Teollisuuden Voima Oyj's Interim Report January–September 2014

​Stock Exchange Release October 20, 2014

Full TVO Interim Report January 1–September 30, 2014 (pdf)

During the first three quarters of the year, Teollisuuden Voima's electricity generation at Olkiluoto 1 and Olkiluoto 2 plant units continued safely and reliably. TVO received additional data about the schedule for Olkiluoto 3 project from the Supplier, according to which the start of regular electricity production of the plant unit would start in late 2018. The Finnish Government rejected TVO's application to extend the validity of the decision-in-principle of Olkiluoto 4.


Operating Environment

The use of electricity in Finland decreased during the first nine months of the year. There was a decrease of 1.7 percent compared to the corresponding period of the previous year.

The Finnish Government withdrew introduction of the new power plant tax ("windfall profit tax") in June. The tax adopted by Parliament in December 2013 did not come into force since it was still pending in the European Commission.

The amended nuclear safety directive for the EU came into force in August. The directive has to be transposed to the national legislation within three years. The directive aims at strengthening the powers and independence of national safety authorities and introduces EU-wide safety objectives. It also sets up a European system of regular peer reviews. The directive is not expected to bring TVO any significant needs for changes or investments.

Financial Performance

TVO operates on a cost-price principle (Mankala principle). TVO's goal is not to make profit or pay dividends. The shareholders are charged incurred costs on the price of electricity and thus in principle the profit/loss for the period under review is zero. The shareholders pay variable costs based on the volumes of energy supplied and fixed costs in proportion to their ownership, regardless of whether they have made any use of their share of the output or not. Because of the Company's operating principle, key indicators based on financial performance will not be presented.

The consolidated turnover for the period under review January 1–September 30, 2014 was EUR 262.3 (January 1–September 30, 2013: EUR 284.8) million. The amount of electricity delivered to shareholders was 11,183.2 (11,413.6) GWh. The decline in turnover was mainly due to the lower electricity supply of the Meri-Pori coal-fired power plant compared to the previous year.

The consolidated profit/loss was EUR 9.9 (36.6) million. An updated cost estimate based on the new nuclear waste management technical plan and schedule and changes of the provision regarding nuclear waste management obligation had an effect on the profit/loss for the previous period under review. The positive profit impact of the updates and changes was mainly non-recurring.

Financing and Liquidity

TVO's financial situation has developed as planned.

TVO's liabilities (non-current and current) at the end of the period under review, excluding the loan from the Finnish State Nuclear Waste Management Fund relent to shareholders, totaled EUR 3,640.7 (December 31, 2013: 3,426.6) million, of which EUR 339.3 (339.3) million were subordinated shareholder loans. During the period under review, TVO raised a total of EUR 697.0 (361.5) million in non-current liabilities. Repayments during the period under review amounted to EUR 554.5 (155.6) million.

In March 2014 Japan Credit Rating Agency (JCR) kept its AA rating for TVO but changed its out-look to negative. In May Fitch Ratings held TVO's long-term issuer default rating (IDR) and senior unsecured rating of BBB and a short-term rating of F3 with a stable outlook, while Standard & Poor's Rating Services held its long-term BBB and a short-term A-2 corporate credit ratings for TVO but revised its outlook from stable to negative.

TVO updated the Euro Medium Term Note Program (EMTN) in June. During the first half of the year, TVO has issued under its EMTN Program a EUR 500 million 7-year bond with an annual coupon of 2.5 percent. The proceeds were used to buy back a bond maturing in June 2016. Furthermore, the Company issued an 18-year EUR 45 million and a 10-year EUR 20 million private placement. Additionally a 6-year SEK 550 million private placement was issued in the Swedish market and the proceeds were used to buy back maturing SEK denominated bonds. During the third quarter of the year, the Company issued a 5.5-year SEK 650 million private placement.

The OL3 project's share of financing costs has been capitalized in the balance sheet.

TVO uses its right to borrow funds back from the Finnish State Nuclear Waste Management Fund within the framework of legal regulations. On September 30, 2014 the amount of the loan was EUR 982.8 (December 31, 2013: 931.7) million and it has been relent to the Company's A-series shareholders. On March 31, 2014 loan from the Finnish State Nuclear Waste Management Fund was increased by EUR 51.1 million (April 2, 2013: EUR 50.0 million).

Nuclear Power

Olkiluoto 1 and Olkiluoto 2


The electricity production of the Olkiluoto power plant units Olkiluoto 1 (OL1) and Olkiluoto 2 (OL2) during the period under review was 10,861 (10,742) GWh. The total load factor was 94.4 (93.4) per cent.

The plant units operated safely and reliably during the period under review. OL1's net production was 5,322 (5,539) GWh and the load factor 92.6 (96.3) %. OL2's net production was 5,539 (5,203) GWh and the load factor 96.3 (90.4) %.

Olkiluoto 1
Average electrical power MW
October 1, 2013–September 30, 2014

Olkiluoto 2
Average electrical power MW
October 1, 2013–September 30, 2014

Annual Outages

The annual outages of 2014 at the Olkiluoto nuclear power plant were carried out in May 11–June 9, 2014. OL1 underwent a maintenance outage that lasted more than 17 days, and OL2 had a refueling outage taking less than 8 days.

The main maintenance activities during the outage at OL1 included the replacement of low-voltage switchgears in two subsystems, piping modifications in the auxiliary feedwater system, installation of a new auxiliary transformer, and several other modification and maintenance tasks.

OL2 had a refueling outage of about one week. In addition to refueling, maintenance and repair work as well as tests were carried out, and two main seawater pumps were replaced.

Apart from TVO's own personnel, up to 800 subcontractor employees were involved in the annual outage work.

Both plant units have operated reliably after the annual outages.

Olkiluoto 3


Olkiluoto 3 (OL3), currently under construction, was procured as a fixed-price turnkey project from the consortium (referred to as the Supplier) formed by AREVA GmbH, AREVA NP SAS and Siemens AG. Originally commercial electricity production was scheduled to start at the end of April 2009. The completion of the project, however, has been delayed. The Supplier's installation works at the plant unit and planning of the instrumentation and control (I&C) systems have not progressed according to the Supplier's schedules.

In December 2013 the Supplier informed that they will reduce the number of subcontractors and employees at the OL3 site due to, among other things, the incomplete planning of the plant unit. For this reason, the progress of the installations at the site has been slow.

In September 2014 TVO received additional data about the schedule for the OL3 project from the Supplier. According to this data, the start of regular electricity production of the plant unit would take place in late 2018. Detailed evaluation of the received data is ongoing.

The civil construction works of the plant unit have been mainly completed. Cladding works of the buildings' exterior walls are nearly completed. The major components of the reactor plant have been installed, and the primary coolant circuit pipeline has been welded. Pipeline welding works in the emergency power generating building continue. Commissioning phase of the building technology systems in the reactor plant is ongoing. Containment pressure and leak-tightness tests were completed in February. Testing of the I&C systems in the test bay in Erlangen, Germany continues. Planning and licensing of the I&C systems continue. The first phase of the turbine plant commissioning is ongoing.

The workforce at the site at the end of the period under review was about 700 persons. The occupational safety at the site remained at good level.

The pending disputes concerning the plant unit are described in paragraph Pending Court Cases and Disputes.

All the realized costs of the OL3 project that can be recognized in the cost of the asset have been entered as property, plant and equipment in the Group balance sheet.


Olkiluoto 4


On July 1, 2010 the Finnish Parliament approved the favorable decision-in-principle made by the Finnish Government on May 6, 2010 regarding TVO's application to construct a fourth nuclear power plant unit (Olkiluoto 4) in Olkiluoto.

On May 20, 2014 TVO submitted an application to the Government asking for a new time limit for submitting the construction license application and for decision that despite changes in the timing of the project, the construction of the OL4 plant unit is still in accordance with the overall good of society. On September 25, 2014 the Government adopted a negative decision on TVO's application. The decision-in-principle is still in force, and the deadline for submitting the construction license application is June 30, 2015.

All the realized costs of the OL4 project that can be recognized in the cost of the asset have been entered as property, plant and equipment in the Group balance sheet.

Nuclear Fuel

During the period under review, nuclear fuel purchases amounted to EUR 32.6 (36.8) million and the amount consumed to EUR 37.7 (35.5) million.

The nuclear fuel and uranium stock carrying value on September 30, 2014 was EUR 202.9 (December 31, 2013: 207.9) million.

Nuclear Waste Management

Under the Finnish Nuclear Energy Act, the Company is responsible for the measures related to nuclear waste management and the related costs. Posiva Oy, jointly owned by TVO and Fortum Power and Heat Oy, is responsible for taking care of the final disposal of TVO's spent nuclear fuel.

Equipment of the underground ONKALO research facility with building technology facilities and systems is completed. Raise boring of the ventilation and elevator shafts is also completed. Construction of the second phase of the elevator and entrance building has started. Detailed design of the encapsulation plant and its systems has been initiated.

In the technology development project DOPAS, casting of the concrete sealing plug (POPLU subproject) is about to begin. The DOPAS project, partly funded by the EU, is coordinated by Posiva and its purpose is to test plugging and sealing systems for final disposal tunnels. Testing of the machines and equipment to be used in the final disposal has also started at the final disposal depth in ONKALO.

The construction license application for the final disposal facility has been supplemented by additional clarifications required by the Radiation and Nuclear Safety Authority, Finland (STUK). STUK informed in June that assessing the long-term safety of the construction license application will take longer than planned. STUK has informed that it will submit its statement on the long-term safety of the final disposal to MEE in January 2015.

Preparation of the investment decision to be made after obtaining the construction license has been initiated.

The interim storage facility for spent nuclear fuel in Olkiluoto is being expanded to provide interim storage facilities for the spent fuel elements of both the existing plant units, OL1 and OL2, and OL3 under construction. With the expansion TVO will double the capacity of the existing fuel pools. The expansion is scheduled to be taken into use in 2014.

The liabilities in the consolidated financial statement show a provision related to nuclear waste management liability of EUR 915.8 (December 31, 2013: 897.9) million, calculated according to the international IFRS accounting principles. A corresponding amount, under assets, represents the Company's share in the Finnish State Nuclear Waste Management Fund.

In order to cover the costs of nuclear waste management, TVO makes contributions to the Finnish State Nuclear Waste Management Fund. In December 2013, MEE set TVO's liability for nuclear waste management at EUR 1,317.8 (1,242.3) million to the end of 2013 and the Company's funding target for 2014 at EUR 1,310.4 (1,242.3) million.

In March 2014 the Finnish State Nuclear Management Fund confirmed TVO's nuclear waste management fee for 2013 at EUR 56.1 (43.1) million, which was paid into the Fund on March 31, 2014 (April 2, 2013). The nuclear waste management fee for 2014 will be confirmed in March 2015.

Coal Power


Meri-Pori

The amount of electricity produced by TVO's share at the Meri-Pori coal-fired power plant on January 1–September 30, 2014 was 339.3 (694.2) GWh requiring 123.5 (243.5) thousand tons of coal and 283.6 (564.8) thousand tons of carbon dioxide emission rights.

TVO's share of Meri-Pori's production
Average electrical power MW
October 1, 2013–September 30, 2014

Acquisitions of Tangible and Intangible Assets and Shares

Investments during the period under review were EUR 252.5 (247.4) million. Investments of the parent company were EUR 253.0 (213.5) million, of which EUR 220.4 (183.6) million was allocated to the OL3 project.

TVO continues to carry out modernization projects in the existing plant units:

- In May 2013 TVO signed an agreement with Wärtsilä Finland Oy for the delivery of emergency diesel generators and associated auxiliary systems to Olkiluoto. A total of 9 generators will be delivered, and TVO is in charge of the construction work required for the project as well as for the connection of the diesel generators to TVO's other systems. The total investment of the replacement project is more than EUR 100 million. The project will start in 2016 and is estimated to continue until 2020. The replacement of the generators will be carried out as far as possible during normal power operation at the OL1 and OL2 plant units.

- In July 2014 TVO made a contract with Westinghouse Electric Sweden (WSE) for the replacement of the main circulation pumps in OL1 and OL2. The contract covers 12 main circulation pumps with a total value of more than EUR 40 million. The replacement of the circulation pumps will take place on a turnkey basis. WSE will be responsible for installing the pumps and manufacturing of special tools as well as for design and engineering of the pumps in collaboration with their manufacturer. TVO will be responsible for organizing support services during the installation phase as specified in the contract. The main circulation pumps will be replaced during the annual outages in 2016–2018.

Carbon dioxide emission rights acquired for the Company's share of the Meri-Pori coal-fired power plant have been relinquished to the Energy Market authority worth EUR 2.7 (0.9) million. During the period under review, emission rights have been acquired worth EUR 1.6 (2.5) million. The Company's need for carbon dioxide emission rights for the period under review will be covered by acquired emission rights.

Pending Court Cases and Disputes

TVO submitted in 2012 a claim and defense in the International Chamber of Commerce (ICC) arbitration proceedings concerning the delay and the ensuing costs incurred at the Olkiluoto 3 project. The quantification estimate of TVO's costs and losses was approximately EUR 1.8 billion which included TVO's actual claim and an estimated part until August 2014.

The proceedings were initiated in December 2008 by the OL3 Supplier. The monetary claim the Supplier updated in 2013 is in total approximately EUR 2.7 billion. The updated quantification is until the end of June 2011, and the sum includes approximately EUR 70 million of payments delayed by TVO under the plant contract as well as approximately EUR 700 million of penalty interest and approximately EUR 120 million of alleged loss of profit. TVO has considered and found the earlier claim by the Supplier to be without merit, scrutinizes the updated claim and will respond to it in due course.

The arbitration proceedings may continue for several years, and the claimed amounts may be updated.

TVO has not recorded any receivables or provisions on the basis of claims presented in the arbitration proceedings.

Personnel


The total number of personnel in the Group at the end of the period under review was 829 (December 31, 2013: 857, September 30, 2013: 862). The number of permanent employees at the end of the period under review was 758 (December 31, 2013: 767, September 30, 2013: 766).

The Board of Directors of TVO appointed Marjo Mustonen as Senior Vice President, Nuclear Safety and Member of the Management Group of the Company. Marjo Mustonen also chairs the Safety Committee of the Company and continues as the responsible director for construction of OL3. The former Senior Vice President for Nuclear Safety, Esa Mannola, continues in the Company as Corporate Adviser. The appointments came into effect as from the beginning of 2014.

Annual General Meeting

TVO's Annual General Meeting was held on March 27, 2014. The AGM approved the financial statements for the year 2013, confirmed the consolidated income statement and balance sheet and discharged the members of the Board of Directors and the President and CEO from liability.

All Board members were re-elected. At its organization meeting held on the same day as the AGM, the Board elected Matti Ruotsala as Chairman and Lauri Virkkunen as Deputy Chairman. The Board chose also from among its members the members and chairmen of the Board Committees.

Auditing

The Interim Report is unaudited.

Risks and Uncertainty Factors in the Near Future

The major risks and uncertainty factors in TVO's operations have been presented in the Report of the Board of Directors 2013.

During the period under review, no remarkable new risks connected with the Company's operation have arisen.

Assessment of Year-End Developments

Electricity production is expected to continue as in previous years. The prerequisites for nuclear power production at Olkiluoto are good. Nuclear fuel availability is guaranteed by long-term agreements.

Realization of the OL3 nuclear power plant project and preparing the plant unit for production will be continued. TVO will continue to support the Supplier to complete the project.

The Meri-Pori coal-fired power plant capacity will be used in accordance with the former principles.

Posiva is preparing to start the construction projects of the encapsulation plant and final repository after the construction license has been granted.

Events after the Period under Review

No major events have taken place after the end of the interim report period.

October 17, 2014

Teollisuuden Voima Oyj
Board of Directors

For more information, please contact:
Jarmo Tanhua, President and CEO, tel. +358 2 8381 2000
Anja Ussa, Senior Vice President, Finance, tel. +358 2 8381 6100