​Teollisuuden Voima Oyj's Interim Report January 1–March 31, 2014

Stock Exchange Release April 25, 2014

TVO Interim Report January–March 2014 (pdf)

During the first quarter of the year, the electricity production of Teollisuuden Voima continued safely and reliably in the Olkiluoto 1 and Olkiluoto 2 plant units. In the Olkiluoto 3 project, the civil construction works have been mainly completed and the reactor main components are installed. Reactor containment pressure and leak-tightness tests have been completed. Design of the I&C system continued, and testing began. Bid comparison as part of the bidding and engineering phase of the Olkiluoto 4 project is ongoing.

Operating Environment

During the first quarter of the year, the use of electricity in Finland increased by 2.8 percent compared to the corresponding period of the previous year.

The European Commission released in January a policy framework for climate and energy targets up to 2030. The framework presents a binding target to reduce EU domestic greenhouse gas emissions by 40% below the 1990 level by 2030. For renewable energy, a 27% EU-level target is set but no country-specific targets are presented. In addition, the framework includes proposals related to energy prices, cutting down the jungle of subsidies on the energy markets, utilizing shale gas as well as developing the emissions trading system.

The proposal for a nuclear safety directive proposed by the EU Commission is under discussion both in the Member States and the European Parliament.

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 power plant tax approved by the Finnish Parliament but not yet put into force has not been taken into account in the costs for the period under review. The effect of the tax on the annual costs would be approximately EUR 6 million.

The consolidated turnover for the period under review January 1–March 31, 2014 was EUR 86.0 (January 1–March 31, 2013: EUR 99.9) million. The amount of electricity delivered to shareholders was 3,889.6 (4,141.3) GWh. The consolidated profit/loss was EUR -1.3 (2.2) million.

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 3,554.1 (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 545.0 (0.0) million in non-current liabilities. Repayments during the period under review amounted to EUR 479.4 (0.0) million.

During the first quarter of the year, TVO has issued under its EMTN Program a EUR 500 million seven-year bond with an annual coupon of 2.5 percent. The proceeds were used to buy back a bond maturing in 2016. Furthermore, the Company issued an 18-year EUR 45 million private placement.

TVO uses its right to borrow funds back from the Finnish State Nuclear Waste Management Fund within the framework of legal regulations. On March 31, 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).

In March 2014, Japan Credit Rating Agency (JCR) kept its AA rating for TVO but changed its outlook negative. Additionally, TVO has a long-term issuer default rating (IDR) and senior unsecured rating of BBB and a short-term rating of F3 from Fitch Ratings, and a long-term BBB and a short-term A-2 corporate credit ratings from Standard & Poor's Rating Services. Both Fitch Ratings and Standard and Poor's assess the outlook stable.

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

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 3,825 (3,814) GWh. The total load factor was 100.0 (100.0) per cent.

The plant units operated safely and reliably during the period under review. OL1's net production was 1,903 (1,905) GWh and the load factor 100.0 (100.0) %. OL2's net production was 1,922 (1,909) GWh and the load factor 100.0 (100.0) %.


Olkiluoto 1
Average electrical power MW
April 1, 2013–March 31, 2014

Olkiluoto 2
Average electrical power MW
April 1, 2013–March 31, 2014

Olkiluoto 3

OL3, currently under construction, was commissioned 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 and plant automation system engineering of the plant unit have not progressed according to the Supplier's schedules.

Based on the progress reports received from the Supplier, TVO announced in February 2013 that the Company will prepare for the possibility that the start of the regular electricity production of the OL3 plant unit may be postponed until year 2016. In February 2014, TVO announced that it had not received the requested overall schedule update for the OL3 project from the Supplier. Therefore TVO does not provide an estimate of the start-up time of the plant unit at the moment. TVO has required the Supplier, who is in charge of the project schedule, to update the overall schedule and to provide a clarification of the measures needed to ensure proper progress to complete the plant unit. Information about the start-up date of electricity production of the OL3 plant unit is pending the finalization of the Supplier's schedule clarification.

The civil construction works of the plant unit have been mainly completed. Cladding works of the buildings' exterior walls continue.

The major components of the reactor plant, such as reactor pressure vessel, pressurizer and four steam generators have been installed, and the primary coolant circuit pipeline has been welded. Pipeline welding works in the emergency power generating building continue. Commissioning of the power distribution in the reactor plant is ongoing. Containment pressure and leak-tightness tests were completed in February. Testing of the instrumentation and control (I&C) systems in the test bay in Erlangen, Germany has begun after the period under review in April. Documentation and licensing of the I&C systems are still in progress.

The first phase of the turbine plant commissioning is ongoing.

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

The workforce at the site at the end of the period under review was about 1,000 persons. The Supplier has reduced the number of subcontractors and work staff at the OL3 site, as it announced in December. The Supplier informed that it is focusing efforts on urgent and most critical design tasks of the project.

The occupational safety at the site remained at good level.

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, Parliament approved the favorable decision-in-principle made by the Government on May 6, 2010 regarding TVO's application to construct a fourth nuclear power plant unit (OL4) in Olkiluoto.

TVO continued preparations for the OL4 nuclear power plant project. The evaluation of updated bids related to the new NPP and preparation of the next phases of the project are ongoing.

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 13.2 (9.0) million and the amount consumed to EUR 12.4 (12.2) million.

The nuclear fuel and uranium stock carrying value on March 31, 2014 was EUR 208.7 (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.

The equipment of the underground ONKALO research facility with technical facilities and systems is completed. Raise boring of the hoist equipment shaft is still ongoing. As soon as it is completed the reinforcement and equipping of the shaft for installing the hoist can be started.

The international demonstration program, coordinated by Posiva and partly funded by the EU, for testing plugging and sealing systems for final disposal tunnels has reached the casting preparation of the concrete sealing plug.

The decision of constructing the second phase of the above-ground entrance and control building has been made. The construction work will begin in May–June.

The construction license application for the final disposal facility has been supplemented by additional clarifications required by STUK so that STUK, according to its own view, will be prepared to submit to the Ministry of Employment and the Economy its statement on the long-term safety of final disposal in the fall 2014.

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 903.2 (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, the 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March 31, 2014 was 70.9 (337.8) GWh requiring 26.8 (116.4) thousand tons of coal and 59.8 (272.6) thousand tons of carbon dioxide emission rights.

TVO's share of Meri-Pori's production
Average electrical power MW
April 1, 2013–March 31, 2014

Acquisitions of Tangible and Intangible Assets and Shares

Investments during the period under review were EUR 117.6 (70.0) million. Investments of the parent company were EUR 117.5 (68.9) million, of which EUR 108.6 (54.2) million was allocated to the OL3 project.

TVO signed in May 2013 an agreement with Wärtsilä Finland Oy for the delivery of emergency diesel generators and associated auxiliary systems to Olkiluoto. A total of nine 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 OL1 and OL2 plant units.

During the period under review, emission rights for the Company's share of the Meri-Pori coal-fired power plant have been acquired worth 0.3 (1.2) 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 855 (December 31, 2013: 857, March 31, 2013: 869). The number of permanent employees at the end of the period under review was 768 (December 31, 2013: 767, March 31, 2013: 773).

The Board of Directors of Teollisuuden Voima 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 use will be continued.

Preparations for the OL4 nuclear power plant project will continue.

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 soon 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.

April 24, 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