Fortum Financial Statements Bulletin 2022: Weathering through the European energy crisis - a year of decisive actions

FORTUM CORPORATION JANUARY-DECEMBER 2022 FINANCIAL STATEMENTS BULLETIN 2 MARCH 2023 AT 9:00 EET

This release is a summary of Fortum's January-December 2022 Financial Statements Bulletin. The complete report is attached to this release as a PDF file. It is also available on the company's website at www.fortum.com/investors

October−December 2022, continuing operations

• Comparable EBITDA was EUR 895 (673) million
• Comparable operating profit was EUR 744 (519) million
• Operating profit was EUR -653 (547) million, mainly impacted by impairments and fair values changes in non-hedge-accounted derivatives.
• Comparable earnings per share were EUR 0.24 (0.41). Comparable earnings per share excluding Russia were EUR 0.42 (0.34)
• Earnings per share were EUR -0.68 (0.47).
• Cash flow from operating activities totalled EUR 607 (87) million
• On 23 November, Fortum's Extraordinary General Meeting resolved on a directed share issue without payment to the Finnish State-owned holding company Solidium Oy as part of the conditions of the EUR 2.35 billion bridge financing loan.
• On 21 December, the Uniper transaction was closed and Fortum received the total consideration of the share transaction of approximately EUR 0.5 billion, Uniper repaid the EUR 4 billion shareholder loan and released EUR 3.0 billion of the EUR 4.0 billion parent company guarantee. Uniper was deconsolidated and reclassified as discontinued operations in the third quarter on signing of the agreement in principle with the German Government.
• Additional impairments (pre-tax) of approximately EUR 990 million related to the Russia segment were recorded.

January−December 2022, continuing operations

• Comparable EBITDA was EUR 2,436 (2,016) million
• Comparable operating profit was EUR 1,871 (1,429) million
• Operating profit was EUR 1,277 (4,325) million, mainly impacted by changes in fair values of non-hedge-accounted derivatives, impairments related to the Russia segment and tax-exempt capital gains from divestments. In the comparison period, items affecting comparability included tax-exempt capital gains of EUR 2.68 billion.
• Comparable earnings per share were EUR 1.74 (1.23). Comparable earnings per share excluding Russia were EUR 1.21 (0.96).
• Earnings per share were EUR 1.14 (4.49). Earnings per share for Fortum, including discontinued operations, were EUR -2.72 (0.83).
• Cash flow from operating activities totalled EUR 2,104 (1,119) million.
• On 19 May, Fortum closed the sale of its 50% ownership in Fortum Oslo Varme AS for approximately EUR 1 billion. The agreement was signed on 22 March.
• On 22 July, Fortum, Uniper and the German Government agreed on a comprehensive stabilisation package to provide financial relief to Uniper. On 21 September, it was replaced, as Fortum, the German Government and Uniper signed a final agreement according to which Fortum fully divested its ownership in Uniper.
• Uniper was deconsolidated and reclassified as discontinued operations in the third quarter. On 21 December, the divestment of Uniper was completed.
• Impairments (pre-tax) totalling approximately EUR 1.7 billion related to the Russia segment were recorded.
• As Fortum's exit from Russia and the divestment process is ongoing, new Alternative Performance Measures (APMs) for continuing operations excluding Russia are introduced. For example Comparable EBITDA from continuing operations excluding Russia was EUR 2,025 (1,612) million, Comparable operating profit from continuing operations excluding Russia was EUR 1,611 (1,167) million and Financial net debt/comparable EBITDA excluding Russia was 0.6.
• Fortum's Board of Directors proposes a dividend of EUR 0.91 (1.14) per share and that the dividend be paid in two instalments.

Summary of outlook

• The Generation segment's Nordic generation hedges: approximately 75% at EUR 58 per MWh for 2023, and approximately 45% at EUR 42 per MWh for 2024.
• Capital expenditure, including maintenance but excluding acquisitions, is expected to be approximately EUR 700 million in 2023 (excluding the Russia segment).
• Fortum is updating its tax guidance to take into consideration the temporary windfall tax law on the energy sector in Finland. The Finnish Parliament adopted the legislation on temporary windfall tax on 27 February 2023. The tax becomes payable in 2024.
• The Fortum Board of Directors resolved on Fortum's new strategy at the beginning of March, 2023. The strategy includes new financial and sustainability targets. At the same time, Fortum is also launching a new business structure, operating model and Fortum Executive Management team. Please see the separate stock exchange release 'Fortum renews strategy to drive clean transition; new financial targets and dividend policy and more ambitious environmental targets'. A summary of Fortum's new strategy can be found in the section 'Events after the balance sheet date' of this Financial Statements Bulletin.

Key figures, continuing operations

EUR million		IV/2022		IV/2021 restated		2022		2021 restated
Reported
Sales		2,736		2,171		8,804		6,422
Operating profit		-653		547		1,277		4,325
Share of profit/loss of associates and joint ventures		-295		21		-629		168
Net profit		-611		428		1,011		4,008
Net profit (after non-controlling interests)		-608		417		1,011		3,985
Earnings per share, EUR		-0.68		0.47		1.14		4.49
Net cash from operating activities		607		87		2,104		1,119
EUR million		IV/2022		IV/2021 restated		2022		2021 restated
Comparable
EBITDA		895		673		2,436		2,016
Operating profit		744		519		1,871		1,429
Share of profit/loss of associates and joint ventures		-53		-4		-11		104
Net profit (after non-controlling interests)		216		361		1,550		1,091
Earnings per share, EUR		0.24		0.41		1.74		1.23

Key figures, continuing operations excl. Russia

Fortum is pursuing a controlled exit from the Russian market with potential divestments of its Russian operations as the preferred path. In the fourth quarter of 2022, Fortum introduced new APMs to provide additional financial information excluding Fortum's Russian operations. See also Note 1.

EUR million or as indicated		IV/2022		IV/2021 restated		2022		2021 restated
Comparable
EBITDA		774		555		2,025		1,612
Operating profit		669		440		1,611		1,167
Share of profit/loss of associates and joint ventures		-68		-10		-40		42
Net profit (after non-controlling interests)		370		302		1,076		851
Earnings per share, EUR		0.42		0.34		1.21		0.96
Financial position
Financial net debt/comparable EBITDA						0.6		N/A

Key figures, total of continuing and discontinued operations

EUR million		IV/2022		IV/2021		2022		2021
Reported
Net profit (after non-controlling interests)		-608		842		-2,416		739
Earnings per share, EUR		-0.68		0.95		-2.72		0.83
Net cash from operating activities		607		1,576		-8,767		4,970
Comparable
Net profit (after non-controlling interests)		216		693		-988		1,778
Earnings per share, EUR		0.24		0.78		-1.11		2.00
EUR million or as indicated						31 Dec 2022		31 Dec 2021
Financial position
Financial net debt (at period-end)						1,084		789
Adjusted net debt (at period-end)						1,117		3,227
Financial net debt/comparable EBITDA, continuing operations						0.4		N/A
Financial net debt/comparable EBITDA, total						N/A		0.2

Fortum's President and CEO Markus Rauramo:

"The year 2022 started with managing Uniper's liquidity challenges. These were a consequence of nervousness in the gas market - amid rapidly increasing and volatile gas prices resulting in significantly higher margining requirements for Uniper. Within a month, in February, Russia attacked Ukraine, marking the beginning of shock-like effects of the war and a full-blown energy crisis in Europe that drastically changed our operating environment.

At Fortum, we started tackling the issues one by one. Our immediate step was to halt all new activities in Russia; we would not do any new investment projects or provide any financing to our Russian subsidiaries. The decision to pursue a controlled exit from Russia was made in May. The divestment process has progressed and is still ongoing, but any major divestment in the Russian energy sector requires approval by the Russian Government Commission and the President. From a governance point of view, we have separated the management and steering of the Russian operations from the rest of the Group, simultaneously ensuring compliance with applicable laws and regulations, including sanctions. At the end of the year, we recorded additional impairments of approximately EUR 990 million related to our operations in Russia, amounting to a total of EUR 1.7 billion during the year.

The dramatic year also ended our five-year journey with Uniper. The energy crisis escalated during the summer when Russia decided to cut pipeline gas exports to Germany and most of Europe, causing massive losses to gas midstream companies. Particularly Uniper, as Germany's largest importer of Russian gas, was hit severely. Therefore, a long-term solution to rescue Uniper was required and in September Fortum agreed to sell its ownership to the German State. The divestment was completed at the end of December. Fortum's total pre-tax loss from the Uniper investment is slightly below EUR 6 billion. This outcome clearly is not what we wanted or had worked for over the past years, yet it was necessary and it provides a chance for a new beginning for Fortum.

Geopolitical tensions and gas curtailments also caused power prices to soar in the derivatives markets. Fortum's hedged power volumes on the Nasdaq exchange were affected through the unprecedentedly rapidly increasing and historically high power future prices that led to unforeseen margining requirements. This put Fortum's liquidity under pressure. In September, Fortum agreed with the Finnish State on a bridge financing facility of EUR 2.35 billion to be able to manage its liquidity position in case of further power price hikes during the winter period. In November, as a condition for the loan arrangement, Fortum's Extraordinary General Meeting resolved on a directed share issue (1% of outstanding shares) to the Finnish State-owned holding company, Solidium, without payment. I am grateful that the Finnish Government came to our aid. Also elsewhere in Europe EU member states provided energy companies with massive liquidity support to manage their margining requirements.

Despite the tight situation at the end of the summer, we were able to manage our liquidity well. At the end of the year, our financial situation was solid as Uniper repaid its EUR 4 billion shareholder loan and we received the sales proceeds of EUR 0.5 billion from the divestment of our Uniper shares. For 2023, refinancing will be a key priority for us, and we aim to return to the bond markets to rebuild our financial flexibility. Strong financial discipline will be the hallmark of our decisions and actions going forward.

During 2022, we also saw rapid developments in the regulatory environment. EU institutions focused on finalising the extensive 'Fit for 55' legislative package the main effect of which was a revision of the EU's emissions trading system, ETS. It also has an ambition to tackle the energy crisis by, for example, introducing regulation on an emergency intervention to address high energy prices. On the flip side, there is a risk that uncoordinated and very different actions by member states could lead to distortions of competitiveness; Finland, for example, is enacting a national windfall tax, whereas Sweden is implementing the revenue cap in accordance with the EU regulation.

Furthermore, as an immediate reaction to the Russian invasion of Ukraine, the Commission published the 'REPowerEU' plan. It states the EU's intention to phase out its dependency on Russian fossil fuels, outlining a series of measures to deliver on this ambition.

While crisis measures are undoubtedly necessary, it is crucial that these interventions are temporary and separate from the long-term structural reform of the power market design, which has started in the EU. Overall, to secure investments in the energy transition in the longer term, the regulatory environment needs to be clear, predictable and reliable.

As much as I would like to say the storm is over and we will get back to normal, unfortunately the energy crisis is not over yet. For the short-term, uncertainty prevails. Many economists forecast that global growth will slow down in the face of elevated inflation, higher interest rates, reduced investments, and multidimensional disruption effects caused by Russia's invasion of Ukraine. Europe is highly dependent on energy imports and thus high prices and supply constraints are likely to continue. And, due to low liquidity on the derivative markets, we must be prepared for continued volatile and unpredictable commodity markets.

As our operating environment turned upside-down in the past year, over the recent months we have worked hard to realign the company and renew our strategy to the new realities. A strong focus on sustainability is at the heart of our strategy and our purpose - To power a world where people, businesses and nature thrive together - is our North Star. Our new financial targets further guide how we look at investments going forward and pursue our business priorities: Delivering reliable clean energy and Drive decarbonisation in industries.

The most recent example of how we aim to implement our new strategy is the Finnish Government's welcome decision to grant a new operating licence for both units at Fortum's Loviisa nuclear power plant until the end of 2050. This helps to fulfil our goal to provide reliable, firm capacity and stability which is crucial for maintaining the increasingly intermittent energy system and enabling the decarbonisation of industries. Continuing production at Loviisa is also an investment in providing the clean power Finland needs to meet its ambitious climate targets.

In our 2022 financial results, the Generation segment's solid performance was the main driver throughout the year. The segment benefitted from the higher power prices in the Nordics and was supported by very good physical optimisation. In the fourth quarter, the segment's comparable operating profit was very strong, though somewhat offset by lower hydro volumes.

Based on the solid results of Fortum's continuing operations in 2022, Fortum's Board of Directors is proposing to the Annual General Meeting a dividend of EUR 0.91 per share.

Most importantly, throughout this crisis and turbulence we have been running our power plants reliably and efficiently, providing energy to people and industries when they need it the most. We have also strengthened our customer service capabilities to better help our customers manage the energy crisis. Thus I would like to thank all our employees for their commitment and hard work and our customers for their business during the extremely tough year."

Dividend distribution proposal

The distributable funds of Fortum Corporation as at 31 December 2022 amounted to EUR 6,291,275,608, including the profit for the financial period 2022 of EUR 1,542,734,239. 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 that a dividend of EUR 0.91 per share be paid for the financial year 2022. The dividend will be paid in two instalments.

Based on the number of shares registered as at 1 March 2023, the total amount of dividend would be
EUR 816, 510,663. The Board of Directors proposes that the remaining part of the distributable funds be retained in the shareholders' equity.

The first dividend instalment of EUR 0.46 per share would  be paid to shareholders who on the record date of the first dividend instalment 17 April 2023 are recorded in the Company's shareholders' register held by Euroclear Finland Oy. The Board of Directors proposes that the first dividend instalment be paid on 24 April 2023.

The second dividend instalment of EUR 0.45 per share would be paid to the shareholders who on the record date of the second dividend instalment 2 October 2023 are recorded in the Company's shareholders' register held by Euroclear Finland Oy. The Board of Directors proposes that the second dividend instalment be paid on 10 October 2023.

The Board of Directors further proposes that the Annual General Meeting be authorised to resolve, if necessary, on a new record date and date of payment for the second dividend instalment, should the rules of Euroclear Finland Oy or statutes applicable to the Finnish book-entry system be amended or should other rules binding upon the Company so require.

Espoo, 1 March 2023

Fortum Corporation
Board of Directors

Webcast/teleconference

A webcast/teleconference for institutional investors, analysts and media will be held on 2 March 2023 at 11:00 EET on Fortum's website https://www.fortum.com/investors.

The event will be hosted by President and CEO Markus Rauramo and CFO Bernhard Günther who will present Fortum's full-year 2022 results and the renewed strategy. The presentation will be followed by a Q&A session.

To ask questions by telephone, please join the teleconference by registering using the following link: http://palvelu.flik.fi/teleconference/?id=10010567

Immediately after the investor and analyst session, a Q&A session in Finnish for the media will be organised.

Further information:

Investor Relations and Financial Communications: Ingela Ulfves, tel. [phone], Rauno Tiihonen, tel. [phone], Carlo Beck, tel. [phone], Nora Hallberg, tel. [phone], Pirjo Lifländer, tel. [phone], and mailto:[e-mail]

Media: Fortum News Desk, tel. [phone]

Financial calendar in 2023

Fortum's Financial Statements and Operating and Financial Review for 2022 will be published during week 10 at the latest.

Fortum will publish three interim reports in 2023:

• January-March on 11 May 2023
• January-June on 4 August 2023
• January-September on 2 November 2023

Distribution:

Nasdaq Helsinki
Key media
www.fortum.com

Fortum
Fortum is a Nordic energy company. Our purpose is to power a world where people, businesses and nature thrive together. We are one of the cleanest energy producers in Europe and our actions are guided by our ambitious environmental targets. We generate and deliver clean energy reliably and help industries to decarbonise their processes and grow. Our core operations in the Nordics comprise of efficient, CO2-free power generation as well as reliable supply of electricity and district heat to private and business customers. For our ~5 000 employees, we commit to be a safe, and inspiring workplace. Fortum's share is listed on Nasdaq Helsinki. fortum.com

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