergies of the acquired
Goodwill on acquisition of associates and joint ventures is included in investments in associates and
goodwill. Cash flow projections are based on the most recent long-term forecast that has been approved
joint ventures and is tested for impairment as part of the overall balance. Goodwill is tested annually for
by management and the Board of Directors. Cash flows arising from future investments such as new
impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are
plants are excluded unless projects have been started. The cash outflow needed to complete the started
not reversed. Gains and losses on disposal of an entity include the carrying amount of goodwill relating
projects is included.
to the entity sold.
Non-financial assets other than goodwill that suffered an impairment charge are reviewed for
possible reversal of the impairment at each reporting date.
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2
3
4
5
6
7
8
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12
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Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
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
assumptions, are reasonable. Different assumptions and assigned lives could have a significant impact on
the reported amounts.
The Group has significant carrying values in property, plant and equipment, intangible assets and
participations in associated companies and joint ventures which are tested for impairment according to
the accounting policy described above.
ASSUMPTIONS RELATED TO IMPAIRMENT TESTING
The Group has significant carrying values in property, plant and equipment, intangible assets and
participations in associated companies and joint ventures which are tested for impairment according
to the accounting policy described in the notes. The recoverable amounts of cash-generating units
have been determined based on value in use calculations. These calculations are based on estimated
future cash flows from most recent approved long-term forecast. Preparation of these estimates requires
management to make assumptions relating to future expectations. Assumptions vary depending on the
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 that are used in calculating the present
value.
Estimates are also made in an acquisition when determining the fair values and remaining useful lives
of acquired intangible and tangible assets.
EUR million
Cost 1 January
Translation differences and other adjustments
Acquisition of subsidiary companies
Capital expenditure
Disposals
Sale of subsidiary companies
Reclassifications
Cost 31 December
Goodwill
2017
353
-27
286
0
0
0
0
613
Accumulated depreciation 1 January
Translation differences and other adjustments
Acquisition of subsidiary companies
Disposals
Sale of subsidiary companies
Reclassifications
Depreciation for the period
Accumulated depreciation 31 December
BS Carrying amount 31 December
0
0
0
0
0
0
0
0
613
Other intangible
assets
Total
2017
386
-20
381
18
-14
-2
15
764
273
-6
30
-14
-1
2
30
313
451
2016
332
-1
59
3
-11
0
4
386
262
-2
5
-11
0
0
19
273
113
2017
739
-47
667
18
-14
-2
15
1,377
273
-6
30
-14
-1
2
30
313
1,064
2016
485
37
221
3
-11
0
4
739
262
-2
5
-11
0
0
19
273
467
2016
152
39
163
0
0
0
0
353
0
0
0
0
0
0
0
0
353
Total goodwill in the balance sheet as of 31 December 2017 amounted to EUR 613 million (2016: 353) .
Goodwill arising from acquisitions of Hafslund Markets Group and Fortum Oslo Varme Group
increase the amount of goodwill by EUR 285 million . The acquisitions enable scale benefits and
combination of competences that support Fortum’s strategic growth and cash flow ambitions in the
Nordic retail electricity and district heating markets and will also enhance the development of new and
greener technologies and services . Hafslund Markets is integrated in Consumer Solutions segment and
Fortum Oslo Varme in City Solutions segment . The purchase price allocation is still preliminary and also
the allocation of goodwill to separate cash generating units is still on-going .
During 2017 Fortum finalised the purchase price allocation for the Waste Solutions Oy Group
(formerly Ekokem Corporation) acquired in 2016 . The acquisition supports Fortum’s vision and strategy
of creating solutions for sustainable cities in the whole City Solutions division and as a result, the
goodwill from this acquisition is allocated to the City Solutions segment level .
See more information on the acquisitions in Note 38 Acquisitions and disposals .
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18
19
20
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25
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28
29
30
31
32
33
34
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37
38
39
40
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Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
The net operating assets of the CGUs and group of CGUs with allocated goodwill are tested yearly
for possible impairment . The tested net operating assets include both the goodwill and fair value
adjustments arising from the acquisitions . As of 31 December 2017, 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 the carrying amount to exceed its recoverable amount in any of the tested
units .
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 tested items .
Group of cash-generating units
Consumer Solutions
City Solutions
Russia
Total carrying amount 31 December 2017
Goodwill
EUR million
228
208
177
613
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 .
16.1 Impairment testing
The impairment testing of the allocated goodwill in 2017 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 .
Key assumptions
Power market development, recycling and waste
solutions market development
Regulation framework
Utilisation of power plants and treatment facilities
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 in Russia)
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 were: City Solutions 7 .4%, Consumer
Solutions 7 .7% and Russia 11 .1% .
76
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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
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39
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Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
17 Property, plant and equipment
ACCOUNTING POLICIES
Property, plant and equipment comprise mainly power and heat producing buildings and machinery
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each closing
buildings, waterfall rights, district heating network and buildings and machinery as well as landfill sites
date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s
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
carrying amount is greater than its estimated recoverable amount. See further information on the
impairment testing in Note 16.
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
GOVERNMENT GRANTS
any gains or losses on qualifying cash flow hedges of foreign currency purchases of property, plant and
Grants from the government are recognised at their fair value when there is a reasonable assurance
equipment. Acquired assets on the acquisition of a new subsidiary are stated at their fair values at the
that the grant will be received and the Group will comply with all attached conditions. Government
date of acquisition.
grants relating to costs are deferred and recognised in the income statement over the period necessary
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as
to match them with the costs that they are intended to compensate. Government grants relating to the
appropriate, only when it is probable that future economic benefits associated with the item will flow
purchase of property, plant and equipment are deducted from the acquisition cost of the asset and are
to the Group and the cost of the item can be measured reliably. All other repairs and maintenance
recognised as income by reducing the depreciation charge of the asset they relate to.
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
BORROWING COSTS
dismantlement, removal or restoration.
See Note 29 Other provisions for information about asset retirement obligations and Note 28,
Nuclear related assets and liabilities, for information about provisions for decommissioning nuclear power
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are
added to the cost of those assets, until such time as the assets are substantially ready for their intended
use or sale. Qualifying assets are assets that necessarily take a substantial period of time to get ready for
plants.
their intended use or sale.
Land, water areas and waterfall rights are not depreciated since they have indefinite useful lives.
All other borrowing costs are recognised in profit or loss in the period in which they are incurred.
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:
JOINT OPERATIONS
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
Solar and Wind power plant structures and machinery
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
25 years
30–40 years
20–40 years
20–40 years
3–20 years
5–10 years
77
Fortum owns, through its subsidiary Fortum Power and Heat Oy, 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%. The capacity and production is divided between Fortum and TVO. Each owner can decide when
and how much capacity to use for production. Both Fortum and TVO purchase fuel and emission rights
independently. Since Fortum and TVO are sharing control of the power plant, Meri-Pori is accounted for
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 18 Participations in
associated companies and joint ventures.
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
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
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
Reclassifications
Accumulated depreciation 31 December
Land and waterfall rights
2016
2,859
-104
3
1
0
-1
0
7
2,765
2017
2,765
-89
15
2
0
-1
0
3
2,694
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
2017
3,621
-154
161
15
0
-21
-49
232
3,805
1,550
-38
52
-17
-9
112
-21
1,629
2016
3,146
146
211
38
0
-17
-46
142
3,621
1,367
21
97
-14
-20
102
-3
1,550
2017
7,147
-237
900
139
-6
-40
-14
445
8,335
2,898
-72
244
-36
-3
317
1
3,349
2016
5,614
325
954
24
-6
-41
-92
371
7,147
2,319
62
333
-40
-28
246
5
2,898
BS Carrying amount 31 December
2,694
2,764
2,175
2,071
4,986
4,249
2017
135
-2
0
0
0
-1
0
31
163
114
-2
0
-1
0
4
18
133
29
2016
136
-2
0
0
0
0
0
1
135
113
-2
0
-2
0
7
-2
114
21
2017
824
-18
32
516
0
1
-2
-726
627
0
0
0
0
0
1
0
1
2016
755
66
9
526
0
-4
-2
-525
824
0
0
0
0
0
0
0
0
2017
14,492
-500
1,109
672
-6
-62
-65
-15
15,623
4,562
-112
297
-54
-12
434
-2
5,113
2016
12,510
430
1,178
588
-6
-63
-140
-4
14,492
3,799
82
430
-56
-48
355
0
4,562
626
824
10,510
9,930
The increase of property, plant and equipment arises mainly from the acquisition of Fortum Oslo Varme Group in City Solutions segment in August 2017 . The increase was offset by the translation differences in SEK
and RUB .
See Note 38 Acquisitions and disposals for additional information on the acquisition of Hafslund Markets Group and Fortum Oslo Varme Group .
Property, plant and equipment that are subject to restrictions in the form of real estate mortgages amount to EUR 318 million (2016: 236) . See Note 35 Pledged assets and contingent liabilities .
17.1 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
2017
55
-3
0
0
10
-2
59
2016
43
9
0
-1
5
-2
55
2017
162
-11
10
0
22
-8
175
2016
132
28
6
-6
9
-7
162
Advances paid and construction
in progress
2017
41
-1
2016
41
6
6
0
-34
0
12
10
0
-16
0
41
Total
2017
258
-16
16
0
-3
-10
245
2016
217
43
16
-7
-2
-9
258
Borrowing costs of EUR 16 million were capitalised in 2017 (2016: 16) . The interest rate used for capitalisation varied between 2%–12% (2016: 2%–13%) .
78
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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
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38
39
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Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
17.2 Capital expenditure 1)
EUR million
Generation
Hydropower
Nuclear power
Fossil-based electricity
Other 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
Consumer Solutions
Other
Total Consumer 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
Of which investments in CO2 free production
Finland
Sweden
Russia
Poland
Norway
Other countries
Total
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
24
84
3
111
2
23
17
6
0
11
4
41
2
2
29
90
1
2
122
7
17
9
8
0
9
5
38
0
25
25
179
115
13
13
173
127
62
62
1
1
10
11
2
2
22
7
28
104
84
74
1
75
2
2
2
0
0
11
3
14
91
85
3
0
72
72
13
1
90
1
1
14
1
29
29
12
0
56
2
2
0
0
81
18
53
152
0
0
168
17
15
201
152
53
201
15
92
0
59
0
0
0
4
3
0
8
3
15
0
99
3
102
115
99
0
0
0
11
11
11
0
0
2
1
0
6
4
12
0
43
1
44
56
43
13
13
13
2
2
24
7
31
46
24
87
84
0
0
3
174
6
0
112
106
7
0
32
19
170
7
7
81
18
53
152
45
99
42
187
690
375
103
90
1
1
2
196
21
1
50
42
8
0
27
9
109
3
3
168
17
15
201
11
43
29
83
591
270
1) Includes capital expenditure to both intangible assets and property, plant and equipment.
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
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Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
17.2.4 Russia
Growth investments in Russia totalled EUR 96 million (2016: 152) . The largest growth investments were
into the wind power farm in Ulyanovsk and Chelyabinsk GRES 3 . Additionally, EUR 56 million (2016: 49)
was invested in maintenance, legislation and productivity projects . Investments in CO2 free production
were EUR 53 million (2016:15) .
17.2.5 Other
Other Division,s investments contain solar investments in India EUR 99 million (2016: 43) and
investments in wind power production EUR 45 million (2016:11) . Wind investments contain Solberg
wind park in Sweden, as well as Anstadblåheia and Sorfjord wind parks in Norway . Other Division
invested also in Charge and Drive EUR 13 million (2016: 12), mainly charging poles in Norway .
Investments in CO2 free production were EUR 144 million (2016:54) .
Fortum classifies investments in four main categories,
EUR million
400
350
300
250
200
150
100
50
0
367
289
148
135
89
86
88
78
Maintenance
investments
Investments
required by
legislation
Investments
increasing
productivity
Growth
investments
2016
2017
17.2.1 Generation
In Finland, Fortum invested EUR 84 million (2016: 90) into the Loviisa nuclear power plant . Fortum
invested additionally EUR 88 million (2016: 103) into hydro production, mainly maintenance, legislation
and productivity investments . The biggest of these were Långströmmen dam safety EUR 9 million in
Sweden and Imatra dam safety EUR 9 million in Finland . Investments in CO2 free production were
EUR 171 million (2016: 193) .
17.2.2 City Solutions
Growth investments in City Solutions totalled EUR 107 million (2016: 66) in year 2017 . Maintenance,
legislation and productivity investments totalled EUR 62 million (2016: 42) . 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 . The largest investment project in 2017 was the new CHP plant in
Zabrze, Poland . Investments in CO2 free production were EUR 7 million (2016: 8) .
17.2.3 Consumer solutions
Investments in Consumer solutions totalled EUR 7 million (2016: 3) . The amount consists mainly of new
product development costs .
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
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
18 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
18.1 Principal associated companies and joint ventures
OKG AB
Power
production
company
Associated
company
Forsmarks
Kraftgrupp
AB
Power
production
company
Associated
company
Kemijoki Oy
Power
production
company
Associated
company
TGC-1
Holding
in energy
company
(listed)
Associated
company
TVO
Power
production
company
Joint venture
Fortum
Värme
Holding
in power
and heat
company
Joint venture
Generation
Sweden
Generation
Sweden
Generation
Finland
Russia
Russia
Generation City Solutions
Sweden
Finland
46
46
26
26
59
28
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 2016 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)) .
companies is included in the consolidated accounts based on the latest available information.
In Sweden nuclear production company shareholdings are 45 .5% ownership of the shares in OKG AB
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 16 Property, plant and equipment
for more information.
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 .
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
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Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
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 .
Shares in series A entitle to electricity produced in nuclear power plants Olkiluoto 1 and 2 and Fortum
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 coal condensing 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 36 Legal actions and official proceedings and Joint
operations in the accounting principles in Note 17 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 owns shareholdings in listed companies such as Territorial Generating Company 1 (TGC-1) .
The shareholding in TGC-1 is accounted for as an associated company as Fortum has representatives in
the Board of Directors of the company . The share of profit of TGC-1 is accounted for based on previous
quarter information since updated interim information is not normally available .
In August 2017 Fortum sold its 34 .1% stake in Hafslund ASA to the City of Oslo in connection with the
restructuring of the ownership in Hafslund . Hafslund ASA was accounted for as an associated company
and the share of profits is accounted for according to the latest quarter information 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 28 Nuclear
related assets and liabilities .
2017
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 2017
Change in share of profit and from OCI
items
Dividends received
Divestments
Translation differences and other
adjustments
Group’s interest in the equity of the
associate at 31 December 2017
Fair values on acquisitions and different
accounting principles
Carrying amount at 31 December
2017
Market value for listed shares 1)
Forsmarks
Kraftgrupp
Hafslund
ASA 2)
OKG AB
AB Kemijoki Oy
TGC-1
31 Dec 2016 31 Dec 2016 31 Dec 2016 30 Jun 2017 30 Sept 2017
1,938
312
420
168
1,663
123
2,329
325
1,091
585
978
0
2,367
466
2,599
198
36
0
628
428
961
82
13
0
465
12
264
144
69
0
13
36
69
978
1,540
1 Jan 2016–
31 Dec 2016
430
1
0
1
0
1 Jan 2016–
31 Dec 2016
756
0
0
0
0
1 Jan 2016–
31 Dec 2016
55
-10
0
-10
0
1 Oct 2016–
30 June 2017
1,240
118
-12
105
0
1 Oct 2016–
30 Sept 2017
1,289
81
1
82
-1
1
6
0
0
0
0
6
16
22
0
-10
105
83
10
0
0
0
-1
9
92
101
48
-6
0
0
0
41
157
197
349
36
-23
-363
1
0
0
0
471
32
-5
0
-44
454
-25
429
196
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 2017 trading volumes of TGC-1 shares in relation to the number of shares of the company were approximately 10%
(2016: 12%).
2) Divested in August 2017, see also Note 38 Acquisition and disposals.
82
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
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Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
2016
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
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
2,442
303
1,254
468
1,023
0
2,361
440
2,578
186
37
0
465
9
306
88
80
0
645
448
611
469
13
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 Sept 2016
1,393
154
13
167
0
1 Oct 2015–
30 Sept 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
Summarised financial information of the principal joint ventures in 2017 and 2016
2017
2016
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
Equity 1)
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
Fortum
Värme
30 Sept 2017 31 Dec 2017 30 Sept 2016 31 Dec 2016
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
7,098
413
129
5,280
4,318
659
466
1,573
0
1,573
1 Oct 2015–
30 Sept 2016
322
-54
17
-44
0
-23
-27
-51
0
-51
6,900
606
192
5,159
4,186
673
484
1,674
0
1,674
1 Oct 2016–
30 Sept 2017
343
-56
14
-46
0
-4
9
5
0
5
2,642
266
15
1,461
1,071
230
112
1,216
0
1,216
1 Jan 2017–
31 Dec 2017
689
-139
0
-17
-35
125
-7
118
0
117
279
0
0
0
280
-11
269
588
59
-21
-18
608
-75
533
294
-14
0
0
279
-6
274
567
64
-21
-21
588
-81
507
1) The equity of TVO includes subordinated loans of EUR 579 million (2016: 479). 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 28 Nuclear
related assets and liabilities.
83
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
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Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
18.2 Participations and shares of profits in associated companies and joint ventures
Share of profit of associates and joint ventures
Participations in associated companies and joint ventures in the balance sheet
EUR million
Principal associates
Principal joint ventures
Other associates
Other joint ventures
BS Carrying amount 31 December
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
Reclassifications
Divestments
Dividends received
OCI items associated companies and joint ventures
Equity adjustments 31 December
2017
749
802
121
229
1,900
2016
1,111
781
42
178
2,112
Joint
ventures
2017
Associated
companies
2017
Joint
ventures
2016
Associated
companies
2016
636
-8
52
-81
0
598
324
-13
75
81
0
-29
-5
432
864
-30
83
-1
-236
680
289
-18
73
1
-128
-29
2
190
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
EUR million
Principal associates
OKG AB
Forsmarks Kraftgrupp AB
Kemijoki Oy
Hafslund ASA (divested in August 2017)
TGC-1
Principal associates, total
Principal joint ventures
Fortum Värme
TVO
Principal joint ventures, total
Other associates
Other joint ventures
IS Total
2017
8
2
-9
39
32
73
66
-4
63
0
12
148
2016
-30
6
-3
51
38
62
66
-7
59
0
10
131
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 13 million (2016: -30) arising from accounting of nuclear related assets and liabilities .
18.3 Transactions and balances
Associated company transactions
EUR million
Sales to associated companies
Interest on associated company loan receivables
Purchases from associated companies
2017
1
12
319
2016
1
14
385
Carrying amount at 31 December
1,031
870
959
1,153
Purchases from joint ventures include mainly purchases of nuclear and hydro power at production cost
including interest costs and production taxes .
For information about investments and divestments of shares in associated companies, see Note 38
Acquisitions and disposals .
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
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Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes
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
2017
656
1
1
2
0
2016
704
1
0
5
1
For more info about receivables from associated companies, see Note 20 Interest-bearing receivables .
Joint venture transactions
EUR million
Sales to joint ventures
Interest income on joint venture loan receivables
Purchases from joint ventures
2017
109
1
153
2016
104
2
151
Purchases from joint ventures include mainly purchases of nuclear and hydro power at production cost
including interest costs and production taxes .
Joint venture balances
EUR million
Receivables from joint ventures
Long-term interest-bearing loan receivables
Finance lease receivable from joint ventures
Trade receivables
Other receivables
Liabilities to joint ventures
Long-term loan payables
Trade payables
Other payables
2017
208
41
23
17
285
19
7
2016
182
-
19
16
273
6
6
For more info about receivables from joint ventures, see Note 20 Interest-bearing receivables .
85
19 Other non-current assets
EUR million
Available-for-sale financial assets
Other
BS Total
2017
65
74
140
2016
58
55
113
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 65 million (2016: 58), 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 25 million (2016: 18) . The indirect investment in Fennovoima is classified as Available-for-sale
financial assets, measured at cost, since fair value cannot be reliably determined .
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
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
20 Interest-bearing receivables
EUR million
Long-term loan receivables from associated companies
Long-term loan receivables from joint ventures
Finance lease 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
Total
Carrying
amount
2017
656
208
41
106
1,010
395
395
1,406
Fair
value
2017
689
229
41
111
1,071
395
395
1,466
Carrying
amount
2016
704
182
-
99
985
395
395
1,380
Fair
value
2016
744
206
-
99
1,049
395
395
1,444
Long-term loan receivables include receivables from associated companies and joint ventures
EUR 864 million (Dec 31 2016: 886) . These receivables include EUR 638 million (Dec 31 2016: 686) from
Swedish nuclear companies, OKG AB and Forsmarks Kraftgrupp AB, which are mainly funded with
shareholder loans, pro rata each shareholder’s ownership .
Interest-bearing receivables
EUR million
Long-term loan receivables
Short-term receivables
Total interest bearing
receivables
Repricing
Effective
interest
rate, %
2.8
0.5
Carrying
amount
2017
1,010
395
Under
1 year
835
395
1–5
years
59
-
Over 5
years
Fair
value
2017
116 1,071
395
-
Carrying
amount
2016
985
395
Fair
value
2016
1,049
395
2.1
1,406 1,231
59
116 1,466
1,380
1,444
21 Inventories
ACCOUNTING POLICIES
Inventories mainly consist of fuels consumed in the production process or in the rendering of services.
Teollisuuden Voima Oyj (TVO) is building Olkiluoto 3, the nuclear power plant, which is funded
Inventories are stated at the lower of cost and net realisable value being the estimated selling price for
through external loans, share issues and shareholder loans according to shareholders’ agreement
between the owners of TVO . At end of December 2017 Fortum has EUR 145 million (2016: 120)
outstanding receivables regarding Olkiluoto 3 and is additionally committed to provide at maximum
EUR 88 million, of which 38 million is the Fortum share of a new shareholder loan commitment totalling
EUR 150 million signed by all TVO shareholders in December 2017 .
Finance leases relate to heat pipelines in Tyumen area, which are leased to newly established joint
venture YUSTEK .
Interest-bearing receivables includes also EUR 102 million (2016: 131) from SIBUR, a Russian gas
processing and petrochemicals company regarding divested shares of OOO Tobolsk CHP .
Short-term interest-bearing receivables include EUR 363 million (2016: 360) restricted cash mainly
given as collateral for commodity exchanges . The new European Market Infrastructure Regulation
(EMIR) came into force in 2016 requiring fully-backed guarantees .
For further information regarding credit risk management, see Note 3.7 Credit risk .
the end product, less applicable variable selling expenses and other production costs. Cost is determined
using the first-in, first-out (FIFO) method.
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
Write downs in inventories amounted to EUR 0 million (2016: 1) .
86
2017
83
45
7
3
54
25
216
2016
91
51
7
3
67
12
233
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
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37
38
39
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Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
22 Trade and other receivables
ACCOUNTING POLICIES
Trade receivables include revenue based on an estimate of electricity, heat and cooling already delivered
but not yet measured and not yet invoiced.
Impairment losses recognised in the income statement were EUR 9 million (2016: 28), of which
EUR 8 million (2016: 24) are impairment losses recognised in the PAO Fortum Group . Impairment
losses were offset by recovery of previously impaired trade receivables EUR 25 million (2016: 3), of
which EUR 24 million (2016: 3) are recognised in the PAO Fortum Group . On 31 December 2017, trade
receivables of EUR 66 million (2016: 93) are impaired and provided for, of which EUR 50 million (2016:
79) refers to the PAO Fortum Group .
EUR million
Trade receivables
Accrued interest income
Accrued income and prepaid expenses
Other receivables
BS Total
2017
743
1
29
224
997
2016
562
1
31
249
844
The management considers that the carrying amount of trade and other receivables approximates their
fair value .
Trade receivables by currency (Gross)
EUR million
EUR
SEK
RUB
NOK
PLN
Other
Total
2017
206
137
207
177
69
13
809
2016
251
97
215
11
71
10
655
22.1 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
2017
2016
Gross
632
90
19
68
809
Impaired
2
4
3
57
66
Gross
471
85
15
85
655
Impaired
2
5
5
80
93
Trade receivables are arising from a large number of customers mainly in EUR, SEK, RUB and NOK
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
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Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
23 Liquid funds
24 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
2017
1,928
1,253
3,182
715
3,897
2016
1,444
235
1,679
3,475
5,155
Liquid funds consists of deposits and cash in bank accounts amounting to EUR 3,540 million and
commercial papers EUR 357 million . The average interest rate on deposits and securities excl . Russian
deposits on 31 December 2017 was -0 .27% (2016: -0 .01%) . Liquid funds held by PAO Fortum amounted
to EUR 246 million (2016: 105), of which EUR 231 million (2016: 103) was held as bank deposits . The
average interest rate for this portfolio was 6 .1% at the balance sheet date .
Liquid funds totalling EUR 3,348 million (2016: 4,663) are placed with counterparties that have an
investment grade rating . In addition, EUR 549 million (2016: 377) have been placed with counterparties
separately reviewed and approved by the Group’s credit control department .
The committed and undrawn credit facilities amounted to EUR 1,800 million (2016: 1,963), excluding
committed credit facilities for Fortum’s offer for Uniper shares . In relation to offer for Uniper shares
Fortum has commitments from 10 relationship banks to provide credit facilities at the request of Fortum
in an aggregate amount of up to EUR 12,000 million .
For further information regarding credit risk management and credit risks, see Note 3.7 Credit risk .
EUR million
Registered shares at 1 January
Registered shares at 31 December
2017
2016
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 Corporation has one class of shares . By the end of 2017, 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 2017 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 FORTUM (FUM1V
before 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 10 Employee benefits .
24.1 Authorisations from the Annual General Meeting 2017
On 4 April 2017, 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 2017 .
24.2 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
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Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
25 Non-controlling interests
26 Interest-bearing liabilities
Principal non-controlling interests
EUR million
PAO Fortum Group
AS Fortum Tartu Group
Fortum Oslo Varme AS Group
Other
BS Total
Russia
Estonia
Norway
2017
37
34
150
18
239
2016
37
30
-
17
84
Non-controlling interests have increased with EUR 155 million during 2017 mainly due to the acquisition
of Fortum Oslo Varme AS which is consolidated as a subsidiary with 50% non-controlling interest . See also
Note 38 Acquisitions and disposals .
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
2017
4,885
3,897
988
2016
5,107
5,155
-48
Net debt is calculated as interest-bearing liabilities less liquid funds without deducting interest-bearing
receivables amounting to EUR 1,406 million (Dec 31 2016: 1,380) . Interest-bearing receivables mainly
consist of shareholder loans to partly owned nuclear companies regarded long-term financing . For more
information see Note 20 Interest-bearing receivables .
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 other long-term interest-bearing debt
Other short-term interest-bearing debt
BS Total short-term interest bearing debt
Total interest-bearing debt
2017
2,521
155
1,129
314
4,119
422
129
10
206
766
4,885
2016
2,986
247
1,094
140
4,468
343
145
11
140
639
5,107
89
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2
3
4
5
6
7
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Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes 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, %
3.3
4.8
0.5
3.4
2.7
1.2
1.2
2.6
Carrying amount
2017
2,943
283
1,129
324
4,679
206
206
4,885
Under 1 year
523
283
-
223
1,029
206
206
1,235
Repricing
1–5 years
2,323
-
-
-
2,323
-
-
2,323
Over 5 years
97
-
1,129
102
1,327
-
-
1,327
Fair value
2017
3,143
303
1,192
373
5,011
207
207
5,218
Carrying amount
2016
3,329
393
1,094
151
4,967
140
140
5,107
Fair value
2016
3,609
425
1,156
157
5,348
140
140
5,488
1) Includes loans from Finnish pension institutions EUR 48 million (2016: 58) and other loans EUR 276 million (2016: 93).
2) Including current portion of long-term debt.
3) The average interest rate on loans and derivatives on 31 December 2017 was 3.6% (2016: 3.5%).
Reconciliation of interest-bearing liabilities
Cash
flow from
financing
activities 1)
-343
-144
35
13
-439
31 Dec
2016
3,329
393
1,094
291
5,107
Non-cash changes
Fair value
changes
and
amortised
cost
-27
Acqui-
sitions
42
Exchange
rate
differences
-16
-8
233
275
-8
-31
-27
31 Dec
2017
2,943
283
1,129
530
4,885
EUR million
Bonds
Loans from financial institutions
Reborrowing from the
Finnish State Nuclear Waste
Management Fund
Other interest-bearing debt
Total interest-bearing debt
1) Repayments and borrowings.
The interest-bearing debt decreased in 2017 by EUR 222 million to EUR 4,885 million (2016: 5,107) . The
amount of short-term financing increased with EUR 66 million, and at the end of the year the amount of
short-term financing EUR 206 million (2016: 140) included 113 million (2016: 135) from Credit Support
Annex agreements .
During the first quarter of 2017 Fortum increased the amount of reborrowing from the Finnish State
Nuclear Waste Management Fund and TVO by EUR 35 million to EUR 1,129 million . In March Fortum
repaid two SEK bonds equivalent to EUR 290 million (SEK 2,750 million) . During the second quarter
Fortum repaid a NOK bond equivalent to EUR 53 million (NOK 500 million) and a bilateral SEK loan to
NIB equivalent to EUR 78 million (SEK 750 million) . A shareholder loan was given by the City of Oslo
to Fortum Oslo Varme AS as a part of the whole Hafslund restructuring amounting to EUR 213 million
(NOK 2,000 million) . Fortum Oslo Varme is financed on pro rata basis .
The average interest rate for the portfolio consisting mainly of EUR and SEK loans was 2 .4% at
the balance sheet date (2016: 2 .1%) . Part of the external loans EUR 773 million (2016: 805) have been
swapped to RUB and the average interest cost for these loans including cost for hedging the RUB was
9 .5% at the balance sheet date (2016: 11 .4%) . The average interest rate on total loans and derivatives at
the balance sheet date was 3 .6% (2016: 3 .5%) .
For more information please see Note 3 Financial risk management and Note 35 Pledged assets
and contingent liabilities .
90
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14
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Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
26.1 Bond issues
Issued/Maturity
Fortum Corporation EUR 8,000 million EMTN
Programme 1)
2009/2019
2011/2021
2012/2022
2013/2018
2013/2018
2013/2023
2013/2043
Total outstanding carrying amount 31 December 2017
1) EMTN = Euro Medium Term Note
Interest basis
Interest rate, %
Effective interest, %
Currency
Nominal value, million Carrying amount, EUR million
Fixed
Fixed
Fixed
Fixed
Floating
Floating
Fixed
6.000
4.000
2.250
2.750
Stibor 3M+1.0
Stibor 3M+1.13
3.500
6.095
4.123
2.344
2.855
3.719
EUR
EUR
EUR
SEK
SEK
SEK
EUR
750
500
1,000
1,150
3,000
1,000
100
749
517
1,057
117
305
102
97
2,943
27 Income taxes in balance sheet
ACCOUNTING POLICIES
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as
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.
reported in the consolidated income statement, because of items of income or expense that are taxable
CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS:
or deductible in other years and items that are never taxable or deductible. The Group’s liability for
current tax is calculated using tax rates that have been enacted or substantively enacted by the end of
ASSUMPTIONS AND ESTIMATES REGARDING FUTURE TAX CONSEQUENCES
the reporting period.
Fortum has deferred tax assets and liabilities which are expected to be realised through the income
Deferred tax is provided in full, using the liability method on temporary differences arising between
statement over the extended periods of time in the future. In calculating the deferred tax items, Fortum is
the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements.
required to make certain assumptions and estimates regarding the future tax consequences attributable
However, if the deferred tax arises from initial recognition of an asset or liability in a transaction other
to differences between the carrying amounts of assets and liabilities as recorded in the financial
than a business combination that at the time of the transaction affects neither accounting nor taxable
statements and their tax basis.
profit or loss, it is not accounted for. Deferred tax is determined using tax rates (and laws) that have
Assumptions made include the expectation that future operating performance for subsidiaries will be
been enacted or substantially enacted by the closing date and are expected to apply when the related
consistent with historical levels of operating results, recoverability periods for tax loss carry-forwards will
deferred tax asset is realised or the deferred tax liability is settled.
not change, and that existing tax laws and rates will remain unchanged into foreseeable future. Fortum
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be
believes that it has prudent assumptions in developing its deferred tax balances.
available against which the temporary differences can be utilised. Deferred tax assets are set off against
Assumptions and estimates regarding uncertain tax positions are supported by external legal counsel
deferred tax liabilities if they relate to income taxes levied by the same taxation authority.
or expert opinion.
Deferred tax is provided on temporary differences arising from investments in subsidiaries, associates
If the actual final outcome (regarding tax disputes) would differ negatively from management’s
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
estimates with 10%, the Group would need to increase the income tax liability by EUR 19 million as of
31 December 2017. For additional information regarding tax disputes, see Note 36 Legal actions and
official proceedings.
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Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
27.1 Deferred income taxes in the balance sheet
EUR million
BS Deferred tax assets
BS Deferred tax liabilities
Net deferred taxes
2017
1 Jan Change
7
-203
-197
66
-616
-550
31 Dec
73
-819
-747
2016
1 Jan Change
-14
-133
-146
80
-483
-404
31 Dec
66
-616
-550
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 .
Movement in deferred tax assets and liabilities 2017
EUR million
1 Jan 2017
Charged to income statement
Charged to other comprehensive income
Exchange rate differences,
reclassifications and other changes
Acquisitions and disposals
31 Dec 2017
Intangible assets
-12
7
0
Property, plant and
equipment
-717
-38
0
2
-98
-101
29
-79
-806
Pension
obligations
14
1
3
1
2
21
Provisions
20
-10
0
-2
0
7
Derivative
financial
instruments
36
16
-18
1
0
35
Tax losses
and tax credits
carry-forward
100
8
0
-2
10
116
Other Net deferred taxes
-550
-42
-15
8
-26
0
-6
4
-20
22
-161
-747
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 . At the end of the year deferred income tax liabilities of EUR 28 million (2016: 19) 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 2017 are mainly related to restructuring of the ownership in Hafslund together with the City of Oslo, acquisition of Solar power plants in Russia
and wind power companies in Norway . In addition, the deferred tax asset relating to tax loss carry forwards increased net in 2017 mainly because of the additional taxable losses in the Netherlands partly offset by the
usage of losses carry forwards in Russia .
Movement in deferred tax assets and liabilities 2016
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
Intangible assets
0
Property, plant and
equipment
-551
-9
Pension
obligations
11
2
2
Provisions
14
-3
-12
-12
-40
-118
-717
14
9
20
Derivative
financial
instruments
-42
27
49
2
36
Tax losses
and tax credits
carry-forward
146
-49
3
100
Other Net deferred taxes
-404
-42
51
18
-11
-6
6
8
-40
-115
-550
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 .
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Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes 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 .
28 Nuclear related assets
and liabilities
EUR million
Losses without expiration date
Losses with expiration date
Total
2017
2016
Tax losses
413
103
516
Deferred
tax asset
90
26
116
Tax losses
352
108
460
Deferred
tax asset
79
22
100
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 20 million (2016: 56) 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 increased in 2017 mainly because of the additional taxable losses in
Management Fund is managed by governmental authorities. The related provisions are the provision for
Netherlands and decreased mainly because of use of losses carry forwards in Russia .
decommissioning and the provision for disposal of spent fuel.
27.2 Income tax receivables
Sweden
Belgium
Other
Total income tax receivables
2017
28
114
30
172
2016
124
114
52
290
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.
Income tax receivables reflect payments of corporate income tax done in relation to the year 2017 as well
as payments according to received tax audit assessments in relation to previous years .
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
Fortum received in June 2017 an unfavourable decisions from the Administrative Court of
fuel usage. The impact of the possible changes in the estimated future cash flow for related costs is
Appeal in Sweden relating to the income tax assessments for 2009–2012 and has booked a tax cost of
EUR 115 million and interest cost of EUR 7 million . Consequently, the income tax receivable decreased
by the corresponding amount . Fortum has in previous years received income tax assessments in
Sweden for the year 2013 . The additional taxes for 2013 have been paid in July 2017, in total 273 MSEK
(EUR 28 million) and based on supporting legal opinion booked as an income tax receivable .
In Belgium, Fortum has in previous years received income tax assessments for the years 2008–2012 .
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 36 Legal actions and official proceedings .
recognised immediately in the income statement based on the accumulated amount of fuel used until the
end of the accounting period. The related interest costs due to unwinding of the provision is recognised in
the corresponding period.
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,
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
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40
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Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
the future cash flow is spread over 100 years, the difference between the legal liability and the provisions
are material.
28.1 Nuclear related assets and liabilities for 100% owned nuclear power plant,
Loviisa
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.
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
2017
858
858
1,161
1,153
1,125
267
2016
830
830
1,141
1,125
1,094
264
Legal liability for Loviisa nuclear power plant
The legal liability on 31 December 2017, decided by the Ministry of Economic Affairs and Employment in
December 2017, was EUR 1,161 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 2017 is EUR 1,153 million .
Based on the Nuclear Energy Act in Finland, Fortum has a legal obligation to fully fund the legal
Nuclear provisions
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
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
spent fuel.
2017
830
4
-21
45
858
858
2016
810
6
-20
34
830
830
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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 28 million compared to 31 December 2016, totalling EUR 858 million on 31 December 2017 . 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 267 million, since Fortum’s share of the Fund on 31 December 2017 was EUR 1,125 million and the
carrying value in the balance sheet was EUR 858 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 26 Interest-bearing liabilities and
Note 35 Pledged assets and contingent liabilities .
28.2 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
2017
953
953
0
2016
955
955
0
1,482
1,437
484
1,450
1,380
425
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 484 million (of which Fortum’s share EUR 129 million), since TVO’s share of
the Fund on 31 December 2017 was EUR 1,437 million and the carrying value in the balance sheet was
EUR 953 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 26 Interest-bearing liabilities .
OKG’s and Forsmark’s total nuclear related assets and liabilities (100%)
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
2017
2016
3,398
3,105
-293
3,297
3,068
-229
of which Fortum’s net share consolidated with equity method
-114
-106
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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26
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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
liability and unexpected events .
For more information regarding Fortum’s guarantees given on behalf of nuclear associated
companies, see Note 35 Pledged assets and contingent liabilities .
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 has submitted
the cost estimates based on the revised technical plan to SSM, after which the Swedish government
has decided the waste fees and guarantees for years 2018–2020 . Nuclear waste fees are currently based
on future costs with the assumed lifetime of 50 years (40 years in previous decision) for each unit of a
nuclear power plant .
29 Other provisions
ACCOUNTING POLICIES
Provisions for environmental obligations, asset retirement obligations, restructuring costs and legal claims
are recognised when the Group has a present legal or constructive obligation as a result of past events
to a third party, it is probable that an outflow of resources will be required to settle the obligation and the
amount can be reliably estimated.
Provisions are measured at the present value of the expenditures expected to be required to settle the
obligation using a pre-tax rate that reflects current market assessments of the time value of money and
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
regulations, when it is probable that a present obligation has arisen and the amount of such liability can
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.
Environmental provisions include provisions for obligations to cover landfills and clean-up obligations
for contaminated land areas. Provisions are determined based on the surface area of the landfill site,
remaining land area to be landscaped or otherwise cleaned-up, and the unit cost of conducting the
coverage and clean-up activities in the future.
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.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
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25
26
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28
29
30
31
32
33
34
35
36
37
38
39
40
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Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
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
starting to implement the plan or announcing its main features to those affected by it. The measurement
of a restructuring provision includes only the direct expenditures arising from the restructuring, which
are those amounts that are both necessarily entailed by the restructuring and not associated with the
ongoing activities of the entity. Restructuring provisions comprise mainly employee termination payments
and lease termination costs.
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
of the expenditure might differ from estimates made.
EUR million
1 January
Acquisitions
Provisions for the period
Provisions used
Provisions reversed
Exchange rate difference and other
charges
31 December
Of which current provisions 1)
BS Of which non-current provisions
Environ-
mental
47
0
0
0
0
-4
43
0
43
2017
Other
82
7
31
-35
-10
4
79
22
57
Total
129
7
31
-35
-10
0
122
22
100
Environ-
mental
2
44
1
0
0
0
47
1
46
2016
Other
96
4
14
-25
-9
2
82
11
70
Total
98
48
15
-25
-9
2
129
13
116
1) Included in trade and other payables in the balance sheet, see Note 32 Trade and other payables.
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 38 Acquisitions and disposals) .
Dismantling provision for the Finnish coal fired power plant Inkoo is included in Other provisions .
Regarding provisions for decommissioning and provision for disposal of spent fuel for nuclear
production, see Note 28 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
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28
29
30
31
32
33
34
35
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37
38
39
40
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Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
30 Pension obligations
Fortumʼs pension arrangements
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.
Finland
In Finland statutory pension benefits (as determined in Employee’s Pension Act /TyEL) provide the
employees pension coverage for old age, disability and death of a family provider . The benefits are
insured with an insurance company and determined to be defined contribution plans .
In addition the Group has additional old-age and survivors pension benefits arranged with the
Fortum Pension Fund . 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 .
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5
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7
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12
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14
15
16
17
18
19
20
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Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
The part of the ITP multiemployer pension plan that is secured by paying pension premiums to
Main risks relating to defined benefit plans – Finland and Sweden
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 .
Norway
Group companies operate both defined contribution and defined benefit plans . Some defined benefit
schemes offer benefits common for municipalities in Norway and some are private pension schemes .
Benefits include 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 .
The majority of the defined benefit plans are closed, either private plans or public plans, that are
operated by the Hafslund and Infratek,s Pension Fund . The Group has also a closed public defined benefit
plan operated by Oslo Pensjonsforsikring AS . In addition, the Group has defined benefit plans with
various insurance companies .
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 .
In other countries the pension arrangements are done in accordance with the local legislation and
practice, mostly being defined contribution plans .
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 .
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 .
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 Corporation .
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 .
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
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Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
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 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
Acquisitions 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 3)
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
2017
452
2016
448
Fair value of plan
assets
2017
-378
2016
-384
Net defined
benefit asset(-)/
liability(+)
2017
74
2016
64
6
0
-3
9
12
10
16
-6
-5
5
8
-4
-6
11
9
15
28
-12
-4
11
-18
50
501
-16
0
452
5
-7
-2
7
7
4
11
-3
14
-43
-401
5
-9
-3
-5
-5
4
-1
-1
12
0
-378
7
0
2
2
10
17
16
-6
7
-1
16
-3
-3
7
101
497
-401
96
4
9
-4
-1
2
6
10
28
-12
-5
0
10
-1
-4
0
74
447
-378
70
5
101
74
2
102
1
76
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 10 Employee benefits).
3) The unfunded obligation relates to arrangements in Russia and Poland.
At the end of 2017 a total of 985 (2016: 864) Fortum employees are included in defined benefit plans
providing pension benefits . During 2017 pensions or related benefits were paid to a total of 3,160
(2016: 2,865) persons .
Contributions expected to be paid during year 2018 are EUR 4 million .
Fair value of plan assets
EUR million
Equity instruments
Debt instruments
Cash and cash equivalents
Real estate, of which EUR 42 million (2016: 66) occupied by the Group
Investment funds
Company’s own ordinary shares
Other assets
Total
2017
126
156
48
47
1
5
18
401
2016
120
140
26
69
-
4
19
378
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, Sweden and Norway totalled EUR 0 million (2016: 14) .
Amounts recognised in the balance sheet by country 2017
Finland Sweden Norway
61
-51
10
295
-245
50
141
-105
36
50
0
50
36
1
37
10
1
11
Other
countries
0
0
0
4
4
0
4
Total
497
-401
96
4
101
2
102
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
100
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
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Amounts recognised in the balance sheet by country 2016
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%
1%
-1%
6%
-6%
Sweden
-10%
12%
10%
-9%
2%
-3%
Norway
-6%
7%
5%
-6%
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, Sweden and Norway with EUR 17 million (19%) .
Maturity profile of the undiscounted defined benefit obligation
for Finland, Sweden and Norway as of 31 December 2017
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
17
73
90
171
133
98
The weighted average duration of defined benefit obligation in Finland, Sweden and Norway at the end of
year 2017 is 17 years .
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
308
-262
46
Sweden
130
-110
20
Norway
9
-6
3
46
0
46
20
1
21
3
1
4
Other
countries
0
0
0
5
5
0
5
Total
447
-378
70
5
74
1
76
The principal actuarial assumptions used
%
Discount rate
Future salary increases
Future pension increases
Rate of inflation
Finland
1.50
2.90
2.00
1.70
2017
Sweden
2.40
2.80
2.80
1.80
Norway
2.30
2.50
1.34
1.50
Finland
1.50
1.90
2.00
1.70
2016
Sweden
2.80
3.00
1.70
1.70
Norway
2.10
2.25
1.27
1.75
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 life expectancy is the expected number of years of life remaining
at a given age
Longevity at age 65
45– male
45– female
65– male
65– female
Finland
22
27
21
25
Sweden
23
25
22
24
Norway
23
26
22
25
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 2017, holding all other assumptions stable, are presented in the table below .
101
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
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
31 Other non-current liabilities
33 Lease commitments
EUR million
Connection fees
Other liabilities
BS Total
2017
109
66
175
2016
109
70
179
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
Connection fees are refundable connection fees to the district heating network in Finland .
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
32 Trade and other payables
other income in the income statement.
FINANCE LEASES
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 29 Other provisions.
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.
33.1 Leases as a lessor
Operating leases
The operating rental income recognised in income statement was EUR 6 million (2016: 5) .
Finance leases
Finance leases relate to heat pipelines in Tyumen area, which are leased to newly established joint
venture YUSTEK . See additional information in Note 38 Acquisitions and disposals .
2017
318
97
113
174
43
25
15
98
22
209
1,112
2016
323
61
132
130
43
20
14
19
13
86
841
Maturity of future minimum lease payments
2017
2016
2017
2016
2017
2016
The management considers that the amount of trade and other payables approximates fair value .
EUR million
Due within 1 year
Due in 1 to 5 years
Due in more than
5 years
Total
Gross investment in finance
lease arrangements
Unearned interest income
Present value of minimum
lease payments
1
21
167
189
-
-
-
-
4
21
123
148
-
-
-
-
-3
0
44
41
-
-
-
-
The present value of minimum lease payments is included in interest-bearing receivables in the balance
sheet, see Note 20 Interest-bearing receivables .
102
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
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotes
Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
33.2 Leases as lessee
Operating leases
Fortum leases mainly land and office buildings 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 33 million (2016: 15) are included in the income
statement in other expenses .
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
2017
23
72
65
160
2016
16
31
27
74
Increase in operating lease commitments arises mainly from the lease agreement relating to the new head
office in Espoo .
Finance leases
Fortum does not have material finance lease arrangements where the Group is acting as a lessee .
Other commitments
On 26 September 2017, Fortum announced it had signed a transaction agreement with E .ON under which
E .ON has the right to tender its 46 .65% shareholding in Uniper in early 2018 . In November 2017 Fortum
launched a voluntary public takeover offer to all Uniper shareholders at a total value of EUR 22 per share
(in total approximately EUR 8 billion) .
On 19 January 2018, Fortum announced that the number of shares tendered during the initial
acceptance period of Fortum’s voluntary public takeover offer for the outstanding shares of Uniper
totalled 171,736,647 shares . This corresponds to approximately 46 .93% of the share capital and the
voting rights of Uniper . The initial acceptance period ended on 16 January 2018 and the additional
acceptance period resumed on 20 January 2018 and will end on 2 February 2018 . The value of the
tendered shares from the initial acceptance period is EUR 3 .78 billion based on the total value of
EUR 22 per share .
Fortum has committed to provide a maximum of EUR 93 million (Dec 31 2016: 100) to
Voimaosakeyhtiö SF, for its participation in the Fennovoima nuclear power project in Finland .
Furthermore, Fortum’s remaining direct commitment regarding the construction of a waste-to-energy
combined heat and power plant (CHP) in Kaunas, Lithuania is EUR 15 million at maximum at the end of
2017 . The investment is made through Kauno Kogeneracinė Jėgainė (KKJ), a joint venture owned together
with Lietuvos Energija .
For information regarding shareholder loan commitments related to associated companies and joint
ventures, see Note 20 Interest bearing receivables .
34 Capital commitments
EUR million
Property, plant and equipment
2017
362
2016
467
Capital commitments are capital expenditures contracted for at the balance sheet date but not
recognised in the financial statements . The decrease in capital commitments compared to previous year
comes mainly from progressing of the automation investment in Loviisa nuclear power plant and India
solar investments, partly offset by increased wind power investments in Norway .
35 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
For more information regarding capital expenditure, see Note 17 Property, plant and equipment .
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.
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Balance sheet
Off balance sheet items
Group structure and related parties
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
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300
177
346
141
161
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291
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379
99
205
603
35.1 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 was
EUR 269 million on 31 December 2017 (2016: 269) .
Fortum Tartu in Estonia (60% owned by Fortum) has given real estate mortgages for a value of
EUR 96 million (2016: 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 (2016: 41) .
Property of the Russian solar plants of EUR 41 million was mortgaged for loans (2016: 0) .
Regarding the relevant interest-bearing liabilities, see Note 26 Interest-bearing liabilities .
35.2 Pledged assets for other commitments
Pledges also include restricted cash given as trading collateral of EUR 346 million (2016: 345) 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) . See also Note 20
Interest-bearing receivables .
Fortum has given real estate mortgages in power plants in Finland, total value of EUR 141 million
in December 2017 (2016: 99), 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 . 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 increased by EUR 42 million .
See also Note 28 Nuclear related assets and liabilities .
104
35.3 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 (2016: 125) .
35.4 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 50 million (2016: 38) . The guarantee covers the unpaid legal liability due to periodisation as well as
risks for unexpected future costs .
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 548 million) at 31 December 2017 (2016: EUR 565 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 391 million) and the Supplementary Amount
was SEK 1,550 million (EUR 157 million) at 31 December 2017 .
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36 Legal actions
and official proceedings
36.1 Group companies
Tax cases in Finland
No tax cases with material impact in Finland .
Tax cases in Sweden
Cases related to Swedish interest deductions
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 . In June 2017 the Administrative
Court of Appeal in Stockholm, Sweden announced its decision relating to the income tax assessments for
2009–2012 . The decisions were unfavourable to Fortum . Fortum disagrees with the interpretation of the
Administrative Court of Appeal and has applied for the right to appeal from the Supreme Administrative
Court . Due to the unfavourable decisions from the Administrative Court of Appeal, Fortum has booked a
tax cost of SEK 1,106 million (EUR 115 million) and interest expense of SEK 69 million (EUR 7 million),
in total SEK 1,175 million (EUR 122 million) in the second quarter 2017 results . The additional taxes and
interest for 2009–2012 have already been paid in June 2016 . Fortum has filed a request to initiate a mutual
agreement procedure between Sweden and the Netherlands for the year 2012 .
In addition Fortum has received income tax assessments in Sweden for the years 2013, 2014 and 2015
in December 2015, December 2016 and October 2017, respectively . The assessments concerns the loans
given in 2013, 2014 and 2015 by Fortum’s Dutch financing company to Fortum’s subsidiaries in Sweden .
The interest income for these loans was taxed in the Netherlands . The tax authorities 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 that the claims are unjustifiable and has appealed the decisions . In May 2017
the Administrative Court in Stockholm, Sweden, announced its decisions relating to the income tax
assessment for the year 2013 . The decisions were unfavourable to Fortum . Fortum disagrees with the
argumentation of the court and has filed an appeal to the Administrative Court of Appeal in Stockholm
in July 2017 . The cases regarding the year 2014 and the year 2015 are pending before the Administrative
Court . In December 2017, the Swedish tax authorities withdrew a part of their claims with respect to
the years 2013 and 2015 . Therefore, the additional tax claimed by the tax authorities for the year 2013
is currently SEK 239 million (EUR 24 million) and for the year 2015 SEK 186 million (EUR 19 million) .
For the year 2015 the adjusted amount was confirmed in a new tax assessment (“Obligatoriskt
omprövningsbeslut”) issued by the Swedish tax authorities in December 2017 . The adjusted amount of
additional tax for the year 2013 still needs to be confirmed by the Administrative Court of Appeal, as the
additional tax according to the decision of Administrative Court from May 2017 was SEK 273 million
(EUR 28 million) .
Based on legal analysis supporting legal opinions, no provision has been recognized in the financial
statements for the Swedish tax cases regarding the year 2013, 2014 and 2015 . If the amounts of additional
tax claimed by the tax authority remain final despite the appeals processes, the impact on net profit
would be SEK 239 million (EUR 24 million) for the year 2013, SEK 282 million (EUR 29 million) for the
year 2014 and SEK 186 million (EUR 19 million) for the year 2015 . The additional taxes and interest for
2013, in total SEK 282 million (EUR 29 million) have been paid in accordance with the decision from the
Administrative Court in July 2017 and based on the legal opinion booked as receivables .
Cases relating to the Swedish hydro real estate tax
Fortum Sverige AB has received a favourable decision from the Administrative Court in Stockholm in
June 2017 relating to the Swedish hydro real estate tax . According to the decision, the increased property
tax on hydro power generated electricity comprises unlawful state aid (i .e . the tax law is in conflict with
EU legislation) and the property tax shall be set as 0 .5 percent of the tax assessment value . The decision
relates to the years 2009–2014 and the disputed amount for the five years totalled SEK 508 million
tax, SEK 12 million interest (EUR 52 million tax, EUR 1 million interest) . The amount has been repaid
to Fortum in July 2017 and it has been booked in other current liabilities, not yet as income . The tax
authorities has appealed the decision and the case is pending before the Administrative Court of Appeal .
Tax cases in Belgium
Fortum has received income tax assessments in Belgium for the years 2008, 2009, 2010 and 2011 . The
tax authorities disagree with the tax treatment of Fortum EIF NV . Fortum finds the tax authoritiesʼ
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’s 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 .
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Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
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 27 Income taxes in
balance sheet . See also Note 12 Income tax expense .
at the Olkiluoto 3 project . The Supplier has submitted claims to the ICC for an aggregate amount of
approximately EUR 3 .59 billion, which includes a total amount of approximately EUR 1 .58 billion in
penalty interest (calculated up to 30 June 2017) and payments allegedly delayed by TVO under the Plant
Contract, as well as approximately EUR 132 million of alleged loss of profit .
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 the amount of approximately EUR 2 .6 billion until
December 2018, which according to the schedule submitted by the OL3 supplier in September 2014 was
the estimated start of regular electricity production of OL3 .
In addition to the litigations described above, some Group companies are involved in other routine
In November 2016, the ICC Tribunal made a final and binding partial award . In the partial award, the
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 .
36.2 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 . Most of the construction work for the plant unit have been
completed . The installation of the electrical systems, the instrumentation and control system (I&C), and
mechanical systems is still in progress .
In April 2016 TVO submitted to the Ministry of Economic Affairs and Employment (TEM) an
application for an operating license . The simulator training for operating personnel commenced in
February 2017 . The cold functional testing to ensure the integrity of the primary circuit was completed
in July . The hot functional testing phase started in December . In the hot functional tests which will
take several months, the OL3 plant systems are tested as a whole, but without the fuel .The first phase of
the turbine plant commissioning is completed . The de-preservation that started at the turbine plant in
January 2017 has been completed, and the plant is ready for the hot functional testing .
OL3 was procured as a fixed-price turnkey project from a consortium (Supplier) formed by AREVA
GmbH, AREVA NP SAS and Siemens AG . As stipulated in the plant contract, the consortium companies
have joint and several liability for the contractual obligations . In accordance with the Supplier’s schedule,
updated in October 2017, regular electricity production in the unit was to commence in May 2019 . The
Supplier’s schedule review for the project completion had reached a phase where the Supplier confirmed
the main milestones . According to the Supplier, the first connection to the grid takes place in December
2018, and the start of regular electricity production will take place in May 2019 . According to the
Supplier’s plant ramp-up program the unit will produce 2–4 TWh of electricity, at varying power levels,
during the period of time between the first connection to the grid and the start of regular electricity
production .
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
ICC Tribunal addressed the early period of the project (time schedule, licensing and licencability, 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 ICC Tribunal made another final and binding partial award in July 2017 . This partial award
addresses the preparation, submittal, review, and approval of design and licensing documents on
the project . This comprises the key facts and matters that the supplier relies upon in its main claims
against TVO, as well as certain matters that TVO relies upon in its claims against the Supplier . In doing
so, the partial award has finally resolved the great majority of these facts and matters in favour of TVO .
Conversely, it has also rejected the great majority of the Supplier’s contentions in this regard . Although
the partial award did not take a position on the claimed monetary amounts, it has conclusively rejected
the analytical method used by the Supplier to support its principal monetary claims against TVO .
The parties received a final and binding partial award also in November 2017 . This partial award
addresses the execution and construction works and the overall project management of the OL3 EPR
project . This comprises many facts and matters that TVO relies upon in its main claim against the
Supplier, as well as certain matters that the Supplier relies upon in its claims against TVO . The partial
award finally resolves many of the facts and matters concerning the execution of the construction works
in favour of TVO and notably defers many of the issues raised by TVO including the Supplier’s project
management for determination in a subsequent award .
The arbitration proceeding is still going on and it now proceeds towards the final award where the
Tribunal will declare liabilities to pay compensation .
In 2016, Areva announced a restructuring of its business . The restructuring plan involved a transfer of
the operations of Areva NP to a company called NEW NP, the majority owner of which is going to be EDF .
The transaction was completed at the end of 2017, and thereafter 75 .5 percent of the shares of New NP
were transferred to EDF . New NP was renamed Framatome as of January 2018 . OL3 EPR project and the
means required to complete the project, as well as certain other liabilities will remain within AREVA NP
and AREVA GmbH, within the scope of AREVA SA . In January 2017, the EU Commission made a decision
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Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
on the state aid, and in May 2017, the Commission accepted the merger . In September 2017, TVO filed an
appeal to the General Court of the European Union of the Commission decision on French state aid to the
AREVA Group . TVO requires that the restructuring of the French nuclear industry will not compromise
the completion of the OL3 EPR project within the Supplier’s schedule and that all liabilities of the plant
contract are respected .
37 Events after the
balance sheet date
On 8 January 2018, E .ON SE announced that it had decided to tender its 170,720,340 Uniper SE shares
(corresponding to 46 .65% of shares and voting rights) into Fortum’s public takeover offer . Furthermore,
E .ON announced that the members of the E .ON Board of Management who have until now held Uniper
shares privately will also tender all of their shares to Fortum under the voluntary public takeover offer .
On 19 January 2018, Fortum announced that 46 .93% of the share capital and the voting rights in
Uniper were tendered during the initial acceptance period of Fortum’s voluntary public takeover offer
for the outstanding shares of Uniper corresponding to 171,736,647 shares . The initial acceptance period
ended on 16 January 2018 and the additional acceptance period resumed on 20 January 2018 and will end
on 2 February 2018 .
38 Acquisitions and disposals
38.1 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
2017
982
135
8
1,125
2016
813
17
14
844
Uniper investment
On 26 September 2017, Fortum announced it had signed a transaction agreement with E .ON under which
E .ON has the right to tender its 46 .65% shareholding in Uniper in early 2018 . In November 2017 Fortum
launched a voluntary public takeover offer to all Uniper shareholders at a total value of EUR 22 per share .
On 8 January 2018, E .ON SE announced that it had decided to tender its 170,720,340 Uniper SE shares
(corresponding to 46 .65% of shares and voting rights) into Fortum’s public takeover offer . Furthermore,
E .ON announced that the members of the E .ON Board of Management who have until now held Uniper
shares privately will also tender all of their shares to Fortum under the voluntary public takeover offer .
On 19 January 2018, Fortum announced that the number of shares tendered during the initial
acceptance period of Fortum’s voluntary public takeover offer for the outstanding shares of Uniper
totalled 171,736,647 shares . This corresponds to approximately 46 .93% of the share capital and the
voting rights of Uniper . The initial acceptance period ended on 16 January 2018 and the additional
acceptance period resumed on 20 January 2018 and will end on 2 February 2018 . The value of the
tendered shares from the initial acceptance period is EUR 3 .78 billion based on the total value of
EUR 22 per share .
38.1.1 Acquisitions of subsidiary companies 2017
In January 2017 Fortum completed the acquisition of 100% of the shares in three wind power companies
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
has started 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 .
Fortum started a redemption process for the remaining shares of Ekokem Corporation (renamed as
Fortum Waste Solution Oy) in October 2016 . The process was finalized in March 2017 after which Fortum
owns 100% of the shares in the company .
On 4 August Fortum concluded the restructuring of the ownership in Hafslund together with the
City of Oslo . Fortum sold its 34 .1% stake in Hafslund ASA to the City of Oslo . Fortum acquired 100%
of Hafslund Markets AS, 50% of Hafslund Varme AS (renamed as Fortum Oslo Varme AS) including
the City of Oslo’s waste-to-energy company Klemetsrudanlegget AS (renamed as Fortum Oslo Varme
KEA AS) and 10% of Hafslund Produksjon Holding AS . The total debt-free price of the acquisition was
approximately EUR 940 million .
The combined net cash investment of the transactions, including the dividend received in May 2017,
was approximately EUR 230 million .
Hafslund Markets and Fortum Oslo Varme are consolidated into Fortum Group from 1 August 2017 .
Hafslund Markets is consolidated as a part of the Consumer Solutions segment . Fortum has operational
responsibility of Fortum Oslo Varme, which is consolidated as a subsidiary with 50% non-controlling
interest into the results of City Solutions segment . Hafslund Produksjon Holding is treated as an
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Off balance sheet items
Group structure and related parties
associated company and reported in the Generation segment . The initial goodwill from the purchase
price allocations, prepared based on the 31 July balance sheets, is EUR 215 million for Hafslund Markets
and EUR 69 million for Fortum Oslo Varme respectively . The initial purchase price allocation is still
preliminary as all valuation effects, especially regarding the provisions, have not been finalised .
The impact from Hafslund acquisition on 2017 sales in the Consumer Solutions segment was
EUR 344 million, comparable operating profit EUR 13 million and comparable EBITDA EUR 22 million .
The impact on 2017 sales in the City Solutions segment was EUR 56 million, comparable operating profit
EUR 15 million and comparable EBITDA EUR 29 million .
In December 2017 Fortum acquired three solar power companies from Hevel Group . The
Pleshanovskaya (10 MW) and Grachevskaya (10 MW) solar power plants are located in the Orenburg
region and the Bugulchanskaya (15 MW) solar power plant in the Republic of Bashkortostan . All
three power plants are operational and will receive capacity Supply Agreement (CSA) payments for
approximately 15 years after commissioning at an average CSA price corresponding to approximately
EUR 430/MWh . The plants were commissioned in 2016 and 2017 .
EUR million
Consideration paid in cash
Unpaid consideration
Total consideration
Fair value of the acquired assets
Translation difference
Goodwill
Hafslund
Markets AS
589
0
589
374
1
215
Fortum Oslo
Varme AS
152
0
152
84
0
69
Other
70
9
79
77
2
1
Fortum total
811
9
820
535
2
286
EUR million
Fair value of the acquired net identifiable assets
Cash and cash equivalents
Intangible assets
Property, plant and equipment
Other assets
Deferred tax liabilities
Other non-interest bearing liabilities
Interest-bearing liabilities
Net identifiable assets
Non-controlling interests
Total
Hafslund Markets AS
Fortum Oslo Varme AS
Acquired book
values
Allocated fair
value
Total fair value
Acquired book
values
Allocated fair
value
Total fair value
Acquired book
values
Fortum total 1)
Allocated fair
value
Total fair value
158
12
5
179
-19
-176
0
158
0
158
284
-68
216
0
216
158
296
5
179
-88
-176
0
374
0
374
37
0
526
21
-21
-39
-445
79
51
29
37
0
733
21
-71
-39
-445
237
153
84
201
17
604
206
-46
-217
-489
275
51
225
334
208
-129
413
102
310
201
352
811
206
-175
-217
-489
688
153
535
207
-50
157
102
55
1) Including acquired book values and allocated fair values from the acquisition of Norwegian wind park companies, Russian solar power companies as well as other smaller acquisitions.
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Off balance sheet items
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This financial statement includes the income statement effect of Grupa Duon S .A . group from
1 April 2016 onwards . The consolidated sales for 2017 included in the Consumer Solutions segment was
EUR 266 million (April–Dec 2016: 155), comparable operating profit EUR 0 million (April–Dec 2016: 4)
and comparable EBITDA EUR 4 million (April-Dec 2016: 8) .
The initial purchase price allocation as of 31 March 2016 was finalised during 2017 . No material
changes were made compared to the information disclosed in the consolidated financial statements
for 2016 .
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
Fortum Waste
Solutions Oy
570
10
580
440
0
141
Fortum
Markets
Polska S.A.
106
106
86
2
22
Other
15
3
17
17
0
0
Fortum total
691
13
703
543
2
163
EUR million
Gross investment
Purchase consideration settled
in cash
Cash and cash equivalents in
acquired subsidiaries
Translation difference
Cash outflow in acquisition
Unpaid consideration
Interest-bearing debt in acquired
subsidiaries
of which loans given by Fortum
Transaction adjustments to debt-like
items
Translation difference
Total gross investment in acquired
subsidiaries
Hafslund
Markets AS
Fortum Oslo
Varme AS
Other
Fortum total
589
158
1
432
54
0
486
152
37
0
116
445
-213
26
1
375
70
6
2
65
9
44
0
2
121
811
201
3
613
9
489
-213
80
4
982
38.1.2 Acquisitions of subsidiary companies 2016
The acquisition of approximately 81% of the shares in the Nordic circular economy company Ekokem
Corporation (renamed as Fortum Waste Solutions Oy) was finalised on 31 August 2016 . The debt and
cash-free purchase price for 100% of the company was approximately EUR 680 million . Fortum also
made a tender offer valid until 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% .
The initial purchase price allocation as of 31 August 2016 was finalised during 2017 . No material
changes were made to the initial purchase price allocation .
Fortum Waste Solutions Oy is fully consolidated into Fortum Group from the end of August 2016 and
has been integrated as a business area into the City Solutions segment . The comparative numbers in the
financial statement include the income statement effect of Fortum Waste Solutions from 1 September
2016 onwards . The consolidated sales for 2017 included in the City Solutions segment was EUR 293
million (Sept to Dec 2016: 105), comparable operating profit EUR 24 million (Sept to Dec 2016: 7) and
comparable EBITDA EUR 74 million (Sept to Dec 2016: 26) .
On 8 January 2016, Fortum made a public tender offer in Poland to purchase all shares in Grupa
DUON S .A . (renamed as Fortum Markets Polska 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 Fortum Markets Polska S .A . and in June the company was delisted .
109
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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
Fortum Waste Solutions Oy
Fortum Markets Polska S.A.
Acquired book
values
Allocated fair
value
Total fair value
Acquired book
values
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
8
49
37
-1
-16
-19
58
1
58
34
-7
28
28
8
83
37
-7
-16
-19
86
1
86
26
366
108
-35
-135
-136
194
2
192
438
-88
351
351
26
804
108
-123
-135
-136
545
2
543
1) Including acquired book values and allocated fair values from the acquisition of Info24 AB and Turebergs Recycling AB.
Fortum Waste
Solutions Oy
Fortum
Markets
Polska S.A.
Other
Fortum total
In October 2017 Fortum and SUENKO established a joint venture, JSC Ural-Siberian Heat and Power
Company (YUSTEK), for the heat supply in Tyumen, Russia . Fortum will continue as CHP owner and
selling heat to YUSTEK .
EUR million
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
570
17
553
10
117
680
106
8
98
19
117
15
1
14
3
0
17
691
26
664
13
136
813
38.1.3 Other acquisitions
In April 2017, Fortum and RUSNANO, a Russian state-owned development company, signed a 50/50
investment partnership in order to secure the possibility of a Russian Capacity Supply Agreement
(CSA) wind portfolio in Russia . The wind investment fund 50/50 owned by Fortum and RUSNANO was
awarded 1,000 MW wind capacity in Russian wind CSA auction in June 2017 . The investments decisions
will be made on a case-by-case basis within the total mandate of the wind investment fund . Fortum’s
equity stake in the wind investment fund totals a maximum of RUB 15 billion (currently approximately
EUR 220 million) . The amount is invested over time (within approximately 5 years) as it is subject to
positive investment decisions . During 2017 Fortum invested EUR 43 million in the fund .
110
38.2 Disposals
EUR million
Gross divestments of shares in subsidiary companies
Gross divestments of shares in associated companies and joint ventures
Gross divestments of shares
2017
55
687
742
2016
127
34
161
38.2.1 Disposals of subsidiary companies
In May 2017, Fortum agreed to sell 100% of its shares in the Polish gas infrastructure company DUON
Dystrybucja S .A . to Infracapital, the infrastructure investment arm of M&G Investments . DUON
Dystrybucja S .A . is transporting grid gas and LNG in Poland . The company was acquired as part of
the acquisition of the electricity and gas sales company Grupa DUON S .A . (currently Fortum Markets
Polska S .A .) in 2016 . Fortum booked in 2017 a one-time pre-tax sales gain in Consumer Solution segment
totalling EUR 2 million .
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Basis of preparation
Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
In November 2017 Fortum sold its 51% stake in the Norwegian electricity sales company Røyken Kraft
AS to the minority shareholder Røyken Energiverk AS . The company was acquired as part of the Hafslund
Markets AS group in the restructuring of the ownership in Hafslund .
In February 2016 Fortum sold its 100% shareholding in its Russian subsidiary OOO Tobolsk CHP to
SIBUR, Russia’s largest integrated gas processing and petrochemicals company . 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 .
Divestments of shares in subsidiaries - Impact on financial position
EUR million
Gross divestments of shares in subsidiary companies
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
2017
55
5
60
58
6
5
-3
-7
59
2
2016
127
10
137
92
15
10
0
-15
102
35
38.2.2 Other disposals
On 3 August 2017 Fortum sold its 34 .1% stake in Hafslund ASA to the City of Oslo in connection with
the restructuring of the ownership in Hafslund . Fortum booked a one-time tax-free sales gain in Other
segment in the 2017 results totalling approximately EUR 324 million including transaction costs,
corresponding EUR 0 .36 earnings per share .
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 .
39 Related party transactions
39.1 The Finnish State and companies owned by the Finnish State
At the end of 2017, 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 .
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 38 Acquisitions and disposals .
39.2 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 2017 . The total
compensation (including pension benefits and social costs) for the key management personnel for 2017
was EUR 9 million (2016: 10) .
See Note 10 Employee benefits for further information on the Board of Directors and Fortum
Executive Management remuneration and shareholdings .
39.3 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 18 Participations in associated companies and joint ventures .
39.4 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% (2016: 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 2017 nor in 2016 . Real estate mortgages have also
been given for loan from Fortum’s Finnish pension fund for EUR 41 million (2016: 41) .
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Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
40 Subsidiaries by segment
on 31 December 2017
C = City Solutions
CS = Consumer Solutions
G = Generation
R = Russia
O = Other
1) New company
2) Shares held by the parent company
Company name
Ekopartnerit Turku Oy
Fortum Asiakaspalvelu Oy
Fortum Assets Oy
Fortum C&H Oy
Fortum Environmental Construction 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
Fortum Waste Solutions Oy
Kiinteistö Oy Espoon Energiatalo
Koillis-Pohjan Energiantuotanto Oy
Kotimaan Energia Oy
Oy Pauken Ab
Oy Tersil Ab
Oy Tertrade Ab
Vindin Böle Ab/Oy
Vindin Kalax Ab/Oy
Vindin Molpe Ab/Oy
Vindin Pjelax Ab/Oy
Vindin Poikel Norra Ab/Oy
Vindin Pörtom Ab/Oy
Fortum Project Finance N.V.
Fortum Energi A/S
Fortum Waste Solutions A/S
Fortum Waste Solutions OW A/S
AS Anne Soojus
Domicile
Finland
2) Finland
Finland
Finland
Finland
Finland
2) Finland
2) Finland
2) Finland
Finland
2) Finland
2) Finland
2) Finland
Finland
Finland
1) Finland
Finland
Finland
Finland
1) Finland
1) Finland
1) Finland
1) Finland
1) Finland
1) Finland
2) Belgium
Denmark
Denmark
Denmark
Estonia
Segment
C
CS
O
O
C
O
Group
holding, %
51.0
100.0
100.0
100.0
100.0
100.0
C, O
CS
O
G
C, G, O
O
C
O
G
CS
O
O
O
O
O
O
O
O
O
O
CS
C
C
C
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
100.0
100.0
100.0
100.0
60.0
112
Company name
AS Fortum Tartu
AS Tartu Joujaam
AS Tartu Keskkatlamaja
Fortum CFS Eesti OU
Fortum Eesti AS
Fortum France S.A.S
Fortum Deutschland SE
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 Finance Ireland Designated Activity Company
Fortum P&H Ireland Limited
Fortum Participation Ltd
Fortum Jelgava, SIA
Fortum Latvia SIA
UAB Fortum Heat Lietuva
UAB Fortum Klaipeda
UAB Joniskio energija
UAB Svencioniu energija
Fortum Investment SARL
Fortum Luxembourg SARL
Fortum Forvaltning AS
Fortum Markets AS
Fortum Oslo Varme AS
Fortum Oslo Varme KEA AS
Fortum Waste Solutions Norway AS
Fredrikstad EnergiSalg AS
Hafslund Hedging AS
Hafslund Kundesenter AS
Hafslund Marked AS
Hafslund Strøm AS
2)
Domicile
Estonia
Estonia
Estonia
Estonia
Estonia
France
1) Germany
Germany
Great Britain
Great Britain
Great Britain
Great Britain
Great Britain
Guernsey
India
India
India
India
Ireland
Ireland
Ireland
Latvia
Latvia
Lithuania
Lithuania
Lithuania
Lithuania
Luxembourg
Luxembourg
Norway
Norway
1) Norway
1) Norway
Norway
1) Norway
1) Norway
1) Norway
1) Norway
1) Norway
1)
1)
Segment
C
C
C
O
C
O
O
C
C
O
C
C
G
O
O
O
O
O
O
O
O
C
C
C
C
C
C
O
O
O
CS
C
C
C
CS
CS
CS
CS
CS
Group
holding, %
60.0
60.0
60.0
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
100.0
100.0
100.0
96.0
66.2
50.0
100.0
100.0
100.0
100.0
50.0
50.0
100.0
100.0
100.0
100.0
100.0
100.0
1
2
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4
5
6
7
8
9
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13
14
15
16
17
18
19
20
21
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23
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25
26
27
28
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31
32
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Risks
Income statement
Balance sheet
Off balance sheet items
Group structure and related parties
Company name
Hafslund Tellier AS
Hallingkraft AS
Mitt Hjem Norge AS
NorgesEnergi AS
Nygårdsfjellet Vindpark AS
Oslo Energi AS
Solvencia AS
Sørfjord Vindpark AS
Ånstadblåheia Vindpark AS
AMB Energia Sprzedaż 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.
Rejonowa Spółka Ciepłownicza Sp. z o.o.
Chelyabinsk Energoremont
Fortum New Generation LLC
LLC Pleshanovskaya Solar power station
LLC Bugulchanskaya Solar power station
LLC Grachevskaya Solar power station
PAO Fortum
Ural Heat Networks Company Joint Stock Company
Escandinava de Electricidad S.L.U
Blybergs Kraftaktiebolag
Brännälven Kraft AB
Bullerforsens Kraft Aktiebolag
Energibolaget i Sverige Holding AB
Energikundservice Sverige AB
Fortum 1 AB
Fortum Fastigheter AB
Fortum Markets AB
Domicile
1) Norway
1) Norway
1) Norway
1) Norway
1) Norway
1) Norway
1) Norway
1) Norway
1) Norway
Poland
Poland
Poland
Poland
Poland
Poland
Poland
Poland
Poland
Poland
Poland
Russia
1) Russia
1) Russia
1) Russia
1) Russia
Russia
Russia
1) Spain
Sweden
Sweden
Sweden
1) Sweden
Sweden
Sweden
Sweden
Sweden
Segment
CS
CS
CS
CS
O
CS
CS
O
O
CS
CS
CS
CS
C
C
C
C, CS
C
CS
C
R
R
R
R
R
R
R
CS
G
G
G
CS
CS
R
O
CS
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
100.0
100.0
100.0
100.0
98.2
98.2
98.2
98.2
98.2
98.2
100.0
66.7
67.0
88.0
100.0
100.0
100.0
100.0
100.0
Company name
Fortum Produktionsnät AB
Fortum Sweden AB
Fortum Sverige AB
Fortum Waste Solutions AB
Fortum Waste Solutions Holding AB
Fortum Vind Norr AB
Göta Energi AB
Hafslund Energi AB
Mellansvensk Kraftgrupp Aktiebolag
Nordgroup Waste Management AB
Oreälvens Kraftaktiebolag
SverigesEnergi Elförsäljning AB
Tellier Service AB
Turebergs Recycling AB
Uddeholm Kraft Aktiebolag
VG Power Tools AB
VG Power Turbo AB
Värmlandskraft-OKG-delägarna Aktiebolag
FB Generation Services B.V.
Fortum 2 B.V.
Fortum 3 B.V.
Fortum Charge & Drive B.V.
Fortum Finance 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.
113
Domicile
Sweden
2) Sweden
Sweden
Sweden
Sweden
Sweden
1) Sweden
1) Sweden
Sweden
Sweden
Sweden
1) Sweden
1) Sweden
Sweden
Sweden
1) Sweden
1) Sweden
Sweden
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
Segment
G
O
C, G, O
C
C
O
CS
CS
G
C
G
CS
CS
C
G
C
C
G
O
O
O
O
O
C, G, O
O
O
O
R
O
O
O
O
O
O
R
Group
holding, %
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
86.9
100.0
65.0
100.0
100.0
100.0
100.0
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
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3
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5
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13
14
15
16
17
18
19
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21
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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 (Fortum Värme) in the consolidated financial statements . From 1 January 2014 onwards Fortum Värme is treated as a joint venture and thus consolidated with equity method .
Before the change the company was consolidated as a subsidiary with 50% minority interest .
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
2008
2009
2010
2011
2012
2013
2014
2015
2016
5,636
5,435
6,296
6,161
6,159
5,309
2,478
2,292
2,271
3,008
2,538
2,129
2,360
2,398
2,396
2,374
2,416
1,975
1,963
34.8
1,782
32.8
1,708
27.1
2,402
39.0
1,874
30.4
1,508
28.4
1,845
1,888
1,833
1,802
1,752
1,403
1,850
32.8
1,636
30.1
1,615
25.7
2,228
36.2
1,586
25.8
1,398
26.3
1,596
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
2017
4,520
4,520
1,623
1,623
1,275
1,275
1,158
25.6
1,158
25.6
811
811
1,111
24.6
1,111
24.6
882
866
882
866
Change
17/16, %
24
24
61
61
26
26
83
83
26
26
87
87
75
75
75
75
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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
Research and development expenditure
- 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 28 March 2018.
See Definitions of key figures.
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
15,911
6,179
15,350
5,969
16,124
6,826
17,931
7,023
19,420
7,814
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
1,108
862
1,222
1,408
1,558
1,005
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
888
27
0.5
14,077
888
30
0.5
13,278
888
30
0.5
11,156
888
38
0.6
11,010
888
41
0.7
10,600
977
49
0.9
9,532
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
1,155
41
1.0
8,821
8,329
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
977
47
1.4
8,193
8,009
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
977
52
1.4
7,994
7,994
18,172
988
N/A
1,815
40.2
1,815
690
690
993
993
7.1
6.6
8.7
7.8
83.9
N/A
7
0.8
N/A
61
977 2)
53
1.2
8,507
8,507
Change
17/16, %
-3
2,158
26
26
17
17
60
60
0
2
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Share key figures
Segment key figures
Definitions of key figures
Share key figures
EUR million 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
Payout ratio, %
Dividend yield, %
Price/earnings ratio (P/E)
Share prices
At the end of the period
Average
Lowest
Highest
2008
2009
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
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
10.84
1.00
50.3
6.1
8.3
16.49
19.77
15.53
24.09
2012
1.59
-
1.59
-
1.56
11.30
1.00
62.9
7.1
8.9
14.15
15.66
12.81
19.36
2013
1.36
-
1.36
-
1.74
11.28
1.10
80.9
6.6
12.2
16.63
15.11
13.10
18.18
2014
2015
2016
2017
Change
17/16 %
75
75
75
75
60
60
-3
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
-
196.4
7.5
26.1
14.57
13.56
10.99
15.74
0.98
0.98
-
0.98
0.98
-
1.12
1.12
14.69
1.10 1)
-
112.2 1)
6.7 1)
16.8
16.50
15.28
12.69
18.94
Other data
Market capitalisation at the end of the period, EUR million
Trading volumes 2)
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 28 March 2018.
13,519
16,852
20,015
14,649
12,570
14,774
15,964
12,366
12,944
14,658
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
582,873
65.6
888,367
N/A
888,367
888,367
2) 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, Cboe and Turquoise, and on the OTC market as well. In 2017,
approximately 61% (2016: 63%) of Fortum’s shares were traded on markets other than the Nasdaq Helsinki Ltd.
See Definitions of key figures.
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Share key figures
Segment key figures
Definitions of key figures
Segment key figures
Following the acquisition of the Russian company, PAO 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 .
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 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) and Russia . Because of the minor financial impact, the comparable segment information for 2015 was not restated .
As of 1 March 2017, the City Solutions division was divided into two divisions: City Solutions and Consumer Solutions, both reported as separate reporting segments (see Note 5 Segment reporting) . Fortum has
restated its 2016 comparison segment reporting figures in accordance with the new organisation structure .
Sales by segment, EUR million
Generation
- of which internal
City Solutions
- of which internal
Heat
- of which internal
Consumer Solutions
- 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.
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
2014
2,156
85
1,332
34
2015
1,722
83
1,187
-13
1,119
-
63
54
1,064
19
-706
5,309
1,055
0
58
44
-513
4,088
751
-89
4,751
893
0
114
75
-458
3,459
274
-31
3,702
2016
1,657
15
782
1
668
2
896
0
92
61
2017
1,677
15
1,015
19
1,097
3
1,101
0
102
67
-463
3,632
-470
4,520
3,632
4,520
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Financial key figures
Share key figures
Segment key figures
Definitions of key figures
Comparable operating profit by segment, EUR million
Generation
City Solutions
Heat
Consumer Solutions
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
2008
1,528
2009
1,454
2010
1,298
2011
1,201
2012
1,146
250
231
275
278
271
-33
-92
-56
248
1,845
22
-20
-61
262
1,888
11
8
-66
307
1,833
27
74
-73
295
1,802
39
68
-92
320
1,752
2013
859
109
156
-54
332
1,403
85
29
93
284
155
61
33
1,963
-135
1,782
-218
1,708
316
2,402
-33
1,874
45
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
Consumer Solutions
Electricity Sales
Russia
Other
Distribution
Total for continuing operations
Discontinued operations
Total
2008
1,625
2009
1,547
2010
1,398
2011
1,310
2012
1,260
419
393
462
471
481
-26
-25
-46
413
2,360
28
55
-51
426
2,398
13
94
-56
485
2,396
29
148
-66
482
2,374
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
64
48
191
-77
644
27
38
-65
-11
633
633
2016
527
186
55
312
-64
2017
478
98
41
296
-102
811
6
326
14
1
1,158
1,158
2017
603
262
57
438
-83
1,015
1,275
1,015
1,275
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Share key figures
Segment key figures
Definitions of key figures
Depreciation and amortisation, EUR million
Generation
City Solutions
Heat
Consumer Solutions
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
Consumer Solutions
Electricity Sales
Russia
Other
Distribution
Total for continuing operations
Discontinued operations
Total
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
121
7
123
13
373
373
2016
-34
76
38
51
131
131
2016
196
109
3
201
83
591
591
2017
125
163
16
142
18
464
464
2017
-1
80
31
38
148
148
2017
174
170
7
152
187
690
690
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
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
2009
93
162
6
75
10
164
510
2009
-35
30
0
20
-4
10
21
2009
96
358
1
215
4
188
862
119
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Share key figures
Segment key figures
Definitions of key figures
Gross investments in shares by segment, EUR million
Generation
City Solutions
Heat
Consumer Solutions
Russia
Other
Distribution
Total for continuing operations
Discontinued operations
Total
Gross divestments of shares by segment, EUR million
Generation
City Solutions
Heat
Consumer Solutions
Electricity Sales
Russia
Other
Distribution
Total for continuing operations
Discontinued operations
Total
Comparable net assets by segment, EUR million
Generation
City Solutions
Consumer Solutions
Russia
Other
Total for continuing operations
2008
0
23
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
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
698
117
0
22
844
844
2016
0
33
1
127
0
161
161
2017
90
386
486
125
39
1,125
1,125
2017
0
0
55
0
687
742
742
2016
5,815
2,873
154
3,284
514
12,641
2017
5,672
3,728
638
3,161
276
13,474
Fortum is disclosing Comparable net assets instead of Net assets from 2016 onwards . Net assets until 2015 are disclosed below .
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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.
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
Comparable return on net assets by segment, %
Generation
City Solutions
Heat
Consumer Solutions
Electricity Sales
Russia
Distribution 1)
1) 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.
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
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
121
2014
6,001
2,112
2,597
496
11,206
2,615
13,820
2014
14.2
8.7
5.6
9.3
2014
13.6
19.1
5.6
73.6
2015 1)
5,913
2,170
2,561
291
10,934
-
10,934
2015
9.5
7.9
8.2
2015 1)
-8.5
7.7
8.3
2016
6.9
5.9
44.3
8.0
2017
8.4
5.5
11.7
10.1
Auditor’s reportConsolidated financial statementsProposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotesKey figures 2008–2017 Financial key figures
Share key figures
Segment key figures
Definitions of key figures
Average number of employees
Generation
City Solutions
Heat
Consumer Solutions
Electricity Sales
Russia
Other
Distribution
Total for continuing operations
Discontinued operations
Total
2008
3,591
2009
2,068
2010
1,891
2011
1,873
2012
1,896
2,422
2,652
2,482
2,682
2,354
766
5,566
510
1,222
14,077
629
6,170
593
1,166
13,278
538
4,555
592
1,098
11,156
510
4,436
607
902
11,010
515
4,301
661
873
10,600
2013
1,900
2,051
4,245
550
786
9,532
2015
1,389
1,458
2016
1,064
1,529
2017
1,036
1,807
877
1,180
4,180
983
3,814
711
3,710
774
8,009
7,994
8,507
2014
1,685
1,913
4,196
536
8,329
492
8,821
122
Auditor’s reportConsolidated financial statementsProposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotesKey figures 2008–2017 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)
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.
x 100
x 100
x 100
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)
123
Capital gains and other
= Capital gains, transaction costs from acquisitions and other
Return on shareholders’ equity,
%
= Profit for the year
Total equity average
= 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
Auditor’s reportConsolidated financial statementsProposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotesKey figures 2008–2017 Financial key figures
Share key figures
Segment key figures
Definitions of key figures
Interest-bearing net debt
= Interest-bearing liabilities - liquid funds
Average share price
= Amount traded in euros during the period
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
Interest coverage
Interest coverage including
capitalised borrowing costs
= Operating profit
Net interest expenses
= Operating profit
Net interest expenses - capitalised borrowing costs
Number of shares traded during the period
x 100
x 100
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
and major one time income tax effects
Profit before income tax decreased by profits from associated
companies and joint ventures as well as tax exempt capital
gains and losses
Average number of employees
Based on monthly average for the whole period
Taxes borne
= Taxes that a company is obliged to pay to a government,
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
Number of shares at the end of the period
Payout ratio, %
= Dividend per share
Earnings per share
Dividend yield, %
= Dividend per share
Share price at the end of the period
Price/earnings (P/E) ratio
= Share price at the end of the period
Earnings per share
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.
x 100
x 100
Total tax rate
= Taxes borne
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.
124
Auditor’s reportConsolidated financial statementsProposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotesKey figures 2008–2017
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 before appropriations
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
Other current receivables
Note
2
3
4
8
6
7
2017
73
6
-32
-6
-79
-38
823
785
157
943
-10
933
2016
70
8
-31
-6
-67
-26
675
649
145
794
-14
780
EUR million
Note
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
10
Note
31 Dec 2017
31 Dec 2016
Provisions for liabilities and charges
8
8
8
8
8
8
8
13, 14
9
9
13, 14
9
10
21
16,725
2
212
15
0
242
0
17,226
173
0
132
14
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
11, 13, 14
11
13, 14
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
11
12
12
13, 14
12
9
7
16,379
6
717
15
0
344
6
17,484
155
0
127
45
125
31 Dec 2017
714
2,792
3,506
3,825
21,052
31 Dec 2016
3,473
1,463
4,935
5,263
22,746
3,046
2,822
-11
4,249
933
11,038
0
3,448
3,290
285
94
44
7,160
657
1,991
4
102
100
2,854
10,014
21,052
3,046
2,822
-23
4,447
780
11,072
1
4,018
2,323
273
124
61
6,799
617
4,002
6
149
101
4,875
11,674
22,746
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationInvestor informationOperating and financial reviewNotesParent company financial statements
EUR million
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
2017
2016
35
-482
967
-2,038
-977
-2,496
27
-811
-3,940
2,398
-976
-3,302
Net increase(+)/decrease(-) in liquid funds
-1,429
-2,710
Liquid funds at the beginning of the period
Liquid funds at the end of the period
4,935
3,506
7,645
4,935
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
Income taxes paid
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
Acquisition of other shares
Proceeds from sales of fixed assets
Change in interest-bearing receivables and other non-current assets
Net cash used in investing activities
Cash flow before financing activities
2017
933
10
-157
-823
6
-32
0
6
-101
944
145
-28
23
957
-12
12
0
958
-15
-380
0
0
504
109
1,067
2016
780
14
-145
-675
6
-20
8
21
-88
756
447
113
-46
1,191
-1
-6
-7
1,184
-5
-583
0
2
-5
-591
593
126
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationInvestor informationOperating and financial reviewNotesParent company financial statements
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) .
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 Note 3 Financial risk management, Note 14
Financial assets and liabilities by categories and Note 15 Financial assets and liabilities by fair value
hierarchy 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
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 .
127
1.6 Property, plant and equipment and depreciation
The balance sheet value of property, plant and equipment consists of historical costs less depreciation
and possible impairments . 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 earnings 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 .
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationInvestor informationOperating and financial reviewNotesParent company financial statements 2 Sales by market area
EUR million
Finland
Other countries
Total
3 Other income
EUR million
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
EUR thousand
Compensation for the President and CEO
Salaries and fringe benefits
Performance bonuses 1)
Share-based incentives 1)
Pensions (statutory)
Pensions (voluntary)
Social security expenses
Total
1) Based on estimated amounts.
2017
46
27
73
2017
6
6
2016
43
28
70
2016
8
8
EUR thousand
Compensation for the Board of Directors
2017
492
2016
518
The compensation above is presented on accrual basis . Paid salaries and remunerations for the President
and CEO Pekka Lundmark were EUR 1,405 thousand (2016: 1,012) .
For the President and CEO Pekka Lundmark the retirement age of old-age pension is 63 . The pension
obligations are 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 10 Employee benefits and Note 30 Pension obligations in the Consolidated financial
2017
2016
statements .
25
5
1
1
32
24
5
1
1
31
2017
Pekka Lundmark, President
and CEO
2016
Pekka Lundmark, President
and CEO
Average number of employees
5 Auditor’s fees
EUR thousand
Audit fees
Audit related assignments
Tax assignments
Other assignments
Total
2017
258
2017
295
64
0
81
440
2016
272
2016
188
61
0
0
249
Deloitte Oy is the appointed auditor until the next Annual General Meeting, to be held in 2018 . 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 . 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 . Other assignments consist of advisory services .
998
187
334
231
229
41
2,019
982
248
433
209
356
73
2,299
128
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationInvestor informationOperating and financial reviewNotesParent company financial statements Notes
6 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
Write-downs of participations in group companies
Write-downs of participations in associated companies
Write-downs on loan receivables
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
2017
944
0
12
-35
-3
-1
0
22
-16
-1
-99
823
13
-81
-68
2016
756
0
8
-4
-
-
3
41
-11
0
-116
675
11
-113
-102
8 Non-current assets
Intangible assets
EUR million
Cost 1 January 2017
Additions
Disposals
Cost 31 December 2017
Accumulated depreciation 1 January 2017
Disposals
Depreciation for the period
Accumulated depreciation 31 December 2017
Carrying amount 31 December 2017
Carrying amount 31 December 2016
Property, plant and equipment
Write-downs of participations in group companies are related to shares in Fortum Heat and Gas Oy due
to received dividend payments .
7 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
2017
-21
31
10
6
0
3
10
2016
-15
29
14
9
7
-1
14
129
EUR million
Cost 1 January 2017
Additions and transfers between
categories
Disposals
Cost 31 December 2017
Accumulated depreciation
1 January 2017
Disposals
Depreciation for the period
Accumulated depreciation
31 December 2017
Carrying amount 31 December 2017
Carrying amount 31 December 2016
Buildings and
structures
1
Machinery and
equipment
9
Advances
paid and
construction in
progress
4
1
-2
7
6
-2
1
5
2
2
14
0
18
0
0
18
4
1
1
0
1
0
0
Intangible assets
total
47
0
-8
39
39
-13
4
30
10
9
Total
14
15
-2
27
7
-2
1
6
21
7
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationInvestor informationOperating and financial reviewNotesParent company financial statements Investments
EUR million
1 January 2017
Additions 1)
Disposals
31 December 2017
Accumulated
write-downs
1 January 2017
Impairment charges
Accumulated
write-downs 31
December 2017 2)
Carrying amount
31 December 2017
Shares
in Group
companies
17,467
380
17,847
-1,088
-35
-1,123
16,725
Participation
in
associated
companies
6
Receivables
from
Group
companies
717
Receivables
from
associated
companies
15
1
Other
non-current
assets
8
0
6
0
-3
-3
2
-506
212
0
0
212
16
0
-1
-1
15
8
-7
-1
-8
0
Total
18,213
382
-506
18,089
-1,095
-40
-1,135
16,954
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.
10 Changes in shareholders’ equity
EUR million
Total equity 31 December 2016
Cash dividend
Change in hedging reserve
Profit for the period
Total equity 31 December 2017
Total equity 31 December 2015
Cash dividend
Change in hedging reserve
Profit for the period
Total equity 31 December 2016
EUR million
Distributable funds
Retained earnings 31 December
Hedging reserve
Distributable funds 31 December
Share
capital
3,046
Share
premium
2,822
Hedging
reserve
-23
3,046
2,822
3,046
2,822
3,046
2,822
11
-11
-31
8
-23
Retained
earnings
5,226
-977
933
5,182
5,424
-977
780
5,226
2017
5,182
-11
5,170
Total
11,072
-977
11
933
11,038
11,261
-977
8
780
11,072
2016
5,226
-23
5,204
9 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
See Note 3.5 Liquidity and refinancing risk in the Consolidated financial statement
2017
9
157
6
173
0
0
0
0
14
14
2016
10
145
0
155
0
0
0
0
44
45
130
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationInvestor informationOperating and financial reviewNotesParent company financial statements 2017
2,521
82
844
3,448
422
122
114
657
4,105
11 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
2018
2019
2020
2021
2022
2023 and later
Total
See Note 3.5 Liquidity and refinancing risk and Note 26 Interest-bearing liabilities in the
Consolidated financial statements .
EUR million
External interest-bearing liabilities due after five years 1)
Bonds
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.
2017
198
844
1,042
2017
285
285
2016
2,986
210
822
4,018
343
139
135
617
4,635
2017
657
792
28
528
1,057
1,042
4,105
2016
1,282
821
2,102
2016
273
273
Non-discounted cash flows of interest-bearing liabilities and their maturities, see Note 13 Financial
derivatives .
131
12 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
13 Financial derivatives
2017
3
1,987
0
1,991
4
4
21
2
76
100
Interest rate and currency derivatives by instrument 2017
EUR million
Forward foreign exchange
contracts
Interest rate swaps
Interest rate and currency
swaps
Total
Of which long-term
Short-term
Under 1
year
7,790
305
311
8,406
Notional amount
Remaining lifetimes
Over
5 years
1–5
years
Fair value
Total
Positive Negative
517
3,421
580
4,518
8,307
3,827
892
13,025
102
102
77
205
92
373
242
132
104
90
3
196
94
102
2016
0
4,002
0
4,002
6
6
6
4
91
101
Net
-27
115
89
177
148
29
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationInvestor informationOperating and financial reviewNotesParent company financial statements
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
Net
-11
142
66
198
220
-22
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 .
2017
2016
Under 1
year
1–5
years
Over
5 years
Total
Under 1
year
1–5
years
Over
5 years
Total
Total
EUR million
Interest-bearing
liabilities
Interest rate and
currency derivates
liabilities
Interest rate and
currency derivates
receivables
Total
8,132
1,256
4
9,392
6,669
1,234
20
7,924
-8,191
2,693
-1,341
2,529
-1
1,511
-9,534
6,733
-6,650
6,067
-1,404
2,069
-27
2,485
-8,080
10,621
Interest-bearing liabilities include loans from the State Nuclear Waste Management Fund and
Teollisuuden Voima Oyj of EUR 1,129 million (2016: 1,094) . These loans are renewed yearly and the
related interest payments are calculated for ten years in the table above .
14 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 look
accounting principles in Fortum consolidated accounts Note 15 Financial assets and liabilities by fair
value hierarchy .
Derivatives in financial assets
EUR million
In non-current assets
Derivative financial instruments
Interest rate and currency derivatives
Hedge accounting
Non-hedge accounting
In current assets
Derivative financial instruments
Interest rate and currency derivatives
Hedge accounting
Non-hedge accounting
Level 1
Level 2
Level 3
Total
2017
2016
2017
2016
2017
2016
2017
2016
154
87
240
103
154
87
240
103
88
44
373
17
110
471
-
-
88
44
373
17
110
471
-
-
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
Level 1
Level 2
Level 3
Total
2017
2016
2017
2016
2017
2016
2017
2016
1,037 1,280
1,037 1,280
47
47
72
52
47
47
72
52
12
14
88
137
- 1,233 1,554
-
12
14
88
137
- 1,233 1,554
-
1) Fair valued part of bond in the fair value hedge relationship.
132
2,752
2,613
1,509
6,875
6,047
2,239
2,491
10,777
Derivatives and liabilities at fair value in financial liabilities
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationInvestor informationOperating and financial reviewNotesParent company financial statements
Net fair value amount of interest rate and currency derivatives is EUR 177 million (2016: 198), including
assets EUR 373 million (2016: 471) and liabilities EUR 196 million (2016: 273) . Fortum Corporation
has cash collaterals based on Credit Support Annex agreements with some counterparties . At the end
of December 2017 Fortum Corporation had received EUR 113 million (2016: 135) from Credit Support
Annex agreements . The received cash has been booked as a short-term interest-bearing liability .
15 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
Operating lease commitments
Due within a year
Due after one year and within five years
Due after 5 years
Total
2017
2
221
548
771
2017
7
28
18
54
2016
2
135
565
702
2016
2
2
-
5
Increase in operating lease commitments arises mainly from the lease agreement relating to the new
head office in Espoo .
16 Related party transactions
See Note 39 Related party transactions in the Consolidated financial statements .
Investments in group companies, associated
companies and other holdings
No. of shares units
Holding %
Investments in group companies
Fortum Waste Solutions Oy
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 Designated
Activity Company
Fortum Investment S.A.R.L.
Fortum Sweden AB
Fortum Holding B.V.
Finland
Finland
Finland
Finland
Finland
Finland
Finland
Belgium
India
Ireland
Luxembourg
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
3,520,800
10,010
2,000,000
24,039
250
91,197,543
2,000,000
727,820
1
25,000
990
1,000
61,062
806
1,508
100
1
N/A
100.00
100.00
100.00
100.00
100.00
100.00
100.00
99.99
0.10
100.00
0.45
100.00
100.00
13.60
16.18
3.80
5.88
133
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationInvestor informationOperating and financial reviewNotesParent company financial statements Proposal for the use of the profit shown on the balance sheet
The distributable funds of Fortum Oyj as at 31 December 2017 amounted to EUR 5,170,240,554 .04
including the profit of the financial period 2017 of EUR 932,525,770 .24 . The company’s liquidity is good
and the dividend proposed by the Board of Directors will not compromise the company’s liquidity .
Based on the number of registered shares as at 1 February 2018 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 2017 .
Signatures for the operating and financial review and the financial statements
Espoo, 1 February 2018
Sari Baldauf
Kim Ignatius
Matti Lievonen
Heinz-Werner Binzel
Eva Hamilton
Veli-Matti Reinikkala
Anja McAlister
Pekka Lundmark
President and CEO
134
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotesProposal for the use of the profit shown on the balance sheet
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 Fortum Oyj (business identity code 1463611-4) for the
year ended 31 December, 2017 . The financial statements comprise the consolidated balance sheet,
consolidated income statement, consolidated statement of comprehensive income, consolidated
statement of changes in total equity, consolidated cash flow statement and notes to the consolidated
financial statements, 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 position
and financial performance and cash flows in accordance with International Financial Reporting
Standards (IFRS) as adopted by the EU,
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 .
•
Our opinion is consistent with the additional report submitted to the Audit Committee .
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 .
In our best knowledge and understanding, the non-audit services that we have provided to the parent
company and group companies are in compliance with laws and regulations applicable in Finland
regarding these services, and we have not provided any prohibited non-audit services referred to in
Article 5(1) of regulation (EU) 537/2014 . The non-audit services that we have provided have been disclosed
in note 8 to the consolidated financial statements .
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion .
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 .
We have also addressed the risk of management override of internal controls . This includes consideration
of whether there was evidence of management bias that represented a risk of material misstatement due
to fraud .
135
Consolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotesAuditor’s report Key audit matter
Fair value measurement of derivatives and
hedge accounting
Refer to Notes 3, 6, 7, 14 and 15.
• In Fortum’s consolidated financial statements
total derivative assets amounts to EUR 521
million and total derivative liabilities amounts
to EUR 414 million. The net effect of changes
in fair values of derivatives hedging future
cash flow amounts to EUR 14 million in items
affecting comparability in the consolidated
income statement and the cash flow hedges
in other equity components amount to
EUR 74 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 volume of commodities used in the
production and sales of energy products.
The main exposure is toward energy prices.
Electricity price risk is hedged by entering into
electricity derivative contracts. Fortum uses
hedging instruments to reduce the effect of
electricity price volatility.
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 2017 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
Valuation of fixed assets and goodwill
Refer to Notes 2, 16 and 17.
How our audit addressed the key audit matter
• The consolidated balance sheet includes
• We have evaluated the process how management
property, plant and equipment amounting to
EUR 10,510 million and goodwill amounting
to EUR 613 million.
has assessed the indicators for potential impairment.
We have performed audit procedures on impairment
models relating to material cash generating units.
• 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
• 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.
among other things changes in electricity and
fuel prices, regulatory/political changes relating
to energy taxes and price regulations.
• We challenged management’s assumptions and
judgments with reference to historical data and,
where applicable, external benchmarks.
• The assumptions used in the valuation of the
balances in question require management
judgment.
• We assessed the models used in the impairment
testing and carried out our testing for the sensitivity
calculations.
• This matter is a significant risk of material
misstatement referred to in EU Regulation
No 537/241, point (c) of Article 10(2).
• We assessed the adequacy of related disclosures in
the financial statements.
Key audit matter
Associated companies and joint ventures
Refer to Notes 2, 18 and 36.
How our audit addressed the key audit matter
• Fortum participates in a number of associated
• We have reviewed and evaluated the management’s
companies and joint ventures with a total
carrying amount of EUR 1,900 million in the
consolidated financial statements.
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
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 36. These aspects may have significant
impact on Fortum’s financial reporting.
• We have assessed and challenged the 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.
136
Consolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotesAuditor’s report Key audit matter
Nuclear related assets and liabilities
Refer to Notes 2 and 28.
• Nuclear related assets and liabilities in
consolidated balance sheet amount to
EUR 858 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 28.
• 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 Notes 2, 12, 27 and 36.
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
• Fortum has several tax assessments ongoing.
• We performed testing regarding Fortum’s tax
• 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 27.
• 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.
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
as well as the accounting treatment in the financial
statements.
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 scepticism 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 .
137
Consolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotesAuditor’s report • 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 .
Other information
The Board of Directors and the President and CEO are responsible for the other information . The other
information comprises the Operational and Financial Review and the information included in the
Financials, but does not include the financial statements and our auditor’s report thereon . We have
obtained the Operating and Financial Review prior to the date of this auditor’s report, and the Financials
is expected to be made available to us after that date .
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 .
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 .
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 .
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
Information on our audit engagement
We were first appointed as auditors by the Annual General Meeting on 16 .3 .2006, and our appointment
represents a total period of uninterrupted engagement of 11 years .
If, based on the work we have performed on the other information that we obtained prior the date of this
auditor’s report, we conclude that there is a material misstatement of this information, we are required to
report that 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 2018
Deloitte Oy
Audit Firm
Reeta Virolainen
Authorised Public Accountant (KHT)
138
Consolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsInvestor informationOperating and financial reviewNotesAuditor’s report 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 (Fortum Värme) in the the consolidated financial statements . From 1 January 2014 onwards Fortum Värme is treated as a joint venture and thus consolidated with equity method . Before
the change the company was consolidated as a subsidiary with 50% minority interest .
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
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
2017
46.6
8.6
2017
26.3
20.0
2017
20.9
23.0
1.6
45.4
2017
46
51
3
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
139
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Parent company financial statementsInvestor informationOperating and financial reviewNotesOperational key figures Quarterly financial information
Operational key figures
Quarterly financial information
Power generation capacity by segment, MW
Generation
Heat
City Solutions
Russia
Other
Total
Heat production capacity by segment, MW
Generation
Heat
City Solutions
Russia
Total
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
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
2017
7,862
775
4,794
292
13,722
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
2017
3,915
12,696
16,611
3,818
9,920
13,738
4,671
10,094
14,765
Fortum’s power generation capacity by type and area, MW
Hydropower
Nuclear power
Combined heat and power
Condensing power
Wind power
Solar power
Total
Finland
Sweden
Russia
Poland
Other
Total
2017
1,547
1,480
452
376
0
0
3,854
2016
1,535
1,472
456
376
0
0
3,839
2017
3,125
1,334
9
0
75
0
4,543
2016
3,117
1,539
9
0
38
0
4,703
2017
0
0
4,760
0
0
35
4,794
2016
0
0
4,482
0
0
0
4,482
2017
0
0
186
0
0
0
186
2016
0
0
186
0
0
0
186
2017
0
0
128
0
32
185
345
2016
0
0
109
0
0
15
124
2017
4,672
2,814
5,534
376
107
220
13,722
2016
4,652
3,011
5,242
376
38
15
13,334
Fortum’s heat production capacity by area, MW
Heat
Finland
2017
1,941
2016
2,024
Sweden
2017
35
Russia
2016
35
2017
10,094
2016
9,920
Poland
2017
786
Other
Total
2016
961
2017
1,909
2016
798
2017
14,765
2016
13,738
140
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Parent company financial statementsInvestor informationOperating and financial reviewNotesOperational key figures Quarterly financial 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
Norway
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
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
2017
2,244
524
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
1.5
29.5
2.1
84.7
2016
3.6
20.7
0.1
3.6
1.4
29.4
2016
-
-
-
-
-
2017
837
258
2017
22.5
30.8
7.2
30.5
2.9
93.9
2017
3.9
19.8
0.3
3.7
2.2
29.9
2017
-
-
-
-
-
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
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
141
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Parent company financial statementsInvestor informationOperating and financial reviewNotesOperational key figures Quarterly financial 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
IS Non-controlling interests
IS Profit for the period, owners of the parent
Q1/2016
989
357
275
369
67
-47
390
-59
331
-5
326
Q2/2016
768
209
122
67
38
-44
61
-4
57
-1
57
Q3/2016
732
151
58
-6
11
-44
-40
9
-31
0
-31
Q4/2016
1,143
298
188
202
15
-34
184
-37
147
-3
145
2016
3,632
1,015
644
633
131
-169
595
-90
504
-8
496
Q1/2017
1,232
423
313
389
59
-36
412
-72
340
-5
335
Q2/2017
937
219
109
66
35
-52
49
-118
-69
0
-70
Q3/2017
919
210
94
387
21
-58
351
4
355
2
357
Q4/2017
1,432
424
295
315
34
-49
300
-43
257
-12
244
2017
4,520
1,275
811
1,158
148
-195
1,111
-229
882
-16
866
Earnings per share for profit attributable to the equity owners of the company
(EUR per share)
Basic
0.37
0.06
-0.03
0.16
0.56
0.38
-0.08
0.40
0.28
0.98
Sales by quarter, EUR million
Comparable operating profit by quarter,
EUR million
1,500
1,250
1,000
750
500
250
0
2016
2017
400
300
200
100
0
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2016
2017
142
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Parent company financial statementsInvestor informationOperating and financial reviewNotesOperational key figures Quarterly financial information Operational key figures
Quarterly financial information
Quarterly sales by segment
EUR million
Generation 1)
City Solutions 1)
Consumer Solutions
Russia
Other 1)
Netting of Nord Pool transactions 2)
Eliminations
IS Total
Q1/2016
467
228
175
249
24
-120
-33
989
Q2/2016
384
121
146
182
23
-69
-19
768
Q3/2016
371
116
126
175
22
-66
-14
732
Q4/2016
435
316
221
289
24
-129
-13
1,143
2016
1,657
782
668
896
92
-384
-79
3,632
Q1/2017
474
290
242
349
24
-118
-29
1,232
Q2/2017
402
205
164
238
24
-73
-23
937
Q3/2017
367
179
238
200
25
-73
-17
919
Q4/2017
433
341
453
314
28
-103
-34
1,432
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.
Quarterly comparable operating profit by segments
EUR million
Generation
City Solutions
Consumer 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
The first and last quarters of the year are usually the strongest quarters for power and heat businesses.
Q1/2016
155
44
14
79
-16
275
0
44
50
0
369
Q2/2016
98
-5
13
34
-18
122
0
2
-57
0
67
Q3/2016
77
-25
9
12
-16
58
0
-10
-57
2
-6
Q4/2016
87
50
13
66
-27
188
27
2
-1
-14
202
2016
417
64
48
191
-77
644
27
38
-65
-11
633
Q1/2017
136
56
12
132
-24
313
0
1
74
2
389
Q2/2017
78
1
6
53
-28
109
0
1
-46
4
66
Q3/2017
104
-20
5
26
-21
94
0
317
-19
-5
387
Q4/2017
160
59
18
84
-26
295
6
8
5
1
315
2017
1,677
1,016
1,097
1,101
101
-367
-103
4,520
2017
478
96
41
296
-99
811
6
326
14
1
1,158
143
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Parent company financial statementsInvestor informationOperating and financial reviewNotesOperational key figures Quarterly financial information Investor information
Fortumʼs 2017 reporting entity comprises Online Annual Review, CEO letter, Financials, Corporate
Governance Statement and Remuneration Statement as well as Tax footprint .
Annual General Meeting 2018
The Annual General Meeting 2018 of Fortum Corporation will be held on Wednesday, 28 March 2018
at 11 .00 EET at Finlandia Hall, address: Mannerheimintie 13 e, Helsinki, Finland . The reception of the
registered participants will commence at 9 .30 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 2017, totalling approximately EUR 977 million based on the registered shares
as of 1 February 2018 . The possible dividend related dates planned for 2018 are:
•
•
•
the ex-dividend date 29 March 2018,
the record date for dividend payment 3 April 2018, and
the dividend payment date 10 April 2018 .
Financial information in 2018
Fortum will publish three interim reports in 2018:
January–March interim report on 26 April
•
January–June half year financial review on 19 July, and
•
January–September on 24 October .
•
The reports are published at approximately 9:00 EET in Finnish and English, and are available on
Fortumʼs website at www.fortum.com/investors
Fortumʼs management hosts regular press conferences, targeted at analysts and the media . Webcasts
of these conferences is available online at www.fortum.com/investors . 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 share basics
Listed on Nasdaq Helsinki
Trading ticker: FORTUM
Number of shares, 2 February 2018: 888,367,045
Sector: Utilities
Fortum’s activities in capital markets during 2017
Fortum’s Investor Relations 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 . The key
task of Investor Relations is to provide correct, adequate and up-to-date information regularly and
equally to all market participants . By doing this, Investor Relations aims to minimise the investorʼs
risk and reduce the shareʼs volatility . Investors and analysts primarily are met on a regular basis in
Europe and North America .
In 2017, Fortum met approximately 200 professional equity investors individually or in group
meetings and at investor conferences and maintained regular contact with equity research analysts
at investment banks and brokerage firms .
Interim Report January–September
2018, 24 October
Financial Statements Bulletin
2017, 2 February
Financial Statements 2017,
21 February
Q 4
Q
3
2018
Q
1
Q 2
Interim Report January–June
2018, 19 July
Annual General Meeting,
28 March
Interim Report January–March
2018, 26 April
144
Auditor’s reportConsolidated financial statementsKey figures 2008–2017Proposal for the use of the profit shown on the balance sheet Operational key figures Quarterly financial informationParent company financial statementsOperating and financial reviewNotesInvestor information
Governance
2017
Committee, and the President and CEO, supported by the Fortum
Executive Management.
executives support the Board of Directors in the decision-making in
these matters, when necessary.
Corporate Governance
Statement 2017
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 2017.
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 at
http://www.cgfinland.fi
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 2017, 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,
environmental and social issues. The Audit and Risk Committee,
members of the Fortum Executive Management, and other senior
Governing bodies of Fortum
General Meeting
of Shareholders
External Auditor
Board of
Directors
Nomination
and
Remuneration
Committee
Shareholders’
Nomination
Board
Description of Governance
President
and CEO
Audit and
Risk Committee
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
Fortum Executive
Management
Internal Audit
2
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.
Board of DirectorsCorporate Governance StatementExecutive Management Team The 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
General Meetings in 2017
Fortum’s Annual General Meeting was held at the Finlandia hall
in Helsinki on 4 April. No Extraordinary General Meeting of
Shareholders was held in 2017.
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.
• Election of the chairman, deputy chairman and
The Shareholders’ Nomination Board consists of four
members of the Board of Directors
• Resolution on the remuneration of the external
auditor
• Election of the external auditor
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
The Shareholders’ Nomination Board uses diversity principles for
the Board of Directors in line with the Corporate Governance Code
2015. The principles 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 the board members shall include
3
such competences that support realisation 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 and for the
upcoming Annual General Meeting of 2018. The Shareholders’
Nomination Board deems that the current board composition and
the proposed board members for the Annual General Meeting 2018
include all the competences defined in the diversity principles in
well balanced manner.
The proposal for the board members for the Annual General
Meeting 2018 consists of 3 women and 5 men. The current Board of
Directors consists of 3 women and 4 men, corresponding to a ratio
of 42.9% and 57.1%.
Shareholders’ Nomination Board prior
to the Annual General Meeting 2018
In October 2017, the following persons were appointed to the
Shareholders’ Nomination Board: Pekka Timonen, b. 1960, Doctor
of Laws (LL.D.), Director General of Ministry of Economic Affairs
and Employment (Chairman); Timo Ritakallio, b. 1962, D.Sc.
(Tech.), LL.M., MBA, President and CEO, Ilmarinen Mutual Pension
Insurance Company and Elli Aaltonen (b. 1953, D.Sc. (Soc.), docent,
Director General, Social Insurance Institution of Finland (KELA).
The Chairman of the Board of Directors, Sari Baldauf, acts as a
member of the Shareholders’ Nomination Board. The Nomination
Board convened 4 times and the attendance rate was 100%.
Board of DirectorsCorporate Governance StatementExecutive Management Team The Shareholders’ Nomination Board proposed to the Annual
General Meeting 2018, which will be held on 28 March 2018,
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
2019 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 proposed that
the Board of Directors consists of 8 members and that the following
persons be elected to the Board of Directors for the upcoming term:
Heinz-Werner Binzel, Eva Hamilton, Kim Ignatius, Matti Lievonen
(chairman), Anja McAlister, Veli-Matti Reinikkala, and as new
members: Essimari Kairisto and Klaus-Dieter Maubach (deputy
chaiman).
Shareholders’ Nomination Board prior to the
Annual General Meeting 2017
In September 2016, 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). In addition, the Chairman
of the Board of Directors, Sari Baldauf, was 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 presented its proposal
covering the members of the Board of Directors and the
remuneration be paid to them, on 27 January 2017.
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
4
Board of DirectorsCorporate Governance StatementExecutive Management Team 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 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
The main duties of the Board of Directors include:
• Strategic development and steering of the company’s business and fields of activity
• Confirming the Group’s Code of Conduct, operating principles and Group policies, including sustainability, and
overseeing their implementation
• 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
• Setting and following up the annual performance targets for the company and its management
• 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
• Deciding on major investments, divestments and business arrangements
• Confirming the Group’s organisational structure at the top management level, and appointing and dismissing the
members of the Fortum Executive Management
• Appointing and dismissing the President and CEO; deciding on his/her remuneration
• Appointing the Chairman and Deputy Chairman as well as members of the Fortum Corporation Advisory Council
• Convening the Annual General Meeting and the Extraordinary General Meeting, when necessary
• Deciding on the donations policy
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 2017
Until the Annual General Meeting held on 4 April 2017, the Board
of Directors comprised the following eight members: Chairman
Sari Baldauf, Deputy Chairman Kim Ignatius, Minoo Akhtarzand,
Heinz-Werner Binzel, Eva Hamilton, Tapio Kuula, Veli-Matti
Reinikkala and Jyrki Talvitie.
The Annual General Meeting on 4 April 2017 re-elected
Ms Sari Baldauf as Chairman, and Mr Heinz-Werner Binzel,
Ms Eva Hamilton, Mr Kim Ignatius, Mr Tapio Kuula and
Mr Veli-Matti Reinikkala as Members, in addition as new members
Mr Matti Lievonen as Deputy Chairman, and Ms Anja McAlister
as member until the end of the Annual General Meeting in 2017.
In November 2017, Tapio Kuula passed away. After evaluation, the
Shareholders’ Nomination Board confirmed the Board of Directors’
ability to function with 7 members until the Annual General
Meeting 2018.
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 four members are male.
The Board of Directors met 17 times, and the attendance rate
was 97%.
The Board of Directors focused especially on the development
and implementation of the company’s strategy, growth options,
investments and acquisitions, including the Hafslund and Uniper
transactions. Other focus areas included the market outlook and
market development, as well as Fortum’s competitiveness 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.
5
Board of DirectorsCorporate Governance StatementExecutive Management Team Fortum’s Board of Directors on 31 December 2017
Born
Nationality
Education
Occupation Member since
Attendance
at Board
Meetings
Attendance at
Board Committee Meetings
Share
ownership
(31 Dec 2017)
Ms Sari Baldauf, Chairman
1955
Finnish
M.Sc. (Econ.)
Mr Heinz-Werner Binzel
1954
German
Economics and electrical
engineering degree
Ms Eva Hamilton
1954
Swedish
B.A. Journalism
Mr Kim Ignatius
1956
Finnish
B.Sc. (Econ.)
Mr Veli-Matti Reinikkala
1957
Finnish
Executive MBA
Member of Fortum’s Board of Directors since 4 April 2017
Mr Matti Lievonen, Deputy Chairman
1958
Finnish
B.Sc. (Eng.), Executive MBA
Ms Anja McAlister
1960
Finnish
M.Sc. (Energy technology), MBA
Member of Fortum’s Board of Directors until 7 November 2017
Mr Tapio Kuula
1957
Finnish
M.Sc. (Eng.) M.Sc. (Econ.)
Member of Fortum’s Board of Directors until 4 April 2017
Ms Minoo Akhtarzand
1956
Swedish
M.Sc. (Electrical Engineering)
Mr Jyrki Talvitie
1966
Finnish
Executive MBA, LL.M.
2009
17/17
Nomination and Remuneration
Committee, 4/4
2,300
2011
17/17
Audit and Risk Committee, 5/5
2015
16/17
Nomination and Remuneration
Committee, 4/4
2012
17/17
2016
17/17
Audit and Risk Committee, 5/5
Audit and Risk Committee, 5/5,
Nomination and Remuneration
Committee, 1/1
0
40
2,400
3,000
2017
11/13
Nomination and Remuneration
Committee, 3/3
1,500
2017
13/13
Audit and Risk Committee, 4/5
0
2015
14/15
Nomination and Remuneration
Committee, 2/3
2011
4/4
2014
4/4
-
-
-
Non-executive director,
Independent member of the
Board of Directors
Independent consultant, Non-
executive director, Independent
member of the Board of Directors
Non-executive director,
Independent member of the
Board of Directors
Non-executive director,
Independent member of the
Board of Directors
Non-executive Director,
Independent member of the
Board of Directors
President & CEO of Neste
Corporation, Independent
member of the Board of Directors
Pöyry PLC, Head of
Transformation and Strategy,
Independent member of the
Board of Directors
Non-executive director,
Independent of the significant
shareholders, not independent of
the company
Governor in the County of
Västmanland, Independent
member of the Board of Directors
Sperbank, Vice President,
Strategic Partners and Investors,
Independent member of the
Board of Directors
6
Board of DirectorsCorporate Governance StatementExecutive 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 2017
After the Annual General Meeting on 4 April 2017, the Board of
Directors elected from amongst its members to the Audit and Risk
Committee Kim Ignatius as Chairman and Heinz-Werner Binzel,
Anja Mc Alister and Veli-Matti Reinikkala as members. Until the
Annual General Meeting on 4 April 2017, the committee comprised
Kim Ignatius as the Chairman, Minoo Akhtarzand, Heinz-Werner
Binzel and Jyrki Talvitie as members.
In 2017, the members were all independent of the company and
of its significant shareholders. The Audit and Risk Committee met
5 times in 2017 and the attendance rate was 95%.
The 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
Board of DirectorsCorporate Governance StatementExecutive 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 2017
After the Annual General Meeting on 4 April 2017, the Board of
Directors elected from amongst its members to the Nomination
and Remuneration Committee Matti Lievonen as Chairman and
Sari Baldauf, Eva Hamilton and Tapio Kuula as members. Until the
Annual General Meeting on 4 April 2017, the committee comprised
Sari Baldauf as the Chairman and Eva Hamilton, Tapio Kuula and
Veli-Matti Reinikkala as members.
In 2017, 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 4 times during 2017 and the
attendance rate was 93%.
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.
The 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 and for the members of the
Fortum Executive Management
• 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, bonus, and incentive
systems and remuneration policy
• 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
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 deciding
on investments, mergers, acquisitions and divestments within its
authorisation.
8
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 2017
In February 2017, Fortum announced that it will reorganise the
Group structure as of 1 March 2017. City Solutions was divided into
two divisions, City Solutions and Consumer Solutions. The target
of the new organisation was to enable the implementation of the
company’s vision and strategy announced on 3 February 2016.
The new organisation comprises four divisions: Generation, City
Solutions, Consumer Solutions and Russia. In addition, there are
two development units focusing on growing new businesses: M&A
and Solar & Wind Development and Technology and New Ventures.
In addition, the organisation has four staff functions: Finance;
Legal; Strategy, People and Performance; as well as Corporate
Affairs and Communications.
At the same time, Fortum announced changes in the company’s
executive management team. Markus Rauramo, Executive Vice
President, City Solutions was appointed Chief Financial Officer of
the company following Timo Karttinen’s resignation from his CFO
duties and Per Langer was appointed Executive Vice President, City
Solutions. Mikael Rönnblad, M.Sc. (Econ.) was appointed Executive
Vice President heading the new Consumer Solutions division and
member of Fortum’s Executive Management as of 15 May 2017.
On 31 October 2017, Matti Ruotsala, Deputy CEO retired from
the company.
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
Board of DirectorsCorporate Governance StatementExecutive Management Team power production, portfolio management and trading, industrial
intelligence and nuclear services.
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. The business operations are located in
the Nordics, the Baltic countries and Poland.
Consumer Solutions
Consumer Solutions provides electricity and gas products, and
develops new digital services and solutions for consumers. The
segment comprises electricity sales and customer services in the
Nordics and in Poland, as well as gas sales in Poland.
Russia
Russia division comprises Fortum’s power and heat generation and
sales activities in Russia.
Fortum Executive Management on 31 December 2017
Mr Pekka Lundmark
Mr Alexander Chuvaev
Mr Kari Kautinen
Mr Per Langer
Mr Risto Penttinen
Mr Markus Rauramo
Mr Arto Räty
Mr Mikael Rönnblad
Ms Sirpa-Helena Sormunen
Ms Tiina Tuomela
Position and responsibility area
President and CEO, Chairman of the Fortum Executive
Management
Executive Vice President, Russia Division
Senior Vice President, M&A and Solar & Wind Development
Executive Vice President, City Solutions
Senior Vice President, Strategy, People and Performance
Chief Financial Officer
Senior Vice President, Corporate Affairs and
Communications
Executive Vice President, Consumer Solutions
General Counsel
Executive Vice President, Generation
FEM member until 28 February 2017
Mr Timo Karttinen
Chief Financial Officer
FEM member until 31 October 2017
Mr Matti Ruotsala
Deputy CEO
Born
1963
1960
1964
1969
1968
1968
1955
1969
1959
1966
1965
1956
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.
Education
Member since
Share ownership
31 December 2017
M.Sc. (Eng.)
M.Sc. (Eng.)
LL.M.
M.Sc. (Econ.)
M.Sc. (Econ.)
M.Sc. (Econ. and Pol. Host.)
2015
2009
2014
2009
2016
2012
Lieutenant General (Ret.)
M.Sc. (Econ.)
LL.M.
M.Sc. (Eng.), MBA
2016
15 May 2017
2014
2014
M.Sc. (Eng.)
M.Sc. (Eng.)
2004
2009
60,713
14,713
30,720
31,570
10,588
32,032
0
0
4,777
15,554
-
-
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
Board of DirectorsCorporate Governance StatementExecutive 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 is based on the main elements
from the framework introduced by the Committee of Sponsoring
Organisations of the Treadway Commission (COSO). The controls
including financial reporting controls, have been defined based
on the main risks in the process. Internal controls are an integral
part of compliance in Fortum covering key areas of business ethics,
regulatory compliance and internal controls.
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
Board of DirectorsCorporate Governance StatementExecutive Management Team 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
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/
Fortum
Executive
Management
Board of
Directors
Risk
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 operational effectiveness and efficiency,
reliable financial reporting, and compliance with laws, regulations
and policies. The internal control framework defines the key
controls and minimum requirements for the key processes.
During 2017, Group Instruction for Compliance Management
was implemented also describing the roles and responsibilities
in terms of internal controls. Corporate Accounting and Control
is responsible for the overall control structure of the financial
reporting process. Fortum Controllers’ manual defines instructions
and guidelines relating to financial reporting.
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” model as illustrated
in the graphic.
Risk assessment
Risks are continuously identified and analysed as part of the risk
management process. Material risks, that might, if realised, have
financial impact or lead to non-compliance are reported at least
annually to the ARC, and follow-up of actions and improvements
are integrated in operational management. The currently ongoing
Internal Controls Quality Programme is to review and enhance
11
existing controls to ensure that the key risks in the processes are
mitigated.
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 together with
the Record-to-Report internal controls process team determine
the control requirements and the scope covering the financial
reporting process. Divisions and units define their controls based
on these common requirements. Responsibilities are assigned for
the control activities and 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 financial reporting controls in areas like access control
and back-up management.
Responsibilities are assigned to finance functions 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
Finance function. Regular Accounting Network Forum meetings
are to inform about upcoming changes in IFRS, new accounting
policies and other changes in reporting requirements.
Monitoring and follow-up
Financial performance and key short-term risks and uncertainties
related to business operations are reported monthly to the Fortum
Executive Management.
Board of DirectorsCorporate Governance StatementExecutive Management Team As part of the Fortum internal control framework, divisions and
units regularly assess the maturity of the control activities they are
responsible for including the financial reporting process controls.
The Head of Internal Controls reports the maturity assessments
results and improvement actions to the management and to the
ARC. Internal control design and operating effectiveness are also
assessed as part of the audits by Internal Audit. Audit results,
including corrective actions and their status, are regularly reported
to the management and to the Audit and Risk Committee.
Auditing
Internal Audit
Fortum’s Internal Audit is an independent and objective assurance
function that is responsible for examining and evaluating the
appropriateness and effectiveness of the Group’s management
and corporate governance processes, internal control system, risk
management, and operational processes. The Standards for the
Professional Practice of Internal Audit form the basis for the work
of Internal Audit.
External Audit
The Group and the parent company have one external auditor,
which shall be an audit firm certified by the Central Chamber of
Commerce. Due to ongoing mergers and acquisition processes
some of the target companies have other audit firms during the
transition period. 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 4 April 2017 elected
Authorised Public Accountant Deloitte Oy as the company’s
external auditor, with Authorised Public Accountant Reeta
Virolainen having the principal responsibility.
The Annual General Meeting decided on 4 April 2017 that the
auditor’s fee be paid pursuant to invoice approved by the company.
The fee paid to the auditor for services rendered and invoiced
in 2017 totalled approx. EUR 1,448,000. In addition, the audit
firm was paid a total of approx. EUR 1,158,000 for non-audit and
advisory services rendered and invoiced.
Code of Conduct and Compliance Programme
Fortum’s Code of Conduct is based on the shared corporate values
which form the ethical basis for all work at Fortum. Fortum values
were updated in 2017. Fortum’s Code of Conduct was rebranded and
relaunched in 2017 (originally launched in 2007 and updated 2015)
to whole company, including Recycling and Waste Solutions and
Hafslund, 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 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.
Fortum has a 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
compliance and both the Group Compliance Officer and the Head
of Internal Controls report to the General Counsel independently of
the business.
The Code of Conduct and compliance topics and instructions
are communicated through internal and external communication
channels. Alignment is enforced by top management with their full
commitment.
12
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.
Board of DirectorsCorporate Governance StatementExecutive Management Team Board of Directors 31 December 2017
Sari Baldauf
Chairman
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
Member of the Nomination
and Remuneration Committee
Fortum shareholding on
31 December 2017: 2,300
(31 December 2016: 2,300)
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
• Daimler AG, Member of the
Supervisory Board
• Deutsche Telekom AG,
Member of the Supervisory
Board
• DevCo Partners Oy, Senior
Advisor
• Tukikummit-säätiö, Member
of the Board
• Kasvuryhmä ry, Member of
the Board
Matti Lievonen
Deputy Chairman
Born 1958, nationality: Finnish
B.Sc. (Eng.), eMBA,
D.Sc. (Tech.) h.c.
Independent member of
Fortum’s Board of Directors
since 2017
Chairman of the Nomination
and Remuneration Committee
Fortum shareholding on
31 December 2017: 1,500
(31 December 2016:
not disclosed)
Main occupation:
President & CEO, Neste
Corporation
Primary work experience:
• President of the Fine
and Speciality Papers
Division at UPM-Kymmene
Corporation, and number
of other senior positions at
UPM 1986–2008, and prior
to that at ABB, Member of
UPM-Kymmene’s Executive
Board 2002–2008
Key positions of trust:
• European Business Leaders’
Convention, Member of the
Board
• East Office of Finnish
Industries Oy, Member of
the Board
• Chemical Industry
Federation of Finland,
Member of the Board
• Suomen Messut
Osuuskunta, Member of the
Supervisory Board
• National Emergency Supply
Agency (HVK), Member of
the Supervisory Board
• The Finnish Business and
Policy Forum (EVA), Member
of the Supervisory Board
• Nynäs AB, Member of the
Board
• SSAB AB, Member of the
Board
13
Board of DirectorsCorporate Governance StatementExecutive Management TeamBoard of DirectorsCorporate Governance StatementExecutive Management Team
Heinz-Werner Binzel
Eva Hamilton
Key positions of trust:
• TÜV Rheinland Holding AG,
Member of the Supervisory
board, Chairman of the
Audit Committee
Born 1954, nationality:
German
Main occupation:
Independent consultant
Economics and Electrical
Engineering degree
Independent member of
Fortum’s Board of Directors
since 2011
Member of the Audit and Risk
Committee
Fortum shareholding on
31 December 2017: 0
(31 December 2016: 0)
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
• NUKEM GmbH, several
senior executive positions
in Germany and the USA
1981–1999
Born 1954, nationality:
Swedish
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),
Key positions of trust:
• Nexiko Media AB, Chairman
of the Board
• Kungliga Dramatiska
Teatern AB, Member of the
Board
• LKAB, Member of the
Board
• Lindex AB, Member of the
Board
Head of News, 2000–2004
• IVA (Royal Swedish
• Sveriges Television (SVT),
Foreign Correspondent,
Brussels 1993–1996
• Aftonbladet 1978–1979,
Svenska Dagbladet 1979–
1988, Dagens Industri
1988–1989: news reporter
Academy of Engineering),
Member of the
Board, Chairman of
Näringslivsrådet
• Moment Group AB,
Member of the Board
• Swedish Film & TV
Producers Association,
Chairman
• Arholma Landsort AB,
Member of the Board
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
Fortum shareholding on
31 December 2017: 40
(31 December 2016: 40)
14
Board of DirectorsCorporate Governance StatementExecutive Management TeamBoard of DirectorsCorporate Governance StatementExecutive Management Team
Kim Ignatius
Anja McAlister
Key positions of trust:
• Rovio Entertainment
Corporation, Member of
the Board
• RR Holding Oy, Chairman of
the Board
Born 1956, nationality: Finnish
Main occupation:
Non-executive Director
BSc (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
Fortum shareholding on
31 December 2017: 2,400
(31 December 2016: 2,400)
Primary work experience:
• Sanoma Corporation,
Chief Financial Officer
2008–2016, Executive Vice
President 2017
• TeliaSonera AB, Executive
Vice President and CFO
2003–2008
• Sonera Oyj, Executive
Vice President and CFO
2000–2002
• Tamro Oyj, Group CFO
1997–2000
Born 1960, nationality: Finnish
M.Sc., Energy technology,
MBA
Independent member of
Fortum’s Board of Directors
since 2017
Member of the Audit and Risk
Committee
Fortum shareholding on 31
December 2017: 0
(31 December 2016:
not disclosed)
• Ministry of Trade and
Industry, Finland, Industrial
Counsellor, Head of Energy
Policy & Analyses team
1998-2000
• Kymppivoima Oy,
Operations Manager and
Managing Director
1995–1998
• Energia-Ekono Oy, Senior
Consultant 1993–1995
• Sheffield Heat and Power
Ltd., Sheffield, UK, Technical
Manager 1990–1993
• City of Kuopio, Finland,
Operations Manager of
100/200 MW biomass CHP
plant 1984–1989
Main occupation:
Head of Transformation and
Strategy, Pöyry PLC
Primary work experience:
• Pöyry PLC, President Energy
Business Group 2015–2016
• Pöyry Management
Consulting Oy, Vice
President 2014–2015
• Renewa Oy (biomass boiler
manufacturer), Managing
director 2013
• UPM Group, Senior Vice
President, Head of Energy
Business 2004–2013
• Electrowatt-Ekono Oy (part
of the Pöyry Group), Senior
Vice President, Head of the
Management Consulting
Northern Europe 2000–
2004
15
Board of DirectorsCorporate Governance StatementExecutive Management TeamBoard of DirectorsCorporate Governance StatementExecutive Management Team Veli-Matti Reinikkala
Born 1957, nationality: Finnish
Executive Master of Business
Administration
Independent Member of
Fortum’s Board of Directors
since 2016
Member of the Audit and Risk
Committee
Fortum shareholding on
31 December 2017: 3,000
(31 December 2016: 3,000)
• ABB Industry Oy, CFO
1994–1996
• Before 1994, various
positions in paper and
packaging companies in
Finland
Key positions of trust:
• Cramo Plc, Chairman of
the Board
• UPM-Kymmene
Corporation, Member of
the Board
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
16
Board of DirectorsCorporate Governance StatementExecutive Management TeamBoard of DirectorsCorporate Governance StatementExecutive Management Team
Executive Management Team 31 December 2017
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
Fortum shareholding on
31 December 2017: 60,713
(31 December 2016: 56,250)
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
Key positions of trust:
• Finnish Energy, Chairman of
the Board
• Confederation of Finnish
Industries, Member of the
Board
• Helsinki Metropolitan
Smart & Clean Foundation,
Chairman of the Board
• East Office of Finnish
Industries, Member of the
Board
• Nokia Corporation, various
• Climate Leadership Council,
executive positions,
1990–2000
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 PAO Fortum since
2009
Fortum shareholding on
31 December 2017: 14,713
(31 December 2016: 14,713)
17
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
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
• TGC-1, Member of the
• GE Oil & Gas, Regional
Board
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
• Government Commission
on the Development of
the Electric Power Industry,
Member
• Aggreko Eurasia LLC,
Non-executive member of
the Management Board
• Wind Power AM LLC,
General Director
Board of DirectorsCorporate Governance StatementExecutive Management TeamBoard of DirectorsCorporate Governance StatementExecutive Management Team
Kari Kautinen
Senior Vice President
M&A and Solar & Wind Development
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 since 2016
Fortum shareholding on
31 Dec 2017: 30,720
(31 December 2016: 29,246)
Previous positions:
• Fortum Corporation, Senior
Vice President, Strategy,
Mergers and Acquisitions
2014–2016
• Fortum Corporation, Vice
President, Strategy, Mergers
and Acquisitions 2012–
2014
• 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
Per Langer
Executive Vice President
City Solutions
Born 1969, nationality:
Swedish
M.Sc. (Econ.)
Member of the Executive
Management Team since
2009
Employed by Fortum since
1999
Executive Vice President, City
Solutions as of 1 March 2017
Fortum shareholding on
31 December 2017: 31,570
(31 December 2016: 29,212)
18
• Gullspång Kraft, managerial
positions 1997–1999
Key positions of trust:
• Fortum Oslo Varme AS,
Deputy Chairman of the
Board
• AB Fortum Värme Holding
samägt med Stockholms
stad, Deputy Chairman of
the Board
• Exeger Sweden AB,
Member of the Board
Previous positions:
• Fortum Corporation, Senior
Vice President, Technology
and New Ventures 2016–
2017
• 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
Board of DirectorsCorporate Governance StatementExecutive Management TeamBoard of DirectorsCorporate Governance StatementExecutive Management Team
Risto Penttinen
Senior Vice President
Strategy, People and Performance
Born in 1968, nationality:
Finnish
M.Sc. (Economics)
Member of the Executive
Management Team since
2016
Employed by Fortum since
2011
Senior Vice President, Strategy,
People and Performance since
2016
Fortum shareholding on
31 December 2017: 10,588
(31 December 2016: 8,795)
Previous positions:
• Fortum Corporation, Vice
President, Corporate
Strategy 2014–2016
• Fortum Power Division, Vice
President, Strategic Ventures
2011–2014
• McKinsey & Company,
Partner 2005–2011
• McKinsey & Company,
Consultant and Project
Leader 1996 and 1997–
2005
Key positions of trust:
• Varma Mutual Pension
Insurance Company,
Member of the Supervisory
Board
Markus Rauramo
Chief Financial Officer
Born 1968, nationality: Finnish
M.Sc. (Econ. and Pol. Hist.)
Member of the Executive
Management Team since
2012
Employed by Fortum since
2012
Chief Financial Officer as of
1 March 2017
Fortum shareholding on
31 December 2017: 32,032
(31 December 2017: 27,847)
19
• Stora Enso Financial
Services, Brussels, VP Head
of Funding 1999–2001
• Enso Oyj, Helsinki, several
financial tasks 1993–1999
Key positions of trust:
• Wärtsilä Oyj Abp, Member
of the Board
• Teollisuuden Voima Oyj,
Member of the Board
Previous positions:
• Fortum Corporation,
Executive Vice President,
City Solutions 2016–2017
• 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
• Stora Enso Oyj, Helsinki, VP
Strategy and Investments
2001–2004
Board of DirectorsCorporate Governance StatementExecutive Management TeamBoard of DirectorsCorporate Governance StatementExecutive Management Team
Arto Räty
Senior Vice President
Corporate Affairs & Communication
Born 1955, nationality: Finnish
Lieutenant General (Ret.)
Member of the Executive
Management Team since 2016
Employed by Fortum since 2016
Senior Vice President,
Corporate Affairs &
Communications since 2016
Fortum shareholding on
31 December 2017: 0
(31 December 2016: 0)
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
Key positions of trust:
• Destia Oy, Chairman of the
Board
• Aalto University Executive
Education Oy, Member of the
Board
• Suomi Gas Distribution
Holding Oy, Member of the
Board
• Fennovoima Oy, Deputy
member of the Board
• Ahlström Capital Cleantech
Fund I, Member of the Board
• Fortum Art Foundation,
Member of the Board
• Urlus Foundation, Member of
the Board
20
Mikael Rönnblad
Executive Vice President
Consumer Solutions
Born 1969, nationality: Finnish
M.Sc. (Econ.)
Member of the Executive
Management Team as of
15 May 2017
Employed by Fortum since
15 May 2017
Executive Vice President,
Consumer Solutions as of
15 May 2017
Fortum shareholding on
31 December 2017: 0
(31 December 2016:
not disclosed)
Previous positions:
• Elisa Corporation, SVP &
GM, New Digital Services
Businesses and Consumer
Customers Executive Board
Member 2009–2017
• Elisa Corporation, VP,
Corporate Strategy and
Acquisitions 2004–2009
• ABN AMRO Global Equities,
• Hanken Swedish School of
Economics, Project Director
and Assistant Professor
(acting) 1995–1997
• Vectia Ltd, Junior Strategy
Consultant 1994–1995
• Nokia Corporation, In-house
Consultant, Major Accounts
Sales 1991–1993
London, Director and
Global Head of Nordic
Sector 2000–2004
Key positions of trust:
• Nikus Oy Ab, Chairman of
the Board
• Pannon, Budapest, General
Manager and Head of
Department 1999–2000
• Sonera Corporation,
Manager, Corporate
Venturing and International
Mobile Operations 1997–
2000
Board of DirectorsCorporate Governance StatementExecutive Management TeamBoard of DirectorsCorporate Governance StatementExecutive Management Team
Sirpa-Helena Sormunen
General Counsel
Tiina Tuomela
Executive Vice President
Generation
Born 1959, nationality: Finnish
Previous positions:
• Patria Oyj, General Counsel
Key positions of trust:
• Nammo AS, Member of the
LL.M, Trained on the bench
2012–2014
Member of the Executive
Management Team since
2014
Employed by Fortum since
2014
General Counsel since 2014
Fortum shareholding on
31 December 2017: 4,777
(31 December 2016: 3,000)
• Nokia and Nokia Siemens
Networks, several legal and
managerial positions (NSN)
2004–2012
• TeliaSonera Finland Oyj,
Vice President, Head
of Legal, Mergers and
Acquisitions and Finance
2003–2004
• Sonera Oyj, Senior Legal
Counsel, Head of Legal,
Merger and Acquisitions
2000–2002
Board of Directors
• Association of Finnish Fine
Arts Foundations, Member
of the Board
• Fortum Art Foundation,
Chairman of the Board
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 since 2016
Fortum shareholding on
31 December 2017: 15,554
(31 December 2016: 12,991)
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 Power and Heat
Oy, Vice President, Business
Control and Support,
Generation 2005–2009
• Fortum, several managerial
positions 1990–2005
Key positions of trust:
• Kemijoki Oy, Chairman of
the Board
• YIT Corporation, Member of
the Board
• Teollisuuden Voima Oyj,
Member of the Board
21
Board of DirectorsCorporate Governance StatementExecutive Management TeamBoard of DirectorsCorporate Governance StatementExecutive Management Team Remuneration
2017
Remuneration Statement 2017
Dear Shareholders,
Fortum has determinedly executed the strategy that was designed
and introduced in spring 2016 to ensure the company’s successful
growth and continued profitability as Europe transitions towards
clean energy. The most visible steps include our investment
in Uniper, the restructuring of our Hafslund ownership, the
acquisition of Ekokem, and our sizeable investments into new
renewable and low carbon production such as wind, solar, biomass
and waste-to-energy power plants.
At the same time, we are strengthening our corporate culture
to ensure that the company is ready to meet the challenges brought
upon the rapidly changing operating environment. For a company
undergoing change it is of utmost importance that we have
leaders and employees who are highly motivated and consistently
performing very well. During the year we introduced Open
Leadership as the main framework for developing our people and
leadership culture. Our refreshed values, our leadership principles,
as well as fair and transparent remuneration are key enablers to the
success and continuous improvement of our company.
At Fortum we expect a lot from our people and in turn reward
the high performance they deliver in line with our strategy, culture
and values. We emphasise clear measurable targets aligned with
Fortum’s strategy and our reward and incentive programmes
are designed to attract and retain high calibre employees and to
support the creation of shareholder value.
The criteria for Fortum’s short-term incentive plan are set
annually by the Board of Directors and is based on the company’s
financial and operational performance. 2017 was a good year
for Fortum as our strategy implementation proceeded well and
the financial results improved clearly. Accordingly, the financial
targets in the short-term incentive plan were reached. However,
the performance in our key safety indicator Lost workday injury
frequency was not on a satisfactory level and we have further
increased our efforts to reach best practice safety levels in all units.
The criteria for Fortum’s long-term incentive plans are
set by the Board of Directors at the beginning of each plan.
The performance during the earnings period 2014–2016 was
satisfactory and the 2014–2019 long-term incentive plan exceeded
the minimum performance criteria and vested at 27%. This
resulted in approximately 150,000 shares being awarded to eligible
participants in 2017. The performance for the earnings period
2015–2017 also exceeded the minimum performance criteria and
the 2015–2020 LTI plan vested at 26% on average.
Fortum’s continued success relies to a great extent on the
dedication and hard work of our people. We want to be a company
where people grow, thrive and exceed our – and their own –
expectations. We trust that this is the best way to reach sustainable
long-term success.
Matti Lievonen
Chairman of the Nomination and Remuneration Committee
2
Remuneration Governance
Remuneration at Fortum is directed by the Group’s remuneration
principles and Fortum’s general compensation and benefits
practices as well as guidance set out in the Government Resolution
on State-Ownership Policy. 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:
• the company, its strategy and performance targets,
• how they as individuals can impact the results,
• the link between business performance and remuneration, and
• the importance of delivering sustainable business results.
This philosophy underpins our remuneration principles which
are designed to encourage and recognise high performance and
behaviour in line with Fortum’s values.
Fortum follows a total compensation approach where all
remuneration elements are taken into account when setting and
reviewing salaries; base salaries, short- and long-term incentive
opportunities as well as different benefits.
Key Remuneration Principles
Effective performance
leadership
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.
Performance driven
remuneration
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
Effective communication
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 company-wide
incentive arrangements for senior
management and key personnel
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
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i
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Remuneration
key principles
Competi t i v e
remunera t i o n
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 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 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 members joining the Fortum Executive Management after the end of 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 (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 awards
are based on the achievement of Group financial performance,
divisional targets, and individual targets. The target incentive
opportunity is 20% and the maximum incentive opportunity is
40% of the annual base salary. 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.
In addition to the STI programme, other variable pay
mechanisms may be used to reward employees for limited specific
purposes, e.g. projects with significant importance and impact
on Fortum level or to reward for extraordinary commitment
and effort. The use of such mechanisms are approved according
to the principles and within the lines set out in the Fortum
Remuneration Policy.
4
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. Under the LTI programme
and subject to the decision of the Board of Directors, a new LTI plan
commences annually.
The Board of Directors approves participation of the Fortum
Executive Management members in each annually commencing LTI
plan. Subject to a decision by the Board of Directors the President
and CEO is authorised to decide on individual participants and
potential maximum awards for other participants than the Fortum
Executive Management in accordance with the nomination
guidelines approved by the Board of Directors. 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 changes in the State-Ownership Guidelines in
2016, for LTI plans commencing in 2017 and beyond, the share
awards will not be subject to a minimum lock-up period. 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.
The Board of Directors has the right to revise the targets
set in the incentive plans, deviate from the payment based on
achievement of the set earnings criteria, or to discontinue any
ongoing incentive plan. 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.
The Nomination and Remuneration Committee is using
independent advisors in support of its work.
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. In the Finnish pension system
earnings are based on base pay, annual bonuses and taxable
fringe benefits, but gains realised from the LTI plans are not
included. 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
Plans
2011–2016
2012–2017
2013–2018
2014–2019
2015–2020
2016–2021
2017–2019
2018–2020
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
6
5
3
Earnings period
Lock-up period
Additional lock-up period for FEM
Share delivery
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. Finnish members of the Fortum
Executive Management, who joined Fortum prior to 1 January 2009,
are entitled to a supplementary defined benefit pension plan. This
currently applies to only one member of the Fortum Executive
Management and in this case, the pension is provided by Fortum’s
Pension Fund.
Terms of employment for President
and CEO Pekka Lundmark
The President and CEO is entitled to a base salary 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
5
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.
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.
Fees for the Board of Directors
The Annual General Meeting on 4 April 2017 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
1) If not Chairman or Deputy Chairman simultaneously
2017
75
57
57
40
2016
75
57
57
40
Every member of the Board of Directors receives a fixed yearly
fee and additional fees for each meeting attended. The fees in 2017
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.
Annual Remuneration Report 2017
This part of the report sets out the remuneration payable to
the President and CEO and members of the Fortum Executive
Management in 2017.
Remuneration of the President and CEO
and the Fortum Executive Management
The table below includes the salaries and fringe benefits as well as
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 2016 targets and achieved results. The
LTI payments includes the shares delivered during the year 2017.
The STI and LTI programme payments to Fortum Executive
Management members, including the President and CEO,
amounted to a total of EUR 2,246 thousand (EUR 1,957 thousand
in 2016), which corresponds to 0.73% (0.82% in 2016) of the
total compensation in the Fortum Group. The table also includes
payments made to supplementary pension arrangements for the
President and CEO and for Fortum Executive Management.
Thousands of euros
Salaries and fringe benefits
Short-term incentive
Long-term incentive
Supplementary pensions
Total
President & CEO Pekka Lundmark
2017
2016
Other Members of Fortum Executive Management
2017
2016
998
271
136
229
1,634
982
30
-
356
1,368
3,387
962
877
636
5,862
3,581
233
1,694
560
6,068
The figures include actual payments and shares delivered during 2017. The amounts differ from those presented in the consolidated financial statements ( Note 10.4).
The financial statements include costs accrued for the year 2017, part of which will be paid later.
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 and CEO,
Pekka Lundmark, was EUR 80,000 per month, including free car
allowance and phone allowance as fringe benefits.
Short-term incentives
In total, EUR 16.6 million (EUR 9.6 million for 2015) was paid as
short-term incentives across the Group for the financial year 2016.
The amount paid increased compared to the previous year, mainly
due to better realisation of the set financial targets.
Short-term incentives for 2017 (payable in 2018)
The STI for 2017 for the members of Fortum Executive Management
was based on:
Weighting Measure
60%
Comparable Operating
Profit
Lost workday injury
frequency
Individual targets
10%
30%
Outcome
Between target and
maximum
Below threshold
Individually assessed
The outcome of the Group level Comparable Operating Profit was
above the set target level. The Group level Lost workday injury
frequency 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 2017
are paid out in April 2018.
Short-term incentives for 2016 (paid 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
Lost workday injury
frequency
Serious accidents
Individual targets
Outcome
Between target and maximum
Between target and maximum
On target
Below threshold
Individually assessed
20%
5%
5%
30%
The STI payments for the Fortum Executive Management were on
average 28% of the salary (70% of the maximum). The aggregate
STI payment to members of Fortum Executive Management
for 2016 performance was EUR 1.23 million (EUR 0.26 million
for 2015).
6
Short-term incentives for 2018 (payable in 2019)
As in 2017, the short-term incentive targets for the Fortum
Executive Management in 2018 are based on the achievement
of divisional targets, Group financial performance as well as
individual targets. The STI performance measures and weighting
are: 40% Comparable Operating Profit, 20% Operational Free
Cash Flow, 10% lost workday injury frequency and 30% individual
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.
LTI plan
Earnings period
Share delivery year
Number of participants
(31 December 2017)
Number of shares delivered 1)
Measures
2013–2018
2013–2015
2016
76
241,699
A combination
of EBITDA, EPS
and share price
development
2014–2019
2014–2016
2017
85
2015–2020
2015–2017
2018
98
2016–2021
2016–2018
2019
105
2017–2019
2017–2019
2020
90
153,956
50% EPS, 25% TSR
& 25% Reputation
Index
-
50% EPS & 50% TSR
-
50% EPS & 50% TSR
-
30% EPS,
30% Return on
Net Assets (Group
or Divisional),
20% TSR and
20% Group EBITDA
26%
42%
Payment (% of annual salary)
Shares delivered to members of Fortum Executive Management: 2)
Pekka Lundmark 3)
Alexander Chuvaev 4)
Kari Kautinen
Per Langer
Risto Penttinen 5)
Markus Rauramo
Arto Räty 5)
Mikael Rönnblad 7)
Sirpa-Helena Sormunen
Tiina Tuomela
Former members of the Fortum Executive Management:
Helena Aatinen 8)
Mikael Frisk 8)
Esa Hyvärinen 8)
Timo Karttinen 9)
Matti Ruotsala 10)
-
27,897
4,014
4,677
n/d 6)
7,383
-
-
-
3,902
3,188
5,028
3,053
6,399
7,443
27%
4,463
15,480
2,274
2,358
1,793
4,185
-
-
1,777
2,563
n/d 6)
n/d 6)
n/d 6)
3,626
4,176
1) For the 2013–2018 and 2014–2019 LTI plans, the number of shares delivered after deduction of taxes and tax related expenses. For the 2015–2020, 2016–2021,
and 2017–2019 LTI plans the shares will be delivered after the three year earnings period, subject to the achievement of the earnings criteria
2) After deduction of taxes and tax related expenses
3) President and CEO since 7 September 2015. Pekka Lundmark participates in the LTI plans starting from the 2014–2019 LTI plan
4) Due to local legislation, share rights will be paid in cash instead of shares after the three-year lock-up period
5) Member of FEM from 1 April 2016
6) Shares delivered before or after the term in the Fortum Executive Management are not disclosed
7) Member of FEM from 15 May 2017
8) Member of FEM until 31 March 2016
9) Member of FEM until 28 February 2017
10) Member of FEM until 31 October 2017
7
The Board of Directors approved the amended LTI programme
in December 2016. 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 are based on earnings
per share (50%) and relative total shareholder return (50%)
measured against the European Utilities Group. Under the plan, the
maximum gross number of shares to be delivered after the earnings
period in 2020 is 580,120 shares (based on participant status on
31 December 2017). In December 2017, the Board of Directors
approved the same earnings criteria, i.e. earnings per share (50%)
and relative total shareholder return (50%) for the 2018–2020
LTI plan.
Shareholdings for Members of the Fortum Executive
Management as of 31 December 2017
The following table shows the shareholdings of the President and
CEO and other members of the Fortum Executive Management as of
31 December 2017. Members of the Fortum Executive Management
are required to build and maintain a shareholding equivalent to
100% of the annual salary.
Shareholding
60,713
Pekka Lundmark
Alexander Chuvaev
Kari Kautinen
Per Langer
Risto Penttinen
Markus Rauramo
Arto Räty
Mikael Rönnblad
President and CEO
Executive Vice President, Russia
Division
Senior Vice President, M&A and
Solar & Wind Development
Executive Vice President, City
Solutions
Senior Vice President, Strategy,
People and Performance
Chief Financial Officer
Senior Vice President, Corporate
Affairs and Communications
Executive Vice President,
Consumer Solutions
Sirpa-Helena Sormunen General Counsel
Tiina Tuomela
Executive Vice President,
Generation
14,713
30,720
31,570
10,588
32,032
0
0
4,777
15,554
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 2017
totalled EUR 2.8 million (2016: EUR 0.6 million).
Remuneration for the Board of Directors
in 2016 and 2017
The following table includes the compensation paid to the Board of
Directors during 2016 and 2017. The amounts include fixed yearly
fees and meeting fees.
Thousands of euros
Board members at 31 December 2017
Sari Baldauf, Chairman
Matti Lievonen, Deputy Chairman
Heinz-Werner Binzel
Eva Hamilton
Kim Ignatius, Chairman of the Audit and
Risk Committee
Anja McAlister
Veli-Matti Reinikkala
Former board members
Minoo Akhtarzand
Tapio Kuula 1)
Petteri Taalas
Jyrki Talvitie
1) In November 2017, Tapio Kuula passed away
2017
Board service 2017
2016
Board service 2016
84
49
57
54
67
47
58
16
43
-
17
1 Jan–31 Dec
4 Apr–31 Dec
1 Jan–31 Dec
1 Jan–31 Dec
1 Jan–31 Dec
4 Apr–31 Dec
1 Jan–31 Dec
1 Jan–4 Apr
1 Jan–7 Nov
-
1 Jan–4 Apr
87
-
61
56
70
-
44
61
52
17
70
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–31 Dec
1 Jan–5 Apr
1 Jan–31 Dec
The following table shows the shareholdings of the Board
of Directors as of 31 December 2017.
Sari Baldauf, Chairman
Matti Lievonen, Deputy Chairman
Heinz-Werner Binzel
Eva Hamilton
Kim Ignatius, Chairman of the Audit and
Risk Committee
Anja McAlister
Veli-Matti Reinikkala
8
Shareholding
2,300
1,500
0
40
2,400
0
3,000
Tax Footprint
2017
Fortum as a tax payer 2017
The energy sector, including Fortum, is in the middle of a
transition. Global megatrends, such as climate change, emerging
new technologies, changes in consumer behavior, and questions
regarding resource efficiency, are having a major impact on the
energy sector globally. These changes make it harder for Fortum
to have the predictability that we need to be able to operate in this
capital-intensive sector and to finance operations in an efficient and
safe manner. We therefore need to have as much predictability as
possible in other areas such as tax.
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 ensure that our businesses can continue to
invest, to operate flexibly and efficiently, and to safeguard returns
to our shareholders.
Fortum operates in more than 20 countries. The majority of
our business is based on local fuels and energy sources, local
production, local distribution of heat, and sale of energy to
customers locally. Therefore our profits are typically generated
locally and similarly the taxes are paid locally.
Taxation is always a consequence of business operations and is
therefore always based on business decisions and needs. For us this
means that there will always be tax impacts arising from the long
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
Circular
Economy
Customers
and Sales
Fortum pays custom
duties based on
importation
Fortum pays waste
taxes on waste
delivered to landfill
Fortum collects
VAT related
to sales
2
lifetimes of our investments, from price levels which are set locally
and from the efficiency of our financing. It is important that we can
operate and finance our businesses efficiently, carry out investments
and manage financing risks in all the countries where we operate.
Financing, which underpins all our operations, is one of the
international aspects of Fortum’s tax profile. 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 2017, it was EUR 966 (2016: 741) million
of which EUR 445 (2016: 365) million related to taxes borne and
EUR 521 (2016: 376) million to taxes collected. Finland, Sweden
and Russia are our biggest production countries. In 2017, the
taxes borne in Finland were EUR 98 (2016: 101) million, in Sweden
EUR 246 (2016: 201) million and in Russia EUR 38 (2016: 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. 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
Taxes borne 2017, EUR million and %
EUR
445
million
Corporate income tax,
187; 42.0%
Production taxes, 109; 24.4%
Employment taxes, 30; 6.8%
Taxes on property, 116; 26.0%
Cost of indirect taxes, 4; 0.8%
Taxes borne by country, EUR million
250
200
150
100
50
0
-50
15
16
17
Finland
15
16
17
Sweden
15
16
17
Russia
15
16
17
Other
countries
Corporate income tax
Production taxes
Employment taxes
Taxes on property
Cost of indirect taxes
non-profit-based taxes account for a more significant share of
costs of operations than before. Such a large tax burden, which is
unrelated to profitability, can be a significant challenge to run an
economically viable business.
Tax environment in 2017
The operating environment has been affected by the global macro
economic problems and the related challenges to the public
finances. In many of the our operating countries, taxes on the
energy sector have been increasing in the past years. Combined
with low electricity prices, high taxes threaten the profitability of
utilities, including Fortum.
With this background, 2017 can partly be seen as a turning
point for the energy sector. While some countries continued to
increase tax rates especially for production and property taxes,
Finland did not implement plans to increase real estate tax rate
on power plants and Sweden decided on a staged alignment of the
real estate tax rates for hydro operations with real estate tax rates
for other electricity producers and industrial real estate by 2020.
At the same time the capacity tax on nuclear power was completely
abolished in Sweden from the beginning of 2018. The approach
taken in Finland and Sweden was welcome as it makes the tax
burden sustainable again.
Intense political interest in taxes and especially the focus on
so-called aggressive tax planning has decreased 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.
In 2017, the developments in this area has been two-fold. Firstly,
OECD has placed predictability high on its agenda. We appreciate
this positive development and wish it to continue. Secondly, as the
ATAD directive has been confirmed, which creates a minimum
requirement for rules such as interest deductions, it lowers the
predictability. These rules vary between countries and their impact
can extend beyond combatting aggressive tax planning. Strong
national interests in the area of taxation are often reflected both
in the drafting of legislation and its interpretations, giving rise to
further uncertainty. The EU’s proposal for dispute resolution is a
further positive development, but it will not tackle the matters at
the heart of the uncertainty of the tax environment.
Taxes are high on the political agenda, putting pressure on
governments to develop new legislation quickly, often without
proper preparation and impact assessment. We are seeing hurriedly
designed tax rules being in conflict with underlying fundamental
legislative principles at the level of the EU and in individual
Member States and we expect this to continue. For example,
the Administrative Court in Stockholm made a bold decision in
favour of Fortum in which it held that the real estate tax for hydro
operations in Sweden created an unlawful negative state aid (i.e.
the tax is in conflict with EU legislation) as it taxes the hydro power
operations more heavily than other forms of power generation. The
tax authorities have appealed this decision.
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 and tax management
supports the corporate strategy. 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, in order to meet our dividend policy. Currently the
main focus has been on growth through mergers and acquisitions
including strong focus on positive cash flow. These corporate
3
level targets also steer the tax strategy with focus on ensuring the
correct taxes being paid where and when they should be. Taxes are
managed through actions within the normal business processes
and control points.
Tax planning is managed to support business efficiency and
profitability in order to create and protect shareholder value, while
respecting existing regulations. This ensures that we appropriately
assess, 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 Finnish Prime Minister’s
Office. Predictability and transparency of both international and
local legislation as well as interpretations and decisions by tax
authorities on all levels are critical to us, as all our investments have
Risk
workshops/
interviews
Planning of
risk work
Conclusions
March
August
Internal
Controls
Follow-up
Risk
reporting to
VP Taxation
Reporting to
Audit and
Risk Committee
a long lifetime and our operations are capital intensive. We respect
existing regulations, such as market-based pricing of 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 – During the year we regularly assess
the uncertainties relating to taxation in our business. We report
tax risks and how they are managed and assured annually to the
Audit and Risk Committee in line with our internal calendar and
risk-related work.
The risk analysis in 2017 identified particular risks that require
mitigation. These included low levels of predictability due to
the implementation of certain ATAD rules, developments in the
Finnish real-estate tax, tax leakage on acquisitions and the late
involvement of the tax department in some investment projects.
To mitigate these risks, we aim to make tax issues, an integral
part of our business processes, to improve communication around
taxes and further develop analysis on our tax position and raise
management’s awareness of them.
Our Corporate Tax Team manages and mitigates tax-related
uncertainties by targeting predictability in the taxes for the
business operations in all our operating countries. This means that
in unclear cases we discuss with tax authorities or seek advice from
experts to clarify interpretations. We pay special attention to the
correctness and transparency of our tax returns, and we discuss our
positions with tax authorities.
Tax governance – The Vice President Taxation implements
our tax approach and is responsible for ensuring that policies
and procedures which support the tax approach are in place,
maintained and implemented in the same manner in all countries.
Furthermore, the VP Taxation is responsible for ensuring that
the Corporate Tax Team has the proficiency and experience to
implement our approach appropriately.
The VP Taxation reports to the CFO. Furthermore, tax issues,
such as tax strategy, legal processes and tax-related risks are
followed on a regular basis by 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
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
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. In our tax reporting we apply the 2017
guidelines of the Ownership Steering Department of the Finnish
Prime Minister’s Office for majority state-owned companies as the
Finnish state is the majority shareholder in Fortum. 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 taxes and our disclosures reflect this. We
report both our effective tax rate and total tax rate. In line with
the 2017 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. The financing and holding of
our operations is located in the EU area, in countries where the
operating environment is the most 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 and Irish holding companies.
The taxes are, however, paid in the country where the revenue is
generated independently of the ownership structure.
4
Case | Acquisitions and
ownership restructuring
Fortum’s main production countries in 2017:
Finland, Sweden, Denmark, Russia, Poland,
Norway, Estonia, Lithuania and Latvia
Other main Fortum countries: India, Ireland,
Germany, the Netherlands, Great Britain
and Belgium
Within Fortum Group, there are a number of active holding
and finance companies. We explain below the commercial
reasons for such companies, how they operate and their
relationship to our core business operations.
In 2017, Fortum acquired wind power generation
companies in Norway and restructured its ownership of the
Norwegian energy company Hafslund. Fortum’s income
from the local operations, for example wind power in
northern Norway and heating operations in Oslo is taxed
in Norway.
In order to increase its heating and power generation
capacity, which in turn leads to more income and more tax
revenue for Norway, Fortum has to invest.
Such investments in Norway require financing, at least
in part through borrowing from group finance companies.
The interest paid by the company making the investment
gives rise to taxable income for the group finance entity
that lends the money and receives the interest. The finance
entities independently manages its own financial position
including setting the interest rate for the loans. These
interests are set at arm’s length, and so reflects the costs
that would be incurred if the investment company were to
borrow from an external bank.
Why do you have separate financing and holding
companies?
Fortum Group needs to have a corporate legal structure
that provides the necessary flexibility to deal with negative
events. Financing and holding companies independently
bear the risks associated with their operations and so
protect Fortum Oyj’s, the parent company’s, distributable
funds as losses from financing operations and other
negative events are primarily booked in holding and
finance companies.
Could you finance and hold operations directly
from the parent company Fortum Oyj?
Finance and holding companies protect Fortum Oyj from
losses. Having direct financing or holding would not give the
necessary flexibility to protect Fortum Oyj from these losses.
Is Fortum avoiding taxes by having separate
financing entities?
Each financing company is taxed on its profits from financing
operations based on normal local standards and rules.
Netherlands taxes profits at 25% and Ireland at 12.5%.
Financing companies regularly distribute part of their profits
to Fortum Oyj.
Why does Fortum have a finance company in Ireland
as you don’t have any other operations there?
Ireland has stable and predictable legislation concerning
financing and holding operations. Ireland also offers a
favorable statutory tax rate of 12.5%.
Do the financing companies have artificial
operations?
Each finance company has its own personnel capable of
executing financing operations. Each finance company
carries their own risks independently from other group
companies and from any other business operation.
Financing companies fund our commercial financing needs
such as acquisitions and investments in capital intensive
power and heat production.
Is Finland losing tax revenue as a result of Fortum’s
separate holding and finance companies?
No, as these companies protect the parent company’s
distributable reserves, they also protect the Finnish tax base
from losses. An example of this is the losses that arose in the
Dutch finance company in 2017, not in Finland.
5
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 to 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 12 Income tax expense and
Note 27 Income taxes in balance sheet for further information.
The effective income tax rate according to the income statement
was 20.6% (2016: 15.2%). The tax rate used in the income statement
is always impacted by the fact that the share of profits from
associates and joint ventures is recorded based on Fortum’s share
of profits after tax. Other major items affecting the effective income
tax rate are one-time tax exempt capital gains and losses, tax rate
changes and major one-time tax effects.
The comparable effective income tax rate is presented to better
reflect the Group's tax position when comparing the current period
to previous periods. Items affecting comparability are not included
in the comparable effective income tax rate. The comparable
effective income tax rate for 2017 was 18.8% (2016: 20.0%). The
table below explains the difference between the statutory tax rate in
Finland compared to the rate at which Fortum is taxed on its profit
before income tax decreased by profits from associated companies
and joint ventures and by tax exempt capital gains or losses as per
the tax charge on the income statements excluding tax rate changes
and major one-time tax effects.
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
Income tax expense
EUR million
Profit before tax
Profits from associated companies and joint ventures
Tax exempt capital gains or losses
Profit before income tax decreased by profits from associated companies
and joint ventures and by tax exempt capital gains or losses
Income tax at nominal rate
Differences in tax rates and regulations
Income not subject to tax
Expenses not deductible for tax purposes
Changes in tax valuation allowance related to not recognised tax losses
Adjustments recognised for taxes of prior periods
Taxes related to dividend distributions
Other items
Comparable effective income tax rate
Tax rate changes
Other major one time tax effects
Income tax expense
%
20.0%
-3.2%
-0.0%
0.4%
0.2%
0.4%
1.6%
-0.5%
18.8%
2017
1,111
-148
-323
641
-128
21
0
-3
-2
-2
-10
3
-121
6
-115
-229
%
20.0%
-4.6%
-
1.1%
1.4%
0.4%
1.8%
0.0%
20.0%
2016
595
-131
-13
451
-90
21
0
-5
-6
-2
-8
0
-90
0
-90
%
20.0%
7.6%
0.2%
-0.6%
-0.3%
-1.0%
-2.0%
-0.4%
23.5%
2015
-305
-20
-6
-331
66
25
1
-2
-1
-3
-7
-1
78
0
78
The one-time tax-free capital gain in 2017 mainly relates to the restructuring of the ownership in Hafslund. The other major one-time tax effect relates to Fortum
booking a tax cost of EUR 115 million because of the unfavorable decisions from the Administrative Court of Appeal in Sweden relating to the income tax assessments
for 2009–2012.
Key tax indicators, %
Effective income tax rate
Weighted applicable tax rate
Comparable effective income tax rate
Total tax rate
Comparable total tax rate
2017
2015
2016
20.6% 15.2% 25.4%
21.7% 20.2% 20.2%
18.8% 20.0% 23.5%
n/a
32.5% 40.0%
n/a
48.1% 47.5%
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.
EUR million
Intangible assets
Property, plant and equipment
Pension obligations
Provisions
Derivative financial instruments
Tax losses and tax credits carry-
forward
Other
Net deferred tax liability
1 Jan
2017
-12
-717
14
20
36
Change
2017
-89
-88
7
-12
-1
100
8
-550
16
-28
-196
31 Dec
2017
-101
-806
21
7
35
116
-20
-747
Deferred tax liabilities in 2017 mainly relate to property, plants
and equipment in Finland, Sweden and Russia. The deferred tax
asset relating to tax losses and tax credits carry forwards increased
net in 2017 mainly because of the additional taxable losses in the
Netherlands partly offset by the usage of losses carry forwards
in Russia.
6
Case | Tax losses and timing
of income taxes paid
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 Oskarshamn nuclear power plant 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. The tax contribution of Fortum with its
capital intensive businesses should be considered over
a longer period of years rather than over one year.
7
Fortum’s tax indicators and
country-by-country taxation
In line with the 2017 guidelines of the Ownership Steering
Department of the Finnish Prime Minister’s Office for majority
state-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
eleven 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 1)
Employment taxes
Taxes on property
Cost of indirect taxes
Total taxes borne
Finland
2016
2017
2015
2017
Sweden
2016
Russia
2015
2017
2016
2015
2017
Poland
2016
2015
2017
Estonia
2016
2015
2017
Norway
2016
2015
29
51
1
15
3
98
21
54
3
23
1
101
66
46
3
13
2
130
113
48
12
73
0
246
1
83
8
109
0
201
-1
83
10
118
0
210
11
2
4
20
0
38
3
2
3
15
1
23
3
2
4
13
1
23
9
1
1
6
0
17
4
1
1
6
0
12
2
1
1
5
0
10
1
0
1
0
0
3
1
0
1
0
0
2
2
0
1
0
0
3
1
0
9
2
0
12
0
0
0
0
0
0
1
0
0
0
0
1
Assets used in operations 2)
Interest bearing loan receivables 2) 3)
Number of employees
Effective income tax rate
Total tax rate
3,882
549
2,165
23.4%
67.6%
3,958
522
2,029
34.5%
72.6%
3,051
862
1,959
20.2%
59.9%
4,304
779
968
4,341
860
724
61.3% -20.9%
81.8%
66.0%
4,559
775
618
21.1%
n/a
2,812
0
3,494
20.1%
12.7%
2,967
0
3,745
19.1%
10.5%
2,347
0
4,126
18.9%
11.8%
559
3
827
71.7%
88.4%
513
2
894
15.0%
34.8%
350
0
586
22.1%
43.6%
193
0
207
13.7%
11.9%
196
0
201
28.1%
18.2%
196
0
214
30.9%
30.8%
1,533
28
654
-0.7%
3.0%
27
0
43
0.0%
0.8%
11
0
41
2.1%
2.8%
Taxes collected
Net VAT
Sales VAT
VAT on Purchases
Payroll taxes
Excise taxes
Withholding taxes
Total taxes collected
1
323
322
44
1
55
101
13
351
338
42
4
53
112
15
311
295
43
7
59
125
7
325
317
18
208
0
233
0
292
309
12
152
0
165
0
344
527
13
151
0
163
76
290
215
8
0
0
84
48
240
192
7
0
0
55
22
244
222
8
0
0
30
0
129
131
3
3
1
7
18
105
87
3
2
0
23
9
51
42
3
0
0
12
5
19
13
2
0
0
8
5
18
13
2
0
0
7
5
19
13
2
0
0
7
56
109
52
7
0
0
64
0
12
14
1
0
0
1
2
12
10
1
0
0
3
1) Taxes on property in Finland 2016 include EUR 9 million asset transfer tax (tax on transfer of shares and real estate)
2) Group internal eliminations between the countries are not included
3) Including cash collaterals
8
EUR million
Taxes borne
Corporate income tax
Production taxes 1)
Employment taxes
Taxes on property
Cost of indirect taxes
Total taxes borne
Denmark
2016
2017
The Netherlands
2015
2017
2016
2015
2017
Ireland
2016
2015
2017
Belgium
2016
Luxembourg
Other countries
2015
2017
2016
2015
2017
2016
2015
2
6
0
0
0
8
1
1
0
0
0
2
0
0
0
0
0
0
-8
0
0
0
0
-8
8
0
0
0
1
9
19
0
0
0
0
20
10
0
0
0
0
10
4
0
0
0
0
4
0
0
0
0
0
0
18
0
0
0
0
19
6
0
0
0
0
6
13
0
0
0
0
13
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
0
2
0
0
3
0
0
2
0
0
3
0
0
2
0
0
3
Assets used in operations 2)
Interest bearing loan receivables 2) 3)
Number of employees
Effective income tax rate
Total tax rate
125
0
178
131
11
181
24.4% -19.1%
74.5%
99.3%
0
0
0
0.0%
0.0%
16
6,715
8
18.9%
5.9%
8
9,442
10
46.7%
31.8%
6
9,804
5
30.8%
26.4%
68
9,558
3
13.0%
9.3%
0
9,827
2
0
6,478
2
1.6% -36.6%
0.4%
3.8%
0
1,573
2
13.2%
13.6%
0
2,069
2
24.8%
9.8%
0
947
2
28.0%
11.1%
0
2
1
-7.4%
n/a
0
2
1
50.0%
52.8%
0
3,024
1
291
384
49
42
278
276
45.5% -386.4% 182.2%
51.2%
85.5%
48.6%
266
53
281
7.5%
26.9%
Taxes collected
Net VAT
Sales VAT
VAT on Purchases
Payroll taxes
Excise taxes
Withholding taxes
Total taxes collected
7
13
6
8
0
0
14
2
5
2
1
0
0
3
0
0
0
0
0
0
0
0
3
3
0
0
1
1
0
0
1
0
0
0
0
0
2
3
0
0
0
0
0
0
12
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
6
13
7
3
0
0
9
7
15
8
2
1
0
10
7
15
8
5
0
0
13
1) Taxes on property in Finland 2016 include EUR 9 million asset transfer tax (tax on transfer of shares and real estate)
2) Group internal eliminations between the countries are not included
3) Including cash collaterals
Comments by country
Finland: Low electricity prices have resulted in low levels of profit
and consequently in lower amounts of corporate income tax
in 2017.
Sweden: Income taxes increased in 2017 as a one-off mainly due to
unfavorable decision from the Administrative Court of Appeal in
Stockholm in relation to year 2009–2012 (See Note 36 Legal
actions and official proceedings). The level of property and
production taxes are slightly reduced due to the Swedish
parliament’s decision to gradually reduce these taxes.
Russia: Taxes on property were increased by tax rate changes.
The tax depreciation on investments in new power and heat
plants result in low corporate income taxes borne. The fact that
more income 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.
Poland: Income taxes have increased due to the one time effect of
the sale of the gas infrastructure company DUON Dystrybucja.
Estonia: Undistributed corporate profits are tax exempt. The
taxation of profits is postponed until the profits are distributed as
dividends.
Norway: At the beginning of August 2017, Fortum made the
restructuring of ownership in Hafslund that increased our presence
in the Norwegian heat and retail markets.
Denmark: Taxes increased mainly by Fortum entering into the
waste solution business during 2016.
The Netherlands: The Dutch financing operations were loss-
making in 2017 due to lower interest margins and a one-off
realisation of financial risks in its loan portfolio.
Ireland: Income is taxed at normal 12.5% tax rate.
Belgium: The effective tax rate is lowered from the nominal rate due
to so called notional interest deduction based on Belgium law.
Luxembourg: Our activities in Luxembourg are minimal and are
estimated to be closed within 2018.
The table above reflects the current challenging power and
financial markets as well as the 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 amount 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
9
Information about companies registered
in countries considered to be tax havens
The EU, the OECD and the Global Forum have established a list 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 were negative and are subject to
normal taxation in Finland. The taxes borne on these operations
were EUR null in 2017.
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 Ireland, the Netherlands and
Belgium. In the recent tax management debate, the Netherlands
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: the Netherlands 25%, Belgium 33.99% (29.58%
from 2018) and Ireland 12.5%. Fortum's subsidiary companies are
listed by country in the Note 40, Subsidiaries by segment, of the
consolidated financial statement.
dividends. This simultaneously also protects the tax base in
Finland.
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 2017 we paid EUR 43 (2016: 38) million in employer’s statutory
pension contributions.
We are also a significant dividend payer. Fortum’s Board of
Directors proposes to the 2018 Annual General Meeting that a
dividend of EUR 977 (2017: 977) million be paid for 2017. The
Finnish State’s share of this would be about EUR 496 (496) million.
Ongoing tax appeals
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 2017. Based
on these and earlier audits Fortum has received income tax
assessments in Sweden for the years 2009–2015 and Belgium for the
years 2008–2012.
Fortum has appealed all assessments received. Based on legal
analyses, no provision has been accounted for in the financial
statements related to Sweden 2013–2015 and Belgium 2008–2012
tax audits.
Fortum has received a positive decision from the Stockholm
Administrative Court in June 2017 relating to hydro property tax in
Sweden. According to the decision the property tax rate on hydro
power (that is higher than the tax on other types of electricity
production) comprises unlawful state aid (i.e. the tax law is against
EU legislation) and the property tax shall be set to 0.5 percent of
the tax assessment value. The disputed amount for the five years
totalled EUR 52 million. The Swedish Tax Authority has appealed
the decision and the case is pending before the Administrative
Court of Appeal in Sweden. The decision is expected in 2018.
See Note 36 Legal actions and official proceedings for more
information.
10
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
Other payments to and from the public sector
Assets used in operations
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 with respect to taxable profits of an accounting period, as defined
in the International Financial Reporting Standard IAS12.
The corporate income tax due with respect to 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 and major one-time tax effects 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 receiving 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 companyʼs
own behalf with respect to 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 compulsory tax-like payments to the public sector, payments that are not compensation
for 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).
11
Sustainability
2017
Highlights 2017
61%
of our electricity
production was CO2-free
We reached our energy
efficiency improvement
target (1,400 GWh/a
by 2020) in advance
205 MW
of new solar power in India and
Russia and 32 MW of new wind
power in Norway in operation
100%
of employees
completed our Safety
& Security eLearning
A fish trap and
transport facility
for the Montta
hydropower plant
commissioned in
the River Oulujoki,
Finland
Energise Your Day
wellbeing programme
expanded to nine
operating countries
Our circular economy
business expanded and
we gained 1.2 million new
customers, increasing our
Nordic customer base to
2.5
million
Our support to society
increased to
EUR 4.9
million, including a donation
of EUR 1 million to Finnish
universities
2
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibility Sustainability 2017
Sustainability approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Economic responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Economic impacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Customer satisfaction and reputation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Supply chain management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Fortumʼs 2017 reporting entity
Environmental responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Sustainable energy production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Climate change mitigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Improving energy efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Circular economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Biodiversity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Emissions into air . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Water use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Environmental non-compliances and incidents . . . . . . . . . . . . . . . . . . . . . 46
Social responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Security of supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Safety and security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Corporate citizenship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Human rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Product responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Reporting principles and assurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Reporting principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Reported GRI disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Assurance report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Appendices
1. Sustainability management by topic
2. Fortumʼs main internal policies and instructions
Contact information
Online Annual Review
CEO Letter
Financials
Governance
Remuneration
Tax Footprint
Sustainability
CEO letter
2017
Financials
2017
Governance
2017
Remuneration
2017
Tax Footprint
2017
Sustainability
2017
3
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibility Sustainability approach
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 – curiosity, responsibility, integrity and respect – 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 .
FORTUMʼS VISION, MISSION AND STRATEGY
FORTUMʼS VALUES
4
Environmental responsibilitySocial responsibilityReporting principles and assuranceAppendicesEconomic responsibilitySustainability approach Our contribution
to the SDGs
Key sustainability
topics
Governance and
management
Policies and
commitments
Business ethics
and compliance
Stakeholders
Sustainability
indexes
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 by
increasing our positive impacts and decreasing our negative
impacts . The Sustainable Development Goals offer business
opportunities as well as 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 . In line with our strategy, we are driving the change
towards a cleaner world . Those SDGs for which we have the biggest
contribution to their achievement as well as our most important
ways to contribute and our related Group sustainability targets are
presented in the graphic .
Fortum supports the Sustainable Development Goals.
Our contribution to the Sustainable Development Goals (SDG)
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 waste and circular economy solutions
which promote waste recycling and reuse. Fortum
impacts urban air quality by developing charging
solutions for electric vehicles and by reducing power
plant emissions into the air. Fortum improves the
energy and resource efficiency of its energy production.
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
Fortum advances innovations related to energy, the circular economy,
digitalisation and electricity storage solutions, and invests in startups.
Fortum develops 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 assuranceAppendicesEconomic responsibilitySustainability approach Our contribution
to the SDGs
Key sustainability
topics
Governance and
management
Policies and
commitments
Business ethics
and compliance
Stakeholders
Sustainability
indexes
Examples of measures we implemented in 2017 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
Measure
• We invested in renewable energy production: solar, wind and hydropower
• We commissioned two new solar power plants (total 170 MW) in India, and we acquired three
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
12. Ensure sustainable consumption and production patterns
14. Conserve and sustainably use the oceans, seas and marine
resources for sustainable development
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
solar power plants (total 35 MW) in Russia
• We invested in wind power in Sweden, Norway and Russia
• We invested in energy efficiency, e.g. at the Loviisa nuclear power plant in Finland and at
hydropower plants in Sweden and Finland
• We made a Societyʼs Commitment to Sustainable Development for carbon-free district heating
in Espoo by 2030 and implemented measures reducing emissions
• We expanded our HorsePower manure bedding service from Finland to Sweden
• Our energy efficiency investments totalled 131 GWh
• We strive to realise a carbon capture and storage project in Oslo in co-operation with the City of Oslo.
If the project is realised, waste incineration in Oslo will become virtually CO2-free.
• We started working with Futurice to develop a solution to provide easier access to solar power
in developing countries
• We conducted 11 supplier audits covering work conditions and other issues
• Our entire personnel completed the new online training for occupational safety
• We renewed the Group’s EHS minimum requirements
• We started offering private customers a virtual power plant service that balances electricity demand
• We commissioned the Nordic countries’ biggest electricity storage in Järvenpää, Finland
• We commissioned new district cooling in Tartu, Estonia
• We engaged in collaboration with universities in our operating countries, and Fortum Foundation awarded
nearly EUR 700,000 in grants
• We used EUR 53 million for research and development
• We participate in the City of Oslo’s waste incineration in Norway through the restructuring of Hafslund
• We started the development of charging systems for EVs in India and Great Britain, and expanded
our charging network in the Nordic countries
• With our company cars, we are shifting to EVs and chargeable hybrids in Finland
• We supplied emissions-reducing combustion solutions to customers in Poland and Sweden
• We implemented hydropower environmental projects valued at EUR 3.7 million
• A trap and transport facility was commissioned at the Montta hydropower plant in Oulujoki, Finland
• We tore down the Acksjön dam in Sweden, removing a barrier to migrating fish and improving
a valuable river habitat
• We made preparations for the Chain of Custody certification of wood-based biomass purchases
that we aim to acquire in 2018
6
Environmental responsibilitySocial responsibilityReporting principles and assuranceAppendicesEconomic responsibilitySustainability approach Our contribution
to the SDGs
Key sustainability
topics
Governance and
management
Policies and
commitments
Business ethics
and compliance
Stakeholders
Sustainability
indexes
Key sustainability topics
Economic responsibility
Long-term value
and growth
Sustainable supply
chain
Economic benefits to
our stakeholders
Social responsibility
Secure energy supply
for customers
Environmental responsibility
Customer
satisfaction
Personnel
well-being
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
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 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 that sustainability survey,
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 . Our goal is to conduct our
separate sustainability survey again during 2018 .
Sustainability targets affect every Fortum employee
Sustainability targets affect every Fortum employee and safety-
related targets 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 . The
injury frequency for Fortum employees and for contractors was
included in the incentive scheme in 2017 .
The 2018 incentive scheme remains unchanged in terms
of safety targets (the injury frequency rate for personnel and
contractors), but the Board can, if it wants, take into consideration
in the result also other safety-related incidents and especially the
number of severe occupational accidents . The target for severe
occupational accidents is zero . The weight of the sustainability
target in the incentive scheme is 10% (2017: 10%) .
7
Environmental responsibilitySocial responsibilityReporting principles and assuranceAppendicesEconomic responsibilitySustainability approachSustainability approach
Our contribution
to the SDGs
Key sustainability
topics
Governance and
management
Policies and
commitments
Business ethics
and compliance
Stakeholders
Sustainability
indexes
Group sustainability targets and performance 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, gCO2/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
Quality of investigation process of injuries, serious EHS incidents, and near misses
Number of severe occupational accidents 4)
Employee wellbeing
Sickness related absences, %
Target for the
year 2017
70.7 *
CSI divisional
scores at
level “good”
(70–74)
Status at the
end of 2017
72.3
Status at the
end of 2016
72.5
64–76
67–79
<200
188
>1,400 **
≤21
1,502
20
188
1,372
22
>95.0
96.1
97.4
≤2.5
≤1.0
≤3.5
Level 1.0
≤5
1.8
1.2
4.2
Level 0.75
1
1.9
1.0
3.0
-
5
≤2.3
2.2 ***
2.3 ***
Successes and development needs:
• Our reputation is strong particularly among public
administration, opinion makers, non-governmental
organisations and Fortum’s personnel .
• The target for customer satisfaction was achieved in all business
areas, but not in retail electricity sales .
• We achieved our target in specific carbon dioxide emissions .
In 2017, specific emissions from total energy production were
184 gCO2/kWh .
• By the end of 2017, we exceeded the Group energy efficiency
target (>1,400 GWh/a) at the annual level by about 100 GWh .
• We strive to be a safe workplace for own and our contractors’
employees . In 2017, one severe occupational accident occurred .
There were no accidents leading to a fatality .
• Mergers and acquisitions implemented as part of our growth
strategy weakened Fortum’s occupational safety level that had
been at a rather good level before . During 2018 we will focus on
establishing Fortum’s safety practices in our new operations .
• In 2017, the focus of our auditing was on solar module suppliers
in particular . We conducted 11 supplier audits in six countries .
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
* The target is not comparable with the status of year 2016, because the target group is different.
** By the year 2020
*** Excluding DUON and Hafslund
8
Environmental responsibilitySocial responsibilityReporting principles and assuranceAppendicesEconomic responsibilitySustainability approachSustainability approach
Our contribution
to the SDGs
Key sustainability
topics
Governance and
management
Policies and
commitments
Business ethics
and compliance
Stakeholders
Sustainability
indexes
Our targets for 2018
Our sustainability targets are based on continuous operational
improvement . We achieved our Group target for energy efficiency in
2017, and for that reason we raised the target by 500 GWh . Our new
target for energy efficiency improvement is >1,900 GWh/a by 2020
compared to 2012 .
We also renewed our occupational safety targets . At the
Group level we are focusing on monitoring the number of severe
occupational accidents and the combined own personnel and
contractor Lost workday injury frequency (LWIF) per million
working hours . The indicator is the same as in the short-term
incentive scheme . The target level for the combined LWIF is on
≤2 .1 . The target is very challenging because the realised combined
LWIF was 2 .4 . In terms of severe occupational accidents, we had a
target of 0 accidents by 2020 . However, in the 2018 target setting,
Fortum’s Board tightened the target to zero already by 2018 .
As a new indicator in 2018 we will monitor the GAP index
measuring how well the Group’s EHS minimum requirements are
realised at the power plant level . The target is that the minimum
requirements will be realised in practice and that there will be no
serious deviations detected in terms of their compliance (target
level 3 .0) .
Group-level sustainability targets in 2018
Reputation index, based on One Fortum Survey
Customer satisfaction index, based on multiple measurements as defined in business plans
Environmental responsibility
Specific CO2 emissions
Total energy production, gCO2/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
Lost workday injury frequency (LWIF) 2), own personnel and contractors
Quality of investigation process of injuries, serious EHS incidents, and near misses
GAP index, quality of implementation of EHS minimum requirements
Number of severe occupational accidents 3)
Employee wellbeing
Sickness related absences, %
Target 2018
73.0
Multiple targets
Target 2020
Not defined
Not defined
<200
<200
Target only for year
2020
≤20
>1,900
≤15
>95.0
>95.0
≤2.1
Level 3.0
Level 3.0
0
Not defined
Level 4.0
Level 4.0
0
≤2.2
≤2.2
1) Fires, leaks, explosions, INES events exceeding level 0, dam safety incidents, environmental non-compliances. INES = International Nuclear Event Scale
2) LWIF = Lost workday injury frequency, injuries per million working hours
3) Accidents leading to a fatality or permanent disability and accidents that could have caused serious consequences
9
Environmental responsibilitySocial responsibilityReporting principles and assuranceAppendicesEconomic responsibilitySustainability approachSustainability approach
Our contribution
to the SDGs
Key sustainability
topics
Governance and
management
Policies and
commitments
Business ethics
and compliance
Stakeholders
Sustainability
indexes
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, the Sustainability Policy and other 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 .8% of Fortum’s electricity and heat production operations at the end of 2017
were ISO 14001 certified and 98 .4% were OHSAS 18001 certified . The level of certification slightly dropped
due to acquisitions and investments . 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, so 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 the implementation of the Group’s policies and
instructions and for day-to-day sustainability management . Realisation of the safety targets is a part
of Fortum’s short-term 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 and oversight 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 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 2017
REMUNERATION STATEMENT 2017
10
Environmental responsibilitySocial responsibilityReporting principles and assuranceAppendicesEconomic responsibilitySustainability approachSustainability approach Our contribution
to the SDGs
Key sustainability
topics
Governance and
management
Policies and
commitments
Business ethics
and compliance
Stakeholders
Sustainability
indexes
Policies and commitments
Fortum is a participant of the UN Global Compact initiative and the UN Caring for Climate initiative .
We support and respect 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 .
Fortum’s EHS minimum requirements were updated in 2017 . We focused particularly on updating
contractor management practices to improve contractor safety . We believe that our requirements are now
clearer and more comprehendible to our collaboration partners and that will help us to achieve better
contractor safety results, and it offers a good foundation for continuous improvement .
We report on the training related to the updated instructions in the sections Business ethics and
compliance, Sustainable supply chain and Occupational and operational safety .
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 Fortum Executive Management .
Fortum’s main internal policies and instructions guiding sustainability are listed in the table in
Appendix 2 .
International and national initiatives, commitments and guidelines
Economic
responsibility
Environmental
responsibility
Social responsibility
Social and
personnel
issues Human rights
Anti-
corruption and
bribery
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
UN Universal
Declaration of Human
Rights
International Covenant
on Economic, Social
and Cultural Rights
International Covenant
on Civil and Political
Rights
UN Convention on
the Rights of the Child
Core conventions of
the International
Labour Organisation
UN Global Compact
initiative
UN Caring for Climate
initiative
UN Guiding Principles
on Business and
Human Rights
OECD Guidelines
for Multinational
Enterprises
International Chamber
of Commerce’s
anti-bribery and anti-
corruption guidelines
Bettercoal initiative’s
Code on responsible
coal mining
Responsible advertising
and marketing
guidelines
Environmental
marketing guidelines
11
Environmental responsibilitySocial responsibilityReporting principles and assuranceAppendicesEconomic responsibilitySustainability approachSustainability approach
Our contribution
to the SDGs
Key sustainability
topics
Governance and
management
Policies and
commitments
Business ethics
and compliance
Stakeholders
Sustainability
indexes
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 ten 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 DUON, is purchased from suppliers with a purchasing
volume of EUR 50,000 or more . Geographically they target mainly
suppliers in Russia, Finland, Sweden and Poland . The Supplier
Code of Conduct is part of purchase agreements with a contract
value of EUR 50,000 or more .
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 .
Training
Fortum has a Total Compliance programme covering key areas of
regulatory compliance and business ethics . It is managed with a
risk-based prioritisation .
Training is a fundamental part of the Total Compliance
programme . In 2017, training was provided to employees working
in the Recycling and Waste Solutions business area in Finland,
Sweden and Denmark . Training for employees of Fortum Oslo
Varme and Hafslund Markets also was started . Fortum’s Code of
Conduct booklet was updated due to the brand renewal, and all
Fortum employees received the booklet electronically .
Training on the Market Abuse Regulation and insider
regulations was provided for those management teams that had not
received the training earlier . Targeted training on internal controls
and focusing on the process-level improvement of controls was also
arranged for selected management teams and experts . Training on
competition law issues was provided for the functions responsible
for sales and for the selected individuals joining Fortum through
acquisitions . Additionally, Anti-Money Laundering training for key
stakeholders was arranged .
The supplier qualification process was renewed in 2016 and the
majority of the personnel received training back then . Training
events held in 2017 targeted Fortum’s personnel in the Baltic
countries and Poland, as well as Recycling and Waste Solutions
personnel in Finland, Sweden and Denmark .
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
12
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 Audit and Risk Committee .
Suspected cases of misconduct
A total of 178 reports of suspected misconduct were made in
2017 . By year-end, 167 cases had been closed . About one third of
the investigated cases were related to non-compliance with laws
and regulations or with company rules, which constituted the
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
40% of the cases were related to alcohol abuse by either Fortum’s
or contractors’ employees during working hours . As a result of the
investigations, five employment contracts were terminated either
by immediate dismissal or by mutual agreement, and 12 written
warnings were given . There were 14 cases of misconduct reported
to the police . There was no cause for action to be taken in 18 of the
cases investigated .
No cases of suspected corruption or bribery related to Fortum’s
operations were reported in 2017 .
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
taken related to the supplier’s own operations . The reports
Environmental responsibilitySocial responsibilityReporting principles and assuranceAppendicesEconomic responsibilitySustainability approachSustainability approach Our contribution
to the SDGs
Key sustainability
topics
Governance and
management
Policies and
commitments
Business ethics
and compliance
Stakeholders
Sustainability
indexes
were considered sufficient and didn’t lead to the termination of
a contract .
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 2017 .
Two of these cases had been initiated in the previous year . During
the year Fortum was not subject to any significant monetary fines
for competition law violations .
Other significant fines
In Norway, Fortum Oslo Varme was ordered to pay a fine of
NOK 150,000 (EUR 16,043) for a district heating pipe leakage that
caused burns to a third party . In Denmark, Fortum Waste Solutions
OW A/S was ordered to pay a fine of DKK 60,000 (EUR 8,066) for
a work-related accident that took place in 2016 . The handling of
another work-related accident originating in 2015 in Fortum Waste
Solutions OW A/S was on-going .
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
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Environmental responsibilitySocial responsibilityReporting principles and assuranceAppendicesEconomic responsibilitySustainability approachSustainability approach Our contribution
to the SDGs
Key sustainability
topics
Governance and
management
Policies and
commitments
Business ethics
and compliance
Stakeholders
Sustainability
indexes
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, public affairs, group
sustainability, 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 key 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
Pulse survey
Own personnel
14
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
Semi-annually
Environmental responsibilitySocial responsibilityReporting principles and assuranceAppendicesEconomic responsibilitySustainability approachSustainability approach Our contribution
to the SDGs
Key sustainability
topics
Governance and
management
Policies and
commitments
Business ethics
and compliance
Stakeholders
Sustainability
indexes
Most important expectations stakeholders have towards Fortum, and Fortum’s actions in response to them
Lenders and
shareholders
Customers
Personnel
Stakeholder expectations
• Long-term value creation
• High-yield share
• Responsible operations
• Competitively priced products
• Useful additional services and advice
• Reliability
• Ensuring data protection
• Equal treatment and open interaction
• Job security and incentivising compensation
• Opportunities for professional development
• Occupational safety and work wellbeing
Service and
goods suppliers
• 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
• Being a constructive partner in policy developments
• Relevant, reliable and transparent communication
Authorities and
decision makers
Media
Energy sector
organisations
• Advocating on behalf of shared interests
• Dialogue and expertise
Non-
governmental
organisations
• Responsibility for 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
Fortumʼs actions
• In 2017 we continued our strategy implementation: We published an offer for Uniper shares
• 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
• Economic, social and environmental responsibility play a key role 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
• In collaboration with customers, we develop new products and services, especially new digital solutions for customers
• We deliver what we promise to our customers, and we offer constantly better customer service through different channels
• We interviewed over 4,600 customers and 3,100 other stakeholders for our One Fortum survey in 2017
• In 2017 we launched a data protection programme in order to develop personal information processing
• We operate in line with Fortum’s Code of Conduct, and our Values updated in 2017
• In 2017 we launched our Open Leadership concept and Leadership Principles based on positive psychology
• Our employee compensation is based on standardised principles
• We conducted training for employees and managers to support changes in the Ways of Working
• We improve safety and wellbeing: In 2017 Safety and Security eLearning and expansion of Energise Your Day Programme to new
Fortum countries
• We comply with the Fortum Code of Conduct, agreements and legislation
• We conduct a supplier qualification process
• In 2017 we updated the Contractor management procedures in order to address challenges with contractor safety
• We comply with laws, regulations and permits
• We develop our business and the management of environmental and safety risks
• We communicate openly and we actively engage in a dialogue with authorities and decision makers about energy issues: e.g. in 2017 we
called for enforced Nordic regional cooperation in energy and climate policies
• We provide authorities with constructive suggestions on legislative proposals: In 2017 we contributed e.g. to the preparation of the EU
Governance Regulation by providing a proposal to assess and mitigate the impact of overlapping policies on the EU ETS
• In line with our Disclosure Policy, we communicate proactively and openly. In 2017 we had a special focus on communicating Fortum’s
strategy and on international media work.
• We communicate about issues of topical and media interest through multiple channels and we are easily accessible
• We meet regularly with media representatives
• 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
• We publish position papers and views on energy-sector and policy development, and we actively communicate them in multiple media: In
2017, we published three Fortum Energy Reviews.
• In addition to sector organisations, Fortum has joined several joint business initiatives promoting market-driven energy and climate policy:
UN Caring for Climate initiative, World Bank’s Carbon Pricing Leadership Coalition and Climate Leadership Council
• We develop environmental and safety risk management
• We invest in renewable energy: in 2017, a total of EUR 291 million in hydro, wind and solar power and bioenergy
• 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 plant safety. In 2017 we arranged an emergency preparedness exercise for hydropower in Finland
• We collaborate with local communities in all our operating countries: Examples of our activities in 2017
• We reduce emissions and local environmental impacts
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Environmental responsibilitySocial responsibilityReporting principles and assuranceAppendicesEconomic responsibilitySustainability approachSustainability approach Our contribution
to the SDGs
Key sustainability
topics
Governance and
management
Policies and
commitments
Business ethics
and compliance
Stakeholders
Sustainability
indexes
Ensuring a responsible supply chain for coal
Fortum also acknowledges that not only the use of coal, but also the
origin of coal is a source of concern to some stakeholders . Fortum
can only comment its own supply chain . However, both Fortum and
Uniper are members of the Bettercoal initiative, which drives for
sustainable coal supply chain . Bettercoal companies are committed
to use Bettercoal tools in their coal purchasing . The Bettercoal
Code sets out the ethical, social and environmental principles and
provisions that members of Bettercoal expect organizations
producing coal in their supply chain to align with . What comes to
Fortum’s power plants, the coal Fortum uses in Finland and
Sweden originates from Russia . The coal used in Poland originates
mainly from Poland . Fortum’s power plants in Russia use coal
originating from Russia and Kazakhstan .
Fortum’s bid for Uniper raised stakeholder interest
Fortum announced a voluntary public takeover offer for all
shares in Uniper towards the end of 2017 . By investing in Uniper,
Fortum continues the capital redeployment to enable a more
efficient use of its balance sheet and delivers on its strategic goal to
drive productivity and industry transformation in Europe . The offer
period commenced in November and in early January E .ON
tendered its 46 .65% shareholding to Fortum . At the end of the
acceptance period in early February 2018 altogether 47 .12% of
Uniper’s shares were tendered to Fortum . The offer is still subject to
competition and regulatory approvals . Fortum expects to finalise
the transaction in mid-2018 .
Fortum’s bid for Uniper is one of the biggest in the history
of Finnish economy and it has gained a lot of attention both
nationally and internationally . Also many stakeholders such as
SRI investors and non-governmental organisations have contacted
Fortum to discuss the bid . The main concern raised by the various
stakeholders has been the strategic fit of Uniper’s fossil-based
production with Fortum low-carbon assets and, consequently, the
potential increase of Fortum’s carbon footprint . Our anticipated
role as Uniper’s biggest shareholder has also been connected with
the discussions around the Nord Stream 2 .
A powerful combination to drive the
European energy transition
Together Fortum and Uniper have the strategic mix of assets – both
clean and secure – as well as the expertise required to successfully
and affordably drive Europe’s transition towards a low carbon
energy system . Fortum’s power production is divided roughly in
three equal parts consisting of hydropower and other renewables,
nuclear power and gas-fired production . Also Uniper is much more
than a coal company . Approximately 70% of the company’s power
generation is based on low-carbon gas-fired generation and CO2
free hydro and nuclear power . The share of the company’s CO2 free
production is about 20% . Fortum’s investment in Uniper does not
increase the total CO2 emissions in Europe .
Conventional energy production continues to play an important
role in ensuring affordable and secure supply of energy during
the transition . Furthermore, gas-fired generation, in particular,
can respond to the increasing intermittent renewable production,
providing the flexibility needed in geographies where sufficient
hydropower resources are not available . Fortum expects its
investment in Uniper to deliver an attractive return that will further
support us in accelerating the development and implementation of
sustainable energy technologies .
Fortum continues to be fully committed to its strategy and
sustainability targets – this has not changed . Fortum’s carbon
exposure (gCO2/kWh) is already one of the lowest within the
European power generation industry and we have a proven
track-record on driving transition to a low-CO2 direction .
This is something that we consider our core competence and
competitive advantage .
Towards a low carbon energy system
with efficient policies
Fortum is of the opinion that phasing out coal-fired generation
to mitigate climate change is absolutely necessary, but it must be
executed in a controlled and affordable manner . It is the role of
political decision makers to agree on the conditions and set up the
frameworks that make this transition possible . Fortum respects
these decisions, but argues that decision-makers should provide
a level playing field for companies operating in the integrating
European energy market .
Over the year, several European countries have been discussing
specific measures to forbid the use of coal in energy production
to advance the transition . However, in Fortum’s opinion, the best
tool to phase out coal is the EU Emissions Trading Scheme (ETS) .
If allowed to work properly, the ETS will drive emissions down in
an economically efficient manner as it is neutral to the technology
and location . Should individual member states, nevertheless,
decide to issue a coal ban, it is important that the decision-makers
do respective changes in the ETS, so that their action lead to true
emission reduction and not shift emissions from one country or
sector to another .
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to the SDGs
Key sustainability
topics
Governance and
management
Policies and
commitments
Business ethics
and compliance
Stakeholders
Sustainability
indexes
Case | NGO cooperation in India
In December 2017 the 100-MW Pavagada solar plant was connected
to the grid in India. Thousands of migrant workers from diverse
backgrounds around the country, with different religions, cultures,
ethnicities, language, food habits and social rituals were involved in
the construction phase.
Parivartan, a grassroots-level NGO was brought in to help Fortum
to draw synergy from this diversity and to ensure functionality between
the workers. The Parivartan team members became a part of the
community. They shared the same living conditions at the workers’
housing accommodations throughout the construction period. They
started with small steps by first encouraging the workers to use good
hygiene practices and gradually stepped up their efforts by sharing
their knowledge about worker’s rights, the value of safety, respect for
women workers, and how to use and share all the wellbeing facilities
provided by the company.
Parivartan employed many ingenious ways of communicating.
They organized Saturday movies, and when the house was full they
would take a break and talk about one of the topics. Separate events
were also organised for female workers to discuss topics important to
them. Parivartan trained workers to volunteer as, for example, hygiene
inspectors, safety stewards and day care attendants for children. All
aligned behaviours were rewarded. Parivartan also brought fun and
games to their pitch and communicated thrugh street dramas. This
approach ensured better recall and implementation of good practices
at the workplace and better personal and group wellbeing.
The results were impressive: the rate of absenteeism dropped,
safety compliance increased, and the use of alcohol or other
misconduct became nonexistent.
Fortum’s activities have also been appreciated by the governmental
health officials. Our well maintained housing accommodations and the
high standards achieved in preventing diseases common in the area
have been showcased as a benchmark for other solar developers.
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Environmental responsibilitySocial responsibilityReporting principles and assuranceAppendicesEconomic responsibilitySustainability approachSustainability approach Our contribution
to the SDGs
Key sustainability
topics
Governance and
management
Policies and
commitments
Business ethics
and compliance
Stakeholders
Sustainability
indexes
Sustainability indexes
Fortum was ranked in category A- (scale from D- to A, A being
the highest score) and one of the top companies in the utilities
sector in the annual CDP (formerly Carbon Disclosure Project)
rating 2017 . The rating means that the company represents best
practices in environmental stewardship, understands risks and
opportunities related to climate change, and implements strategies
and approaches to mitigate and accommodate these risks and
opportunities . CDP is an international, not-for-profit organisation,
which represents 827 institutional investors .
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 .
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 .
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
3,800 companies .
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 .
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 .
18
Environmental responsibilitySocial responsibilityReporting principles and assuranceAppendicesEconomic responsibilitySustainability approachSustainability approach
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 .
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impacts
Customer satisfaction
and reputation
Supply chain
management
Economic impacts
Fortum is a significant economic actor in Finland, Sweden,
Russia, Poland, Norway and the Baltic countries . We continuously
monitor the impact and wellbeing 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 revenue from customers, procurements
of goods and services from suppliers, compensation to lenders,
dividends 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
wellbeing . 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 4,643 million
2016: EUR 3,705 million
Divestments
EUR 749 million
2016: EUR 49 million
Personnel
EUR 423 million
2016: EUR 334 million
Public sector
EUR 312 million
2016: EUR 514 million
Suppliers
EUR 2,622 million
2016: EUR 2,128 million
Lenders and shareholders
EUR 1,270 million
2016: EUR 1,086 million
Capital expenditures
EUR 657 million
2016: EUR 599 million
Acquisitions of shares
EUR 972 million
2016: EUR 695 million
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Economic
impacts
Customer satisfaction
and reputation
Supply chain
management
Monetary flows by stakeholder group in 2015–2017 (GRI 201-1)
EUR million
Generation of added value
Income from customers
Divestments
Purchases from suppliers
Fortum produced added value
Distribution of added value
Employees compensation
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
Lenders and shareholders compensations Dividends paid to investors, interest, realised foreign exchange
gains and losses and other financial expenses
Income and production taxes paid, support for society and
donations
Public sector
Distributed to stakeholders, total
Surplus/deficit cash
Capital expenditures
Acquisitions of shares
Discontinued operations 1)
Surplus/deficit including investments and
discontinued operations
2017
2016
2015
4,643
749 *
-2,622
2,770
3,705
49
-2,128
1,627
3,517
55
-1,623
1,950
-423
-334
-351
-1,270
-1,086
-1,119
-312
-2,004
765
-657
-972 *
-514
-1,934
-307
-599
-695
-351
-1,821
128
-527
-43
6,457
-864
-1,601
6,015
1) Includes the electricity distribution business divested in 2015.
* Divestments and acquisitions of shares are mainly related to the restructuring of the ownership in Hafslund. Further information in Financial Statements Note 38 Acquisitions
and disposals.
In 2017, the difference between added value generated and
distributed to stakeholders was EUR 765 (2016: -307) million for the
development of own operations .
CO2 free energy production . Capital expenditure by country and by
production type is presented in the Financial Statements, Note 17 .2
Capital Expenditure .
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
We have included investments in our own assessment of economic
impacts, as their annual volume and impact on the society is
significant . In 2017 we invested EUR 375 (2016: 270) million in
Provisions related to nuclear power are covered in the Financial
statements, Note 28 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 30
Pension obligations .
In 2017 we received financial support from the public sector in
the form of investments, R&D and other significant grants totalling
EUR 1 .7 (2016: 3 .8) million . The figure excludes free emission
allowances and electricity certificates as well as electricity and heat
price related subsidies .
21
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibility
Customer satisfaction 1) in 2015–2017
Finland
Fortum
Sweden
Fortum
Göta Energi 2)
SverigesEnergi 2)
Norway
Fortum
Hafslund Strøm 2)
NorgesEnergi 2)
2017
75.6
56.1
64.7
60.5
71.1
68.2
71.9
2016
73.3
53.4
62.9
61.0
72.7
70.3
71.3
2015
74.7
64.4
64.4
68.8
75.6
66.6
71.4
1) EPSI Rating in Finland and Norway; Svenskt Kvalitetsindex in Sweden
2) Brands acquired through the Hafslund acquisition
Economic
impacts
Customer satisfaction
and reputation
Supply chain
management
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,
which was launched in 2015 with the aim of promoting a customer-
centric culture in our company, continued in 2017 . One of our
five must-win battle (MWB) development programmes 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 . As an
expanding company, it is also important to ensure that our new
customers are satisfied with our services . In 2017 we expanded
in Norway, where Fortum acquired 100% of Hafslund’s Markets
business area, which consists of several electricity retail brands . In
conjunction with that, Fortum gained 1 .1 million new customers,
increasing our Nordic customer base to 2 .5 million .
One Fortum survey provides information
about all stakeholder groups
We use the extensive One Fortum survey to annually measure
customer satisfaction and our reputation and the factors that
impact them . The survey is conducted yearly in spring and it covers
customers, decision makers, capital markets, non-governmental
organisations and opinion influencers as well as Fortum’s
personnel . In Finland and Sweden, we also survey the views of the
general public and media . During autumn we also conduct a follow-
up survey among our electricity sales customers .
We conducted the One Fortum survey in 2017 in Finland,
Sweden, Norway, Poland, the Baltic countries, Russia and India .
Over 4‚600 customers and nearly 3‚100 other stakeholders were
interviewed . We also monitor other publicly available research
sources, but up to year-end 2017 we have defined Group targets and
our identified development areas on the basis of the One Fortum
survey results . As of 2018 we will use multiple monitoring data to
best accommodate the multiple electricity retail brands Fortum
now owns after the Hafslund acquisition .
Customer satisfaction
In the annual One Fortum Survey in spring, our district heating
customers’ satisfaction remained overall fairly unchanged and in
most countries on a good level . Among our retail electricity sales
customers, the satisfaction decreased somewhat in Norway and
in Poland, whereas in Finland and Sweden the results were stable .
Our Power Solutions customers ranked us a bit lower this year
compared to last year, but the satisfaction is still on a very good
level . The Recycling and Waste Solutions unit was not part of the
One Fortum survey in spring 2017 . In the autumn 2017 One Fortum
follow-up survey, the results were stable among the electricity
retail customers in Finland and Norway compared to autumn 2016,
while in Sweden we improved a bit . We saw a slight decrease in the
satisfaction in Poland .
In the autumn 2017 measurement we also included new Fortum
units in the survey scope . Several of the acquired Hafslund Markets
brands were measured as well as our Recycling and Waste Solutions
unit, which had the highest customer satisfaction level of all
measured Fortum units in the One Fortum Survey .
Our Group-level target for all business areas in 2017 was to
achieve a customer satisfaction rating of “good”, i .e . 70–74 on
a scale 0–100, in the One Fortum survey . The target was achieved
among all business areas, but not in retail electricity sales .
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 .
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Economic
impacts
Customer satisfaction
and reputation
Supply chain
management
Reputation
Our reputation is strongest amongst opinion influencers and
non-governmental organisations, followed by decision makers and
our own personnel . The biggest change compared to the previous
year was among capital markets, where the result recovered
significantly from the drop in the previous year . 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 and to maintain our good
operational expertise .
The Group-level target for our reputation in 2017 was a rating
of 70 .7 in the One Fortum survey, measured as the average rating
given by all stakeholders included in the One Fortum Survey, apart
from customers . Rankings given by customers are not included
in the reputation index calculation because we treat customer
satisfaction as a separate entity . In 2017, we achieved an average
rating of 72 .3 among these stakeholder groups . The target set for
2018 (73 .0) includes the same stakeholder groups as in 2017 .
Brand
We also monitor brand development, i .e . what impression
the general public has about our brand . The survey includes
the measurement of, e .g ., brand awareness, preference and
brand attributes .
64–76
Customer satisfaction
Target: 70–74
72.3
Reputation
Target: 70.7
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impacts
Customer satisfaction
and reputation
Supply chain
management
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 .
Electricity purchases increased significantly
Fortum’s purchasing volume in 2017 was EUR 3 .2 (2016: 2 .5)
billion . Electricity purchased from the Nordic wholesale electricity
market for retail sales, investments, and fuel purchases accounted
for the majority of Fortum’s purchases . The number of electricity
customers increased with the acquisition of Hafslund, which also
increased electricity purchases from the wholesale markets by 40%
compared to 2016 .
Of our purchases, EUR 657 (2016: 599) million targeted various
investments . The biggest investments, EUR 173 million, were made
in Finland . A large share of the investments is contracted out in full
with materials, installation and other service as well as contractor
work included in the total purchase .
Fortum’s fuel purchases in 2017 totalled EUR 564 (2016: 524)
million . We purchase fuels from international and local suppliers .
Our fossil fuel purchases totalled about EUR 498 (2016: 448)
million, biomass fuels about EUR 48 (2016: 44) million, and nuclear
fuel about EUR 35 (2016: 38) million .
The rest of our purchases, EUR 2 .0 (2016: 1 .4) billion, consist of
other goods and services . The figure includes electricity purchased
from the Nordic wholesale electricity market for retail sales . The
other goods and services purchases were related to, for example,
operation and maintenance as well as to other functions, such as
IT solutions, marketing and travel .
Purchases, EUR million
Investments, 657
Fuels, 564
Other purchases, 2,001
Purchases 1) excluding investments, 2015–2017
EUR million
Nordic countries
Russia
Poland
Other countries
Total
2017
1,548
586
375
56
2,565
2016
1,106
505
279
53
1,943
2015
935
546
138
58
1,677
1) Includes purchases of fuel, power and other materials and services
Half of purchases from Europe
Half, i .e . 50%, 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 . 47% 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 2017, we had about 16,000 (2016: 15,000) suppliers of goods
and services . About 1,500 of the suppliers were in risk countries .
Excluding the Russia Division’s local suppliers, there were about
260 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 2017 we had about
150 suppliers in our fuel supply chain, 6% of them operated in
risk countries .
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Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibilityEconomic responsibility Economic
impacts
Customer satisfaction
and reputation
Supply chain
management
Natural gas
The natural gas used in Russia, the Baltic countries and Finland
originated from several different suppliers in Russia . The natural
gas used in Poland originated from Poland and the natural gas used
in Norway originated from Norway .
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 .
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, Norway and Poland . About
57% of the wood-based biofuel used by Fortum in 2017 originated
from certified sources . The share was over 70% in Finland .
Our goal is that 80% of the wood-based biomass fuel we use is
certified by a third party by the end of 2020 . We also aim to apply for
Over 70%
of the wood-based
biofuel we used in
Finland originated from
certified sources.
Chain of Custody certification for our wood-based fuel purchases
during 2018 .
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 2017, 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 certification .
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 2017, Fortum’s representatives assessed the operations
of Fortum’s Russian fuel supplier’s uranium mine . The plant was
in good condition technically, and its quality and environmental
management systems were certified .
Origin of fuels used at Fortum in 2017 1)
Fuel
Biomass
Coal
Natural gas
Uranium
Oil
Peat
Country of origin
Finland, Poland, Russia, Norway, Baltic
countries
Russia, Kazakhstan, Poland
Russia, Poland, Norway
Russia
Russia
Finland, Estonia
1) Biggest countries of origin by purchase volume in 2017
FUEL CONSUMPTION
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, supplier qualification
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: anti-
corruption, human rights, labour standards, and the environment .
The country and counterparty risk assessment follows the
same structure .
The Supplier Code of Conduct is used in all our countries
of operation and is included in all purchase agreements with a
contract value of EUR 50,000 or more . Training related to the
Supplier Code of Conduct were arranged in 2017 for Fortum’s Baltic
functions and for the Recycling and Waste Solutions personnel in
Finland and Sweden .
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Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibilityEconomic responsibility
Economic
impacts
Customer satisfaction
and reputation
Supply chain
management
Supplier qualification
We assess the level of operations of our business partners
through supplier qualification and supplier audits . The supplier
qualification is made when the purchase volume is EUR 50,000 or
more . In the qualification process, suppliers respond to a survey
that we use to help determine, among other things, 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 supplier qualification process was renewed in 2016, and the
majority of the personnel received training in the new practices .
Training events were held in 2017 for Fortum’s personnel in the
Baltic countries and Poland, and Recycling and Waste Solutions
personnel in Finland, Sweden and Denmark .
The Russia Division uses its own supplier qualification
process that is based on Russian procurement law . In the Russian
operations, we set supplier requirements for business principles,
ethics, environmental management, and occupational health and
safety practices .
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 .
Fortum uses an international service provider for conducting
audits, especially in risk countries . In Fortum’s own operating
countries, the audits are performed mainly by own personnel .
In 2017, we conducted a total of 11 (2016: 13) supplier audits for
a total of ten suppliers in China, India, Russia, Slovenia, Estonia
and Finland .
Most of the non-compliances identified in the audits in
2017 were related to occupational safety, overtime hours
and remuneration . 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 two
Chinese suppliers to strengthen their practices to prevent the
potential use of child labour .
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 . The Bettercoal Assessment
Programme was renewed in 2017 . In the renewed programme,
coal suppliers commit already in the initial phase to the Bettercoal
Assessment by signing a Letter of Commitment . In 2017, one of
Fortum’s Russian coal suppliers and one Kazakhstan coal supplier
signed the Letter of Commitment . One of Fortum’s Russian coal
suppliers was audited in February 2018 . Additionally, two of
Fortum’s coal suppliers have been audited in previous years .
Supplier audits by supplier type
Materials, 6
Contractors, 3
Fuels, 2
Supplier audits by country
China, 4
India, 3
Estonia, 1
Russia, 1
Slovenia, 1
Finland, 1
26
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Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibilityEconomic responsibility 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 .
27
Social responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibilityEnvironmental responsibility 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 oxides .
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
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
We manage our environmental impacts with environmental
management systems . 99 .8% of our electricity and heat production
is ISO 14001 certified .
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 . 61% of
the total electricity we produced in 2017 was carbon dioxide-free .
We made several investments and 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 .
28
Social responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibilityEnvironmental responsibility Environmental key figures
The table and graphs present our key targets and figures for
environmental responsibility .
Key figures for environmental responsibility
Carbon dioxide emissions (Scope 1), million tonnes
Sulphur dioxide emissions, 1000 tonnes
Nitrogen oxide emissions, 1000 tonnes
Particle emissions, 1000 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
Utilisation of gypsum originated from energy production, %
Utilisation of ash originated from energy production, %
Material recovery rate of waste received from customers, %
Water withdrawal in production operations, million m3
of which cooling water, million m3
Major EHS incidents, no.
of which environmental permit violations, no.
ISO 14001-certified operations in power and heat production, % of sales
* Figure revised
2017
18.3
18.8
27.5
15.8
173
28
184
188
61
30
9
131
100
47
57
2,120
1,994
20
2
99.8
2016
18.6
22.5
26.0
16.8
173
28
184
188
62
30
7
245
100
37
-
2,140 *
2,035 *
22
11
99.9
2015
19.2
19.9
26.8
17.8
166
21
181
191
64
34
8
479 *
100
33
-
2,138
2,060
18
14
99.9
Specific carbon dioxide emissions
of total energy production in 2015–2017
Annual energy savings achieved in 2015–2017
Number of major EHS incidents in 2015–2017
g/kWh
220
200
180
160
140
120
100
80
60
40
20
0
GWh/a
1,600
1,400
1,200
1,000
800
600
400
200
0
pcs
30
25
20
15
10
5
0
2015
2016
2017
2018
2015
2016
2017
2015
2016
2017
2018
Annual specific emissions
Specific emissions (5-year average)
Target (5-year average)
Cumulative energy savings from 2012
Target (year 2020)
New target is 1,900 GWh/a by 2020.
Number of major EHS incidents
Target
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Social responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibilityEnvironmental responsibility
Sustainable
energy production
Climate change
mitigation
Improving
energy efficiency
Circular
economy
Biodiversity
Emissions
into air
Water
use
Environmental non-
compliances and incidents
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 2017 was 73 .2 (2016: 73 .1) TWh
and heat production 28 .6 (2016: 27 .8) TWh . 61% (2016: 62%) of our
power generation was carbon dioxide-free and 30% (2016: 30%)
was produced from renewable energy sources . About 9% (2016: 7%)
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 figures include also
figures from Fortumʼs share in associated companies and joint
ventures that sell their production to the owners on cost basis .
More renewable energy
We commissioned two new solar power plants in India in 2017,
in addition to the previous 15-MW solar power capacity . The new
solar power plants are the 70-MW Bhadla solar power plant and
the 100-MW Pavagada solar power plant . At the end of 2017, we
acquired the 10-MW Pleshanovskaya and 10-MW Grachevskaya
solar power plants, and the 15-MW Bugulchanskaya solar power
plant in Russia .
Fortum has actively invested also in wind power . At the
beginning of 2017, we acquired Nygårdsfjellet’s 32-MW wind power
park and the licensed Ånstadblåheia (about 50 MW) and Sørfjord
(about 90 MW) wind power projects in Norway . Additionally, there
were under construction the 35-MW Ulyanovsk wind power park
in Russia, and in Sweden the Solberg 75-MW wind power park, of
which Fortumʼs share of ownership is 50% . Ulyanovsk, Solberg and
Ånstadblåheia wind power parks are estimated to start production
in 2018 .
In 2017, Fortum and RUSNANO established a 50/50-owned wind
investment fund that was awarded the right to build 1,000 MW
of wind power in Russia in 2018–2022 in the RES capacity
selection auction . The wind investment fund made a decision on
construction of the first 50-MW wind farm in Russia . The wind
farm is expected to start production in 2019 .
In 2017, the refurbishments of Fortumʼs own hydropower
plants in Sweden and Finland introduced 8 MW of new, renewable
electricity production capacity .
mainly municipal waste, and the plant’s production capacity is
148 MW heat and 19 MW electricity . Haraldrud’s heat power plant
has a 56-MW bioboiler, a 30-MW waste boiler, a 25-MW electricity
boiler and two 50-MW gas boilers . In addition to the Haraldrud
heat plant, there are nine other heat plants in the Oslo region .
New, energy-efficient production capacity
Replacement of a high-pressure turbine was carried out at the
Loviisa nuclear power plant’s unit 1 during the annual outage . This
replacement increased the plant unit’s nominal output by 5 MW .
In Russia, the third new CHP unit at the Chelyabinsk GRES
power plant was completed at the end of 2017 . The plant is fuelled
by natural gas, and 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 and the second in
spring 2016 .
Construction of the new CHP plant in Zabrze, Poland,
continued; the plant is scheduled for completion in 2018 . The power
plant has a maximum production capacity of 75 MW electricity and
145 MW heat, and the plant replaces the old coal-fired plants units
in Zabrze and Bytom . The plant is primarily fuelled by refuse-
derived fuel (RDF) and coal . The Russia and Poland investments
improve the efficiency of energy production and reduce carbon
dioxide and other emissions into the environment in relation to
produced energy .
Energy production from waste and biomass fuels
In early August 2017, Fortum concluded the restructuring of its
ownership in Hafslund together with the City of Oslo . In the
arrangement, Hafslund’s district heat business operations and the
City of Oslo’s waste-to-energy company Klemetsrudanlegget AS
(KEA) were combined into one company, and Fortum acquired 50%
of the combined company . Fortum has operational responsibility
for the joint venture .
The total heat production capacity of Fortum Oslo Varme is
1,111 MW . The Klemetsrud waste-to-energy plant incinerates
30
ENERGY PRODUCTION FORMS
Power generation by energy source
in 2015–2017 (GRI 302-1)
TWh
Hydropower
Nuclear power
Natural gas
Coal
Biofuels
Waste-derived fuels
Wind, solar
Other 1)
Total
1) Peat, other
2017
20.7
23.0
25.3
2.6
0.8
0.3
0.5
0.1
73.2
Heat production by energy source
in 2015–2017 (GRI 302-1)
TWh
Natural gas
Coal
Biomass fuels
Waste-derived fuel
Heat pumps, electricity
Peat
Other 1)
Total
1) Fuel oil, other
2017
18.6
4.8
1.9
2.3
0.6
0.4
0.0
28.6
2016
20.7
24.1
24.3
2.8
0.8
0.2
0.1
0.1
73.1
2016
19.7
4.7
1.9
0.8
0.3
0.4
0.0
27.8
2015
25.0
22.7
24.1
2.9
0.8
0.1
0.1
0.1
75.9
2015
24.2
5.0
2.0
0.4
0.3
0.3
0.1
32.2
Social responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibilityEnvironmental responsibility
Sustainable
energy production
Climate change
mitigation
Improving
energy efficiency
Circular
economy
Biodiversity
Emissions
into air
Water
use
Environmental non-
compliances and incidents
Case | Society’s Commitment:
Carbon-free district heating
in Espoo by 2030
The City of Espoo and Fortum made a commitment in 2017 to make Espoo’s district
heating system carbon-free and CO₂-neutral by 2030. Our joint pledge to Society’s
Commitment to Sustainable Development has been published on the Finnish
National Commission on Sustainable Development’s commitment2050.fi
website. We are also participating in the national implementation of the global
Agenda2030 for Sustainable Development.
The goal will be achieved by, among other things, developing and investing
in new energy production solutions that aim to utilise waste heat flows, biomass
and recycled fuels, as well as geothermal energy when possible. Additionally, we
are developing new solutions and services for customers and thereby enabling
sustainable, efficient and smart energy use. In city planning, extensive energy
analyses at the master and town planning level are being compiled and energy-
planning expertise is being utilised to meet climate targets. Land-use planning
supports low-emission lifestyles.
Over the past four years, heat production in Espoo has already integrated a
heat pump plant in Suomenoja utilising heat from treated wastewater, a conversion
to wood pellets at the Kivenlahti heat plant, the combustion of bio-oil at the
Vermo heat plant, and a thermal energy storage in Suomenoja. Additionally, we
have implemented various waste heat projects, like heat recovery at Ericsson’s
data centre in Kirkkonummi and heat recovery at the Espoo Hospital. In just a
short period of time, these measures have increased the share of waste heat and
biomass fuels in heat production from close to zero to more than 25%.
In 2017, we advanced the realisation of the new Kivenlahti biomass fuelled
heat plant by submitting an environmental permit application. Our goal is to start
construction of the new heat plant during 2018. Additionally, we have advanced
other new plant investments that will make it possible to stop using coal in Espoo’s
district heat production in the 2020s.
We made significant investments in 2016–2017 to expand the district cooling
system in the southern region of Espoo. Based on CO₂-free and environmentally
friendly free cooling, the expanded district cooling system will be fully deployed in
2018. In the district cooling system the thermal energy generated in the cooling of
buildings is recycled back into the district heating network.
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Social responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibilityEnvironmental responsibility
Sustainable
energy production
Climate change
mitigation
Improving
energy efficiency
Circular
economy
Biodiversity
Emissions
into air
Water
use
Environmental non-
compliances and incidents
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 .
Risks and opportunities associated
with climate change
We believe that our know-how in carbon dioxide-free hydro,
nuclear, wind and solar energy and in energy-efficient combined
heat and power (CHP) production is a competitive advantage . 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 and non-recoverable waste in energy
production replaces fossil fuel and reduces the formation of
greenhouse gases generated from biodegradable waste at landfills .
Our operations are exposed to physical risks caused by
climate change, including changes in weather patterns that
could alter energy demand and energy production volumes .
Higher precipitation, flooding and extreme temperatures may
affect, for instance, hydropower production, dam safety, and
bioenergy supply and availability . Hydrological conditions and
temperature also affect the short-term electricity price in the Nordic
power market .
Potential strategic risks are related to regulation and to the
future energy and climate policy, which impacts decision making
on, for example, the technology used at production plants and the
fuel selections, such as the use of biomass fuels . In addition to
climate change mitigation, we also aim to adapt our operations
to the changing climate, and we take climate change into
consideration in, among other things, production planning and
the assessment of growth projects .
Towards low-emissions production
In Europe, we produce carbon dioxide-free electricity with hydro,
nuclear and wind power and at CHP plants that utilise biomass
and waste-derived fuels . In the EU area, 96% (2016: 96%) of our
electricity production was carbon-free in 2017 . The rest of the
electricity was produced mainly with coal . We produce solar power
in India .
Our electricity production in Russia is based on fossil fuels,
mainly on natural gas . Our new plant units in Russia are based
on gas turbine technology, which represents the best available
technology in natural gas combustion . 61% (2016: 62%) of our total
electricity production was carbon dioxide-free .
The following investments and projects, among others, directly
or indirectly reducing carbon dioxide emissions were completed
in 2017:
• Bhadla and Pavagada solar power plants in India
• District heating and district cooling construction project in
The Tartu district heating
and district cooling system
expansion project wins
the Global District Energy
Climate Award 2017.
Climate-benign products and services
We offer our customers a range of energy products and
energy services to help them improve their energy efficiency and
reduce their carbon footprint:
• Carbon dioxide-free electricity products and carbon-neutral heat
Tartu, Estonia
products
• Heat recovery at a data centre to Espoo district heating network
in Finland
• Replacement of the high-pressure turbine in unit 1 at the Loviisa
nuclear power plant in Finland
• Refurbishments of hydropower plants in Sweden and Finland
We have estimated that these projects will reduce annual carbon
dioxide emissions by about 162,000 tonnes .
Projects under construction and decisions on new investments
are described in more detail in the
Sustainable energy production section .
• Solar panel solutions
• Electric vehicle charging systems
• Real-time monitoring and optimisation of energy consumption
The growth of renewable energy increases the need for regulating
power to balance the energy system and the need for new storage
solutions in the energy system . In a service based on demand
flexibility, customers participate with Fortum to maintain the
power balance . Household water heaters or house batteries can be
used to reduce the need to start up fossil-fuel-based reserve power
plants and support the use of renewable energy by balancing peak
consumption in the electricity network .
We are expanding our offering also by investing in startups that
are developing new technologies .
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Social responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibilityEnvironmental responsibilityEnvironmental responsibility
Sustainable
energy production
Climate change
mitigation
Improving
energy efficiency
Circular
economy
Biodiversity
Emissions
into air
Water
use
Environmental non-
compliances and incidents
Innovative fuels
Fortum HorsePower is a service concept in which Fortum delivers
bedding to horse stables and picks up the bedding-manure mixture
for combustion . In 2017, bedding-manure mixture was collected
from more than 200 horse stables in Finland . Fortum combusts the
bedding-manure mixture at the Järvenpää CHP plant, and it was
delivered also to other energy companies . The service was rolled
out also in Sweden in 2017 .
The Joensuu bio-oil plant produced about 11,200 tonnes of
bio-oil, the majority of which was used at a heat plant in the Joensuu
power plant area and at the Vermo heat plant in Espoo, Finland .
Emissions trading
Over 79% of carbon dioxide emissions from our energy production
in the Nordic countries, the Baltic countries and Poland are
within the sphere of the EU’s emissions trading scheme . We had
a total of 50 (2016: 45) plants in six member countries within the
EU’s emissions trading scheme in 2017 . Fortum was granted free
emission allowances corresponding to 1 .0 (2016: 1 .0) million
tonnes . Our carbon dioxide emissions within the EU’s emissions
trading scheme were 2 .3 (2016: 2 .7) million tonnes . 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 late 2017, a consensus was
reached between the Commission and the Parliament regarding
the revision of the EU’s emissions trading directive for 2021–2030;
national adoption of it will start in member states in 2018 . Fortum
expects the revision to make emissions trading more efficient and
to strengthen its steering effect . We are of the opinion that the
proposed EU governance model should eliminate national and EU-
level policy measures that overlap with emissions trading .
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 .
Carbon funds
Fortum is a participant in the international Prototype Carbon Fund
(PCF) climate fund . In 2017, we received a total of about 12,000 CER
emission reduction units from this fund . So far, we have received
a total of 2,760,000 emission reduction units, and we estimate
that we will still receive about 120,000 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 2017 totalled 23 .3 (2016: 23 .6)
million tonnes . Scope 1 emissions were 18 .4 million tonnes, Scope
2 emissions 0 .1 million tonnes, and Scope 3 emissions 4 .8 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 . The effect of the
Hafslund business acquisition is estimated to be less than 2% of
our greenhouse gas emissions .
Direct greenhouse gas emissions – Scope 1
The majority of our greenhouse gas emissions are 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 gas emissions were 18 .4 (2016: 18 .8) million
CO2-equivalent tonnes . The share of carbon dioxide from our
direct greenhouse gas emissions was 99% . The share of Scope 1
greenhouse gas emissions from our total greenhouse gas emissions
was 79% .
Direct greenhouse gas emissions
in 2015–2017 (GRI 305-1)
Mt CO2-eq
CO2
CH4
N2O
HFCs
SF6
Total
2017
18.3
0.01
0.09
0.00
0.00
18.4
2016
18.6
0.01
0.17
0.00
0.00
18.8
Direct carbon dioxide emissions by country
in 2015–2017 (GRI 305-1)
million tonnes
Finland
Russia
Poland
Other countries
Total
2017
1.7
15.4
0.7
0.5
18.3
2016
2.0
15.5
0.8
0.3
18.6
2015
19.2
0.01
0.14
0.00
0.00
19.3
2015
1.3
17.0
0.8
0.1
19.2
Of the direct carbon dioxide emissions, 84% (2016: 83%) originated
from the Russian operations and 9% (2016: 10%) from Finland .
Carbon dioxide emissions decreased from the previous year by
about 260,000 million tonnes primarily because of the decreased
condensing power production . Fortum’s direct biogenic carbon
dioxide emissions were 1 .2 (2016: 1 .3) million tonnes .
The calculation of greenhouse gas emissions covers carbon
dioxide (CO2), methane (CH4), nitrous oxide (N2O), fluorinated
hydrocarbons (HFCs) and sulphur hexafluoride (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 .
33
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Environmental non-
compliances and incidents
Indirect greenhouse gas emissions – Scope 2
Greenhouse gas emissions from the production of electricity
purchased for our own use were 102,700 (2016: 95,500) tonnes of
carbon dioxide-equivalent . Carbon dioxide emissions accounted
for 99 .6% of this . The share of Scope 2 greenhouse gas emissions of
our total greenhouse gas emissions was 0 .4% .
69% of Scope 2 greenhouse gas emissions have been estimated
on the basis of information received from electricity suppliers .
The rest, including Scope 2 greenhouse gas emissions in Russia,
has been estimated on the basis of country-specific breakdown of
electricity production .
Indirect greenhouse gas emissions (Scope 2)
in 2015–2017 (GRI 305-2)
t CO2-eq
CO2
CH4
N2O
Total
2017
(Location-
based)
109,900
100
600
110,600
2017
102,300
75
370
102,700
2016
95,000
76
375
95,500
2015
85,003
52
344
85,400
Other indirect greenhouse gas emissions – Scope 3
The majority of our Scope 3 greenhouse gas emissions are caused
by the purchases of goods and services, investments and the
production and transportation of fuels . The transportation of waste
received from customers also creates greenhouse gas emissions
in our circular economy business . Other activities (e .g . employee
travel and waste management) account for less than 1% of Scope 3
greenhouse gas emissions .
Our Scope 3 greenhouse gas emissions in 2017 were an
estimated 4 .8 (2016: 4 .7) million tonnes . The share of Scope
3 emissions was 21% of our total greenhouse gas emissions .
We estimate that all our Scope 3 emissions come from fossil
energy sources .
Indirect greenhouse gas emissions (Scope 3)
in 2015–2017 (GRI 305-3)
t CO2-eq
Fuel procurement
Purchased goods and
services
Capital goods
Other activities
Total
2017
2015
4,225,800 4,347,900 4,557,000
2016
371,700
229,400
17,600
83,000
50,000
18,000
4,844,500 4,741,800 4,708,000
233,700
142,700
17,500
We report Scope 3 greenhouse gas emissions in accordance
with the requirements of the Corporate Value Chain (Scope 3)
Accounting and Reporting standard . The volumes describing
the scope of the various activities have been obtained from our
monitoring and reporting systems .
About 18% (2016: 20%) 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 .
34
Social responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibilityEnvironmental responsibilityEnvironmental responsibility
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energy production
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mitigation
Improving
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economy
Biodiversity
Emissions
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use
Environmental non-
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Specific carbon dioxide emissions
Our specific carbon dioxide emissions (Scope 1) from total energy
production in 2017 remained at the same level and were 184 (2016:
184) g/kWh . The five-year average, including 2017, was 188 (2016:
188) g/kWh, which is below the target of 200 g/kWh .
Specific carbon dioxide emissions of total energy
production in 2015–2017 (GRI 305-4)
g/kWh
220
200
180
160
140
120
100
80
60
40
20
0
2015
2016
2017
2018
Annual specific emissions
Specific emissions (5-year average)
Target (5-year average)
Our specific carbon dioxide emissions from total electricity
production (Scope 1) in 2017 were 173 (2016: 173) g/kWh . Our
specific carbon dioxide emissions from power production in the
EU area were 28 (2016: 28) g/kWh . The specific carbon dioxide
emissions from our electricity production, measured as g CO2/kWh,
are low compared to other European electricity producers . Our
specific emissions in 2016 were one of the smallest among
European major electricity utilities . European reference data for
2017 is not yet available .
Specific CO2 emissions of major utilities in Europe, g CO2/kWh electricity, 2016
1,000
800
600
400
200
0
I
E
D
H
P
E
E
W
R
Z
E
C
l
e
n
E
A
2
A
r
e
p
n
U
i
W
B
n
E
P
D
E
x
a
r
D
E
S
S
a
s
o
n
e
F
l
a
r
u
t
a
N
s
a
G
o
c
e
n
E
l
l
a
f
n
e
t
t
a
V
173
l
a
t
o
t
m
u
t
r
o
F
l
a
o
r
d
r
e
b
I
N
O
E
.
d
n
u
b
r
e
V
28
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 power generation.
Fortum’s specific emissions of the power generation in 2017 in the EU were 28 g/kWh and in total 173 g/kWh, same as in the previous year.
Source: PwC, December 2017, Climate Change and Electricity (including companies with power generation only), Fortum
The boundary for specific carbon dioxide emissions generated
from electricity production differs from other environmental
reporting . The figures include also figures from Fortumʼs share in
associated companies and joint ventures that sell their production
to the owners on cost basis . This electricity production is based on
hydro, wind and nuclear power, and the production 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% .
35
188 g/kWh
Specific CO2-emissions,
5-year average
Target: < 200 g/kWh
Social responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibilityEnvironmental responsibilityEnvironmental responsibility
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compliances and incidents
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 40–60% .
A high-pressure turbine was replaced at the Loviisa nuclear
power plant’s unit 1 in 2017 . The replacement increased the unit’s
1,502 GWh/a
Energy-efficiency
improvement
Target: > 1,400
GWh/a by 2020
nominal output by 5 MW, which means that in an average year it can
produce 40 GWh more electric energy . The Loviisa plantʼs unit 2
will undergo the same replacement during the 2018 annual outage .
In addition, other projects to improve energy efficiency were
completed in 2017:
• Refurbishments of hydropower plants in Sweden and Finland,
27 GWh
• Heat recovery from a data centre to Espoo’s district heating
network in Finland, 17 GWh
• Construction of a district cooling plant in Tartu, Estonia,
12 GWh
• Installation of a preheater at the Bytom Miechowice CHP plant
in Poland, 9 GWh
The energy-efficiency improvement projects are calculated to
yield an annual energy savings of about 131 GWh .
Target was achieved
Fortum’s target has been to achieve an annual energy savings
of more than 1,400 GWh by 2020 compared to 2012 . By the end
of 2017, the annual cumulative energy savings achieved was
1,502 GWh, which exceeded the set target by about 100 GWh . The
target was increased by 500 GWh/a, and the new target is to achieve
annual energy savings of 1,900 GWh by 2020 compared to 2012 .
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 businesses
Fortum’s operation and maintenance services have been improving
the energy-efficiency of our customers’ power plants already
for decades . We have expanded our energy-efficiency services:
in addition to an individual power plant, we can review the
development of a broader urban area and the profitability and
environmental impacts of investments related to them . In addition
to production, the review takes into consideration the energy
distribution to customers and the changes in energy consumption .
Energy-efficiency services were delivered to Finland and Eastern
Europe in 2017 .
ENERGY-EFFICIENCY SERVICES FOR HOMES
ENERGY-EFFICIENCY SERVICES FOR BUSINESSES
Fuel consumption
The most significant fuel used in our energy production was natural
gas, and the next highest fuel use was uranium and coal . Our goal
in the future is to produce increasingly more added value from
biomass fuels and waste-derived fuels . The share of waste-derived
fuels used in energy production in 2017 increased due to the growth
of our circular economy business .
Fuel consumption in energy production, %
Natural gas, 62
Uranium, 21
Coal, 10
Biofuels, 3
Waste-derived fuels, 3
Other fuels, 1
36
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Fuel use in 2015–2017, energy (GRI 302-1)
Fuel use by country in 2017 (GRI 301-1)
petajoules
Natural gas
Nuclear fuel
Coal
Waste-derived fuel, fossil
Peat
Other fossil fuels
Non-renewable fuels total
Biofuels
Waste-derived fuel, renewable
Renewable fuels total
Fuels total
Fuel use in 2015–2017, mass/volume (GRI 301-1)
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
Biogas, million m3
Waste-derived fuel, renewable, 1,000 t
2017
246.1
83.8
39.0
7.6
1.9
0.3
378.8
11.2
4.4
15.6
394.4
2017
7,151
1,999
751
190
10
23
1,142
3
428
2016
247.6
91.1
40.6
3.6
1.8
0.6
385.4
10.2
2.5
12.7
398.1
2016
6,710
2,208
344
178
21
20
1,041
3
225
2015
272.0
90.5
38.8
1.0
1.4
0.8
404.4
11.4
1.7
13.1
417.5
2015
8,023
2,062
97
135
20
22
1,126
1
198
Finland
Russia
Poland
Estonia Denmark
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
Biofuels, 1,000 t
Biogas, million m3
Waste-derived fuel, renewable, 1,000 t
66
490
200
132
6
23
371
3
197
7,068
1,176
1
333
1
4
58
101
486
Other
countries
12
189
363
1
1
184
231
Total
7,151
1,999
751
190
10
23
1,142
3
428
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 . Russia’s share of the total fuel consumption in 2017 was about 67% .
Russia accounted for 99% of our use of natural gas and 51% of our use of coal .
Energy intensity
In 2017, our fuel consumption in electricity and heat production was 110 (2016: 111) TWh, or 394 (2016:
398) PJ . Additionally, we acquired 479 (2016: 460) GWh of electricity from external electricity suppliers .
With these energy resources, we produced 53,900 GWh of electricity, 27,900 GWh of heat, 30 GWh of
cooling, and 53 GWh of bio-oil . The total energy consumption, calculated as the difference between the
procured energy resources and net production, was 45,000 (2016: 47,900) GWh, or 162 (2016: 172) PJ .
In combustion-based energy production, we aim to utilise the fuel as efficiently as possible . In 2017,
our average fuel use efficiency was 59% (2016: 64%) . The decline in fuel use efficiency was due to the
increased use of waste-derived fuels . 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 .7 (2016: 1 .4) . The intensity figure has been
calculated by dividing the amount of used energy resources by the total net production of energy
products, including also hydropower, wind power and solar power .
ORIGIN OF OUR FUELS
37
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Circular economy
Challenges for rapidly growing major cities and growth centres include not only the management of
emissions but also growth in waste volumes . Fortum’s goal is to offer expert solutions and sustainable
circular economy services for cities .
By circular economy we mean that materials are utilised as efficiently as possible and hazardous
materials are removed from circulation . We also recover by-products and wastes generated in energy
production whenever possible .
Received and processed waste from customers in 2017
f
e r y o
R e c o v
m a t e r i als: 646 kt (ash, plastic,
E n e rgy recovery: 1,211 kt
F i n a l disposal: 487 k
o
il,
t
m
e
t
a
l
,
o
t
h
e
r
s
)
N
o
n-h
Received waste
azardous waste: 1,16 8 k t
azardous waste: 644 k t
H
Society
38
Our circular economy business has grown in the Nordic countries . We acquired Turebergs Recycling
AB at the end of 2016 . The business receives and processes ash and slag and recovers purified materials
for use in infrastructure construction materials . An important part of the business is the separation of
metals for reuse . The operation is concentrated mainly in the Stockholm area .
We completed the restructuring of the Hafslund business ownership at the beginning of August
2017 . The City of Oslo’s waste-to-energy plant Klemetsrud, which is the largest energy recovery plant in
Norway, and the Haraldrud heat plant, which also has a waste incineration boiler, were transferred to
Fortum’s ownership through the transaction .
Waste management services
Reliable waste management and resource efficiency are 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 the Nordic countries and Lithuania .
In 2017, we received a total of approximately 1 .2 million tonnes of non-hazardous waste from our
customers; contaminated soil accounted for 212,000 tonnes of that amount and ash 301,000 tonnes . We
also received about 640,000 tonnes of hazardous waste from our customers; contaminated soil accounted
for 88,000 tonnes of that amount and ash 88,000 tonnes . 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 our waste-to-energy plants . This reduces the use of virgin fossil or renewable fuels in electricity and
heat production . Waste that is unsuitable for recovery is disposed of at landfilling sites .
Received and processed waste from customers in 2017 1)
kilotonnes, 1,000 t
Received waste from customers
Non-hazardous waste
Hazardous waste
Recovery and disposal
Recovery of materials 2)
Energy recovery (waste incineration)
Final disposal 2)
Finland
Sweden Denmark
Norway Lithuania
Total
350
185
252
401
240
383
222
335
172
126
237
33
202
11
155
280
23
155
28
4
280
82
1,168
644
646
1,211
487
1) Fortum Oslo Varme’s (formerly Hafslund’s) operations in Norway are included in all figures from 1 August 2017.
2) Includes received waste from customers and also ash from waste incineration
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Recovery of materials
Various types of waste can be reused as raw materials . Of the waste
received from our customers in 2017, we recovered as materials
about 650,000 tonnes; environmental construction materials
accounted for about 362,000 tonnes of that amount, recoverable
ash accounted for about 159,000 tonnes, and processed raw
materials and products about 80,000 tonnes . The material recovery
rate of the waste was 57% . In addition, about 226,000 tonnes
of recoverable materials originated at Fortumʼs own power and
heat plants .
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 .
• 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
boiler slag .
• We process ash and slag, 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
and we clean the hazardous substances from materials that end up
in recycling 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 hazardous substances .
We have three high-temperature incineration plants: in
Riihimäki, Finland; Kumla, Sweden; and Nyborg, Denmark .
At these facilities, 353,000 tonnes of hazardous waste and
390,000 tonnes of non-hazardous waste were incinerated in 2017,
producing electricity and district heating for the surrounding areas .
Contaminated soil
In 2017, we received and treated about 300,000 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 environmental construction is used at our
own construction sites and industrial waste reception centres . In
addition, we treated about 140,000 tonnes of contaminated soil at
customer sites .
SUSTAINABLE ENERGY PRODUCTION
Waste and by-products
Ash is a by-product of the use of fuels in power and heat production,
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 .
The maintenance of power and heat plants generates scrap
metal and other conventional industrial waste and, to a smaller
extent, waste oil and other hazardous waste . We aim for the highest
possible utilisation and recovery of by-products and waste . 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 2017 was about 850,000 (2016: 735,000)
tonnes . Of this volume, 45% was recycled or reused . Alongside the
growth of our circular economy business, the use of waste-derived
fuels has increased and, consequently, the volume of by-products .
The Sustainable Development Forum
of Finnish Energy selected Fortum’s
Circular Economy Village project as the
Climate Deed of the 2017. Municipal
waste is recycled at the Circular
Economy Village in Riihimäki.
39
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Ash and gypsum
Ash is created in the combustion of all solid fuels . About 70% 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 . In 2017, 100% (2016: 100%) of the gypsum was utilised .
The desulphurisation product created at the Suomenoja power plant
is not suitable for utilisation .
In 2017, about 810,000 (2016: 695,000) tonnes of ash, 4,000
(2016: 8,500) tonnes of gypsum, and 12,800 (2016: 12,700) tonnes
of the other desulphurisation product were generated . The increase
in the volume of ash was due to the increased use of waste-derived
fuels . The decrease in the volume of gypsum was due to the
reduction in condensing power production in Finland . About 40%
of the ash was generated at Russian plants, 21% in Poland and 10%
in Finland . The ash recycling rate was 47% (2016: 37%)
By-products that cannot be utilised are transported to the
appropriate final disposal at landfilling sites . In 2017, about
446,000 (2016: 453,000) 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 .
Waste handling in energy production plants
in 2015–2017 (GRI 306-2)
t
Material recovery of
non-hazardous waste
Energy recovery of non-hazardous
waste
Final disposal of non-hazardous
waste
Material recovery of hazardous
waste
Energy recovery of hazardous
waste
Disposal of hazardous waste
Total
* Figure revised
2017
2016
2015
3,100
5,500 *
8,000
300
300
-
27,500
20,900
17,400
200
200
90
800
2,200
300
2,300
34,200 29,400 *
-
1,700
27,200
Material recovery from demolition project
of the power plant
Fortum decided on the demolition of the Inkoo condensation power
plant in the end of 2016, and the demolition work started in spring
2017 . The Inkoo demolition project is one of the biggest demolition
projects in Finnish industrial history . Fortum’s recycling and waste
solutions is responsible for the demolition work . In 2017, a total
of about 9,200 tonnes of waste was generated in the demolition
project of the Inkoo power plant, and about 1,000 tonnes of it
was hazardous waste . About 90% of the dismantled waste was
recovered . In addition, about 200 tonnes of contaminated soil
was removed .
NUCLEAR WASTE MANAGEMENT
FINAL DISPOSAL OF SPENT NUCLEAR FUEL
Ash and gypsum handling in 2015–2017 (GRI 306-2)
t
Ash utilisation
Ash disposal
Gypsum utilisation
Gypsum disposal
2017
2016
2015
377,000 255,000 189,000
433,000 440,000 381,000
2,300
0
8,500
0
4,000
0
Radioactive waste
At the Loviisa nuclear power plant, low-level radioactive
maintenance waste is disposed in Loviisaʼs repository . In 2017,
19 .0 (2016: 13 .9) 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 into solid form at the
solidification plant for liquid radioactive waste before final disposal
in Loviisaʼs repository .
High-level spent nuclear fuel is stored in an interim storage at
the Loviisa power plant site . In 2017, 23 .4 (2016: 19 .6) tonnes of
spent nuclear fuel was removed from Loviisa power plant’s reactors .
2 .9 (2016: 2 .5) 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 .
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 .
The power and heat plants generated a total of about 34,200
(2016: 29,400) tonnes of other waste, approximately 3,200 (2016:
2,700) tonnes of which was hazardous waste . In addition, about
500 tonnes of contaminated soil was removed for disposal in
Finland . The reported volumes of other waste are based mainly on
the information provided by the waste management companies .
40
Social responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibilityEnvironmental responsibilityEnvironmental responsibility
Sustainable
energy production
Climate change
mitigation
Improving
energy efficiency
Circular
economy
Biodiversity
Emissions
into air
Water
use
Environmental non-
compliances and incidents
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 .
Our impacts on biodiversity
Fortum’s impacts on biodiversity are primarily related to our
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 . Indirect impacts may be caused
by, for example, large-scale procurement of biomass and other
fuels . 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
In 2017 we updated Fortumʼs Biodiversity Manual, which defines
Fortum’s approach in biodiversity management . According to the
manual, biodiversity issues are systematically considered as part of
our environmental management processes and our operations
throughout Fortum . The manual contains specific instructions for
biodiversity issues in current operations, new projects, the supply
chain as well as for reporting and communication .
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 . Legislation is expected to be
finalised in 2018 .
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 .
We aim to improve biodiversity in connection with our
operations, carry out biodiversity-related projects and cooperate
with stakeholders in projects . We assess the impacts of our
new projects . We offset and reduce the impacts of hydropower
production on biodiversity . We carried our obligatory fish care
measures valued at EUR 1 .9 million and several types of voluntary
environmental projects valued at EUR 1 .5 million .
Habitat restoration and other projects
Most of our habitat restorations and other projects improving
biodiversity are related to hydropower production . Additional
information about our hydropower-related projects supporting
biodiversity is available on our website .
River strategies focus on environmentally
effective solutions
Based on the earlier mapping of valuable riverine biodiversity areas
in 2015, by the end of 2017 we finalised our river strategies for all
of the rivers where we operate hydropower plants . The aim of these
river-tailored strategies is to balance the increasing need for flexible
hydropower and the needed case-by-case selected environmental
improvements by focusing environmental actions on valuable
species and habitats in the most important areas environmentally .
We started implementing the strategies in 2017 with the licensing
of the first projects .
Restoring river stretches by tearing down dams
In Sweden, we tore down the Acksjön dam in a tributary of the
River Klarälven . The operation was successfully carried out in
cooperation with local stakeholders . The tearing down resulted in
a new 100 m long stretch of river and the removal of a migration
41
barrier that will benefit biodiversity . A similar case is the Kolsjön
dam . An application for removal of the Kolsjön dam has been
submitted to the environmental court .
In Sweden, we have mapped out and prioritised 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 biodiversity benefits .
Restoring fish habitat
At the River Dalälven in Sweden, we restored a 180 m-long river
stretch in 2017 . The aim was to increase possibilities for sea trout to
spawn in the River Dalälven . Gravel and boulders were added to the
river . We carried out the restoration in cooperation with the local
fishing organisation in Älvskarleby . The restoration was part of the
"Biodiversity in lower Dalälven" project, with the goal to enhance
fish spawning of migratory fish in the River Dalälven . The project,
a cooperative effort between regional authorities and another
hydropower company, was finalised in 2017 .
Monitoring of the River Vuoksi in Finland gave positive
results regarding fish abundance at previously restored riverine
habitats upstream of the Imatra hydropower plant . Together
with our cooperation partners, the City of Imatra and regional
environmental authorities, the restored areas were further
amended by morphological modifications in November 2017 .
Protection of red listed species
We improved the habitat of Myrstarr (Carex heleonastes), a rare
aquatic plant species growing downstream of the Laforsen dam in
the River Ljusnan in Sweden . The plant habitat was cleared from
bushes and other vegetation that would suppress the Carex plants .
The conditions need to be maintained to safeguard the plant at
the site .
Social responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibilityEnvironmental responsibilityEnvironmental responsibility
Sustainable
energy production
Climate change
mitigation
Improving
energy efficiency
Circular
economy
Biodiversity
Emissions
into air
Water
use
Environmental non-
compliances and incidents
Case | Fish trap and transport facility for Montta power plant
in the River Oulujoki, Finland
Biomass fuels actions
Forest certification schemes will continue to play a strong role in
verifying the sustainability of wood-based biomass . Certified wood-
based biomass fuel originates from sustainably managed forests in
which special attention is paid to biodiversity . 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 . Our
goal is that 80% of all wood-based biomass fuel we use is verified
by a third party by the end of 2020 . We aim to obtain a Chain of
Custody certificate for our wood-based biomass fuel purchasing by
the end of 2018 .
ENVIRONMENTAL IMPACTS OF HYDROPOWER PRODUCTION
A trap and transport facility for fish was completed in late August in
conjunction with the Montta hydropower plant on the River Oulujoki.
We use the trap and transfer facility to capture salmon and trout as they
migrate upstream; it enables the fish to be efficiently and safely transported
around the migration barriers. The facility correspond to the lower portion
of a fishway. The fish swimming into the facility can be transferred into a
tanker truck and transported across several power plant dams to tributaries
upstream for spawning. Based on experiences gained elsewhere, this results
in significantly more broodfish in the spawning areas than if all the necessary
fishways between the sea and the spawning areas were built. Fortum has
good experiences with transporting landlocked salmon in Sweden on the
River Klarälven, which is harnessed for hydropower production.
From the new trap and transport facility, fish can also be transferred into
reservoirs for fishing, or their roe that has gone through natural selection can
be taken to the Montta fish farm where Fortum produces salmon and sea
trout for stocking in the River Oulujoki.
The trap and transport facility is a joint project by Fortum, the Muhos,
Utajärvi and Vaala municipalities, the North Ostrobothnia ELY Centre,
and the Ministry of Agriculture and Forestry to revitalise salmon and
trout in the River Oulujoki. The facility has special national significance
because it will gain experiences for use in migrating fish projects on other
constructed rivers.
The trap and transport facility is part of the overall conservation of
the fish population in the River Oulujoki. Fish conservation is based on
the stocking of migrating fish, strengthening the natural life cycle, and
developing the quality of the stock fish. In recent years, Fortum has invested
over EUR 5.5 million in the modernisation of the Montta fish farm and the
construction of the trap and transport facility.
We established a private
nature conservation
area in Muhos as a 100th
anniversary gift to Finland.
42
Social responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibilityEnvironmental responsibilityEnvironmental responsibility
Sustainable
energy production
Climate change
mitigation
Improving
energy efficiency
Circular
economy
Biodiversity
Emissions
into air
Water
use
Environmental non-
compliances and incidents
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 .
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 .
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 process and systems will be made in 2018–2019 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 in 2015–2017 (GRI 305-7)
SO2, t
NOX, t
Particles, t
HCl, t
Lead, kg
Mercury, kg
Cadmium, kg
Dioxins, mg
2017
18,800
27,500
15,800
960
3,990
118
96
430
2016
22,500
26,000
16,800
1,180
4,140
150
116
504
2015
19,900
26,800
17,800
105
Improving air quality
It is possible to decrease nitrogen oxide, sulphur dioxide and
particle emissions through fuel selections, combustion technology,
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 . In 2017, we implemented
nitrogen oxides reduction projects in Poland, and bio-oil burner
modification projects in Sweden .
Our Meri-Pori and Suomenoja power plants are equipped with
a desulphurisation plant . Our waste incineration plants located in
Riihimäki, Finland; Kumla, Sweden; Nyborg, Denmark; and Oslo,
Norway, 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 .
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
Flue-gas emissions
Our sulphur dioxide (SO2) emissions were 18,800 (2016: 22,500)
tonnes, nitrogen oxide (NOx) emissions 27,500 (2016: 26,000)
tonnes and particle emissions 15,800 (2016: 16,800) tonnes . 77%
(2016: 81%) of sulphur dioxide, 81% (2016: 82%) of nitrogen
oxide and 98% (2016: 98%) of particle emissions originated from
Russian operations . In 2017, the most significant source of particle
emissions, 9,200 (2016: 9,100) tonnes, was the Argayash CHP power
plant in Russia .
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 .
Carbon dioxide emissions are reported in the section
Greenhouse gas emissions .
43
Social responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibilityEnvironmental responsibilityEnvironmental responsibility
Sustainable
energy production
Climate change
mitigation
Improving
energy efficiency
Circular
economy
Biodiversity
Emissions
into air
Water
use
Environmental non-
compliances and incidents
Water use
Fortum uses large volumes of water at various types of power plants
and in district heating networks .
Water withdrawal in production operations
in 2015–2017 (GRI 303-1)
Water use in production operations in 2015–2017
(GRI 303-1)
Risks and opportunities related to water use
Risks related to Fortum’s water availability are relatively small and
local, according to our assessments . The majority of our water
withdrawal volume is seawater for the cooling of power plants . In
most cases we don’t consume water; it is returned into the same
water system from which it was taken . India is the only country,
where we operate in areas of high or extremely high water risk; our
water use in India is low . Within the policy framework, we identify
the implementation of the EU Water Framework Directive in
Sweden as a potential risk to hydropower production .
The Argayash CHP power plant in Russia takes water from
a nearby lake, the level of which is regulated by pumping water
from another lake . The amount of additional water pumped was
insufficient until 2017, and the water surface level was reduced
significantly . New permit limits, effective in 2017 and 2018, should
ensure water adequacy . Fortum also has an ongoing investment
project to increase the recycling of water . When the investment
is completed part of the purified water can be returned to the
production cycle . This will allow to take less water from the lake .
There are currently temporary water loading permit limits
in force at the Russian Chelyabinsk CHP-2 and CHP-3 and the
Argayash CHP power plants . These power plants have agreed
with the authorities on action plan that aims to reduce the load
on waterways .
Improving the efficiency of water use and reducing leaks in the
district heating network generate cost savings for us . We monitor
the water use of our power plants, and we implement measures
that improve water use efficiency when needed . With good water
use management in hydropower production, we can optimize our
production and control the impacts to the environment and to
stakeholders, impacts like flooding and droughts .
million m3
Seawater
Fresh surface water
of which at fish farms
Tap water
Groundwater
Other source
Total
* Figure revised
2017
1,519
598
43
2
0.1
0.3
2,120
2016
1,533
605 *
33
2
0.1
0.2
2,140 *
2015
1,487
643 **
-
4
0.2
4.4
2,138 **
million m3
Cooling water
Process and auxiliary water
of which at fish farms
Make-up water for district heat
network
Water recycling
* Figure revised
2017
1,994
115
43
11
13
2016
2,035 *
93 *
33
12
13
2015
2,060
64 **
-
14
12
** Excluding water volumes used for fish farming
** Excluding water volumes used for fish farming
In our operations we are preparing for changes in water
availability in the future as the climate changes . The preparation
is related to, for example, production planning, dam safety,
investment projects, the rise in the cooling water temperature,
and flood protection . In hydropower production planning we are
preparing for climate change by taking into consideration changes
in precipitation and temperature and extreme weather phenomena .
We are also monitoring the need for adjustments to regulation
permits with changes in seasonal variation; one permit change is
currently under way in preparation for autumn flooding .
The Loviisa nuclear power plant is prepared for nature’s extreme
phenomena and possible oil spill due to an accident at sea with a
seawater-independent back-up cooling system including air-cooled
cooling towers .
Our forms of water use
The majority of Fortum’s power and heat production capacity is
located in the Nordic countries, Russia and Poland . 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 .
We withdrew 2,120 (2016: 2,140) million m3 of water in 2017 .
Seawater accounted for about 72% of this amount . Our water
44
withdrawal includes 8 million m3 of water delivered to customers .
The reported water withdrawal and water use volumes are based on
measurements and on calculations of water consumption .
Cooling water
Condensing power production requires large volumes of cooling
water . Cooling water accounts over 90% of our water withdrawal .
Fortum has two condensing power plants in Finland: the
Loviisa nuclear power plant and the Meri-Pori power plant . Both
are located in coastal areas and use direct seawater cooling . The
Loviisa nuclear power plant withdrew and discharged back into the
sea 1,372 million m3 of cooling water in 2017 . 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 . Additionally, in Russia, Fortum
has the Nyagan condensing power plant, which uses river water
for cooling .
Condensing power is occasionally produced also at our CHP
plants . In most cases, the cooling water is withdrawn from a local
water system, such as a river or lake . In Russia and Poland, cooling
towers are used, so some of the cooling water evaporates into
the atmosphere .
Social responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibilityEnvironmental responsibilityEnvironmental responsibility
Sustainable
energy production
Climate change
mitigation
Improving
energy efficiency
Circular
economy
Biodiversity
Emissions
into air
Water
use
Environmental non-
compliances and incidents
District heating network
Fortum is a major supplier of district heating in Finland, Norway,
Poland, Russia and the Baltic countries . Fortum has a total of about
3,400 kilometres of district heat pipes in these countries . Water is
used as the heat transfer media in district heating . Some water is
lost through leaks that occur in the pipes, so occasionally water
must be added to the district heating network .
Process water
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 power plant auxiliary processes, for
example in flue-gas cleaning with wet scrubber technology, and in
radioactive waste handling and storage at nuclear power plants .
Hydropower production and fish farming
We produce hydropower from water flowing in rivers in Finland
and Sweden . The power plants are typically located in big rivers
that have no problems with regards to water supply . Water is not
consumed in our hydropower production, it is not typically directed
to another water system, and the water properties are not altered .
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 .
We have precise knowledge of the water situation in those
waterways where we use hydropower, and we use real-time
hydrological forecasts in production planning . We don’t report river
discharges as a hydropower-related water withdrawal .
We farm and stock fish to offset the impacts of hydropower
production . The majority of the fresh water withdrawn for fish
farming is returned into the bodies of water with only a slight
change in its properties . We have included water use at the fish
farms in water volumes since 2016 .
Our water use in water risk areas
According to the WRI Aqueduct Water Risk Atlas, the solar
power plants in India are the only of our power plants located
in high to extremely high risk (level 3–5) areas in terms of water
risk . The Amrit (5 MW) and the Kapeli (10 MW) power plants use
groundwater we have purchased, and the Bhadla (70 MW) plant
uses surface water . Water for the Bhadla plant is withdrawn from
the channel shared by several actors in the solar park area . Fortum
gets a fixed amount of its water discharge . The Pavagada (100 MW)
plant completed at the end of 2017 has not yet used water in 2017 .
Water is used to clean the solar panels at our solar power plants
in India . India’s share of our water use in 2017 was about 6,000
(2016: 4,000) m3, i .e . only 0 .0003% of our total water withdrawal .
While the water volumes are small, we aim to increase the efficiency
of our water use in India . We have set a target in the Indian
solar power production environmental management system to
discontinue the use of water for cleaning panels at our current solar
power plants by 2020 . At the Amrit solar power plant, we have built
an absorption basin to collect and absorb rainwater . By improving
the efficiency of the cleaning processes, water use at the Amrit
and Kapeli power plants decreased by 11% in 2017 . We are also
developing waterless cleaning methods for solar panels . We will
start a waterless cleaning pilot project in the first part of 2018 .
Wastewater
Wastewater generated at our power plants is either treated at the
power plant’s 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 and
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 64 (2016: 56) 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 66% of the wastewater is discharged water from fish
farms . Discharged water is purified and its nutrient content
45
Wastewater emissions by recipient in 2015–2017
(GRI 306-1)
million m3
Sea
Fresh surface water
of which from fish farms
Municipal sewage
Other recipient
Total
* Figure revised
** Excluding water volumes used for fish farming
2017
0.7
62
43
1.7
0.1
64
2016
0.7 *
54 *
33
1.3
0.1
56 *
2015
0.4 **
23 **
-
1.3
0.5
25 **
is monitored in line with permit conditions . The sludge water
separated from the process water at the Montta fish farm in Finland
has been piped to a municipal wastewater treatment plant since
2016, which has reduced the nutrient load on the water system .
About 1 .0 (2016: 1 .3) tonnes of oil was released into water
systems through wastewater .
The thermal load discharged into water systems with cooling
water was 17 (2016: 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 2017,
we continued product deliveries globally, and, in addition to ion
exchange materials, we supplied a radioactive liquid purification
system to customers in Finland and Germany .
Social responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibilityEnvironmental responsibilityEnvironmental responsibility
Sustainable
energy production
Climate change
mitigation
Improving
energy efficiency
Circular
economy
Biodiversity
Emissions
into air
Water
use
Environmental non-
compliances and incidents
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 2017, there were 20 (2016: 22) major EHS incidents, and 10 (2016:
12) of these were significant environmental incidents . Significant
environmental incidents include spills of over 100 litres into the
environment, significant environmental permit violations, and
other environmental non-compliances that have a significant
impact on environment .
Spills and leaks into the environment
In 2017, there were 8 (2016: 1) spills and leaks of more than
100 litres into the environment, all in the Nordic countries . In
Finland, there were four incidents of refrigerant leakage at the
Suomenoja heat pump plant . Also in Finland, there was leakage
from a container of chemical waste to be transport to Riihimäki
and a spill involving a tank of lubrication oil used at the waste-to-
energy plant . In Sweden, a chemical leak occurred at the waste-
to-energy plant in conjunction with the emptying of the scrubber .
Additionally, a diesel spill took place during a transport related
to the hydropower production investment project in Sweden . The
incidents have been investigated to find corrective measures . The
incidents did not have significant environmental impacts .
Significant environmental permit violations
There were two (2016: 11) environmental permit violations in 2017,
one of them in Russia and the other in Denmark . At the Nyagan
GRES power plant in Russia, the permit limit for the sanitary
wastewater emissions was exceeded . The process wastewater
limit was exceeded at the waste-to-energy plant in Denmark . The
incidents have been investigated to find corrective measures .
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 that have
20
Major EHS incidents
Target: ≤23
possible environmental impacts, for example, 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 2017 .
Fines
In 2017, Fortum paid fines totalling RUB 8,000 (EUR 121) for
permit violations involving exceeding the sanitary wastewater
emission limits .
BUSINESS ETHICS AND COMPLIANCE
OCCUPATIONAL AND OPERATIONAL SAFETY
46
Social responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibilityEnvironmental responsibilityEnvironmental responsibility
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 energy
supply for customers, 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 .
47
Environmental responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibilitySocial responsibility Social impacts
We want to offer a safe workplace for our employees and for the contractors and service providers who
work at our power plants . 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 for customers support the development of society and increase
wellbeing . We 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 . We want to support responsible operations in Fortum’s supply chain and
in all our business relationships . Fortum’s sustainability approach also includes being a good corporate
citizen and taking care of the surrounding communities .
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, %
Sickness-related absences, %
Total recordable injury frequency (TRIF) 1), own personnel
Lost workday injury frequency (LWIF) 2), own personnel
Lost workday injury frequency (LWIF) 2), contractors
Severe occupational accidents 3)
Fatalities
OHSAS 18001 -certified opeartions in power and heat
production, % of sales
Supplier audits, number
Support for society, EUR million
2017
96.1
8,507
8,785
10.5
32
29
2.2 *
1.8
1.2
4.2
1
0
98.4
11
4.9
2016
97.4
7,994
8,108
13.0
29
25
2.3 *
1.9
1.0
3.0
5
0
99.9
13
2.9
2015
96.4
8,009
7,835
8.6
29
33
2.4
1.6
1.1
2.7
-
0
99.9
9
2.9
1) TRIF = Total recordable injury frequency, injuries per million working hours
2) LWIF = Lost workday injury frequency, injuries per million working hours
3) Fatality or an accident leading to permanent disability and an accident that could have caused serious consequences
* Excluding DUON, Hafslund
Combined injury frequency (LWIF),
Fortum’s employees and contractors
Number of employees by country, 31 December 2017
Fortum’s support to society by target, %
3.0
2.5
2.0
1.5
1.0
0.5
0
2015
2016
2017
2018
LWIF (Fortum’s employees and contractors)
Target
Finland, 2,165
Sweden, 968
Norway, 654
Russia, 3,494
Poland, 827
Other countries, 677
48
Environment, 27
Sports, 19
Culture, 13
Children and youth, 12
Other, 29
Environmental responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibilitySocial responsibility
Security of supply
Employees
Safety and security
Corporate citizenship
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Product responsibility
Security of supply
A functional society requires an uninterrupted and reliable supply of energy . Fortum is committed
to working for cleaner energy production . Implementing our vision – For a cleaner world – requires a
reliable supply of economically priced energy delivered to customers as we transition towards a low-
carbon energy system .
Hydropower balances the growing, but weather-dependent, fluctuating production of other
renewable energy forms like solar and wind . The flexibility of hydropower is needed to secure the
functionality of the energy system and the power grid and to balance fluctuations in the price of
electricity .
If a sufficient supply of hydropower is not available, then adjustable natural gas power production can
be used to balance fluctuations in renewable energy production and to secure the supply of electricity .
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 at a good level
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 a production
interruption, which decreases the energy availability . The energy availability of our CHP plants in 2017
was, on average, 96 .1% (2016: 97 .4%); the target level was over 95 .0% .
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 .2% (2016: 98 .7%) .
The load factor describing the availability of the Loviisa nuclear power plant is among the best in the
world for pressurised water reactor power plants . The Loviisa nuclear power plant’s load factor in 2017
was 92 .7% (2016: 91 .1%) .
Interruptions in heat distribution
Fortum has about 3,400 km of district heating networks in Finland, Norway, Poland, Russia and the
Baltic countries . The aim is to keep interruptions in district heat distribution as short as possible by
carrying out planned and preventive refurbishment and maintenance activities .
Fortum sold the Polish gas distribution company DUON Dystrybucja S .A . in summer 2017, because
gas distribution is outside Fortum’s core strategy .
96.1%
CHP plant energy availability
Target: > 95.0%
49
Environmental responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibilitySocial responsibility
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Employees
Safety and security
Corporate citizenship
Human rights
Product responsibility
Employees
In 2017, an average of 8,507 (2016: 7,994) employees worked at
Fortum . The highest number of employees was in Russia, 3,710
(2016: 3,814) on average . The average and the year-end total
personnel figures include 200 employees who are not included
in the other figures and tables presented in this report . These
individuals include the civil contractors working in the Consumer
Solutions division in Poland, Sweden and Norway .
Permanent employees accounted for 95 .2% (2016: 96 .1%) of the
personnel . Of these, the share of full-time employees was 98 .1%
(2016: 98 .5%) .
Personnel statistics from 2017, 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
2,165
1,525
640
2,147
183,533
85.5
Sweden
968
558
410
834
75,311
90.3
Norway
654
381
273
282
30,658
108.5
Russia
3,494
2,517
977
3,710
79,339
21.4
Poland
827
490
337
863
20,429
23.7
Other
countries
677
467
210
672
33,361
49.6
Total
8,785
5,938
2,847
8,507
422,632
50.0
During the year 734 (2016: 476) new employees joined Fortum,
Number of employees, 31 December
and 855 (2016: 968) employment relationships were terminated,
206 of which by the employer . The number of employment
relationships terminated due to production and financial reasons
was 77 . Departure turnover in 2017 was 10 .5% (2016: 13 .0%) .
Voluntary departure turnover was 5 .4% (2016: 5 .6%) .
With the acquisition of Hafslund, 722 new employees joined
Fortum . Other acquisitions and outsourcings decreased the
number of personnel by a total of 185 (2016: 248) people .
Contractor employees worked at Fortum sites for a total of
approximately 1,249,000 (2016: 1,113,000) 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 .
10,000
8,000
6,000
4,000
2,000
0
2013
2014
2015
2016
2017
Workforce by employment contract and employment type, broken down by region and gender (GRI 102-8)
Employment contract
Permanent
Fixed-term
Employment type
(permanently employed)
Full-time
Part-time
Poland
M
no.
341
23
F
no.
220
65
no.
338
3
no.
217
3
F
no.
910
67
no.
909
1
Finland
M
no.
1,461
64
F
no.
601
39
Sweden
M
no.
542
31
F
no.
358
36
Norway
M
no.
369
11
F
no.
Russia
M
no.
249 2,465
52
12
no.
no.
210 2,461
4
39
no.
1,453
8
no.
577
24
no.
529
13
no.
326
32
no.
353
16
50
Other
countries
F
no.
Total
F
M
no.
no.
195 5,639 2,533
227
186
8
no.
no.
no.
189 5,591 2,428
105
48
6
M
no.
461
5
no.
457
4
Environmental responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibilitySocial responsibilitySocial responsibility
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Employees
Safety and security
Corporate citizenship
Human rights
Product responsibility
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 .
Fortum is a Top 200 company included in 2017 Equileap Gender
Equality Global Ranking . The assessment criteria are related to
personnel’s gender division, equal pay, work-life balance and family
leave, and principles supporting gender equality in e .g . recruiting
and career development .
The average age of our permanent employees was 43 .6 (2016:
44 .2) years . The share of employees over 50 years old was 29%
(2016: 32%) . Females accounted for 32% (2016: 29%) of our total
personnel . Females accounted for 29% (2016: 25%) of the Group-
and division-level management . At the end of 2017, the Board of
Directors comprised seven members, three of them, including the
Chairman, were women .
Any form of harassment is forbidden and addressed
immediately . In Finland, Sweden, and India, for example, there
are separate guidelines in place for workplace harassment and
discrimination . There were no incidents of discrimination reported
in 2017 .
Other
countries
M
no.
9
14
4
5.9
F
no.
5
10
2
8.7
Other
countries
M
no.
2
14
10
5.6
F
no.
2
12
1
7.7
Other
countries
M
no.
2
9
3
F
no.
2
12
0
Total number and rate of new employee hires and employee turnover (GRI 401-1)
New employee hires
age group
below 30
30–50
over 50
New recruits, %
Finland
M
no.
30
84
9
8.4
F
no.
7
31
4
7.0
Sweden
M
no.
28
42
7
14.2
F
no.
16
19
4
10.9
Norway
M
no.
12
14
0
7.0
F
no.
10
8
0
7.2
Russia
M
no.
70
123
13
8.4
F
no.
35
75
20
14.3
Poland
M
no.
1
8
0
2.6
F
no.
11
9
0
9.1
Employees leaving
age group
below 30
30–50
over 50
Departure turnover, %
Finland
M
no.
11
40
14
4.4
F
no.
4
25
8
6.2
Sweden
M
no.
14
17
8
7.2
F
no.
17
28
7
14.5
Norway
M
no.
1
2
0
0.8
F
no.
1
8
0
3.6
Russia
M
no.
54
215
163
17.5
F
no.
15
68
67
16.5
Poland
M
no.
4
7
1
3.5
F
no.
9
5
1
6.8
Employees leaving,
employeeʼs initiative
age group
below 30
30–50
over 50
Voluntary departure
turnover, %
Finland
Sweden
Norway
Russia
Poland
M
no.
10
40
10
F
no.
4
21
4
M
no.
12
15
5
F
no.
17
22
3
M
no.
1
2
0
F
no.
1
8
0
M
no.
24
85
50
F
no.
6
34
14
M
no.
4
7
1
F
no.
9
5
0
4.1
4.8
5.9
11.7
0.8
3.6
6.5
5.9
3.5
6.4
3.0
7.2
Service years of the permanent employees in 2015–2017, %
0–5 y.
6–10 y.
11–15 y.
16–20 y.
21–26 y.
27–30 y.
31+
51
2017
37
20
10
10
8
7
7
2016
33
21
10
10
9
8
8
2015
32
23
9
9
10
9
8
Environmental responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibilitySocial responsibilitySocial responsibility
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Personnel age distribution of permanent employees by age group, gender and personnel group (GRI 405-1)
Finland
Sweden
Norway
Russia
Poland
Other countries
Total
Age
group
under 30
30–50
over 50
b = blue-collar, w = white-collar
Male
b
34
177
121
w
84
701
344
Female
b
2
8
3
w
50
350
188
Male
b
3
25
25
w
93
244
152
Female
b
1
1
2
w
74
188
92
Male
b
4
28
14
w
67
194
62
Female
b
0
2
0
w
42
163
42
Male
b
234
817
432
w
73
657
252
Female
b
13
137
113
w
88
423
136
Male
b
0
62
76
w
16
117
70
Female
b
0
1
2
w
64
118
35
Male
b
22
124
113
w
15
118
69
Female
w
20
Male
w
b
297
348
106 1,233 2,031
949
781
49
Female
b
16
w
338
158 1,348
542
131
b
0
9
11
Group and division-level management, by age and
gender, persons (GRI 405-1)
Age group
under 30
30–50
over 50
Male
0
32
19
Female
0
7
14
Equal remuneration
Salary levels at Fortum are compliant with established industry
practices in each country, local legislation and labour market
agreements . We remunerate personnel for achievement of
the strategic business targets and successful implementation
of changes . Remuneration is based on job grade levels, job
performance and local job market practices .
In the incentive scheme, the maximum amount of the short-
term variable remuneration is based on the individual’s job, and the
amount of the final incentive pay is based on the job-based salary
level and the achievement of the goals of the business unit and
the individual . For the reasons mentioned above, 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 enable 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 2017, 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 individuals
working in blue-collar positions . A male/female comparison in
this group is not done because of the small group sizes . Blue-
collar workers accounted for about 32% of Fortum’s personnel . 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 yearʼs figures because the method of calculation has
been changed .
In our operating countries, total number of personnel included
in the comparison was 3,091, of which 1,124 (36%) were female .
The base salaries of female employees in 2017 were, on average,
18% lower than the male base salaries . When examining the
differences by employee group and by country, the differences
ranged between -1% to -16% .
In Russia, the difference between female and male salaries was
-19% on average . The total number of personnel included in the
comparison was 2,202 .
Basic salary and service years of women compared to men (GRI 405-2) 1)
Difference between basic salaries
Operational
specialists and
managers, %
Broad operational
professionals and
managers, %
Tactical and strategic
leaders and middle
management, %
Difference between
service years
Average service
years, %
-3
-4
-16
+8
-3
-3
-4
-24
-4
-1
N/A
N/A
0
0
-5
+1
All roles, %
-3
-2
-7
-14
Country
Finland
Sweden
Poland
Other countries 2)
1) Excluding Hafslund
2) Excluding Russia
52
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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 nearly 85% of
Fortum’s employees in our biggest operating countries and range
from 6% coverage in Latvia to about 100% in Finland, Sweden and
Russia . There are no collective bargaining agreements in Lithuania,
Poland and India . Employment contracts are based on local
legislation and on the company’s human resources policy .
Fortum European Council
Fortum European Council (FEC) is Fortum’s Europe-level
cooperation function in which personnel and employer
representatives meet . FEC convenes, as a rule, once a year . In 2017,
the Fortum European Council (FEC) held a meeting in Poland,
and personnel representatives from Finland, Sweden, Poland,
Estonia and Denmark participated . The Council’s meeting focused
on, among other topics, Fortum’s strategy, corporate culture,
leadership, wellbeing and safety . 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 reemployment 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 on a per case and per country basis, and,
in cooperation with local unemployment authorities or service
providers, we investigate the possibilities to arrange vocational or
Nearly 4,700 Fortum employees responded to the wellbeing survey. Based on the results,
we offered physical fitness, recovery, stress management and other support to personnel.
53
other training enhancing employability . 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
Our operating environment is constantly changing, and we want
to support our personnel in the change by paying special attention
to work wellbeing . In line with our new leadership principles, the
development of work wellbeing supports the work environment and
corporate culture, which helps our employees to succeed .
Energise Your Day wellbeing programme
expanded to new operating countries
The goal of the work wellbeing model, ForCare, is to promote
the health and occupational safety of our employees and the
functionality of the work community . Operating under the ForCare
model since 2016, the Energise Your Day wellbeing programme
aims to support and encourage all Fortum employees to maintain
and improve their overall wellbeing .
In 2017 the Energise Your Day programme was expanded, and
is now under way in nine of our operating countries . The Energise
Your Day programme starts with a self-assessment-based wellbeing
survey; close to 4,700 Fortum employees have responded to the
survey . The response rate is 73% . Based on the responses, the
most sought after support and tools are for recovery and stress
management .
Based on the wellbeing survey results, employees are offered
various wellbeing services, such as lectures, coaching clinics,
campaigns and other wellbeing activities . Self-management, stress
management, recovery, nutrition and physical activity are among
the themes .
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 .
Environmental responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibilitySocial responsibilitySocial responsibility
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Occupational safety and health care
Occupational safety and health care 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 occupational 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 533
(2016: 460) .
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 .
In 2017, the percentage of sickness-related absences (excluding
DUON and Hafslund) was 2 .2 (2016: 2 .3), which is better than the
target level of ≤2 .3 . For males, the percentage of sickness-related
absences was 1 .9 (2016: 2 .1) and for females 2 .9 (2016: 3 .0) . The
sickness absence rate is calculated based on the reported working
hours of the permanent employees . The percentage of sickness-
related absences for Hafslund was 3 .0 . In addition to expansion
of the Energise Your Day occupational wellbeing programme, the
management of sickness-related absences was one of our focus
areas in 2017 .
There was one (2016: 8) case of suspected occupational disease
in Finland . The case was related to noise and involved a male
employee . The case was determined to be non-occupational .
An indication of the good management level of working capacity
and workplace wellbeing at Fortum is the average retirement
age, which was 62 (2016: 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) .
2.2%
Sickness-related absences
Target: ≤ 2.3%
Sickness absence rate of permanent employees
in 2015–2017 (GRI 403-2)1), %
2017
2016
2015
Male
Female Male
Female Male
2.2
2.8
1.5
2.7
2.6
8.0
1.5
3.1
2.5
2.3
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
Female
3.5
5.3
2.0
6.5
3.2
Finland
Sweden
Russia
Poland
Other
countries
1) Excluding: DUON, Hafslund
54
Employee development
Our goal is to be a forerunner in the future energy system . This
means that our corporate culture must evolve to be more flexible
and agile . That is why we have drafted new Leadership Principles
and have updated our company’s Values .
Our Open Leadership framework is based on views and input
received from the Fortum Sound employee survey, Fortum Summit,
Fortum European Council (FEC), and Must-Win-Battle development
programmes, among others . This input emphasised the need
for more collaboration between units as well as an environment
fostering innovation and smart risk-taking . Based on feedback
we received, there is a need within the teams to better understand
how the daily work advances the implementation of our company’s
strategy . Open Leadership aims to address these issues .
FORTUM’S LEADERSHIP PRINCIPLES
BELIEVE THE BEST IN OUR PEOPLE
We believe in our people, which empowers them to believe
in themselves, grow and exceed their own expectations.
WANT THE BEST FOR OUR PEOPLE
We create a work environment and company culture that
help our people thrive.
EXPECT THE BEST FROM OUR PEOPLE
As we believe in our people and provide them with a good
work environment, we can expect them to deliver results.
We are confident they will even exceed our expectations.
Our Leadership Principles promote openness and curiosity towards
the world, our customers, the industry, and each other .
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Our Values form the foundation for our corporate culture and guide
our decision-making . Fortum’s Values have withstood the test of
time, and that is why we updated only some elements of our Values
so that they are in even better alignment with our strategic context
and our situation . Our updated Values are:
CURIOSITY
We question the status quo and have the courage to explore.
RESPONSIBILITY
We have a strong sense of responsibility.
INTEGRITY
We believe in transparency.
RESPECT
We greatly value each other and all our stakeholders.
Our Leadership Principles and our Values have already been
introduced and discussed in various management meetings and
in other unit and team meetings . Leadership Principles have also
been a central part of seminars and training events that have been
arranged in conjunction with the Ways of Working project .
Training hours in 2017 (GRI 404-1)
The change in our working culture and the move of the
headquarters into a new multi-space office require learning on
the part of the personnel and the ability to renew ways of working .
The purpose of the Ways of Working change management
trainings, launched in late 2017, is to offer tools to support better
collaboration and self-leadership . The target group of the training
includes all the employees and their managers who are moving to
the new premises .
The total number of all training hours in 2017 was 62,189 (2016:
39,129) . The Safety and Security eLearning aimed at all Group
personnel contributed to the increase in the number of training
hours . Training costs in 2017 totalled EUR 3 .6 (2016: 3 .1) million .
Performance and development discussions support
the achievement of targets and professional growth
We support employee development 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 .
Faster feedback from personnel
In 2017 we adopted a new, quick pulse survey tool . By asking ten
questions we can measure personnel engagement and satisfaction .
The tool replaces the previously used Fortum Sound employee
survey, and it will be conducted every six months . The employees
and supervisors see the survey results immediately after the
feedback is given .
The survey conducted in October 2017 had a response rate
of 69% . According to the results, 68% of the personnel feel a
commitment to the company . Based on the survey results, the
personnel feel that Fortum is an innovative company and pursues
new ways to operate . There is a clear connection seen between one’s
own work duties and the company’s targets, and the respondents
felt that they can trust management’s decisions .
Targets of development included increasing the collaboration
between the divisions and units, encouraging smart risk-taking,
and decreasing the decision-making hierarchy . Open Leadership
aims to have an impact on these issues .
Level of education of the permanent employees
in 2015–2017, %
Total number
of training hours
for employees
51,027
8,465
42,562
11,162
2,817
8,345
62,189
Average training
hours per
employee
25
25
25
5
6
5
15
Total number
of training hours
for females
12,608
441
12,167
3,643
110
3,533
16,251
Average training
hours per female
21
34
21
5
5
5
12
Total number
of training hours
for males
38,419
8,024
30,395
7,519
2,707
4,812
45,938
Average training
hours per male
26
24
27
6
7
5
17
Finland
Blue-collar
White-collar
Other countries 1)
Blue-collar
White-collar
Total
1) Excluding: Russia, Hafslund in Norway
Level of education
Doctorate
University
Lower university
College
Vocational
Compulsory
Not indicated
2017
1
40
8
19
18
3
11
2016
1
43
7
24
17
3
5
2015
1
41
6
27
21
4
0
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Environmental responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibilitySocial responsibilitySocial responsibility
Security of supply
Employees
Safety and security
Corporate citizenship
Human rights
Product responsibility
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 .
In 2017, we had the following Group-level key safety indicators:
• Injury frequency (TRIF* and LWIF**) for own employees and
(LWIF) for contractors
• Number of severe*** accidents
• Major environmental, health and safety (EHS) incidents
• Quality of investigation process of occupational accidents,
major EHS incidents and near misses
Fortum’s Board of Directors has approved the following
amendments for 2018: at the Group-level, the LWIF combined
(own employees and contractors) will be used as the main safety
indicator . Total recordable injury frequency (TRIF) for own
employees will be used as a follow-up indicator . In addition, the
GAP index measuring compliance with the Group’s minimum
requirements for EHS management is a new Group safety indicator .
The safety targets apply to all Fortum employees and are part of
the result was 2 .4 (2016: 1 .8), exceeding the target of 1 .9 . However,
we can be pleased that there have been no accidents leading to a
fatality in Fortum’s operations in the last three years .
Our target defined in 2017 is to reduce severe accidents to zero
by 2020 . We had one severe accident in Russia in 2017; our target
for the Group was ≤5 . Consequently, Fortum’s Board of Directors
amended the target and we are now aiming for zero severe accidents
already in 2018 .
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 .
the Group’s short-term incentive plan .
Safety improvements needed
2017 was a challenging year in terms of occupational safety . The
safety performance of our employees is still at a relatively good level
but exceeds the lost workday injury frequency (LWIF) target level of
1 .0, and we have not been able to reduce the number of contractor
accidents .
The LWIF for both own employees and contractors has
increased mainly due to the integration of Recycling and Waste
Solutions, where the safety actions implemented on the ground
have not yet resulted in an improved safety performance .
As a result, only the total recordable incident frequency (TRIF)
for own employees and the number of severe accidents met the
set target level . The LWIF for own employees per million working
hours was 1 .2 (2016: 1 .0) and the TRIF was 1 .8 (2016: 1 .9) .
The LWIF for contractors continues to be our main challenge .
The LWIF for contractors per million working hours was 4 .2 (2016:
3 .0), and we did not achieve the target of ≤3 .5 . The same challenge
applies to the combined LWIF (own employees and contractors):
100%
of the personnel completed the
Safety and Security eLearning.
* 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 shifts, excluding the day the accident happened
*** Severe accident: Fatality or an accident leading to permanent disability and an accident that could have caused serious consequences
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Environmental responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibilitySocial responsibilitySocial responsibility
Security of supply
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Safety and security
Corporate citizenship
Human rights
Product responsibility
Key safety figures in 2015–2017 (GRI 403-2)
Total recordable injury frequency (TRIF) 1), own personnel
Lost workday injury frequency (LWIF) 2), own personnel and contractors
Lost workday injury frequency (LWIF) 2), own personnel
Lost workday injury frequency (LWIF) 2), contractors
Lost workday injuries, own personnel
Lost workday injuries, contractors
Severe occupational accidents 3)
Fatalities, own personnel
Fatalities, contractors
Major EHS incidents 4)
1) TRIF = Total recordable injury frequency, injuries per million working hours
2) LWIF = Lost workday injury frequency, injuries per million working hours
Target
2018
≤2.1
Target
2017
≤2.5
≤1.9
≤1.0
≤3.5
0
≤5
≤20
≤21
2017
1.8
2.4
1.2
4.2
17
42
1
0
0
20
2016
1.9
1.8
1.0
3.0
14
27
5
0
0
22
2015
1.6
1.7
1.1
2.7
15
29 *
0
0
18
3) Fatality or an accident leading to permanent disability and an accident that could have caused serious consequences
4) Fires, leaks, explosions, INES events exceeding level 0, dam safety incidents, environmental non-compliances. INES = International Nuclear Event Scale
* Including contractor injuries of the divested Distribution business
Occupational accidents, accident frequencies and absence days due to occupational accidents in 2017
by region and gender (GRI 403-2)
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 and women 1)
Absence from work due to occupational accidents for men, days
Absence from work due to occupational accidents for women, days
1) Contractor hours not available by gender
Finland Sweden Norway
Russia Poland Others
6
0
2.2
0.0
30
0
24
1
13.2
268
2
0
0
0.0
0.0
0
0
6
0
6.5
98
0
1
0
3.4
0.0
1
0
1
2
24.5
2
48
1
1
0.2
0.6
43
15
0
0
0.0
0
0
3
0
4.4
0.0
87
0
5
0
2.2
76
0
5
0
5.8
0.0
62
0
3
0
1.7
7
0
Operational safety
We track major environmental, health and safety (EHS) incidents
as a Group target; these incidents cover fires, leaks >100 litres into
the environment, explosions, nuclear and dam safety incidents,
and environmental non-compliances . There were 20 (2016: 22)
EHS incidents in 2017; the target was ≤21 . There was one (2016: 0)
INES event exceeding level 0 (INES = International Nuclear Event
Scale) . The incidents did not cause significant harm to people,
operations or the environment .
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 . The requirements are updated
regularly, and the divisionsʼ performance in complying with the
revised requirements is assessed yearly .
The two proactive KPIs (Quality of EHS incident investigations
and GAP index) introduced in 2017 help ensure compliance with
the Group minimum requirements for EHS management and thus
reduce the risk of improper work practices . They also ensure a timely
investigation of incidents, the sharing of lessons learned, and reduce
the risk of repeating the same mistakes again . Both of these proactive
KPIs are also internal control points of the EHS processes .
A Safety and Security eLearning programme, compulsory
for all personnel, was launched in spring 2017 . The training for
Fortum Executive Management took place already in January 2017 .
By year end, all personnel had completed the e-learning . In 2018,
Fortum will also introduce external safety training for both the
management level and key individuals leading safety work as well as
for the most challenging business areas in terms of safety .
A development project addressing contractor safety was carried
out during the year . New tools were developed to assess contractor
safety performance as part of the supplier qualification process
and to evaluate their safety practices in a more systematic manner
during work . The project also included benchmarking with
leading European companies to assess best practices in contractor
management . Key persons were trained on the new tools and
implementation of them will continue during 2018 .
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Environmental responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibilitySocial responsibilitySocial responsibility
Security of supply
Employees
Safety and security
Corporate citizenship
Human rights
Product responsibility
We will continue our efforts to improve safety
Our goal is to continuously improve the safety of our operations .
Our target for LWIF combined (own employees and contractors) for
2018 is 2 .1 (2017: 1 .9) . Setting a higher numeric target than in 2017
might seem controversial, but it is challenging considering that the
actual result in 2017 was 2 .4 . Achieving the target of 2 .1 requires
robust safety improvement actions and implementation of Fortum’s
EHS minimum requirements .
Excellent occupational safety continues to be a promise we want
to keep also in the years ahead . We are committed to achieving the
contractor safety level target (LWIF ≤2 .0) by 2020 .
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 . Our Corporate Security unit is responsible at the Group
1.8
TRIF own
employees
Target: ≤ 2.5
20
Major EHS
incidents
Target: ≤ 21
level for personnel and operational security; cyber security
and data security are also within the scope of the unit’s areas
of responsibility .
Securing personnel and business safety
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 .
We assess 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 . Our cyber security programme is currently
divided into data, IT and digital services security and security
of automation systems . The aim 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 our
compliance with the regulations related to the protection of
personal data . Customer data protection is discussed in the
Product responsibility section .
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, e .g ., providing
guidelines and online training .
58
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 .
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 2017, an emergency preparedness exercise for hydropower
production in Finland was held . The annual emergency
preparedness exercise related to a nuclear power accident was held
at the Loviisa power plant .
Environmental responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibilitySocial responsibilitySocial responsibility
Security of supply
Employees
Safety and security
Corporate citizenship
Human rights
Product responsibility
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,
including the work of organisations and communities in our
operating countries . Fortum’s Policy for Sponsoring and Donations
was revised in December 2017 . According to the policy, Fortum’s
sponsoring will focus on the wellbeing of children and youth,
renewable energy projects, R&D and innovations supporting
Fortum’s strategy, recycling, recovery and reutilisation . For 2017,
we are reporting support for society pursuant to the categorisation
based on the previous version of the Sponsoring and Donations
Policy . Fortum also engages in 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
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
impacts on local communities and local
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 2017:
• We arranged open-house events at power plants in different
countries of operation; thousands of locals attended the events .
• We continued publishing the Naapurina ydinvoimala (Nuclear
power plant as a neighbour) magazine in Loviisa, Finland,
and maintained an active dialogue with local residents and
representatives of the city of Loviisa .
• In Riihimäki, Finland, an active dialogue with local residents is
supported by a cooperation council convening twice a year .
• 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, the
River Oulujoki restoration and multi-use framework agreement
was renewed for 2018-2021 in Finland . Within the agreement, we
continue improving environmental conditions and recreational
use of the river with local partners . In Sweden, we finalised a
multiannual, cooperation research project in on migratory fish
in River Klarälven .
• We held the fifth River Clean-Up for sports clubs in Sweden . More
than 1,700 children and adults raised money for sports activities
by collecting 17 .5 tonnes of trash along the banks of four rivers
(Dalälven, Klarälven, Ljusnan and Gullspångälven) where
Fortum has hydropower plants .
• We 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 and
electricity supply in the villages as well as supported local
schools by building a new classroom and furnishing the kitchen
for providing lunch for the children . In three villages in the
59
vicinity of the Bhadla power plant, a community development
programme was started . The programme includes a Self Help
Group for local women and provides drinking water through a
“Water ATM” .
• We support the communities in power plant areas through
various donations . In Poland, e .g ., we supported workshops and
scholarships for talented children raised in difficult conditions
and installed solar panels on the rooftop of a kindergarten . In
Russia, we supported medical care for children with serious
diseases . In Finland, elementary schools in the Hausjärvi
and Riihimäki region were supported to join "Vihreä lippu"
sustainable development programme .
Support for society
As part of Finland 100, the centenary of Finland’s independence,
Fortum made donation of EUR 1 million to four Finnish
universities . Fortum Waste Solutions distributed a total of
EUR 120,000 in grants to five environmental management research
projects . The grant, awarded by the company’s environmental
scholarship fund, is the largest research grant in the industry
to be awarded by a company on an annual basis . In 2017, our
support for activities promoting the common good totalled about
EUR 4 .9 (2016: 2 .9) million .
Fortum Foundation supports research, education and
development in the natural, technical and economical sciences
within the energy industry . Fortum Foundation is not part of
Fortum Group . The grants awarded by Fortum Foundation in 2017
were about EUR 696,000 (2016: 675,000) .
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 .
Environmental responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibilitySocial responsibilitySocial responsibility
Security of supply
Employees
Safety and security
Corporate citizenship
Human rights
Product responsibility
Examples of our collaboration with universities and colleges in
different operating countries:
• In Sweden, 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 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, Fortum is taking an active part in the THERMOS
(Thermal Energy Resource Modelling and Optimisation System)
project . It is an EU Horizon 2020-funded research project
that will provide advanced energy system data and models to
make heat network planning faster, more efficient, and more
cost effective .
Sponsorship projects
In 2017, 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 . In 2017, we were the
main partner for the world’s largest junior volleyball tournament in
Finland . Fortum Power Cup attracted thousands of junior players
and their coaches for outdoor games .
The Fortum Honorary Energy Donor mobile app has been in
use in Poland . 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 .
Fortum’s support to society by target, %
Fortum’s support to society by country, %
Environment, 27
Sports, 19
Culture, 13
Children and youth, 12
Other, 29
Finland, 38
Sweden, 4
Norway, 10
Russia, 43
Poland, 2
Other countries, 3
Case | AboutEnergy
educational programme
in Russia
In 2017, more than 1,500 school kids in Tyumen,
Chelyabinsk, and other cities in the Chelyabinsk region
completed the “AboutEnergy” educational programme
sponsored by Fortum. The goal of the programme is to
teach children to use resources efficiently and to foster an
ecological mindset.
During the school year, 67 classes in 20 schools in the
participating cities and the districts took the total of more
than 2,000 lessons under this programme. The most active
students were invited to a closing event in Chelyabinsk.
They passed a final exam on the course they completed
and took part in various activities. There was also a Jeka
computer game tournament – a game developed by the
Housing and Utilities Foundation to teach and promote
energy saving skills.
Fortum first launched the “Culture of the new
generation: energy saving and efficiency” project in 2015.
The “AboutEnergy” programme has been praised by local
educators and the Ministry of Education and Science of
the Chelyabinsk region. Along with theoretical studies, it
includes workshops, excursions, creative competitions and
environmental campaigns.
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Environmental responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibilitySocial responsibilitySocial responsibility
Security of supply
Employees
Safety and security
Corporate citizenship
Human rights
Product responsibility
Fortum participated in
the Ministry of Economic
Affairs and Employment
and the Ministry for
Foreign Affairs’ round
table discussions about
the human rights
issues of companies.
There were no grievances related to human rights, labour rights
or discrimination filed through formal grievance channels in 2017,
nor were there any grievances carried over from the previous year .
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 .
Management of human rights issues and personnel
training
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 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 .
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 . The Supplier Code of
Conduct includes human rights requirements and they are reviewed
as part of the Code of Conduct training . Trainings were arranged in
2017 for Fortum’s Baltic functions and for the Recycling and Waste
Solutions personnel in Finland and Sweden .
In 2017 Fortum participated in the Ministry of Economic Affairs
and Employment and the Ministry for Foreign Affairs’ round table
discussions about the human rights issues of Finnish companiesʼ
operations located in risk countries . Non-governmental and labour
market organisations also participated in the discussions . The
discussions resulted in a joint statement that was published in
conjunction with a stakeholder event in March 2018 .
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 which one of our
business units is planning the sales of products or services, and
it is based on publically available sources . In 2017, 14 of these
assessments were made . One deep assessment was made .
Fortum’s supplier audits cover the most important human rights
aspects related to purchases . The supplier audits conducted in 2017
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 labour practices or human rights violations
are defined 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 .
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Safety and security
Corporate citizenship
Human rights
Product responsibility
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-carbon
energy system and optimal resource efficiency .
Fortum is the third largest power generator and the largest
electricity retailer in the Nordic countries . We are one of the world’s
largest producers of heat . We also offer district cooling, energy
efficiency services, recycling and waste solutions, and the largest
electric vehicle charging network in the Nordic countries .
Guarantee-of-origin-labelled and renewable
electricity
Hydro and nuclear account for two-thirds of our electricity
production, making us one of the Nordic countries’ leading sellers
of carbon dioxide-free and guarantee-of-origin-labelled electricity .
All the electricity we sold to household customers in Finland and
Sweden in 2017 was renewable and carbon dioxide-free hydro, wind
or solar power . The origin of the electricity was guaranteed with
European Guarantees of Origin . A guarantee of origin is proof that
the electricity has been produced from renewable energy sources .
Some of the electricity we sell is also guaranteed 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 services
that reduce environmental impacts and give customers better
opportunities to control their electricity consumption and costs .
The sustainable solutions we offer to growing urban areas in
energy production, traffic and waste management also support
a circular economy . The number of consumers participating in
energy production is growing . The solutions offered by Fortum for
this area are related to home automation, smart EV charging, local
energy production and storage, and flexible demand . Additionally,
we offer diverse expertise services for energy systems, electricity
and heat production and for the process industry .
Marketing communications and customer data
protection
Our goal is to present products and services truthfully in all our
marketing and communication materials . We strictly follow
responsible marketing communication guidelines, and we do
not present misleading statements . In statements regarding
environmental issues, we follow the regulations for environmental
marketing .
In 2017 Fortum received from the Finnish Energy Authority
one request of further clarification as regards a marketed product .
The Finnish Energy Authority also sent a separate request to add
missing information on the Authority’s web pages . The requested
information was provided within the set timeframe . The Swedish
Consumer Agency as well as the Energy Market Inspectorate
in Sweden requested Fortum to implement some changes in its
marketing communication . Fortum is in the process of implementing
the requested changes . The Energy Market Inspectorate also ordered
an injunction in the case, which Fortum has appealed .
Data protection legislation has been amended in recent years .
In 2016 the EU published the Data Protection Regulation, which
will take effect in May 2018 . We have prepared for the regulation to
take effect by launching a data protection programme, and several
development projects for personal information processing have
been started in conjunction with it . In 2017 the Data Protection
Ombudsman initiated an enquiry against Fortum Markets A/S in
Norway . Due to a software failure, some data classified as personal
data were mismanaged . The software functionality has been
corrected, but the case was pending at the year end .
CUSTOMER SATISFACTION AND REPUTATION
PRODUCTS AND SERVICES
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Environmental responsibilityReporting principles and assuranceSustainability approachAppendicesEconomic responsibilitySocial responsibilitySocial responsibility
Reporting principles
Reported GRI disclosures
Assurance report
Reporting principles
We report on sustainability in this Sustainability Report and in the
Online Annual Review . Non-financial reporting, in line with the
Accounting Act, is included in the Operating and Financial Review
in the Financials . Additionally, we describe sustainability-related
governance practices in the Corporate Governance Statement, and
strategy and the CEO’s view in the CEO Letter . Our reporting entity
also includes the Tax Footprint .
In our sustainability reporting, we follow the integrated
reporting principles, and we apply specific disclosures of the GRI
Sustainability Reporting Standards we have identified as material .
We gain information about our stakeholders’ views through
the One Fortum survey, the stakeholder sustainability survey and
other stakeholder collaboration . Our selection of material topics 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 2017 as well as some information from January–February 2018 .
The previous reporting was published in March 2017, and our next
reporting will be published in February/March 2019 . 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 . The figures for power and heat generation
and investments include also figures from Fortumʼs share in
associated companies and joint ventures that sell their production
to the owners on cost basis . Possible deviations to these principles
are reported in conjunction with information applying different
boundaries . A list of Fortum’s subsidiaries is included in the
Financial Statements Note 40 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, at present Stockholm Exergi) is classified in the
Financial Statements as a joint venture and is consolidated with
the equity method . 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 2017 and
2016 and, as a general rule, also for 2015 does not include the
Distribution business .
On 4 August 2017, Fortum concluded the restructuring of its
ownership in Hafslund ASA with the City of Oslo . Sustainability
information relating to Hafslund Markets’ and Fortum Oslo
Varmeʼs operations is included in Fortum’s reporting as of
1 August 2017 .
On 28 July 2017, Fortum concluded the divestment of its
100-per cent shareholding in the Polish gas infrastructure company
DUON Dystrybucja S .A, which is included in the sustainability
reporting up to 30 June 2017 .
Exceptions to the accounting practice are presented in
conjunction with each figure .
Capacity changes
Fortum commissioned unit 3 (248 MW electricity and 174 MW
heat) of its Chelyabinsk GRES combined heat and power (CHP)
plant in Russia in November 2017 . During 2017 Fortum acquired
or commissioned 205 MW of solar power capacity in India and
Russia and 32 MW of wind power capacity in Norway . Through the
Hafslund ASA ownership restructuring, 19 MW of electricity and
1,111 MW of heat production capacity was transferred to Fortum .
63
The commissioned and acquired capacity during the year is
included in the reporting starting from their commissioning .
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 . An
exception is the calculation of specific CO2 emissions and fuel use
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 .
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 .
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 .
Environmental responsibilitySocial responsibilitySustainability approachAppendicesEconomic responsibilityReporting principles and assurance
Reporting principles
Reported GRI disclosures
Assurance report
Designated individuals collect the information and deliver it to the
Corporate Sustainability unit primarily in the format recommended
by the GRI Standards .
Assurance
Deloitte Oy has provided limited assurance for the
1 January 2017 to 31 December 2017 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 participant 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 2017 . We use the GRI Sustainability Reporting
Standards disclosures 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 .
64
Environmental responsibilitySocial responsibilitySustainability approachAppendicesEconomic responsibilityReporting principles and assurance
Reporting principles
Reported GRI disclosures
Assurance report
Reported GRI disclosures
This Sustainability Report 2017 references the following Disclosures from the GRI Topic-specific Standards presented in the table .
All the standards are from the 2016 version .
DISCLOSURE DESCRIPTION
GRI 103: MANAGEMENT APPROACH
103-1
Explanation of the material topics
103-2
The management approach and its
components
103-3
Evaluation of the management approach
SECTION
Sustainability approach /
Key sustainability topics
Appendix 1: Sustainability management
by topic
Additionally reported by topic
Sustainability approach / Governance
and management
Sustainability approach / Policies and
commitments
Appendix 1: Sustainability management
by topic
Sustainability approach / Business ethics
and compliance
Environmental responsibility /
Environmental non-compliances and
incidents
Social responsibility / Human rights
Appendix 1: Sustainability management
by topic
Additionally reported by topic
SECTION
Economic responsibility / Economic
impacts
Environmental responsibility / Climate
change mitigation
Financials / Operating and financial
review / Risk management
Financials / Notes to the consolidated
financial statements / 30 Pension
obligations
Economic responsibility / Economic
impacts
Sustainability approach / Business ethics
and compliance
Sustainability approach / Business ethics
and compliance
Sustainability approach / Business ethics
and compliance
Sustainability approach / Business ethics
and compliance
Financials / Notes to the consolidated
financial statements / 28 Nuclear related
assets and liabilities
Environmental responsibility / Improving
energy efficiency / Energy intensity
DISCLOSURE DESCRIPTION
ECONOMIC RESPONSIBILITY
GRI 201: Economic performance
201-1
201-2
201-3
201-4
205-2
205-3
Direct economic value generated and
distributed
Financial implications and other risks and
opportunities due to climate change
Defined benefit plan obligations and other
retirement plans
Financial assistance received from
government
Operations assessed for risks related to
corruption
Communication and training about
anti-corruption policies and procedures
Confirmed incidents of corruption and
actions taken
GRI 205: Anti-corruption
205-1
GRI 206: Anti-competitive Behavior
206-1
Legal actions for anti-competitive behavior,
anti-trust, and monopoly practices
Nuclear Plant Decommissioning
103
Management Approach
System Efficiency
EU11
Average generation efficiency of thermal
plants
65
Environmental responsibilitySocial responsibilitySustainability approachAppendicesEconomic responsibilityReporting principles and assuranceReporting principles and assurance
DISCLOSURE DESCRIPTION
GRI 305: Emissions
305-1
Direct (Scope 1) GHG emissions
SECTION
Environmental responsibility / Climate
change mitigation / Greenhouse gas
emissions
305-2
Energy indirect (Scope 2) GHG emissions
Environmental responsibility / Climate
change mitigation / Greenhouse gas
emissions
305-3
Other indirect (Scope 3) GHG emissions
Environmental responsibility / Climate
305-4
GHG emissions intensity
Nitrogen oxides (NOX), sulfur oxides (SOX),
and other significant air emissions
GRI 306: Effluents and Waste
306-1
306-2
Water discharge by quality and destination
Waste by type and disposal method
306-3
Significant spills
GRI 307: Environmental Compliance
307-1
Non-compliance with environmental laws and
regulations
change mitigation / Greenhouse gas
emissions
Environmental responsibility / Climate
change mitigation / Greenhouse gas
emissions
Environmental responsibility / Emissions
into air
Environmental responsibility / Water use
Environmental responsibility / Circular
economy / Waste and by-products
Environmental responsibility /
Environmental non-compliances and
incidents
Environmental responsibility /
Environmental non-compliances and
incidents
GRI 308: Supplier Environmental Assessment
308-2
Negative environmental impacts in the supply
chain and actions taken
Economic responsibility / Supply chain
management / Sustainable supply chain
Environmental responsibility / Improving
305-7
Reporting principles
Reported GRI disclosures
Assurance report
DISCLOSURE DESCRIPTION
ENVIRONMENTAL RESPONSIBILITY
GRI 301: Materials
301-1
Materials used by weight or volume
301-2
Recycled input materials used
GRI 302: Energy
302-1
Energy consumption within the organisation
SECTION
Environmental responsibility / Improving
energy efficiency / Fuel consumption
Environmental responsibility / Improving
energy efficiency / Fuel consumption
Environmental responsibility / Circular
economy
Environmental responsibility / Improving
energy efficiency / Fuel consumption
Environmental responsibility / Sustainable
energy production
302-3
Energy intensity
energy efficiency / Energy intensity
Environmental responsibility / Improving
energy efficiency / Energy intensity
302-4
Reduction of energy consumption
Environmental responsibility / Improving
energy efficiency
GRI 303: Water
303-1
GRI 304: Biodiversity
304-3
Water withdrawal by source
Habitats protected or restored
Environmental responsibility / Water use
Environmental responsibility / Biodiversity
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Environmental responsibilitySocial responsibilitySustainability approachAppendicesEconomic responsibilityReporting principles and assuranceReporting principles and assurance
Reporting principles
Reported GRI disclosures
Assurance report
DISCLOSURE DESCRIPTION
SOCIAL RESPONSIBILITY
102-8
102-41
Information on employees and other workers
Collective bargaining agreements
GRI 401: Employment
401-1
GRI 403: Occupational Health and Safety
403-2
New employee hires and employee turnover
Types of injury and rates of injury, occupational
diseases, lost days, and absenteeism, and
number of work-related fatalities
GRI 404: Training and Education
404-1
404-2
Average hours of training per year per
employee
Programs for upgrading employee skills and
transition assistance programs
Percentage of employees receiving
regular performance and career development
reviews
GRI 405: Diversity and Equal Opportunity
405-1
Diversity of governance bodies and employees
404-3
SECTION
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
Social responsibility / Employees /
Employee development
Social responsibility / Employees /
Employee development
Social responsibility / Employees /
Diversity and equal opportunity
Governance / Corporate governance
statement / Board of directors
405-2
Ratio of basic salary and remuneration of
women to men
Social responsibility / Employees /
Diversity and equal opportunity
GRI 406: Non-discrimination
406-1
Incidents of discrimination and corrective
actions taken
GRI 407: Freedom of Association and Collective Bargaining
Operations and suppliers in which the right
407-1
to freedom of association and collective
bargaining may be at risk
GRI 408: Child Labor
408-1
Operations and suppliers at significant risk
for incidents of child labor
Social responsibility / Employees /
Diversity and equal opportunity
Social responsibility / Employees /
Employee-employer relations
Economic responsibility / Supply chain
management / Sustainable supply chain
Social responsibility / Human rights
DISCLOSURE DESCRIPTION
GRI 409: Forced or Compulsory Labor
409-1
Operations and suppliers at significant risk
for incidents of forced or compulsory labor
SECTION
Social responsibility / Human rights
GRI 412: Human Rights Assessment
412-1
412-2
412-3
Operations that have been subject to human
rights reviews or impact assessments
Employee training on human rights policies
or procedures
Significant investment agreements and
contracts that include human rights clauses
or that underwent human rights screening
GRI 413: Local Communities
413-2
Operations with significant actual and
potential negative impacts on local
communities
GRI 414: Supplier Social Assessment
414-2
Negative social impacts in the supply chain
and actions taken
GRI 415: Public Policy
415-1
Political contributions
GRI 417: Marketing and Labeling
417-3
Incidents of non-compliance concerning
marketing communications
GRI 419: Socioeconomic Compliance
419-1
Non-compliance with laws and regulations in
the social and economic area
Disaster/Emergency Planning and Response
103
Management Approach
Social responsibility / Human rights
Social responsibility / Human rights
Social responsibility / Human rights
Social responsibility / Corporate
citizenship
Economic responsibility / Supply chain
management / Sustainable supply chain
Sustainability approach / Business ethics
and compliance
Social responsibility / Product
responsibility
Sustainability approach / Business ethics
and compliance
Social responsibility / Employees /
Diversity and equal opportunity
Social responsibility / Human rights
Social responsibility / Product
responsibility
Social responsibility / Safety and security
/ Corporate security
Access
EU30
Average plant availability factor
Social responsibility / Security of supply
67
Environmental responsibilitySocial responsibilitySustainability approachAppendicesEconomic responsibilityReporting principles and assuranceReporting principles and assurance
Reporting principles
Reported GRI disclosures
Assurance report
Independent limited assurance report
on Fortumʼs Greenhouse Gas Emissions 2017
To the Management of Fortum Corporation
We have been engaged by Fortum Corporation (hereafter: Fortum)
to provide a limited assurance on Fortum’s Fossil Greenhouse Gas
Emissions (hereafter: GHG Emissions) broken down by scope 1, 2
and 3 for the reporting period of January 1, 2017 to December 31,
2017 (hereafter: GHG Emissions Disclosures) . The information
subject to the assurance engagement is presented in the section
“Greenhouse gas emissions” of Fortum’s sustainability reporting
2017 (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
68
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 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 28 February 2018
Deloitte Oy
Reeta Virolainen
Authorized Public Accountant
Lasse Ingström
Authorized Public Accountant
Environmental responsibilitySocial responsibilitySustainability approachAppendicesEconomic responsibilityReporting principles and assuranceReporting principles and assurance
Appendix 1: Sustainability management by topic
Sustainability management in the areas of economic responsibility, environmental responsibility and
social responsibility is described in the accompanying tables . Additionally, more detailed information
about the management of different topics and impacts as well as about the measures, processes and
projects is presented by topic in this report . Fortum’s “Raise a concern” channel has been described in
the section Business ethics and compliance . The purpose of the sustainability management approach is
to ensure our operational compliance and to avoid, mitigate and compensate the adverse impacts from
our operations and to increase the positive impacts .
Management of economic responsibility
Targets and
approach
Policies and
commitments
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 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 2017 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 in
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 GRI Sustainability
Reporting Standards indicators to measure economic responsibility.
Management of environmental responsibility
Targets and
approach
Policies and
commitments
Description
Fortum’s aim is to provide its 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:
• Specific CO2 emissions
• Energy efficiency
• Major EHS incidents
• Quality of investigation process of occupational accidents, major EHS incidents, and
near misses
• GAP index, quality of implementation of EHS minimum standards (2018)
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 in Appendix 2.
We assess environmental risks as part of the Group’s risk assessment process. Risk
assessment process is reported in the section Operating and financial review/Risk
management of the Financials.
Responsibilities Our sustainability responsibilities are presented in the section Governance and
Monitoring and
follow-up
management.
The Group’s key indicators are reported regularly to Fortum’s Board of Directors and are
published in Fortum’s Interim Reports. Major EHS incidents are reported monthly, specific
carbon dioxide emissions and the quality of investigation process are reported quarterly,
and energy efficiency improvements as well as the GAP index are reported annually to
Fortum Executive Management.
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.
Our supply chain monitoring system covers also environmental responsibility and is
presented in the section Management of social responsibility: Human rights.
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 approachEconomic responsibilityAppendices Management of social responsibility: Employees
Management of social responsibility: Human rights
Targets and
approach
Policies and
commitments
Responsibilities
Monitoring and
follow-up
Description
We aspire to be a responsible employer who invests in the development and wellbeing
of our employees. We aim to be a safe workplace for our employees and for the
contractors and service providers working for us.
We measure the realisation of the social responsibility with the following indicators,
for which we have set Group-level targets:
• Total recordable injury frequency (TRIF), own personnel (2017)
• Lost workday injury frequency (LWIF), own personnel (2017)
• Lost workday injury frequency (LWIF), contractors (2017)
• Lost workday injury frequency (LWIF), own personnel and contractors (2018)
• Number of severe occupational accidents
• Quality of investigation process of occupational accidents, major EHS incidents, and
near misses
• GAP index, quality of implementation of EHS minimum standards (2018)
• Percentage of sickness-related absences
Safety management is based on Fortum’s Sustainability Policy. Other key principles
steering labour practices and safety management are presented in the section
Policies and commitments and in 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.
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-related absences is reported
to the Fortum Executive Management every quarter. In addition, work wellbeing is
monitored through other Group-level indicators, such as the ratio between actual
retirement age and the statutory start of the retirement pension. Feedback about the
personnel’s wellbeing and work satisfaction is received also from wellbeing survey as
part of the Energise Your Day programme and from employee survey.
We map our stakeholders’ views annually with the One Fortum survey and with
separate sustainability surveys.
Targets and
approach
Policies and
commitments
Responsibilities
Monitoring and
follow-up
Description
Fortum supports and respects internationally recognised human rights, which are
included in the key human rights agreements. Our goal is to operate in accordance
with the UN Guiding Principles on Business and Human Rights.
Our social responsibility includes taking care of our own employees and the
surrounding communities. We advance responsible operations in our supply chain and
more broadly in society.
We have set a Group-level target for the number of supplier audits. Targets related
to our own personnel are presented in the section Management of social responsibility:
Employees.
Key elements steering human rights management are presented in the section
Policies and commitments and in Appendix 2.
Our sustainability responsibilities are presented in the section Governance
and management.
The key tools for monitoring the impacts of human rights are country and partner risk
assessments, supplier qualification, and supplier audits. A sustainability assessment is
carried out for our investment projects and takes into consideration also human rights.
The assessments are presented to Fortum Executive Management and to the Board of
Directors when needed.
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.
Monitoring systems related to our own personnel are presented in the section
Management of social responsibility: Employees.
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 approachEconomic responsibilityAppendices Management of social responsibility:
Business ethics (incl. Anti-corruption and anti-bribery)
Targets and
approach
Policies and
commitments
Responsibilities
Monitoring and
follow-up
Description
We believe that an excellent financial result and ethical business are intertwined. We
follow good business practices and ethical principles in all our operations. We work
within the framework of 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 in 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 grievance channel available to all stakeholder groups for the
reporting of misconduct.
Monitoring systems related to the supply chain are presented in the section
Management of social responsibility: Human rights.
Management of social responsibility: Product responsibility
Targets and
approach
Policies and
commitments
Responsibilities
Monitoring and
follow-up
Description
Uninterrupted supply of energy is necessary for a functioning society. We ensure the
reliable operation of our power plants with preventive maintenance and continuous
monitoring.
Our goal is to present products and services truthfully in all our marketing and
communication materials. We strictly follow responsible marketing communication
guidelines and 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 for the energy availability
of CHP plants and for customer satisfaction and reputation indices.
Key elements steering product responsibility management are presented in the section
Policies and commitments and in Appendix 2.
Our sustainability responsibilities are presented in the section Governance
and management.
The Group’s key indicators are reported regularly to Fortum’s Board of Directors and are
published in Fortum’s interim reports.
Figures related to the availability of power plants are reported monthly to Fortum
Executive Management.
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.
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Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability approachEconomic responsibilityAppendices Contact information
SUSTAINABILITY CONTACT INFORMATION ON OUR WEBSITE
Appendix 2: Fortumʼs main
internal policies and instructions
guiding sustainability
Values
Code of Conduct
Supplier Code of Conduct
Disclosure Policy
Group Risk Policy
Sustainability Policy (including environmental, and health
and safety policies)
Minimum Requirements for EHS Management
Biodiversity Manual
Group Manual for Sustainability Assessment
Human Resources Policy
Leadership Principles
Accounting Manual
Investment Manual
Group Instructions for Anti-Bribery
Group Instructions for Safeguarding Assets
Group Instructions for Conflicts of Interest
Anti-Money-Laundering Manual
Compliance Guidelines for Competition Law
Security Guidelines
Policy for Sponsoring and Donations
Group Instructions for Compliance Management
Economic
responsibility
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Environmental
responsibility
x
x
x
x
x
x
x
x
x
x
x
x
Social responsibility
Human rights
x
x
x
Anti-corruption
and bribery
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Social and
employee
matters
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
72
Environmental responsibilitySocial responsibilityReporting principles and assuranceSustainability approachEconomic responsibilityAppendices